oversight

Belmax Management Corp., Management Agent, Brooklyn, New York

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-04-17.

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             AUDIT REPORT




        BELMAX MANAGEMENT CORP.
           MANAGEMENT AGENT
           BROOKLYN, NEW YORK

                   2001-NY-1002

                   April 17, 2001



                 OFFICE OF AUDIT
               NEW YORK/NEW JERSEY




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                                                               Issue Date
                                                                       April 17, 2001
                                                               Audit Case Number
                                                                     2001-NY-1002




TO:           Deborah VanAmerongen, Director, New York Multifamily HUB, 2AHM


FROM:         Alexander C. Malloy, District Inspector General for Audit, 2AGA


SUBJECT:      Belmax Management Corp.
              Management Agent
              Brooklyn, New York


In response to your request, we conducted an audit of the books and records of Belmax
Management Corp., (hereafter referred to as the Agent). The objective of the audit was to
determine whether the Agent complied with U.S. Department of Housing and Urban
Development (HUD) regulations and requirements pertaining to the use of project funds only for
necessary and reasonable operating expenses and repairs. This audit report includes 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 this audit.

Should you or your staff have any questions, please contact Edgar Moore, Assistant District
Inspector General for Audit, or me at (212) 264-8000, extension 3976.




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Management Memorandum




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2001-NY-1002              Page ii
Executive Summary
We conducted an audit of the books and records of Belmax Management Corp. (the Agent). The
objective of the audit was to determine whether the Agent complied with HUD regulations and
requirements pertaining to the use of project funds, which are to be used only for necessary and
reasonable operating expenses and repairs.




                                    We concluded that the Agent did not always comply with
                                    HUD regulations and requirements pertaining to the use of
          Results                   project funds, which are to be used only for necessary and
                                    reasonable operating expenses and repairs. Consequently,
                                    project funds were improperly used to pay for: (1)
                                    ineligible and questionable services and items; (2)
                                    questionable exterminating services and repair contracts;
                                    and (3) excessive management fees.

                                    Contrary to HUD regulations and requirements, the Agent
Agent Used Project Funds            used project funds to pay for various services and items
for Ineligible,                     that we consider          ineligible and/or questionable.
Unsupported and                     Specifically, the ineligible and/or questionable items and
Unreasonable Expenses               services were: (a) preparation of partnership’s tax returns;
                                    (b) general consulting services; (c) additional garbage and
                                    trash removal; (d) preparation of ten day notices; (e)
                                    miscellaneous work by employees; and (f) various other
                                    ineligible and questionable services and items. The costs
                                    associated with the above services and items totaled
                                    $189,068.19. As such, the projects may have been
                                    improperly deprived of those funds, which could have
                                    been used for reasonable and necessary operating expenses.

                                    The Agent did not always follow HUD regulations when
       The Agent’s
                                    obtaining services and awarding repair contracts to
   Procurement Practices
                                    contractors. The Agent: (1) entered into a questionable
    Need Improvement
                                    exterminating service arrangement without first soliciting
                                    bids and/or obtaining written cost estimates; (2) awarded a
                                    parging and pointing contract to a contractor who was not
                                    the lowest bidder; and (3) did not provide evidence to
                                    substantiate that competitive bids were solicited prior to
                                    awarding a contract to repair roof parapet walls. As a result,
                                    the Agent could not ensure us that all transactions were at
                                    arms length and that the services obtained were at the most
                                    reasonable and economical prices for the project(s).


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Executive Summary




                            In addition, we found that the Agent incorrectly computed
Agent Collected Excessive   its management fee, which resulted in excessive
Management Fees             management fees being collected from the projects.
                            Consequently, a total of $45,827.53, which could have
                            been used to pay necessary and reasonable operating
                            expenses, was disbursed unnecessarily for excessive
                            management fees.

 Recommendations            As a result, we recommend that the HUD NYSO require
                            the Agent/owners to reimburse the projects for those items
                            considered to be ineligible and submit supporting
                            documentation for those disbursements considered to be
                            unsupported and/or questionable, so that HUD can
                            determine the eligibility of these expenses. All disbursed
                            amounts that are determined to be ineligible should be
                            repaid to the applicable projects with non-project funds.

Exit Conference             On March 22, 2001, we held an exit conference with
                            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 D 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     Ineligible, Unsupported and Unreasonable Costs
      Were Charged to the Project                                 3


2     Procurement Practices Need Improvement                    13


3     Excessive Management Fees Were Collected
      From the Projects                                         21



Management Controls                                             25



Follow Up On Prior Audits                                        27



Appendices
    A Schedule of Ineligible, Unsupported and
      Unreasonable Costs                                        29




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   B Summary of Ineligible, Unsupported and
     Unreasonable Expenses - Finding No.1                              31


   C Summary of Payments To The Extermination Company                  37


   D Auditee Comments                                                  39


   E Distribution                                                      43




Abbreviations

HUD                 U.S. Department of Housing and Urban Development
NYSO                New York State Office
CPA                 Certified Public Accountant
IOI                 Identity of Interest




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Introduction
Belmax Management Corp., (the Agent) manages eight HUD insured and/or Section 8 assisted
projects located in the New York City boroughs of Manhattan and Brooklyn. The Agent’s
President is Moishe Beilush, and the books and records are located at 6002 15th Avenue,
Brooklyn, New York.

The Agent has an identity-of-interest (IOI) relationship with a company named “MMCR
Corporation.” During our audit period MMCR Corp. provided the maintenance and repair work
at the projects; however, as of January 2000 the Agent was not using MMCR Corp. at the
projects. The Agent’s President is also a General Partner of two of the eight HUD related
projects that the Agent manages, which are Rochester Sterling Project No. 012-57169 and
Parkview Residence Project No. 012-57167.




     Audit Objectives             The objective of our audit was to determine whether the
                                  Agent complied with HUD regulations pertaining to the use
                                  of project funds, which are to be used only for necessary
                                  and reasonable operating expenses and repairs.

                                  To accomplish our objectives, we interviewed HUD NYSO
     Audit Scope and              officials as well as officials and staff members of the
      Methodology                 Agent. We obtained an understanding of the internal
                                  control procedures employed by the Agent.

                                  We reviewed and verified cash receipt and cash
                                  disbursement transactions related to three of the projects
                                  managed by the Agent. However, in certain instances we
                                  expanded the scope to include other projects. We also
                                  reviewed the records of the Agent’s IOI Company relative
                                  to billings for repair work performed at three of the
                                  projects.

                                  We examined the financial statements and reports
                                  submitted to HUD. We also conducted an inspection at one
                                  of the projects to determine the condition of the project and
                                  to ensure that the repair work billed by the IOI Company
                                  and paid for by the Agent was actually performed.

                                  The audit generally covered the period January 1, 1997
                                  through December 31, 1999, and where appropriate, was
       Audit Period
                                  extended to cover other periods. The audit fieldwork was
                                  performed between April 2000, and December 2000.



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Introduction



               The audit was conducted in accordance with generally
               accepted governmental auditing standards.

               A copy of this report has been provided to the Auditee.




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                                                                                          Finding 1


     Ineligible, Unsupported, and Unreasonable
        Costs Were Charged to the Project(s)
Contrary to HUD regulations, the Agent used project funds to pay various expenditures that are
ineligible, unsupported, and unnecessary/unreasonable. These expenses were incurred during
the period between January 1, 1997 and December 31, 1999 and totaled $189,068.19. They were
associated with: (a) the preparation of partnership tax returns; (b) general consulting services; (c)
additional garbage and trash removal; (d) preparation of ten day notices; (e) miscellaneous work
by employees; and (f) various other ineligible and questionable services and items. Consequently,
the projects may have been deprived of $189,068.19 in funds that could have been used for
reasonable and necessary operating expenses and repairs. We attribute this to the Agent’s belief
that these expenses were project related, and not the responsibility of the Owner/Agent.
Accordingly, we recommend that the HUD NYSO require the Agent/owners to reimburse the
projects in the amount of the ineligible expenses and submit supporting documentation for the
expenses that we considered unsupported and unnecessary/unreasonable disbursements so that an
eligibility determination can be made.




