oversight

HUD Section 8 Project Based Multifamily Housing Last Star Homes, Section 8 Contract Number MT99-E000-002 Browning, Montana

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-01-16.

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

                                                            Issue Date
                                                                    January 16, 2004
                                                           Audit Case Number
                                                                    2004-DE-1001




TO: Marcie LaPorte, Director, Denver Multifamily Hub, Office of Housing, 8AHMM




FROM: Robert C. Gwin, Regional Inspector General for Audit, 8AGA

SUBJECT: HUD Section 8 Project Based Multifamily Housing
         Last Star Homes, Section 8 Contract Number MT99-E000-002
         Browning, Montana


                                   INTRODUCTION

We completed an audit of Last Star Homes, a fifty-unit Multifamily Housing project, and
the compliance with its Section 8 Housing Assistance Payments Contract requirements.
The objective of the audit was to determine if current conditions of Last Star Homes
units’ maintenance, occupancy functions, and project management differ from the
conditions identified in the August 2001 Management and Occupancy Review Report
(Review Report) prepared by HUD’s Contract Administrator. The Review Report
identified significant problems and weaknesses with the occupancy, management and
operations of the project. The Blackfeet Tribe (owner of the project) transferred the
project’s management responsibilities to Blackfeet Housing in September 1997. The
Blackfeet Housing staff prepares and maintains the occupancy and financial records for
the project at their office in Browning, Montana.

Our review concluded that the significant problems and weaknesses identified in the
August 2001 Review Report still exist, even though Blackfeet Housing promised to
correct the majority of deficiencies in their January 2003 response to the Review Report.
Specifically, Last Star Homes is not being operated as a Multifamily Housing project.
Neither the current management nor the Blackfeet Tribal officials, as owner, were aware
of or familiar with the project’s Use Agreement, Section 8 Housing Assistance Payments
Contract, and other program requirements. Therefore, they were not ensuring that these
requirements were being met. In addition, they had not requested a Housing Assistance
Payment since June 2001. Consequently, adequate funding was not available to fully
maintain the property. We also identified at least $9,581.09 of ineligible and questioned
training costs charged to the project accounts. Moreover, the remaining Section 8
Housing Assistance Payments reserve of $2,874,826 is not being utilized as intended.

We accomplished our objective by determining applicable criteria; reviewing the current
project contracts; reviewing problems and weaknesses identified in the August 2001
Review Report; reviewing project records maintained by HUD and Blackfeet Housing;
reviewing the project’s accounting records and tenant occupancy files maintained by
Blackfeet Housing; and interviewing responsible HUD, Contract Administrator,
Blackfeet Tribal officials, and Blackfeet Housing staff. We also obtained pertinent
project information from HUD’s Real Estate Management System and Line of Credit
Control System.

We used a non-statistical sample to select five Last Star project units (ten percent) for
physical inspection and performed a physical site inspection of the project. The sample
units provided a representation of the different bedroom compositions of one to four
bedroom units. We performed a walk-through of these units to obtain an understanding
of the general conditions. We did not perform detailed Housing Quality Standards
inspections.

We reviewed all 50 tenant occupancy files. We obtained a schedule of the tenant
accounts receivables and obtained an understanding of the tenant accounts receivables
procedures. We reviewed documentation to verify the procedures, but did not perform a
comprehensive review of the tenant accounts receivables. In addition, due to the limited
financial activity of the project, we performed a comprehensive review of the project
accounts payable records, for our audit period.

The audit covered the period from May 1, 2001 through July 31, 2003. We expanded the
scope as needed to verify information reviewed during the audit period and to establish
background information. We performed our review work from July through October
2003. We performed the fieldwork at the Blackfeet Housing office located on the
Blackfeet Reservation in Browning, Montana. We conducted the audit in accordance
with generally accepted government auditing standards. We held an exit conference with
Blackfeet Tribal officials on September 18, 2003 and with HUD officials on January 7,
2003.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for
each recommendation without a management decision, 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. Additional status reports are required at 90 days and 120
days after report issuance for any recommendation without a management decision. Also,
please furnish us copies of any correspondence or directives issued because of the audit.

