oversight

Domicile Property Management, Inc. Multifamily Management Agent San Antonio, TX

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-11-19.

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

                                                             Issue Date
                                                                   November 19, 2004
                                                             Audit Case Number
                                                                    2005-FW-1002




TO:            Elva Castillo
               Director, Multifamily Program Center, 6JHMLAX

               Margarita Maisonet
               Director, Enforcement Center, CV



FROM:          D Michael Beard
               Regional Inspector General for Audit, 6AGA

SUBJECT:       Domicile Property Management, Inc.
               Multifamily Management Agent
               San Antonio, Texas


                                    INTRODUCTION

As part of the Office of Inspector General’s initiative to combat equity skimming in the
multifamily housing programs, we have completed an audit of Domicile Property
Management, Inc. (Domicile). The Office of Investigation requested us to do the audit.
Our objectives were to determine whether Domicile used HUD assisted property funds in
compliance with the regulatory agreements and applicable HUD requirements.

To accomplish our objectives, we interviewed Domicile’s owner, his employees as
necessary, his attorneys, and HUD staff. We reviewed Domicile’s records and HUD
assisted property records including general ledgers, bank statements, cancelled checks and
supporting documentation, and audited financial statements.

Our review started on September 21, 2000, and concluded July 25, 2003. We performed the
review at Domicile’s office and the San Antonio HUD office. We discussed our initial
findings with the United States Attorney’s office on September 17, 2001. Based on the
interest of the assigned Assistant United States Attorney, we expanded the review and
examined 100 percent of the HUD assisted property disbursements between January 1,
1997, and December 31, 2000. Because Domicile was slow to produce records, we issued a
subpoena on December 13, 2001. We took custody of the records on March 6, 2002. We
conducted our audit in accordance with generally accepted government auditing standards.

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.

Should you or your staff have any questions, please contact me at (817) 978-9309.


                                      SUMMARY

In violation of the properties’ regulatory agreements, Domicile diverted property income
totaling $771,103 to pay its own expenses and paid $1,469,926 from property accounts
without documentation to show the payments were for necessary and reasonable
operating costs. Further, Domicile did not abide by the 1995 settlement agreement for a
previous HUD claim, involving project overcharges during 1992 and 1993. Under that
agreement, Domicile paid $272,113 but did not report and pay an additional $49,262 for
self-funded health insurance. Because of Domicile’s current diversions and failure to pay
the previous settlement obligation, they deprived the properties of operating funds
reducing HUD’s security interests and increasing HUD’s risks.

We discussed each of the matters presented with Domicile’s owner during the audit and
requested his written responses. We are providing his responses in the finding and our
evaluation of his responses. We did not receive responses on the excess management
agent fees, ineligible telephone charges, and unsupported costs. His full response is
attached in Appendix C.


                                    BACKGROUND

Mr. John Condit owns Domicile Property Management Inc. Domicile’s office was located
at 601 Howard Street, San Antonio, Texas 78212. Domicile managed 35 HUD assisted
properties; 27 with HUD insured mortgages and 8 with HUD direct loans. The properties
are located in Texas, Oklahoma, and Kansas. A list of the properties as of July 31, 2003,
showing the property name, Housing Act section, whether the mortgagor is a nonprofit,
fiscal yearend (FYE), and the loan status is shown in Appendix B.

As of March 25, 2003, Domicile stopped managing three of the properties, Alexandra,
Kings Cove and Knightbridge. One property, Mulberry Court, is in foreclosure, two, Kings
Cove and Silverwood, are in default and nine, Alexandra, Alice Village, Aurora, Clinton
Parkway, Kings Cove, Knightsbridge, Mercedes Palms, Mission Village, and Mulberry
Court, were in a nonsurplus cash positions as of fiscal yearend 2001. The remaining
properties were current.


                                            2
The HUD Office of Inspector General’s initiative to combat equity skimming consists of
audits such as this one where auditors consult with the appropriate United States
Attorney’s office and HUD Assistant General Counsel to recover project funds used in
violation of the regulatory agreement. Under Title 12, United States Code (USC),
Section 1715z-4a, HUD may recover double the amount of project assets used for
purposes other than those permitted by the regulatory agreement, plus the cost of any
audit, litigation, and attorney’s fees. We provided a prosecution/litigation package to the
HUD Assistant General Counsel on July 25, 2003, and to the United States Attorney’s
office, Western District of Texas, on August 27, 2003. On August 10, 2004, we received
approval from the United States Attorney’s office to release this audit report.