                                      Paragraph 8, of the Regulatory Agreement provides that:
  CRITERIA                            “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
                                      any funds, other than from surplus cash, except for
                                      reasonable operating expenses and necessary repairs.”

                                      Paragraph 2-6(e) of HUD Handbook 4370.2 Rev-1,
                                      Financial Operations and Accounting Procedures for
                                      Insured Projects provides that “all disbursements from the
                                      regular operating account (including checks, wire transfers
                                      and computer generated documents) must be supported by
                                      approved      invoices/bills    or     other    supporting
                                      documentation…”

                                      In addition, paragraph 12(c) of the Regulatory Agreement
                                      states that the owner agrees to keep copies of all written
                                      contracts or other instruments affecting the property, all of
                                      which may be subject to inspection and examination.

                                      Our audit revealed that during the period between January
                                      1, 1997 and December 31, 1999, the Agent disbursed funds


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                           from various projects totaling $189,068.19 for questionable
                           services and items. The details are described as follows:

                           (a) Partnership Tax Preparation Fees

                           During our audit period January 1, 1997 through December
                           31, 1999, the Agent hired a Certified Public Accounting
                           (CPA) firm to prepare the audited financial statements for
                           all eight HUD-subsidized projects managed by the Agent.
                           In addition to conducting the audits of the financial
                           statements of the eight projects, the CPA firm, prepared the
                           partnership tax returns for four of the eight projects
                           (Lincoln Residence, Rochester Sterling, Parkview
                           Residence and Bedford Stuyvesant). Our review revealed
                           that for the four projects in question, invoices from the
                           CPA firm were mailed to the partners of the projects and
                           stated that the billings were for “Professional accounting &
                           computer processing services rendered in the preparation of
                           your tax returns.” The Agent recorded these billings in the
                           general ledgers of the respective projects as either “Audit
                           Expense” or “Bookkeeping & Accounting Fees.”

                           An examination of the engagement letters between the CPA
                           firm and the owners of the four projects, revealed that the
                           engagement letters for two of the four projects, Parkview
                           Residence and Rochester Sterling, provided an estimate of
                           the audit and tax preparation fees to be charged.
                           Specifically, the engagement letters for Fiscal Year Ended
                           December 31, 1997, stated that the estimated fees for
                           conducting the audits was $7,775 each ($15,550) and $750
                           each ($1,500) for the preparation of the owner/partnership
                           tax returns. We do not believe that tax preparation fees are
                           eligible project expenses. We believe that the owners of
                           these two projects should have paid these fees themselves.
 Tax Preparation Fees of   As such, we deemed the $1,500 ($750 x 2) related to the
 $1,500 Is Considered      preparation of partnership tax returns for these two projects
 Ineligible                to be ineligible expenses, and that the amount of the fees
                           should be repaid to the projects with non-project funds.

                           The remaining ten engagement letters for the four projects,
                           pertaining to the three-year period, did not provide an
                           estimate of how much of the fee was for the audit as
                           opposed to the preparation of tax returns. As a result, the
                           Agent charged the four projects the full amount billed
                           without itemizing the cost of each service. We believe that

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                                                                               Finding 1


                                it was unreasonable for the Agent to charge the projects the
                                total amount billed for these services. We learned that the
                                Agent paid the CPA firm a total of $116,195 over the three-
                                year period to conduct the year-end audits and to prepare
                                the partnership tax returns for the above four projects. As a
                                result, we believe that $99,195 of this amount ($116,195-
                                $17,050 (paid for the 2 project above)) is considered an
$99,195 In Unreasonable         unnecessary/unreasonable charge to the projects. Therefore,
Tax Preparation / Auditing      we recommend that the HUD NYSO make a determination
Expenditures Is Questioned      as to how much should be charged for auditing the financial
                                statements of the projects and treat the difference as
                                ineligible tax preparation expenditures. The amount of the
                                tax preparation costs should be repaid to the projects by the
                                owners from non-project funds.

                                During the same time period as provided above, the Agent
                                disbursed project(s) funds to another CPA for the
                                preparation of the partnership tax returns of the remaining
                                four HUD related projects. During the above audit period,
                                $13,200 was paid to a Certified Public Accountant (CPA),
Additional Tax Preparation
                                to prepare the partnership Federal and State tax returns
Fees of $13,200 Is Considered
                                relating to four projects: Manhattan Ave., Pulaski Manor,
Ineligible
                                Sinclair and Sojourner Truth. Agent officials did not
                                dispute that project(s) funds were used to pay for
                                owners/partnership tax returns. They believe that this is a
                                normal operating expense. However, we disagree and
                                believe that the $13,200 is an ineligible expense, and that
                                the amount should be repaid to the projects with non-
                                project funds (See Appendix B for details of the payments
                                by project).

                                (b) General Consultant Services

                                Our audit also revealed that during the period of January 1,
                                1997 through December 31, 1999, the Agent disbursed
                                project(s) funds totaling $39,316.60 to a Corporation for
                                consulting services that were charged to various general
                                ledger accounts of the projects. We found that contrary to
                                HUD regulations the Agent did not have a written
                                consulting contract with the Corporation that detailed the
                                consulting services to be provided. We found that the
                                Corporation performed services for the Agent, such as
                                preparing submissions to HUD and other agencies/contract
                                administrators on various topics (responses to physical
                                inspection reports and audit findings etc.), as well as

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Finding 1


                            provided advice and guidance on the implementation of
                            HUD procedures and regulations. We believe that the
                            incurrence of these costs were unnecessary for the operation
                            of the projects and relate to normal Agent responsibilities.
$39,316.60 In Unnecessary   As a result, the Agent should have paid for these expenses
Consultant’s Costs Is       from its management fee. Accordingly, we are questioning
Questioned                  the $39,316.60 paid to the Corporation pending the HUD
                            NYSO determination as to the eligibility. (See Appendix B
                            for details of the payments by project).

                            (c) Additional Garbage and Trash Removal

                            Based on our review we determined that during the audit
                            period, the Agent disbursed $16,115 of project(s) funds to
                            individuals for garbage and trash removal. Of this amount,
                            $14,875 was paid to one individual, and the other $1,240
                            was paid to three other individuals. It is our opinion that
                            the removal of trash and garbage from the projects should
                            be a part of the regular job duties of the porters at the
                            projects. As support for the payments to the one individual,
                            the Agent provided unsigned check request forms and
                            informal receipts from the individual acknowledging
                            receipt of the monies. In addition, we were not provided
                            with any work orders, for any of this work, showing that
                            work was actually needed prior to hiring these individuals.
                            Accordingly, based on the lack of adequate documentation
   $16,115 Of Garbage &     to substantiate these expenses, we are questioning the
   Trash Removal Costs Is   $16,115 in expenses for garbage and trash removal,
   Questioned               pending a HUD NYSO determination of the eligibility of
                            these expenses (See Appendix B for details of the payments
                            by project).

                            (d) Preparation of Ten Day Notices

                            Our audit also revealed that during the two-year period
                            between January 1, 1997 and December 31, 1998, the
                            Agent received a total of $7,291 of project(s) funds for the
                            preparation of ten-day notices. The Agent billed the
                            projects $23 for the preparation of each ten-day notice to be
                            served to tenants who were delinquent in their rent
                            payments. The Agent advised us that the $23 fee per ten-
                            day notice was based on what the charge would be if these
                            notices were prepared by an outside legal entity. However,
                            we found that an employee of the Agent prepared the ten-
                            day notices as a part of the employee’s regular job duties

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                                                                          Finding 1


                           and that the notices were submitted to the Agent’s attorney
                           to be served to the tenants. It should be noted that these
                           fees were paid in addition to what the Agent paid its
                           attorney. Accordingly, we do not believe that these costs
                           are necessary and reasonable project expenses. Also we
$7,291 In Unreasonable     believe that the preparation of ten-day notices is a normal
Fees For the Preparation   Agent responsibility. As such, we are questioning the
of 10-Day Notices Is       $7,291 paid to the Agent pending the HUD NYSO
Questioned                 determination as to the eligibility of these charges (See
                           Appendix B for details of the payments by project).