We appreciate the courtesies and assistance extended by the personnel of the Blackfeet
Tribe and Blackfeet Housing, Denver Multifamily Hub, the Denver Office of Counsel, the
Los Angeles Departmental Enforcement Center, and the Montana Project Based Contract




                                             2
Administrator. Should you or your staff have any questions, please contact Frank Rokosz,
Assistant Regional Inspector General for Audit, at (303) 672-5452.


                                       SUMMARY

In June 2001, HUD’s Contract Administrator conducted a Management and Occupancy
Review of Last Star Homes. The Contract Administrator rated the project overall
unsatisfactory. Moreover, the Review Report contained 28 findings with required
corrective actions and 4 observations with recommendations. Since, neither the
Blackfeet Tribe nor the Blackfeet Housing responded to the report, the Contract
Administrator requested that HUD take over servicing the project. HUD’s Denver
Multifamily Hub subsequently referred the project to HUD’s Departmental Enforcement
Center. In January 2003, the Blackfeet Housing attorney provided the HUD Enforcement
Center a response to the August 2001 Review Report. The response promised corrective
action for the majority of the cited deficiencies. However, as of September 2003, the
promised actions had not been performed.

The Project’s Use Agreement required compliance with the Section 8 Housing Assistance
Payments Contract. The Housing Assistance Payments Contract required that the Owner
maintain the project in compliance with the applicable Section 8 requirements. During
our review, it became apparent that neither the Blackfeet Tribal nor Blackfeet Housing
officials were aware of or familiar with the Use Agreement, the Section 8 Housing
Assistance Payments Contract, and other specific program requirements for the project.
Therefore, the Blackfeet Tribe and the Blackfeet Housing officials were not ensuring that
the project complied with HUD’s program requirements. Neither the Blackfeet Tribe nor
the Blackfeet Housing officials had submitted requests for Housing Assistance Payments
since June 2001. Consequently, adequate funding was not available to fully maintain the
property. In addition, we identified at least $9,581.09 of ineligible and questioned
training costs. Moreover, the remaining Section 8 Housing Assistance Payments reserve
of $2,874,826 was not being utilized as intended.

The Blackfeet Housing agreed with the primary recommendation, that the Denver Office
of Multifamily Housing work with the Denver Office of Counsel and Los Angeles
Departmental Enforcement Center and refer the question of whether the Use Agreement
can be rescinded to the Office of General Counsel. Appendix C contains a copy of the
Auditee’s written comments on the report.

The Blackfeet Housing did express concerns that the audit report did not give the
Blackfeet Tribe or Blackfeet Housing adequate credit for actions taken to resolve the
issues identified in the August Review Report.

OIG believes that the audit report appropriately reflects the Blackfeet Tribe and/or
Blackfeet Housing efforts to resolve the issues identified in the Review Report.

In addition, the auditee commented that the Blackfeet Housing is stretched to the limit in
its ability to provide services to its clients and without a substantial commitment of time,


                                              3
staff, energy and material from Housing, there would be little chance to address any
problems at Last Star.

OIG disagrees with the Blackfeet Housing statement. As detailed in the background,
HUD performed a substantial rehabilitation of all fifty Last Star units prior to turning the
project over to the Tribe. In addition, the project did not have a mortgage and HUD
provided a fifteen year Housing Assistance Payments Contract for all fifty units. As
identified in the Review Report, the Blackfeet Tribe and/or Blackfeet Housing failed to
comply with the HUD requirements placed on the project. More importantly, after the
Management and Occupancy Review, the Blackfeet Tribe and/or Blackfeet Housing
stopped submitting Housing Assistance Payments requests. This action stopped HUD’s
financial assistance to the project. In addition, the Tribe and/or Housing failed to
appropriately certify current tenants and failed to collect rents due from tenants. As of
our review, the tenant accounts receivables balance was over $132,000. OIG believes
that the Review Report and this audit report appropriately identify actions taken by the
Blackfeet Tribe and/or Blackfeet Housing. These actions clearly indicate that the
management of the Last Star project continues to be operated in a manner inconsistent
with HUD requirements.