On August 28, 2003, we learned that United States Marshals enforced a seizure order
issued by the Lubbock Division of the United States District Court of the Northern
District of Texas against Domicile’s owner in an unrelated matter. A receiver has been
appointed by the United States District Court to take over his assets. The receiver has
taken steps to freeze his assets, including appointing McDougal Properties to take over
Domicile Property Management, Inc.


                                        FINDING

Domicile Diverted Property Income to Pay Management Agent and
Unsupported Property Expenses
Domicile Property Management, Inc., diverted $771,103 of property income to pay
management agent expenses in excess of what federal requirements allowed and paid
$1,469,926 in unsupported expenses. Further, Domicile did not fully abide by the 1995
agreement with the United States Attorney’s office. Domicile paid part of the settlement
but has not fulfilled all of the agreement. Domicile has recognized a liability on its books
in the amount of $49,262 but has not remitted the funds to the government.

The government’s current claim includes $771,103 in diverted funds, $1,469,926 of
unsupported costs, $49,262 due from the 1995 settlement, and $352,053 in audit costs.
The claim is detailed below. Title 12, USC, Section 1715z-4a, provides for the
government to recover double damages for violating the regulatory agreements.




                                             3
    Diversions:
      Front-Line Costs:
         Per Unit Bookkeeping Fee                              $ 481,173
         Postage                                                  43,884
         Payroll Processing Fee                                  119,721
      Management Fees                                             43,868
      Training                                                    66,730
    Telephone                                                     15,727           $ 771,103          *
    Other Unsupported                                                              1,469,926          *
    1995 Settlement, Self-Funded Ins.                                                 49,262
    Audit costs                                                                      352,053

    Total                                                                         $2,642,344

                                   * Subject to double damages

Federal Requirements

The property owner signs and agrees to the regulatory agreement to obtain a non-recourse
loan and either HUD FHA mortgage insurance (federal guarantee for mortgage
repayment to the lender), a HUD direct loan or HUD financial assistance. The regulatory
agreement pledges all income from the property to HUD and spells out the only proper
uses of property funds such as:

    •   Payment of the mortgage;
    •   Deposits to the reserve for replacements and other required reserves;
    •   Payment of reasonable expenses necessary for proper operation and maintenance
        of the project;1
    •   Distributions of surplus cash when permitted; and
    •   Repayment of mortgagor advances authorized by the commissioner’s
        administrative procedures.

The Section 202 and 811 regulatory agreements prohibit the owner or any owner
representative from having any financial interest in any contractual arrangement entered
into by the owner in connection with rendition of services, the provision of goods or
supplies, management of the project, procurement of furnishings and equipment,
construction of the property, procurement of the site, or other matters whatsoever.

In addition, the regulatory agreement requires the owner to:




1
    Payments for services, supplies, or materials shall not exceed the amount ordinarily paid for such in the
    same area.


                                                     4
   •   Maintain the property’s books and accounts according to HUD requirements
       (Handbook 4370.2 REV-1 Financial Operations and Accounting Procedures for
       Insured Multifamily Projects) and in reasonable condition for audit;
   •   Retain all copies of written contracts or other instruments, which affect the
       property;
   •   Provide access to those records by authorized agents;
   •   Maintain the premises in substantial repair and condition; and
   •   Provide property management satisfactory to HUD.

In providing property management, HUD requires the owner and agent to provide a
management certification. The owner and agent certify and agree to:

   •   The fee (as a percentage of revenue);
   •   Any special fee;
   •   Comply with the regulatory agreement;
   •   Comply with HUD Handbooks, notices, and other policy directives relating to
       management of the property;
   •   Ensure all expenses are reasonable and necessary;
   •   Obtain cost estimates and document the reasons for accepting other than the
       lowest bid;
   •   Maintain copies of documentation;
   •   Refrain from purchasing from identity-of-interest entities;
   •   The types of insurance policies and coverage;
   •   Respond to HUD inquiries; and
   •   All the records belonging to the property.

The owner and agent sign the certification under false statement, criminal, and civil
equity skimming and civil money penalty warnings.

HUD Handbook 4381.5 REV-2, The Management Agent Handbook, applies to
management agents of HUD-insured and HUD-assisted properties. HUD designed the
handbook to serve as a reference for owners and their management agents. The Director
of Housing may waive directives specified in this handbook only if they are not formally
required by statute or regulation. According to the Director of the Multifamily Program
Center, HUD has not issued a wavier to Domicile. The project owner is responsible for
selecting a management agent, subject to HUD approval. The management agent is paid
a management fee for their services. The agent must cover the costs of supervising and
overseeing project operations out of their fee.