                           (e) Miscellaneous Work

                           During the course of our audit we determined that the
                           Agent disbursed a total of $2,054 from the funds of the
                           projects: Lincoln Residences and Pulaski Manor for
                           miscellaneous work performed by various project
                           employees and one employee of the Agent. The largest of
                           these payments was $750 to the Agent’s employee who was
                           paid from the Pulaski Manor project. None of the payments
                           were supported by work orders showing that there was a
                           need for the work. The only support provided for these
                           payments was the Agent’s check requests. We noted that
                           the check request form supporting the $750 stated that the
                           payment was for collecting, signing, and compiling the
                           forms to apply for a weatherization grant, for windows. We
                           believe that the preparation of forms necessary to apply for
                           a weatherization grant is the responsibility of the Agent.
                           Accordingly, we believe that these fees should have been
                           paid from the Agent’s management fee. The payments to
                           the other individuals were for performing various tasks
                           such as cleaning community rooms etc. All work was
                           supposedly performed on weekends and nights; however,
                           we were not provided with evidence to substantiate that
 $2,054 Paid For           claims. Since none of these payments were adequately
 Miscellaneous Work Is     supported we could not determine whether they were for
 Questioned                necessary and reasonable project expenses. As a result, we
                           are questioning the $2,054 in charges pending a NYSO
                           determination of their eligibility (See Appendix B for
                           details of these payments by project).

                           (f) Other Ineligible and Unsupported Expenses

                           We noted that various other expenses were charged to the
                           projects that appear to be ineligible. The Agent used project

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Finding 1


                              funds totaling $3,454.75 to pay for: damages to the
                              clothing and automobiles of various employees and tenants;
                              trade magazines used by the Agent; meals for project
                              employees; tips to sanitation men; the purchase of
                              employee work clothing; various fines and penalties; a
                              training course for the Agent’s Director; and parking
                              expenses for the Agent’s President. We do not believe that
                              these expenses are necessary and reasonable to the
                              operation of the projects. In fact, some of these expenses
                              should have been borne by the Agent and should not have
                              been paid with project funds. As a result, we believe that
       $3,454.75 In Charges   these expenses totaling $3,454.75 should be deemed
       Are Considered         ineligible and the Agent should be required to repay the
       Ineligible             various projects with non-project funds (See Appendix B
                              for the details of the payments by project).

                              Our audit also disclosed that the Agent could not provide
                              adequate supporting documentation to demonstrate that
                              disbursements from project operating accounts totaling
       $6,941.84 In Charges   $6,941.84 were for reasonable and necessary operating
       Is Considered          expenses. The unsupported disbursements included
       Unsupported            payments to cash, individuals, and various vendors such as
                              Office Max, Multimedia Communications, Pagnet, Mazal
                              Electronics, and Maor Electronics etc. Some of the general
                              ledger accounts charged for these expenditures were:
                              supplies and tools, walkie-talkie, beepers, garnishees, legal,
                              telephone, office supplies, etc. Many of the checks made
                              payable to individuals were supposed to be reimbursements
                              to project superintendents for various supplies, tools, and
                              telephone expenses; however, they were not supported by
                              invoices. As a result, since the Agent did not furnish
                              adequate supporting documentation to substantiate that
                              these expenditures were for reasonable operating expenses
                              and/or necessary repairs, we are taking exception to them
                              (See Appendix B for details of the payments by project).



 Auditee Comments             Agent officials believe that the amount to be attributed for
                              tax preparation fees should have been $750 for each project
                              for each year as quoted by the CPAs in their engagement
                              letters for the Parkview Residence and Rochester Sterling
                              projects. They also contend that partnership tax preparation
                              is the responsibility of the projects and should therefore be
                              charged to the projects.

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                                                       Finding 1



      Agent officials contend that the services provided by the
      Corporation were not consulting services, they were for
      physical inspections, engineering and architectural work,
      development of MIO plans, and correspondence with HUD,
      HFA and HDC regarding management issues relevant to
      the projects. Agent officials believe that these are project(s)
      expenses and not normal management agent expenses.
      They also contend that under the HUD New York State
      Office’s new management fee policy these costs would be
      considered front line expenses that can be charged directly
      to the projects.

      Agent officials contend that the funds paid to individuals
      for garbage and trash removal was for the removal of bulk
      and container type garbage and trash that the Department of
      Sanitation does not pick up from projects. They also stated
      that this type of garbage removal is not within the scope of
      the porters’ job duties. Agent officials further stated that it
      was more cost effective to use individuals rather than a
      commercial carting company for garbage and trash removal
      from the projects; therefore, they were being frugal with the
      project(s) money.

      Agent officials presented a March 16, 2001 letter from its
      attorneys that quoted a fee of $75 for preparing and serving
      a ten-day notice. They contend that their 1997 and 1998
      charges of $23 for preparing each ten-day notice plus the
      attorney’s charges of $14 for serving each notice, for a total
      cost of $37, actually saved the projects money.

      Agent officials consider the monies paid to project and
      agent employees for miscellaneous work, to be a prudent
      management decision that was cost effective. Agent
      officials state that the largest item questioned, $750 to an
      Agent employee, was for obtaining tenant signatures and
      compiling forms on evenings and weekends. The
      Opportunity Development Association required this form to
      obtain a weatherization grant. Agent officials contend that
      this was a project(s) expense.

      Officials of the Agent disagree with our classification that
      payments to employees and tenants for personal damages
      are ineligible expenditures of project funds. They contend
      that it was cheaper to settle with the individuals rather than

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Finding 1


                     going to court where the owner/agent usually loses nine
                     times out of ten. Agent officials also consider the costs
                     paid by the projects for trade magazine subscriptions to the
                     monthly Assisted Housing Manager Insider newsletter as
                     necessary expenses for training purposes, which, should be
                     considered as training expenses. They also consider the
                     expenses paid for employee meals, tips to sanitation
                     workers, and reimbursement to project employees for work
                     clothes to be reasonable project expenses.




 OIG Evaluation of   We believe that expenses relative to the preparation of the
                     owners tax returns should be borne by the owners. As a
 Auditee Comments
                     result, the $14,700 ($1,500 + $13,200) that we determined
                     were for ineligible tax preparation fees should be repaid to
                     the projects. In addition, documentation showing how much
                     of the questioned $99,195 is related to preparing tax returns
                     should be submitted to HUD and deemed ineligible by the
                     NYSO, who should then require the owners to repay the
                     projects. We believe that the services performed by the
                     consulting firm were related to normal Agent
                     responsibilities; as such, their associated costs should be
                     borne by the Agent. Also, we believe that the supporting
                     documentation for the garbage and trash removal costs
                     should be submitted to HUD so that an eligibility
                     determination can be made regarding their eligibility. We
                     believe that the costs for preparing the 10-day notices
                     should not be charged to the projects because it is a normal
                     Agent responsibility to prepare the documents. In addition,
                     as stated above, we believe that applying for a
                     weatherization grant is a normal Agent function; therefore,
                     part of the cost for miscellaneous work by employees
                     should have been borne by the Agent. As for the remaining
                     charges for miscellaneous work by employees, supporting
                     documentation should be submitted to HUD for an
                     eligibility determination.

                     Furthermore, we believe that the cost of damages to
                     personal property should have been handled through the
                     projects’ insurance company and that the costs for trade
                     magazines, employee meals and clothing, tips to sanitation
                     employees, etc. are goodwill expenses that should be borne
                     by the Agent. Accordingly, we maintain that the Agent did
                     not comply with paragraph 8 of the Regulatory Agreement,

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                                                                  Finding 1


                   which states in part that project funds should only be used
                   for reasonable operating expenses and necessary repairs.
                   Therefore, the HUD NYSO should require the
                   owners/Agent to repay the amount of all expenses
                   determined to be ineligible and make a determination as to
                   the eligibility and reasonableness of the expenses that are
                   questioned.