                                     BACKGROUND

In April 1970, the Last Star Corporation negotiated a mortgage, insured under HUD’s
Section 236 Program (Section 236 of the National Housing Act), for Last Star Homes, a
50-unit project. (Appendix B contains a timeline of the significant project occurrences
and dates.) The Blackfeet Tribe owned Last Star Corporation. Twelve years later, the
mortgage was assigned to HUD. Seven years later, HUD foreclosed on the project. At
the foreclosure sale, HUD submitted the highest bid in the amount of $869,816. As
shown by the following picture, the project was not in good repair at this time.




                                              4
After foreclosing on the project, HUD paid about $2 million in rehabilitation costs to
bring the project up to Housing Quality Standards. As shown by the following
photograph, the rehabilitation significantly improved the condition of the project.




After the rehabilitation in 1993, HUD transferred the project back to the Blackfeet Tribe
for $6,900 and other considerations. HUD required that the Blackfeet Tribe execute a
Use Agreement and a Section 8 Housing Assistance Payments Contract. The Use
Agreement required, among other restrictions, that the Blackfeet Tribe maintain the
property as rental or cooperative housing for 20 years and comply with the terms and
conditions of the Housing Assistance Payments Contract. The Housing Assistance
Payments Contract provided rental assistance funding for 15 years for all 50 units. The
Blackfeet Tribe stopped requesting Housing Assistance Payments in June 2001, which
coincides with the Contract Administrator’s Management and Occupancy Review.

We visited the property in September 2003 to observe the general condition. Overall, the
condition was similar to that documented in the rehabilitation photographs. The
following picture provides an example of the current condition of the project.




                                             5
HUD issued a letter to all the project residents in 1992 stating that HUD had made
progress toward making this a home ownership project and providing purchase prices for
the various units in the project. During our site review, a resident told us that they were
later verbally informed that home ownership would not be possible. Project management
stated that some residents do consider the units to be home ownership. As shown by the
following picture, some residents appear to be treating their units like home ownership by
adding items such as fencing and landscaping and performing other upgrades to the units.




HUD contracted with the Project Based Section 8 Housing Office, Department of
Commerce, State of Montana, to provide the Contract Administrator functions for
Montana. Blackfeet Housing and the Blackfeet Tribe signed a certification for the
Contract Administrator certifying that the Blackfeet Housing employees who signed the
certification were qualified to execute all documents relating to the project.

In June 2001, the Contract Administrator conducted a Management and Occupancy
Review and issued a report to the Director of Blackfeet Housing in August 2001. After
unsuccessful attempts to obtain a response, the Contract Administrator requested that
HUD take back servicing of the project in November 2001. In March 2002, HUD took
back the servicing of the Project. HUD requested a response and the Blackfeet Tribe in
turn requested that HUD terminate the Section 8 Contract. HUD denied this request and
again issued requests for the Tribe’s response to the Review Report. Again, the Tribe did
not respond to HUD’s requests. Therefore in September 2002, the Denver Multifamily
Hub referred Last Star Homes to HUD’s Departmental Enforcement Center.

The Enforcement Center issued requests for response to the Review Report. Blackfeet
Housing's attorney finally submitted a response 18 months after issuance of the Review
Report. The response promised corrective action for most of the deficiencies cited in the
August 2001 Review Report. Even though the response included time frames for
corrective actions, the response did not identify a promised start or completion date.




                                             6
Both the Enforcement Center and the Denver Office of General Counsel started to
research possible ways to rescind the Project’s Use Agreement, since the Blackfeet Tribe
proposed converting the rental units to home ownership units. The HUD Enforcement
Center attorney requested legal advice from the Blackfeet Housing’s attorney. The
Blackfeet Housing’s attorney legal memorandum was received in May 2003. The
Enforcement Center attorney advised that she conferred with the Office of General
Counsel attorneys in two different offices and regularly reported to the Washington, DC
Office on matters relative to Last Star Homes. However, the Enforcement Center
attorney neither stated that she requested nor provided documentation of a request to
General Counsel to provide a legal opinion on rescinding the Last Star Homes Use
Agreement.