Management Costs Paid from Management Fee

The agent pays expenses for services that are not front-line activities (see paragraph
below explaining front-line activities) from the management fee, except centralized
accounting and computer services. Other costs paid from the agent’s fee include
overhead expenses (e.g. supplies and equipment, transportation and phone calls to the
projects, regularly scheduled long distance calls from project to agent, office space, data


                                             5
processing, etc). Additional costs paid from the agent’s fee include salaries, fringe
benefits, office supplies, fees, contract costs, and designing procedures/systems to keep
the project running smoothly and in conformity with HUD requirements.

Contracting Guidelines

The agent solicits written cost estimates from at least three contractors or suppliers for
any contract, ongoing supply or services expected to exceed $10,000 per year. For
contracts estimated to cost less than $5,000 per year, the agent should solicit verbal or
written estimates. The agent should retain the documentation as part of the project’s
records for 3 years following the completion of the work.

Front-Line Activities

HUD allows reasonable expenses for front-line activities including when a management
agent elects the single office approach as Domicile has. Front-line activities include:
taking applications; screening, certifying, and recertifying Section 8 residents (residents
with subsidized rent); maintaining the project; and accounting for project income and
expense. When front-line activities are performed out of a single office, HUD requires
the agent to prorate the total associated costs based on actual use. Agents may not
impose surcharges or administrative fees in addition to actual costs.

Bookkeeping

The costs of bookkeeping services for a project performed as part of a centralized system
are treated as a project cost and should not be treated as a special fee. Such expenses are
paid from project funds based on actual costs. A project can reimburse the agent for
prorated cost of personnel providing property-specific accounting and computer services
to the project. The cost to the project for such services provided by the agent may not
exceed the cost of procuring comparable services from an independent vendor. Each
year, the agent must determine that these costs are at or below the market and maintain
such evidence on-site. The agent pays the agent’s bookkeeping expenses from the
management fee.

Training for Front-Line Staff

Owners and agents may use property funds to obtain project related (emphasis added)
training.

Telephone Charges

From the management agent’s fee the management agent pays for telephone charges
originating from his office to the project and any regularly scheduled calls from the
project to the agent’s office. The project pays for other calls originating from the project
to the agent’s office.




                                              6
HUD Handbook 4370.2 REV-1, Financial Operations and Accounting Procedures for
Insured Multifamily Projects, is the principal guide for financial and accounting
operations for HUD insured properties. The Handbook applies to multifamily rental
properties under charter or regulatory agreement permitting HUD to exercise control over
property administration and operation. The general objectives include:

   •   Executing all transactions in accordance with property management and where
       required, HUD’s authorization;
   •   Reporting on all financial transactions using HUD guidelines and generally
       accepted accounting principles;
   •   Safeguarding property assets; and
   •   Providing timely, accurate, and complete information for management decision-
       making and assisting with compliance with HUD specified accounting
       procedures.

Further, all disbursements (including checks, wire transfers, and computer generated
disbursements) must be supported by approved invoices/bills or other supporting
documentation.

Disputed Costs

Domicile diverted $771,103, and did not adequately document $1,469,926 in costs
charged to insured properties. Also, Domicile did not pay $49,262 due from the prior
agreement with the United States Attorney’s office. Domicile used the following
diversion methods:

       1. Front-Line Costs:
          a. Charging bookkeeping fees instead of actual cost;
          b. Charging management agent costs as postage;
              i.   Charging each property $32 to $34 per month to refill Domicile’s
                   postage meter instead of the actual property’s cost and
             ii. Collecting a fee for postage to pay management agent cost; and
          c. Charging payroll-processing costs payable from the management fee.
       2. Collecting excess management fees;
       3. Charging a training fee instead of actual cost and then using the fees to pay
          management agent costs;
       4. Charging management agent telephone calls; and
       5. Charging unsupported expenses.

Domicile used property income and rents to pay management agent expenses in excess of
what federal requirements allow. Further, Domicile did not establish the use of property
income and rents for reasonable operating expenses and necessary repairs or adequately
document disbursements.




                                            7
Front-Line Costs

Domicile charged bookkeeping and postage fees (special fees) in excess or instead of the
actual cost. Further, Domicile improperly paid management agent expenses including
postage meter refills and payroll-processing fees from insured property funds. Total
disputed front-line costs are $644,778.