Recommendations:   We recommend that HUD NYSO instruct the Agent to:

                   1A.    Cease the practice of charging ineligible costs to the
                          projects and develop procedures to ensure
                          compliance with the Regulatory Agreement and
                          HUD rules and regulations, which require project
                          funds to be expended only for reasonable and
                          necessary expenses. The procedures should also
                          ensure that adequate supporting documentation for
                          expenses are obtained and maintained.

                   1B.    Reimburse the projects’ operating accounts the
                          $14,700 ($1,500 + $13,200) in ineligible costs paid
                          for the preparation of owner/partnership tax returns.

                   1C.    Provide a breakdown of the $99,195 paid to the
                          CPA firm for tax preparation fees and auditing fees.
                          Then instruct the owners/partners of the respective
                          projects to reimburse the projects for the amount
                          deemed tax preparation fees with non-project funds.

                   1D.    Provide supporting documentation for the
                          $39,316.60 in charges for consultant services so that
                          HUD can determine the eligibility of these costs.
                          Any amounts deemed to be ineligible should be
                          repaid to the respective projects with non-project
                          funds. Also, cease charging the projects for
                          consultants hired to perform Agent responsibilities,
                          and develop procedures to ensure that if consultants
                          are hired for the projects, written contracts are
                          obtained as required.

                   1E.    Provide supporting documentation for the $16,115
                          in charges for garbage and trash removal so that
                          HUD can determine the eligibility of these

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                        payments. Any amounts deemed to be ineligible
                        should be repaid to the respective projects with non-
                        project funds.

               1F.      Provide supporting documentation for the $7,291 in
                        charges for preparing ten-day notices so that HUD
                        can make an eligibility determination. Any amounts
                        deemed to be ineligible should be repaid to the
                        respective projects with non-project funds.

               1G.      Provide supporting documentation for the $2,054 in
                        costs that was paid to project and Agent employees
                        for miscellaneous work, so that HUD can make an
                        eligibility determination. Any amounts deemed to
                        be ineligible should be repaid to the respective
                        projects with non-project funds.

               1H.      Reimburse the projects with non-project funds for
                        the $3,454.75 in ineligible costs disbursed for
                        personal damages, trade magazines, fines and
                        penalties, Agent training and parking, employees’
                        work clothes, meals, and tips.

               1I.      Provide documentation for the $6,941.84 in
                        unsupported costs discussed in the finding, so that
                        HUD can make an eligibility determination. If any
                        amounts are determined to be ineligible, the Agent
                        should be instructed to reimburse the applicable
                        projects’ operating accounts with non-project funds.




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      Procurement Practices Need Improvement
Our review disclosed that the Management Agent did not always follow HUD regulations when
obtaining services and awarding repair contracts to contractors. Specifically, during the audit
period of January 1, 1997 through December 31, 1999, the Agent: (1) entered into a questionable
exterminating service arrangement without first soliciting bids and/or obtaining written cost
estimates; (2) awarded a parging and pointing contract to a contractor who was not the lowest
bidder; and (3) did not provide evidence to substantiate that competitive bids were solicited prior
to awarding a contract to repair roof parapet walls. As a result, the Agent was unable to provide
documentation showing that all transactions were at arms length and that the services obtained
were at the most reasonable and economical prices for the project(s). We attribute these
deficiencies to the Agents failure to follow HUD regulations. Accordingly, we are questioning
$156,840.78 in project(s) funds disbursed for these items pending a HUD NYSO determination
as to the reasonableness and eligibility of these expenditures.



                                      HUD Handbook 4381.5, The Management Agent
CRITERIA                              Handbook, paragraph 6.50(a) provides that “…the Agent is
                                      expected to solicit written cost estimates from at least three
                                      contractors or suppliers for any contract, ongoing supply or
                                      services which is expected to exceed $10,000 per year…”
                                      Paragraph 6.50(b) provides that “ for any contract, ongoing
                                      supply or service estimated to cost less than $5,000 per
                                      year, the agent should solicit verbal or written cost
                                      estimates in order to assure that the project is obtaining
                                      services, supplies and purchases at the lowest possible cost.
                                      The Agent should make a record of any verbal estimates
                                      obtained.” In addition, paragraph 6.50(c) prescribes that
                                      “documentation of all bids should be retained as a part of
                                      the project records for three years following the completion
                                      of the work.”

                                      Furthermore, paragraph 4 of the Management Agreement
                                      /Certification between the project Owner and the
                                      Management Agent provides that the Agent agrees to:

                                      (a)      Assure that all expenses of the project are
                                               reasonable in amount and necessary to the
                                               operations of the project; …

                                     (c)       Obtain contracts, materials, supplies and
                                               services…on terms most advantageous to the
                                               project; … and

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                           d)      Solicit verbal or written cost estimates …and
                                   document the reasons for accepting other than the
                                   lowest bid.

Agent Entered Into A       Our audit revealed that the Agent entered into a
Questionable Arrangement   questionable arrangement with an extermination service
With An Extermination      company. The Company provided extermination services
Service Company.           to the eight HUD related projects managed by the Agent.
                           However, prior to awarding the job to the Company, the
                           Agent did not demonstrate that it obtained competitive bids
                           or price estimates for the extermination services. In
                           addition, based on the relationship between the Agent and
                           the principal of the Company, it is our opinion that the
                           arrangement was not an arms length transaction.

                           Agent officials contend that the fees paid to the Company
                           were from all eight HUD-subsidized projects and that no
                           single project incurred $10,000 in basic extermination
                           services in any one year. Accordingly, the requirement to
                           obtain and maintain bids was not necessary. Agent officials
                           also contend that the Company’s monthly service fee of $3
                           per apartment was reasonable based on the Agent’s
                           experience. However, we maintain that since the
                           extermination services were being provided to all projects,
                           the Agent should have considered the total price to all of
                           the projects and should have solicited bids from at least
                           three suppliers to ensure that it was obtaining the most
                           economical price.

                           Moreover, we learned that an employee/superintendent of
                           the project Sinclair Houses, which is managed by the
                           Agent, owns the Company. Although Agent officials state
                           that an identity of interest relationship does not exit; we
                           believe that the following circumstances gives the
                           appearance that such a relationship does exist and that the
                           arrangement with the Company was not an arms length
                           transaction. Our review of the Company’s invoices and
                           project(s) canceled checks revealed that:

                           (a) The invoices were hand-written and prepared by an
                               employee of the Agent.

                           (b) The business address listed on the Company’s invoice
                               is the same as the employee/superintendent’s rent-free
                               apartment unit address.

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      (c) Some     of    the     invoices list  the    project
          employee/superintendent as the person providing the
          extermination services.

      (d) The checks written on behalf of the projects to the
          Company were deposited in an account in care of the
          Agent.

      (e) The Agent’s Director, Bookkeeper, and the Owner of
          the extermination company all have signature authority
          over the Company’s checking account.

      We also learned from Agent officials that the Owner of the
      Company has access to the Agent’s telephones and office
      equipment. In addition, the Agent is paid a fee for
      maintaining the Company’s accounting records.

      Agent officials contend that the extermination contractor or
      project superintendent, who provided the extermination
      services, did so either on his day off (as a super) or after his
      regular working hours. However, we were not provided
      with time distribution records showing when the services
      were performed. Agent officials informed us that as of
      March 2000, the Owner of the Extermination Company is
      no longer employed as the project superintendent, and at
      the exit conference they stated that as of March 2001, he
      would not be providing exterminating services to the
      projects.

      During our audit period, January 1, 1997 through December
      31, 1999, the Owner of the extermination company
      received a rent-free apartment unit for working as a
      superintendent and collected a total salary of $64,401 from
      the HUD related project. In addition, during the same time
      period the Agent disbursed a total of $124,485.78 in
      project(s) funds to the Company for extermination services
      rendered. As a result of the above facts, we believe that
      the $124,485.78 paid to the extermination company should
      be questioned pending the NYSO determination as to the
      reasonableness and eligibility of the cost considering the
      business relationship that exists between Agent and the
      Extermination Company (See Appendix “C ” for the total
      payments by project).