                                       FINDING

       DEFICIENCIES IDENTIFIED IN THE 2001 MANAGEMENT AND
       OCCUPANCY REVIEW REPORT HAD NOT BEEN CORRECTED

In June 2001, HUD’s Contract Administrator conducted a Management and Occupancy
Review of Last Star Homes. The Contract Administrator rated the project overall
unsatisfactory. Moreover, the Review Report contained 28 findings with required
corrective actions and 4 observations with recommendations. Since, neither the
Blackfeet Tribe nor the Blackfeet Housing responded to the Review Report, the Contract
Administrator requested that HUD take over servicing the project. HUD’s Denver
Multifamily Hub subsequently referred the project to HUD’s Enforcement Center. In
January 2003, the Blackfeet Housing attorney provided the HUD Enforcement Center a
response to the August 2001 Review Report. The Blackfeet Tribe promised corrective
action for the majority of the cited deficiencies. However, as of September 2003, the
promised actions had not been performed.

The Use Agreement required compliance with the Section 8 Housing Assistance
Payments Contract (Contract). The Contract required that the Owner maintain the project
in compliance with the applicable Section 8 requirements. During our review, it became
apparent that neither the Blackfeet Tribal nor Blackfeet Housing officials were aware of
or familiar with the Use Agreement, the Section 8 Housing Assistance Payments
Contract, and other specific program requirements for the project. Therefore, the
Blackfeet Tribe and the Blackfeet Housing officials were not ensuring that the project
complied with HUD’s program requirements. Neither the Blackfeet Tribe nor the
Blackfeet Housing officials had submitted requests for Housing Assistance Payments
since June 2001. Consequently, adequate funding was not available to fully maintain the
property. In addition, we identified at least $9,581.09 of ineligible and questioned
training costs. Moreover, the remaining Section 8 Housing Assistance Payments reserve
of $2,874,826 was not being utilized as intended.

The Last Star Homes’ Use Agreement and Housing Assistance Payments Contract
required that the Blackfeet Tribe operate and maintain the project in compliance with the



                                            7
terms of the Contract. The Contract specified that Title 24 of the Code of Federal
Regulations, Part 886, Subpart C, were the applicable criteria for Last Star Homes.
Section 886.318 detailed the responsibilities of the owner, including: performing ordinary
and extraordinary maintenance; properly completing the tenant selection requirements;
collecting tenant rents; performing the required tenant recertifications; redetermining
tenant rent and the amount of Housing Assistance Payment; reviewing at least annually
the utilities allowance; and submitting to HUD the required financial and operating
reports.

The Contract required submission of annual audited financial statements within 60 days
of the fiscal year end, in a form required by HUD. The Contract included an Attachment,
which stated that Section 2.6(b) was applicable to the Project. Section 2.6(b) stated that
Project funds must be used for the benefit of the project to pay operating expenses. The
August 2001 Management and Occupancy Review Report also cited criteria from HUD
Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing
Programs, and HUD Handbook 4381.5, The Management Agent Handbook .

HUD’s Contract Administrator conducted a Management and Occupancy Review of Last
Star Homes in June 2001. On August 1, 2001, the Contract Administrator issued the
Management and Occupancy Review Report (Review Report) to the Director of
Blackfeet Housing. The Contract Administrator gave the Project unsatisfactory ratings
for all areas reviewed and an overall unsatisfactory rating for the Project. The Review
Report contained 28 findings with corrective actions required and 4 observations with
recommendations. Also, the Review Report identified the following areas of review:
Maintenance and Security (6 findings and 1 observation); Financial Management (1
finding and 1 observation); Leasing and Occupancy (13 findings and 1 observation);
Tenant/Management Relations (1 observation); Drug-Free Housing Policy (1 finding);
and General Management Practices (7 findings).

The Blackfeet Tribe did not submit the required response to the Review Report in the
specified time frame or after additional requests from HUD’s Contract Administrator.
Due to a lack of response from the Blackfeet Tribe, the HUD Denver Multifamily Hub
took over the administration functions in March 2002. When the HUD Denver
Multifamily Hub was not able to obtain a response from the Blackfeet Tribe, they
referred the project to the HUD Los Angeles Departmental Enforcement Center in
September 2002. Blackfeet Housing’s attorney submitted a response to the Enforcement
Center on January 8, 2003.