Bookkeeping Fee

Domicile charged the properties $481,173 in bookkeeping fees instead of actual cost.
From Domicile’s books and records we could not determine an individual property’s
actual bookkeeping cost, a method to prorate those costs in proportion to actual use, or
whether the bookkeeping costs were reasonable. HUD requires the cost of bookkeeping
services for a property, performed as part of a centralized system, to be treated as a
property cost and not as a special fee. Properties pay bookkeeping expenses based on
actual costs.2 Further, Domicile never provided any documentation as to whether an
outside vendor could perform the same services for less, as required by HUD.3 We found
no cost comparisons, studies, solicitations, or any other means for determining the
reasonableness of bookkeeping costs.

                                 AUDITEE RESPONSE

Domicile’s owner provided the breakdown of the monthly per unit bookkeeping
reimbursement of $6.01. Domicile’s owner said he based the fee calculation on costs
including salaries, hardware/software, office rent, property taxes, overhead, and supplies
divided by total units under management.

                  OIG’S EVALUATION OF AUDITEE RESPONSE

Domicile’s response addresses a fee that HUD does not allow. The management agent is
required to charge actual bookkeeping costs. The bookkeeping salaries appeared to be
for only 1 month and Domicile provided no supporting documentation. In addition,
according to HUD Handbook 4381.5 REV-2, The Management Agent Handbook, Figure
6-2, office rent, property taxes, and overhead are payable from the agent’s fee not from
the property.

Postage

Domicile charged the properties $43,884 for postage. Domicile collected $32 to $34 per
month in fees from the properties, deposited them in a separate Domicile bank account and
used the fees to pay management agent costs. The fees amounted to $34,035. Domicile
used these funds for management agent expenses including payroll, lease of a postage meter
at the agent’s central office, and postage for that meter. However, Domicile charged the

2
    HUD Handbook 4381.5 REV-2, The Management Agent Handbook, 3.6 c.
3
    HUD Handbook 4381.5 REV-2, The Management Agent Handbook, Figure 6-2.


                                             8
properties another $9,849 to refill Domicile’s postage meter. Initially, Domicile made
checks payable to the Postmaster and used $9,849 to refill Domicile’s postage meter.
Starting in 1998, Domicile made the checks payable to itself. Domicile charged insured
properties $34,035 for postage, when the property purchased no postage. On the check
vouchers, Domicile noted the checks as “postage,” “monthly postage,” or “office supplies”
claiming these as property expenses. However, they were not property expenses.

                                  AUDITEE RESPONSE

Domicile’s owner said he uses the $34 per month to offset allowable direct property
expenses incurred in the daily management of the properties. He said these expenses
include the cost of check stock, check printer, envelopes, postage, and copies. These
expenses are allowed by HUD Handbook 4381.5 REV-2, The Management Agent
Handbook, Figure 6-2. He said he chose the per month fee to avoid the cost of accounting
for each actual item. He said this would add almost $18 per month per property to the cost.
He said this is a reasonable reimbursement, they are holding down the cost of small items.

                  OIG’S EVALUATION OF AUDITEE RESPONSE

Again, Domicile’s response addresses a fee that HUD does not allow. Although, HUD
Handbook 4381.5 REV-2, The Management Agent Handbook, Figure 6-2, allows these
expenses, Domicile must account for these expenses and charge them on an actual basis. In
fact, Domicile does charge some of these expenses directly and continues to collect the
monthly fee. Finally, the auditee states the fee is reasonable but provides nothing to support
the statement.

Payroll-Processing Fee

Domicile contracted with a payroll-processing firm in June 1993 and presently uses an
employee leasing arrangement. Domicile charges its processing fee to the properties. Thus,
Domicile has transferred its management agent cost and payroll function to the insured
properties. So far, Domicile has charged $119,721 in payroll-processing costs payable from
the management agent fee to insured properties. In February 1994, Domicile asked HUD to
confirm the fee as an eligible project expense. HUD’s Chief of Loan Management told
Domicile in a letter that the payroll-processing cost “must be paid from the management
fee.” Domicile disregarded HUD instructions and passed on the payroll-processing costs
anyway. Further, Domicile did not provide any documentation as to the reasonableness or
cost effectiveness of using a payroll-processing service or an employee leasing arrangement.
As a result, property funds totaling $119,721 are ineligible.

                                  AUDITEE RESPONSE

Domicile’s owner said, “The payroll processing fees incurred for payroll management have
varied based on the level of service for which an outside service was contracted. Prior to
1999, DPMI (Domicile [added by OIG]) kept the Human Resource function in-house and
engaged an outside service that only issued payroll checks and processed the payroll tax



                                              9
requirements. Employee benefits, non-participant or worker’s compensation insurance and
the employee medical insurance were placed using in-house staff.’