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Agent Awards Contract To   Our review also revealed that the Agent awarded a contract
Other Than The Lowest      for pointing and parging exterior walls, at the Pulaski
Bidder                     Manor project, to a contractor who was not the lowest
                           bidder. The contract was awarded in November 1997, in the
                           amount of $40,000. However in August 1996, prior to
                           awarding the contract, the Agent forwarded a letter to the
                           New York City Housing Development Corporation (NYC-
                           HDC), the Contract Administrator for the project,
                           requesting a release of funds from the projects reserve for
                           replacement account. As support for this transaction, the
                           Agent submitted copies of three bids with the lowest bid
                           being $35,225. In addition, the Agent’s letter stated that the
                           total cost of the work would be $35,225. Although the bid
                           of the contractor in question was not one of the three
                           original bids submitted to the Contract Administrator, the
                           Agent subsequently accepted its bid of $40,000, and
                           awarded that contractor the contract. On October 27, 1997
                           the Contract Administrator authorized the Mortgagee to
                           release the funds from the project’s reserve account,
                           resulting in a check, in the amount of $35,225, being issued
                           to the Agent on November 6, 1997.

                           The Agent contends that during the period between August
                           1996, when it requested the release of the reserve funds,
                           and November 1997, when the funds were released, there
                           was a change in the scope of the work that resulted in the
                           award of the work to the contractor in question. However,
                           the Agent did not furnish us with any auditable
                           documentation to substantiate that there was any change in
                           the scope of work between the time of the original bids and
                           the date the contract was awarded to the contractor. As a
                           matter of fact the statement of work and price shown in a
                           November 25, 1997 letter submitted by the contractor to
                           confirm the awarding of the work revealed that the scope of
                           work was the same as shown on the original bids submitted
                           by the other bidders.

                           We believe that the Agent has a fiduciary responsibility to
                           purchase services for the project(s) at terms most beneficial
                           to the project(s). Accordingly, as required the Agent should
                           have selected the lowest bidder and/or documented why the
                           lowest bidder was not chosen. We also believe that the
                           Contract Administrator should have been notified of the
                           change in contractors. Accordingly, since this was not done,
                           we believe that the additional $4,775 paid to the contractor

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                            (the difference between the lowest bid and the actual price
                            paid for the work) should be questioned pending a HUD
                            NYSO review. If the NYSO determines that the additional
                            amount is not reasonable, the Agent should be required to
                            reimburse that amount of funds to the project with non-
                            project funds.

The Agent Did Not Provide   In another incident involving the same contractor and
Bidding Documents/Cost      project, the Agent did not provide us with evidence that
Estimates                   bids and/or cost estimates were obtained prior to awarding
                            the work. Our audit disclosed that in July 1998, the Agent
                            awarded a contract in the amount of $27,580 to the
                            contractor for repairs of the roof parapet walls. The Agent
                            stated that they had solicited and received cost estimates
                            from at least three contractors. However, upon our request
                            to review these documents, Agent officials stated that they
                            could not locate them. As a result, we were not assured that
                            the project received the most economical price and that the
                            contract was in fact awarded to the lowest bidder. In
                            accordance with HUD Handbook 4381.5, paragraphs
                            6.50(a) & (c), the Agent is required to obtain and maintain
                            (for three years) written cost estimates from at least three
                            contractors if the contract amount is expected to be in
                            excess of $10,000. Consequently, since the Agent did not
                            provide us with these documents, we are questioning the
                            $27,580 in project funds disbursed for this work, pending a
                            HUD NYSO determination of reasonableness.




  Auditee Comments          Agent officials stated that before Belmont Pest Control
                            began providing extermination services to the projects, the
                            Agent compared the Extermination Company’s prices to
                            historical prices paid to two prior exterminators for
                            reasonableness. As such, they stated that they used an
                            employee owned exterminating company because the price
                            was reasonable and the quality of the work was superior.
                            Agent officials maintained that any extermination work
                            performed by the project employee was done in his off-duty
                            hours and they do not believe that there is anything wrong
                            with maintaining the books and records of the
                            Extermination Company. Agent officials also pointed out
                            that the statement in our draft finding that the
                            Extermination Company did not provide extermination
                            services to the three non-HUD projects managed by the

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                      Agent is not an accurate statement. They advised that the
                      Extermination Company also provided exterminating
                      services to two non-HUD related projects managed by the
                      Agent. In addition, they state that as of March 1, 2001, they
                      discontinued using the extermination company per our
                      directives.

                      Agent officials also contend that it notified the Contract
                      Administrator (NYC-HDC) of the change in the scope of
                      work for the pointing and parging work at the Pulaski
                      Manor project, and that the Contract Administrator
                      consented to the award of the contract at a price higher than
                      the original lowest bid, due to the scope change. Officials
                      of the Agent stated that they have been in contact with the
                      Contract Administrator because of the issue raised in the
                      audit and although told that the award was approved, they
                      have not been able to obtain written approval from them. In
                      addition, Agent officials state that they did solicit and
                      receive the required bids before awarding the $27,580
                      contract for repairs of the roof parapet walls at the Pulaski
                      Manor project. However, these bids have been misplaced
                      and cannot be located.



                      HUD Handbook 4381.5, paragraph 6.50 (a) states that the
  OIG Evaluation of   Agent is expected to solicit quotes from at least three
  Auditee Comments    suppliers for any contract, ongoing supply or services
                      which is expected to exceed $10,000 per year. Paragraph
                      6.50 (c) states that documentation of all bids should be
                      maintained for three years after completion of the work. We
                      believe that although historical cost is a good estimate of
                      costs it is not the same as soliciting bids, which could have
                      resulted in lower prices for the exterminating services. OIG
                      accepts the Agent’s statement that the extermination
                      company provided services to two of the three non-HUD
                      projects managed by the Agent. As a result, we amended
                      the final audit report and removed the sentence, which
                      stated the opposite. In addition, we want to make it clear
                      that we did not instruct the Agent to cease using the
                      extermination company (see recommendation 2C).

                      Furthermore, paragraph 4 (d) of the Management
                      Certification requires the Agent to document the reasons for
                      accepting other than the lowest bid. In our opinion the

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                  response of Agent officials did not prove that these
                  provisions were satisfied.



Recommendations   We recommend that the HUD NYSO:

                  2A.   Instruct the Agent to develop procedures to ensure
                        compliance with the requirements set forth in HUD
                        Handbook 4381.5 regarding the need to obtain and
                        retain written cost estimates to substantiate that it is
                        purchasing services at reasonable and economical
                        prices.


                  2B.   Instruct the Agent to provide supporting
                        documentation as to why they entered into a
                        questionable extermination services arrangement
                        without obtaining bids from other companies. The
                        NYSO should then make a determination on the
                        reasonableness and eligibility of the costs incurred
                        for extermination services considering the
                        arrangement that exists between the Agent and the
                        extermination company.

                        The Agent should be required to reimburse the
                        projects for any part of the $124,485.78 that is
                        determined to be unreasonable and ineligible. The
                        NYSO should also consider the $64,401 in project
                        funds paid to the superintendent/owner of the
                        extermination company as salary during the same
                        time period.


                  2C.   Consider instructing the Agent to cease using the
                        extermination company due to the relationship that
                        exists and solicit bids or cost estimates to obtain
                        another company to provide extermination services
                        to the HUD related projects.

                  2D.   Instruct the Agent officials to submit documentation
                        explaining why they chose other than the lowest
                        bidder for the pointing and parging work done at the
                        Pulaski Manor project. If it is determined that the
                        additional costs paid were not reasonable, the Agent

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                        should be required to repay the $4,775 (difference
                        between the amounts paid to the contractor and the
                        lowest bid price) to the project.


               2E.      Instruct the Agent to provide the competitive bids
                        received in support of the         $27,580 contract
                        awarded for the repairs of the roof parapet walls at
                        the Pulaski Manor project. If the support is not
                        available or is considered to be unreasonable, HUD
                        NYSO should consider requesting the Agent to
                        repay the amount of the funds to the project from
                        non-project funds.