The response addressed all of the items contained in the 2001 Review Report and
provided promised actions. Several of the promised actions specified a 4-month
completion time frame. These actions pertained to the tenant file content and
recertification process findings. Even though the response included time frames for
corrective actions, the response did not identify a promised start or completion date.




                                             8
During our September 2003 site work, we determined the current status of conditions and
deficiencies identified in the August 2001 Review Report. We also determined the status
of the Blackfeet Housing’s promised actions.

The Review Report indicated that the exterior property condition was still generally
acceptable. The findings related to maintenance and security included: the maintenance
work order system did not ensure that the work requests were thoroughly completed or
responded to in a timely manner; and, very little to no preventive maintenance was
provided to the project. The Blackfeet Housing Response indicated that supplies and
personnel would be committed and the maintenance staff would be required to timely
respond to work requests. The Response also stated that the available funds were not
sufficient to cover the costs of the required repairs and maintenance of the project;
therefore, Blackfeet Housing looked forward to working with HUD to obtain the
necessary funding. We determined the work order system still needed improvement and
that preventive management was still not being done. The main reason for these
continued deficiencies was the lack of funding to cover the cost of repairs.

The Review Report finding for financial management stated that tenants were in serious
arrears of paying their Total Tenant Payment portions of their rents and the owner had
failed to take the required steps to terminate assistance or tenancy for these tenants. The
Blackfeet Housing Response stated that, within the standards of the Tribal law, they
would start proceedings against those tenants who fail or refuse to bring their accounts up
to date. A full audit of the tenant files would be conducted over a 4- month period,
completing 15 files each month, to determine the tenants with rent balances. We
determined that as of September 2003 the tenant accounts receivables balance was over
$132,000. We were told that the Tribal Court was not supportive of processing evictions.

The Review Report findings related to leasing and occupancy included: the wrong lease
and other tenant occupancy forms were being used; tenant files were incomplete; tenants
were not being properly recertified; the correct income limits and rent schedule were not
being used; and, the project was not properly utilizing the allocated subsidy or submitting
the payment requests in a timely manner. The Blackfeet Housing Response stated that, as
part of the 4- month audit process, the tenant files would be fully updated and all correct
forms and information be included; all tenants would be properly certified; the staff
would be instructed to use the correct rent and income information; and, they would
ensure tha t only 10 percent of the units would be at market rents. The Response also
stated that since the suspension of payment subsidies from HUD, there had been no
payments on vouchers. We determined that all these deficiencies still existed and
Blackfeet Housing’s promised actions had not been accomplished as of September 2003.
Blackfeet Housing had not submitted a voucher request since June 2001.

The Review Report findings related to general management practices included: the owner
was not actively involved in the management of the project; the required management
plan and management certification were not available for review; the staff associated with
Last Star Homes was not following the Blackfeet Housing Policies and Procedures
Manual; and the staff was not properly trained. The Blackfeet Housing Response stated



                                             9
that the Tribal Council was now serving as the Housing Board; the staff had received
training to become certified and the Blackfeet Housing management plan was being
followed; staff had been instructed to follow the policies and procedures; and, they would
work with HUD to obtain funding to cover the necessary training costs. We determined
there was not active management oversight of the project operations; the staff did not
understand the Multifamily housing management plan and management certification
requirements; the Blackfeet Housing Policies and Procedures Manual did not address the
specific program requirements related to the project; and, pertinent training had been
provided to project staff, but there were not clear understandings of how the training
related to the operations of the project.

We determined that some of the deficiencies had been resolved. The garage added on the
property for unit 6 had been removed. The large delay in preparing vacant units appeared
to be corrected, since there were no vacant units at the time of our site visit. The
Occupancy Technician now had the required copies of HUD Handbooks 4350.1 and
4381.5.

During our site work, we identified two additional deficiencies that were not part of the
Review Report:

   •   HUD’s records for Last Star Homes indicated that the required annual audited
       financial statements reports had not been submitted. Blackfeet Housing provided
       us copies of the Last Star Homes audited financial statements reports for 1998,
       1999, 2000, and 2001. We determined the reports were not in the format required
       for a Multifamily Housing project and were not completed within the 60 days
       after fiscal year end required by HUD. The reports listed the project as a “special
       revenue fund of the Blackfeet Tribe.” The reports had not been electronically
       submitted to HUD’s Real Estate Assessment Center, as required. The same CPA
       firm conducted the 4 audits and was on site finishing the 2002 audit in September.
       The CPA Audit Manager was not aware that Last Star Homes was a Multifamily
       Housing project.
   •   We reviewed the accounts payable records for 2001 through 2003. The records
       were well organized and invoices and other payment records supported the
       disbursement s. However, we did identify $8,389.59 of ineligible costs and
       $1,191.50 of questioned costs. These costs were for training and related travel
       expenses. There were 13 disbursements for training and related travel costs for
       training that did not pertain to the project. The training primarily related to tax
       credits. These courses were eligible activities for Blackfeet Housing, but not for
       Last Star Homes. There were also 3 disbursements that were questionable. The
       expenses were for training courses that were pertinent to Last Star Homes;
       however, the participants were not assigned to Last Star Homes.

In 1993, HUD and the Blackfeet Tribe executed a 15-year Section 8 Housing Assistance
Payments Contract for all 50 units in the project. HUD’s Line of Credit Control System
showed a total reservation of $3,637,278. During the first 10 years of the Contract, the
Blackfeet Tribe had received a total of $762,452 in Housing Assistance Payments,



                                            10
leaving an outstanding balance of $2,874,826. The balance had not changed since the
Blackfeet Tribe stopped requesting Housing Assistance Payments in June 2001.

The Denver Multifamily Hub referred Last Star Homes to HUD’s Departmental
Enforcement Center in September 2002. The Enforcement Center and Denver HUD
officials were working on determining if there was a legal way to rescind the Use
Agreement. The Enforcement Center obtained a legal memorandum, dated May 19,
2003, from Blackfeet Housing’s attorney. The legal memorandum supported information
obtained during our site work. Specifically, neither the Blackfeet Tribe nor the Blackfeet
Housing were aware that Last Star Homes was a Multifamily Housing project bound by a
Use Agreement. The legal memorandum made no mention of Multifamily Housing or
the Use Agreement. The Denver Office of General Counsel suggested that the
Enforcement Center request advice from HUD’s Headquarters Office of General
Counsel, which would be better qualified to provide a legal opinion about rescinding the
HUD Use Agreement.

The Review Report and other correspondence from the Contract Administrator and HUD
identified program criteria and requirements. However, neither Blackfeet Tribe nor
Blackfeet Housing officials understood that Last Star Homes was a Multifamily Housing
project. Based on our review work, it became apparent that the Blackfeet Tribe and
Blackfeet Housing were not familiar with the current project Use Agreement, Contract, or
other applicable program requirements. Therefore, they did not ensure that the project
was operated in compliance with the correct program requirements. They have not
requested Section 8 Housing Assistance Payments since June 2001. Consequently,
adequate funding was not available to fully maintain the property and at least $9,581.09
of ineligible and questioned costs occurred. Moreover, the remaining Section 8 Housing
Assistance Payments reserve of $2,874,826 was not being utilized and was not being put
to the best use.


                          AUDITEE COMMENTS
               AND OIG EVALUATION OF AUDITEE COMMENTS

The Blackfeet Housing agreed with the primary recommendation, that the Denver Office
of Multifamily Housing work with the Denver Office of Counsel and Los Angeles
Departmental Enforcement Center and refer the question of whether the Use Agreement
can be rescinded to the Office of General Counsel. Appendix C contains a copy of the
Auditee’s written comments on the report.

The Blackfeet Housing did express concerns that the report did not give the Blackfeet
Tribe or Blackfeet Housing adequate credit for actions taken to resolve the issues
identified in the August Review Report.

OIG believes that the audit report appropriately reflects the Blackfeet Tribe and/or
Blackfeet Housing efforts to resolve the issues identified in the Review Report.