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                                                                                    Finding 3


   Excessive Management Fees Were Collected
               From the Projects
Contrary to HUD requirements, during the period between January 1, 1997 and December 31,
1999, the Agent incorrectly computed its management fee, which resulted in excessive
management fees being collected from the projects. As such, the projects have been deprived of
$45,827.53, which could have been used for reasonable and necessary operating expenses. We
attribute this to the Agent’s failure to follow HUD requirements, which limit the amount of
management fees that can be earned. Accordingly, we recommend that the HUD NYSO instruct
the Agent to repay these funds to the respective projects with non-project funds.




                                    The Management Certification between the Management
CRITERIA
                                    Agent and the owner provides that the Agent’s
                                    compensation or monthly management fee should equal an
                                    approved percentage of gross rents collected during the
                                    prior month. However, HUD has limited the management
                                    fees that can be earned.

                                    A March 1, 1989, memorandum to all Owners and Agents
                                    within the New York Office jurisdiction provided that
                                    management fees paid by projects in High Cost Areas
                                    should not exceed a cap of $59.00 PUPM (per unit per
                                    month).

                                    Furthermore, a December 5, 1997 HUD memorandum
                                    issued to all Owners, Agents and Contract Administrators
                                    within the HUD New York State Office Jurisdiction
                                    stipulated a new cap of $44 PUPM. It was mandatory that
                                    all owners implement this new management fee policy
                                    within one year of the January 1, 1998 effective date.

   Management                       Our review disclosed that the Agent incorrectly computed
   Fees Excessive                   its management fees in 1997, 1998 and 1999. The
                                    maximum management fee that the Agent was allowed to
                                    collect in 1997 and 1998 was capped at $59 PUPM. On
                                    January 1, 1999, one year from the effective date of the
                                    policy change, the Agent implemented HUD’s new cap of
                                    $44 PUPM. As a result, during 1999, the $44 cap was in
                                    effect.


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                          Our review revealed that the Agent computed it
                          management fee based on a formula, which multiplied the
                          projects’ monthly gross rents collected, by the approved fee
                          percentage. The Agent did not recognize the HUD NYSO’s
                          established limits on management fees. Therefore, the
                          management fees collected by the Agent were excessive.

                          Agent officials state that when the fees were calculated they
                          were not aware of HUD fee limits. Consequently, for the
                          three-year period, they calculated excessive management
                          fees totaling $45,827.53, and charged it to five HUD related
                          projects as follows:


                            PROJECT          1997         1998         1999       TOTAL
                              NAME
                           Manhattan
                           Avenue             $428.98    $1,048.67     $646.28    $2,123.93
                           Parkview
                           Residence        $1,548.90     $524.46      $567.91    $2,641.27

                           Pulaski Manor                 $2,888.98                $2,888.98
                           Bedford
                           Stuyvesant       $7,418.28    $6,063.95               $13,482.23
                           Sojourner
                           Truth           $10,554.69   $12,921.97   $1,214.46   $24,691.12


                                TOTAL      $19,950.85   $23,448.03   $2,428.65   $45,827.53



 Excessive Management     It is our belief that by collecting excessive management
 Fees of $45,827.53 are   fees, the Agent deprived the projects of funds that could
 ineligible.              have been used for necessary and reasonable operating
                          expenses.     Because we believe that the $45,827.53
                          collected in excessive management fees is ineligible, the
                          amount of these funds should be repaid to the respective
                          projects from non-project funds.




 Auditee Comments         Agent officials do not dispute the finding. However, they
                          took exception to the paragraph in the draft finding which
                          stated that “we reminded them of the HUD field office
                          review of Fiscal Year 1997 financial statements for the
                          Pulaski Manor project that questioned the excessive

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                    management fees collected by the Agent. In response to
                    HUD’s review, the Agent subsequently reimbursed the
                    project; however, it did not review or adjust the
                    management fee calculations for the other HUD related
                    projects.” Agent officials advised us that it was in the
                    beginning of the year 2000 that their accountant received
                    HUD’s notification of excessive management fees collected
                    from the Pulaski Manor project, and at that time they could
                    not change the fees collected during the years 1997, 1998
                    and 1999.



OIG Evaluation of   We believe that the Agent should have compared the actual
Auditee Comments    fees collected with HUD’s maximum limits for
                    management fees on an annual basis, and made the
                    necessary adjustments to ensure that excessive fees were
                    not collected from the projects. We accept the Agent’s
                    statement that their accountant was notified of the
                    excessive fees for the Pulaski Manor project in the
                    beginning of year 2000; however, HUD’s letter to the
                    Agent notifying them of the excessive fees was dated
                    December 1, 1999. Nevertheless, to provide clarity the
                    paragraph in our draft finding that was objected to was
                    removed from the final report.



Recommendations     We recommend that the HUD NYSO instruct the Agent to:

                    3A.    Repay the amount of the $45,824.53 that was
                           collected in excessive management fees to the
                           operating accounts of the respective projects with
                           Non-project funds.

                    3B.    Develop procedures that will ensure that
                           management fees calculated and collected by the
                           Agent are in accordance with limitations set by the
                           HUD NYSO management fee policy.




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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 the
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.




 Relevant Management               We determined the following management controls were
 Controls                          relevant to our audit objectives:

                                   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 resource use is consistent
                                   with laws, regulations, and policies; that resources are
                                   safeguarded against waste, loss and misuse; and that
                                   reliable data are obtained maintained, and fairly disclosed
                                   in reports.

                                   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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Follow Up On Prior Audits
This is the initial Office of the Inspector General audit of Belmax Management Corp.




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                                                                                      Appendix A

Schedule Of Ineligible, Unsupported and
Unreasonable Costs


Finding               Ineligible 1/     Unsupported 2/      Unreasonable 3/

     1               $18,154.75           $6,941.84          $163,971.60
     2                                    27,580.00           129,260.78
     3                45,827.53
                     $63,982.28         $34,521.84           $293,232.38



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.

3/        Unreasonable costs are costs charged to a HUD-financed or insured project that
          exceed the costs that would be incurred by the ordinarily prudent person in the
          conduct of a competitive business.




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                                                                                                             Appendix B
                                                                                                            (Page 1 of 5)
                                   Belmax Management Corporation
                                        Brooklyn, New York
 Summary Of Ineligible, Unsupported and Unreasonable Expenses - Finding No.1

                                      CHECK        CHECK    INELIGIBLE     UNSUPPORTED   UNREASONABLE
               PROJECT                 DATE       NUMBER     AMOUNT          AMOUNT         AMOUNT
       Lincoln Residence               03/26/97     2965                                       $10,035.00

       Lincoln Residence               02/26/98     3623                                       $10,550.00

       Lincoln Residences              03/17/99     4403                                       $10,950.00

       Rochester Sterling Apts.        04/01/97     2611                                        $8,575.00

       Rochester Sterling Apts.        02/17/98     2990         $750.00                         $475.00

       Rochester Sterling Apts.        02/25/99     3439                                        $9,500.00

       Parkview Residences             04/01/97     2514                                        $8,575.00

       Parkview Residences             02/17/98     2794         $750.00                         $475.00

       Parkview Residences             02/25/99     3160                                        $9,500.00

       Bedford Stuyvesant NSA II       04/17/97     1690                                        $9,575.00

       Bedford Stuyvesant NSA II       06/15/98     2263                                       $10,035.00

       Bedford Stuyvesant NSA II       04/12/99     2710                                       $10,950.00

       Manhattan Avenue Apts.          04/17/97     4725       $1,100.00

       Manhattan Avenue Apts.          03/26/98     5087       $1,100.00

       Manhattan Avenue Apts.          04/01/99     5462       $1,100.00

       Pulaski Manor                   04/17/97     2534       $1,100.00

       Pulaski Manor                   03/26/98     2882       $1,100.00

       Pulaski Manor                   03/24/99     3312       $1,100.00

       Sinclair Houses                 07/17/97     2712       $1,100.00

       Sinclair Houses                 03/27/98     2911       $1,100.00

       Sinclair Houses                 04/12/99     3293       $1,100.00

       Sojourner Truth Houses          04/25/97     4914       $1,100.00

       Sojourner Truth Houses          03/26/98     5265       $1,100.00

       Sojourner Truth Houses          10/27/99     6065       $1,100.00

              TOTAL PAYMENTS FOR
         PARTNERSHIP TAX RETURNS/
                         AUDITING                             $14,700.00                       $99,195.00


       Manhattan Avenue Apts.         04/15/99      5484                                         $251.25

       Sojourner Truth Houses         03/16/99      5722                                         $450.00

       Sojourner Truth Houses         04/15/99      5764                                         $705.00

       Sojourner Truth Houses         04/15/99      5764                                         $251.25

       Sojourner Truth Houses         07/12/99      5857                                        $3,342.25

        Pulaski Manor                 04/12/99      3321                                        $3,324.75

        Pulaski Manor                 04/12/99      3321                                         $437.50

        Pulaski Manor                 04/15/99      3345                                        $1,131.25

        Pulaski Manor                 04/15/99      3345                                         $251.25

        Pulaski Manor                 11/19/99      3619                                         $450.00

        Pulaski Manor                 10/21/98      3120                                        $2,990.85

        Pulaski Manor                 11/17/98      3165                                         $255.00

        Pulaski Manor                 12/15/98      3195                                        $4,612.50

        Pulaski Manor                 08/19/98      3073                                        $2,550.00

        Pulaski Manor                 09/24/98      4197                                        $4,312.50

       Parkview Residences            04/15/99      3221                                         $251.25

       Parkview Residences            10/27/99      3370                                         $356.25




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 Appendix B
(Page 2 of 5)
                                           Belmax Management Corporation
                                                Brooklyn, New York

        Summary Of Ineligible, Unsupported and Unreasonable Expenses - Finding No.1

                                            CHECK CHECK       INELIGIBLE    UNSUPPORTED       UNREASONABLE
                     PROJECT                 DATE NUMBER       AMOUNT         AMOUNT             AMOUNT
                Rochester Sterling Apts.    04/20/99 3510                                             $251.25

                Sinclair Houses             04/20/99   3300                                            $251.25

                Lincoln Residences          02/19/99   4343                                            $150.00

                Lincoln Residences          04/26/99   4495                                            $240.00

                Lincoln Residences          04/26/99   4495                                            $251.25

                Lincoln Residences          10/06/99   4802                                            $668.75

                Lincoln Residences          04/08/98   3671                                          $1,975.00

                Lincoln Residences          06/09/98   3774                                            $850.00

                Lincoln Residences          07/15/98   3884                                            $325.00

                Lincoln Residences          09/14/98   4006                                            $425.00

                Lincoln Residences          10/15/98   4064                                            $975.00

                Lincoln Residences          11/17/98   4138                                            $250.00

                Lincoln Residences          02/26/98   3617                                            $512.50

                Bedford Stuyvesant NSA II 02/16/99     2634                                            $180.00

                Bedford Stuyvesant NSA II 04/20/99     2720                                            $251.25

                      Bedford Stuyvesant 07/17/98      2332                                          $1,650.00
                      NSA II
                Bedford Stuyvesant NSA II 08/19/98     2378                                          $1,637.50

                Bedford Stuyvesant NSA II 10/23/98     2452                                          $1,350.00

                Bedford Stuyvesant NSA II 11/17/98     2501                                          $1,200.00

                                                                           TOTAL CONSULTING
                                                                                   SERVICES         $39,316.60




                Manhattan Avenue Apts.      06/06/97   4770                                            $200.00

                Manhattan Avenue Apts.      06/20/97   4772                                          $1,300.00

                Manhattan Avenue Apts.      02/02/98   5032                                            $600.00

                Manhattan Avenue Apts.      03/13/98   5073                                            $550.00

                Sojourner Truth Houses      03/4/97    4757                                          $1,325.00

                Sojourner Truth Houses      07/14/99   5871                                             $75.00

                Pulaski Manor               05/09/97   2544                                            $975.00

                Pulaski Manor               02/17/98   2843                                            $800.00

                Pulaski Manor               08/7/98    3056                                            $900.00
                Pulaski Manor               11/25/98   3176                                            $450.00

                Parkview Residences         02/19/97   2458                                            $150.00

                Parkview Residences         02/27/97   2479                                            $900.00

                Parkview Residences         03/24/98   2845                                            $400.00

                Lincoln Residences          08/05/97   3241                                            $800.00

                Lincoln Residences          11/18/97   3423                                            $600.00

                Lincoln Residences          01/20/98   3561                                            $850.00

                Lincoln Residences          04/06/98   3669                                          $1,400.00

                Lincoln Residences          07/10/98   3881                                            $300.00

                Lincoln Residences          07/15/98   3896                                            $500.00

                Lincoln Residences          08/02/98   3943                                            $225.00

                Sinclair Houses             04/17/97   2648                                            $975.00

                Bedford Stuyvesant NSA II 02/27/97     1617                                            $300.00

                Bedford Stuyvesant NSA II 04/25/97     1697                                            $500.00




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                                                                                                        Appendix B
                                                                                                       (Page 3 of 5)
                                    Belmax Management Corporation
                                         Brooklyn, New York
 Summary Of Ineligible, Unsupported and Unreasonable Expenses - Finding No.1

                                     CHECK CHECK INELIGIBLE       UNSUPPORTED        UNREASONABLE
               PROJECT                DATE NUMBER AMOUNT            AMOUNT              AMOUNT


         Bedford Stuyvesant NSA II   05/20/97     1735                                       $300.00

         Bedford Stuyvesant NSA II   03/27/98     2099                                      $115.00

         Bedford Stuyvesant NSA II   03/27/98     2098                                       $75.00

         Bedford Stuyvesant NSA II   04/1/98      2153                                      $475.00

         Bedford Stuyvesant NSA II   4/22/98      2161                                       $75.00

                                                                TOTAL GARBAGE AND
                                                                    TRASH REMOVAL         $16,115.00
         Manhattan Avenue Apts.       1997      Various                                      $460.00

         Manhattan Avenue Apts.       1998      Various                                     $115.00

         Sojourner Truth Houses       1997      Various                                     $782.00

         Sojourner Truth Houses       1998      Various                                     $138.00

         Pulaski Manor                1997      Various                                     $483.00

         Pulaski Manor                1998      Various                                     $299.00

         Parkview Residences          1997      Various                                     $414.00

         Parkview Residences          1998      Various                                     $184.00

         Rochester Sterling Apts.     1997      Various                                     $368.00

         Rochester Sterling Apts.     1998      Various                                     $207.00

         Sinclair Houses              1997      Various                                     $897.00

         Sinclair Houses              1998      Various                                     $138.00

         Lincoln Residences           1997      Various                                    $1,771.00

         Lincoln Residences           1998      Various                                     $345.00

         Bedford Stuyvesant NSA II    1997      Various                                     $644.00

         Bedford Stuyvesant NSA II    1998      Various                                      $46.00

                                                              TOTAL TEN-DAY NOTICE
                                                              FEE EXPENSE                  $7,291.00

         Lincoln Residences          12/17/97     3462                                       $25.00

         Lincoln Residences          01/02/98     3528                                       $25.00

         Lincoln Residences          01/14/98     3532                                       $30.00
         Lincoln Residences          01/14/98     3533                                       $30.00

         Lincoln Residences          01/14/98     3534                                       $30.00
         Lincoln Residences          01/14/98     3535                                       $30.00

         Lincoln Residences          01/14/98     3536                                       $30.00

         Lincoln Residences          01/14/98     3537                                       $30.00

         Lincoln Residences          01/14/98     3538                                       $15.00

         Lincoln Residences          01/14/98     3539                                       $30.00

         Lincoln Residences          01/14/98     3540                                       $30.00

         Lincoln Residences          01/20/98     3559                                       $20.00

         Lincoln Residences          04/06/98     3666                                       $50.00

         Lincoln Residences          11/05/98     4131                                       $75.00