                                            11
In addition, the auditee commented that the Blackfeet Housing is stretched to the limit in
its ability to provide services to its clients and without a substantial commitment of time,
staff, energy and material from Housing, there would be little chance to address any
problems at Last Star.

OIG disagrees with the Blackfeet Housing statement. As detailed in the background,
HUD performed a substantial rehabilitation of all fifty Last Star units prior to turning the
project over to the Tribe. In addition, the project did not have a mortgage and HUD
provided a fifteen year Housing Assistance Payments Contract for all fifty units. As
identified in the Review Report, the Blackfeet Tribe and/or Blackfeet Housing failed to
comply with the HUD requirements placed on the project. More importantly, after
HUD’s Management and Occupancy Review, the Blackfeet Tribe and/or Blackfeet
Housing stopped submitting Housing Assistance Payment request. This action stopped
HUD’s financial assistance to the project. In addition, the Tribe and/or Housing failed to
appropriately certify current tenants and failed to collect rents due from tenants, as of our
review tenants accounts receivables balance was over $132,000. OIG believes that the
Review Report and this audit report appropriately identify the actions taken by the
Blackfeet Tribe and/or Blackfeet Housing. These actions clearly indicate that the
management of the Last Star project continues to be operated in a manner inconsistent
with HUD requirements.

The Denver Multifamily Hub agreed with the recommendations and is working on
the details for the management decisions. Denver Multifamily Hub advised that
management decisions should be submitted by the end of January 2004.


                                RECOMMENDATIONS

We recommend that the Denver Multifamily Hub:

1A. Work with the Denver Office of Counsel and Los Angeles Departmental
    Enforcement Center and refer the question of whether the Use Agreement can be
    rescinded to the Office of General Counsel.

1B. Cancel the Section 8 Housing Assistance Payments Contract so that the remaining
    $2,874,826 contract reserve may be made available for other Section 8 projects, if
    the Assistant Secretary for Housing or his designee elects to rescind the Use
    Agreement.

If the Denver Multifamily Hub is unable to implement recommendations 1A and 1B,
then:

   1C. Provide technical assistance to the project management to bring the project into
        compliance with program requirements, so they may start receiving Housing
        Assistance Payments. Specifically the technical assistance should focus on the
        areas of:



                                             12
               •   Occupancy procedures to ensure that the occupancy functions and
                   records comply with the program requirements;
               •   Preventive maintenance program to ensure maintenance is performed
                   and the implementation of an effective work order system;
               •   Owner and manage ment entity to ensure they understand the program
                   requirements applicable to the project and comply with the
                   requirements; and,
               •   Financial controls to ensure that all disbursements were project related
                   expenses.

1D. Require the Blackfeet Tribe to repay the ineligible training and related travel costs of
    $8,389.59 from non-project funds.

1E. Determine the appropriateness of the $1,191.50 in questioned costs and require the
    Tribe to repay the amount determined to be ineligible from non-project funds.


                             MANAGEMENT CONTROLS

Management controls include the plan of organization, methods and procedures adopted by
management to ensure that its goals are met. Management controls include the processes for
planning, organizing, directing, and controlling program operations. They include the
systems for measuring, reporting, and monitoring program performance.

We determined that the following management controls were relevant to our objectives:

   •   Occupancy procedures;
   •   Project maintenance procedures;
   •   Project management functions; and,
   •   Financial operations procedures.

It is a significant weakness if management controls do not provide reasonable assurance
that the process for planning, organizing, directing, and controlling program operations
will meet an organization’s objectives.

Based on our review, we believe the following items are significant weaknesses:

   •   The occupancy procedures were not sufficient to ensure that the occupancy
       functions and records comply with the program requirements;
   •   Preventive maintenance was not being adequately provided and an effective work
       order system had not been implemented;
   •   The owner and management entity did not understand the program requirements
       applicable to the project; therefore, they did not ensure compliance; and,
   •   Financial controls were not sufficient to ensure that all disbursements were
       project related expenses. (See Finding)



                                            13
                                                                              Appendix A

     SCHEDULE OF QUESTIONED COSTS AND FUNDS PUT TO BETTER USE

Recommendation                       Type of Questioned Cost                Funds Put to
   Number                     Ineligible 1/        Unsupported 2/            Better Use 3/

       1B.                                                                  $ 2,874,826.00

       1D.                    $8,389.59

       1E.                                           $1,191.50

1/     Ineligible costs are costs charged to a HUD-financed or HUD- insured program 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 HUD-insured program
       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 costs. 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/     Funds Put to Better Use are costs that will not be expended in the future if our
       recommendations are implemented.




                                            14
                                                                            Appendix B
                          LAST STAR HOMES TIMELINE

We prepared the following timeline of significant occurrences relating to the background
of Last Star Homes pertinent to our review:

        DATE                                      OCCURRENCE
 April 22, 1970          Last Star Homes was originally mortgaged under Section 236 of
                         the National Housing Act
 March 16, 1982          The mortgage was assigned to HUD
 July 27, 1989           The mortgage was foreclosed and purchased by HUD
 November 13, 1990       HUD Headquarters issued a memorandum authorizing a
                         negotiated sale of the project and stating the conditions under
                         which the sale was to be negotiated
 January 4, 1991         HUD Headquarters issued a memorandum stating the
                         determination that the best method of disposition was for
                         Denver HUD to do the needed repairs
 June 19, 1992           HUD issued a letter to all the residents of Last Star Home
                         stating that they had made progress toward making the project
                         home ownership units
 June 17, 1993           HUD gave the project back to the Blackfeet by executing a Use
                         Agreement
 June 17, 1993           The effective date of the Housing Assistance Payments Contract
                         between HUD and the Blackfeet Tribe
 September 11, 1997      The Blackfeet Tribe passed a Tribal Resolution transferring the
                         management responsibilities to Blackfeet Housing
 November 20, 2000       Blackfeet Housing and the Blackfeet Tribe signed a certification
                         for the Contract Administrator certifying their employees were
                         qualified to execute all documents relating to HUD Contract
                         Administration Programs
 June 27 and 28, 2001    The Contract Administrator conducted a Management and
                         Occupancy Review
 June 2001               The last month in which Blackfeet Housing submitted a Section
                         8 Housing Assistance Payment Voucher Request
 August 1, 2001          The Management and Occupancy Review Report was issued to
                         the Director of Blackfeet Housing
 November 20, 2001       The Contract Administrator requested that HUD take back
                         servicing of the project
 March 2002              HUD took back the servicing of the project at the Contract
                         Administrator’s request
 May 3, 2002             The Blackfeet Tribe proposed converting the units to home
                         ownership
 May 8, 2002             The Blackfeet Tribe requested that HUD terminate the Section 8
                         Housing Assistance Payments Contract
 August 2, 2002          HUD denied the Tribe’s request to terminate the Contract



                                           15
      DATE                                  OCCURRENCE
September 24, 2002   The Denver Multifamily Hub referred the project to the Los
                     Angeles Departmental Enforcement Center
January 8, 2003      Blackfeet Housing's attorney finally submitted a response to the
                     Management and Occupancy Review Report
May 19, 2003         HUD Enforcement Center received a legal memorandum from
                     the Blackfeet Housing’s attorney




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                   Appendix C
AUDITEE COMMENTS




       17
18
                                                                    Appendix D

                     DISTRIBUTION OUTSIDE OF HUD

The Honorable Susan M. Collins, Chairman, Committee on Government Affairs
The Honorable Joseph Lieberman, Ranking Member, Committee on Government Affairs
The Honorable Thomas M. Davis, III, Chairman, Committee on Government Reform
The Honorable Henry A. Waxman, Ranking Member, Committee on Government
       Reform
Elizabeth Meyer, Senior Advisor, Subcommittee on Criminal Justice
Andy Cochran, House Committee on Financial Services
Clinton C. Jones, Senior Counsel, Committee on Financial Services
Kay Gibbs, Committee on Financial Services
Mark Calabria, Committee on Banking, Housing, and Urban Affairs
W. Brent Hall, U.S. General Accounting Office
Steve Redburn, Chief Housing Branch, Office of Management and Budget
Linda Halliday, Department of Veterans Affairs, Office of Inspector General




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