         Lincoln Residences          10/12/99     4823                                       $64.00

         Lincoln Residences          10/13/99     4836                                      $300.00

         Pulaski Manor               05/07/98     2915                                      $750.00

         Pulaski Manor               03/03/99     3285                                      $490.00

                                                              TOTAL PAYMENTS FOR
                                                              MISC. WORK BY                $2,054.00




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Appendix B
(Page 4 of 5)
                                            Belmax Management Corporation
                                                 Brooklyn, New York
        Summary Of Ineligible, Unsupported and Unreasonable Expenses - Finding No.1

                                                CHECK        CHECK   INELIGIBLE      UNSUPPORTED   UNREASONABLE
                      PROJECT                    DATE       NUMBER    AMOUNT           AMOUNT         AMOUNT
                Pulaski Manor                   03/13/98      2866         $135.00

                Pulaski Manor                   02/18/99     3277         $135.31

                Pulaski Manor                   04/15/99     3346         $324.75

                Lincoln Residences              08/14/97     3247         $195.00

                Lincoln Residences              07/27/99     4644          $80.00

                Lincoln Residences              10/07/99     4817         $100.00

                Lincoln Residences              10/07/99     4818          .509.98

                         SUBTOTAL PERSONAL
                           DAMAGES EXPENSE                               $1,480.04
                Manhattan Avenue Apts.          1/26/99      5402          $33.63

                Manhattan Avenue Apts.          10/15/98     5329          $21.88

                Sojourner Truth Houses          1/28/99      5642          $33.63

                Sojourner Truth Houses          10/15/98     5510          $21.88

                Pulaski Manor                   01/26/99     3255          $33.63

                Pulaski Manor                   10/21/98     3123          $21.88

                Parkview Residences             01/27/99     3122           $33.63

                Parkview Residences             10/15/98     3029          $21.88

                Rochester Sterling Apts.        01/27/99     3389          $33.62

                Rochester Sterling Apts.        10/15/98     3274          $21.88

                Sinclair Houses                 01/26/99     3211          $33.62

                Sinclair Houses                 10/15/98     3122          $21.88

                Lincoln Residences              01/26/99     4278          $33.62

                Lincoln Residences              10/15/98     4071          $21.84

                Lincoln Residences              11/10/97     3409         $259.00

                Bedford Stuyvesant NSA II       01/26/99     2596          $33.62

                Bedford Stuyvesant NSA II       10/15/98     2447          $21.88

                  SUBTOTAL TRADE INDUSTRY
                        MAGAZINE EXPENSE                                  $703.00


                Lincoln Residences               11/15/99    4891          $95.32

                Pulaski Manor                    03/13/98    2859          $29.99

                   SUBTOTAL PAYMENTS FOR
                  EMPLOYEE WORK CLOTHING                                  $125.31


                Lincoln Residences               01/20/98    3559         $100.91

                    SUBTOTAL PAYMENTS FOR
                      MEALS FOR EMPLOYEES                                 $100.91


                Lincoln Residences               01/14/99    4268          $40.00

                             SUBTOTAL TIPS TO
                               SANITATION MEN                              $40.00
                Lincoln Residences               02/03/97    2865         $267.49

                Lincoln Residences               06/29/99    4602          $25.00

                Manhattan Avenue Apts.           03/30/98    5088         $200.00

                    SUBTOTAL PAYMENTS FOR
                        FINES AND PENALTIES                               $492.49


                Lincoln Residences               04/25/97    3078         $495.00

                SUBTOTAL TRAINING EXPENSE
                     FOR AGENT’S DIRECTOR                                 $495.00




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                                                                                                              Appendix B
                                                                                                             (Page 5 of 5)
                                  Belmax Management Corporation
                                       Brooklyn, New York
 Summary Of Ineligible, Unsupported and Unreasonable Expenses - Finding No.1


                                           CHECK CHECK        INELIGIBLE   UNSUPPORTED     UNREASONABLE
               PROJECT                      DATE NUMBER        AMOUNT        AMOUNT           AMOUNT
         Sojourner Truth Houses            02/24/97 4717            $18.00

          Subtotal Parking expenses For
                       Agent’s President
                                                                   $18.00


           TOTAL OTHER INELIGIBLE
                            ITEMS                                $3,454.75


         Lincoln Residences                04/03/97   3023                       $170.48
         Lincoln Residences                01/06/97   2829                       $107.90

         Lincoln Residences                12/15/97   3461                       $351.90

         Lincoln Residences                01/23/98   3564                       $162.00

         Lincoln Residences                01/30/98   3569                     $1,500.00

         Lincoln Residences                07/21/98   3900                         $8.65

         Lincoln Residences                10/29/98   4100                       $200.00

         Lincoln Residences                01/15/99   4274                        $59.54

         Lincoln Residences                02/19/99   4353                        $44.26

         Lincoln Residences                09/03/99   4741                       $950.00

         Lincoln Residences                09/10/99   4746                        $36.55

         Lincoln Residences                10/06/99   4814                       $592.00

         Lincoln Residences                10/06/99   4815                       $472.00

         Lincoln Residences                10/06/99   4816                       $584.00

         Lincoln Residences                10/27/99   4852                        $19.99

         Lincoln Residences                11/02/99   4867                        $50.00

         Manhattan Avenue Apts.            02/27/97   4639                        $45.00

         Pulaski Manor                     06/25/97   2589                        $73.58

         Pulaski Manor                     01/30/98   2823                     $1,500.00

         Pulaski Manor                     04/27/98   2897                        $13.99

               TOTAL UNSUPPORTED
                         CHARGES                                               $6,941.84
                                                      TOTAL     $18,154.75     $6,941.84       $163,971.60

           GRAND TOTAL INELIGIBLE,
                  UNSUPPORTED &
          UNREASONABLE EXPENSES                                              $189,068.19




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                                                                              Appendix C

                          Belmax Management Corporation
                               Brooklyn, New York

                  Summary of Payments to the Extermination Company


    PROJECT                 1997            1998       1999                 TOTAL
MANHATTAN AVENUE        $ 5,942.86     $ 9,504.59   $ 7,539.64       $ 22,987.09

SOJOURNER TRUTH           6,226.81      6,331.53       7,349.07        19,907.41

PULASKI MANOR             2,738.73      4,315.94      4,241.24         11,295.91

PARKVIEW RESIDENCE        1,575.05      1,945.25      1,831.60          5,351.90

ROCHESTER STERLING        3,639.41       2,684.65     2,805.91          9,129.97

SINCLAIR HOUSES           2,814.51       2,311.14     4,876.12         10,001.77

LINCOLN RESIDENCE        10,023.78       6,430.02    11,648.79         28,102.59

BEDFORD STUYVESANT   7,969.42            5,470.27     4,269.45         17,709.14
          TOTAL    $40,930.57         $38,993.39    $44,561.82       $124,485.78




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                             Appendix D

Auditee Comments




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                                                                                    Appendix E

Distribution
President, Belmax Management Corp., Brooklyn, New York (2)
HUD Principal Staff
Secretary’s Representative, New York/New Jersey, 2AS
Director, MF HUB, 2AHM
Assistant General Counsel, New York/New Jersey, 2AC

CFO, Mid-Atlantic Field Office, 3AFI
Office of Housing/Federal Housing Commissioner, HF, (Attn: Audit Liaison Officer,
     Room 9116)
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

Sharon Pinkerton Staff Director
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 Government Reform
2204 Rayburn Building
House of Representatives
Washington, DC 20515-4305

The Honorable Joseph Lieberman
Ranking Member
Committee on Government 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 E


The Honorable Fred Thompson
Chairman
Committee on Governmental Affairs
340 Dirksen Senate Office Building
United States Senate
Washington, DC 20510-6250

Ms. Cindy Fogleman
Subcommittee on General Oversight & Investigations
O'Neill House Office Building, Room 212
Washington, DC 20515

Stanley Czerwinski, Associate Director
Resources, Community and Economic Development Division
US General Accounting Division
441 G Street, NW Room 2T23
Washington, DC 20548




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