‘The rising cost of, and difficulty of obtaining, health and worker’s compensation insurance
and employee benefits, as well as the increasing complexity of the Human Resource
function dictated either addition of internal staff or contracting for a higher level of service.
The determination was made to shift the personnel function to a staff leasing arrangement.
The staff leasing engagement encompasses far more than just payroll processing, being all
inclusive of the Human Resource function.’

‘In June 2000 DPMI entered into a contract with Premier Consulting, Inc. for full employee
leasing services under a co-employment agreement. The fee paid to Premier for this service
was 4% of the base payroll. During the year the service was evaluated and found not to be
of the overall quality expected. Further, we did not consider the cost of their service
formula to be the most appropriate for the wide range of property types and salary ranges.
At the end of the first year of the contract DPMI, in an effort to obtain better service to cost
performance, re-bid the employee leasing contract.’

‘After review of a number of bids and interviews with four firms, AdminiStaff was selected
as the service provider. In negotiations with AdminiStaff, a basic bundle rate of
approximately 20.25% of base payroll was agreed. This bundle rate includes payroll taxes,
worker’s compensation insurance, health insurance, benefits and the service fee. Because
AdminiStaff quotes only a “bundle” rate, the exact percentage of payroll that comprises the
AdminiStaff service fee cannot be broken out as a specific percentage of payroll that is
common across all properties. However, when we looked at all competing bids the total
“cost of service” and range of service provided showed the AdminiStaff bid to be in line
with competing proposals but with a superior service package.’

‘The fee(s) paid to AdminiStaff are assessed directly to each property and are paid by that
property. DPMI corporate payroll is administered and charged under the same formula as
each property. There is no add-on fee from DPMI and DPMI receives no rate break or
extensive resources providing AdminiStaff with payroll and employee documentation and
information.”

                     OIG EVALUATION OF AUDITEE RESPONSE

Although Domicile’s owner provided additional information about the payroll-processing
fee charged to the projects, he did not respond to the issue of paying management agent
costs from property income. Further, he did not address why he did not stop the practice
when HUD’s Chief of Loan Management specifically told him in writing the payroll
processing cost must be paid from his management fee.

Excessive Management Fees

Domicile collected $43,868 in excess management fees from Mt. Carmel, an insured
property. According to Mt. Carmel’s 2000 audited financial statements, Domicile’s



                                               10
owner stated that Domicile discovered a management contract with a fee rate of 8.6
percent instead of 7 percent. Domicile retroactively charged and collected the difference
in fees. Domicile has not produced the management contract supporting the increase in
management fees or paid back the excess fee.

Training/Seminar

Domicile collected $66,730 in training fees instead of charging actual training cost.
Then, Domicile’s owner used these funds to finance his “annual seminar.” HUD allows
training, but it must be project related.4 Domicile showed these charges in the properties’
books and accounts as training expenses with no support. Domicile noted “training
expense” on the project check vouchers.

We reviewed Domicile’s annual seminar records and found that Domicile did not spend
all the funds collected for project related training. As of December 31, 2000, Domicile
had accumulated $22,106 in excess of actual cost. Domicile provided the agenda for
seminars in 1999 and 2000. The seminar expenses appear about half project related. To
illustrate, the 2000 seminar ended at noon on May 26. The hotel bill shows everyone
stayed over until the next day. In 1999, Domicile purchased shirts for participants and
paid for a trip to Disney World. In 1998, Domicile paid for the printing of its Operating
Manual, a management agent expense. In 1999 and 2000, Domicile passed out cash
awards.

                                 AUDITEE RESPONSE

Domicile’s owner said he holds an annual training seminar lasting 3-1/2 to 4 days for
property managers. They cover project related subjects including break out sessions for
HUD and conventional properties. He said HUD approved the training. He assesses a
monthly reimbursement in order to offset the training cost. He charges $40 for properties
in the metro area, $50 within driving distance and $70 if air travel is required.

                   OIG EVALUATION OF AUDITEE RESPONSE

HUD does approve project related training. However, our review showed only about half
of the training was project related and that Domicile has accumulated $22,106 (as of
December 31, 2000) in excess of actual costs. Domicile needs to return the training fees
and charge the projects only actual costs for project related training as approved by HUD.

Telephone Costs

Domicile charged $15,727 in long distance telephone costs to the insured properties when
it should have been payable from the management agent fee. HUD requires the agent to
pay the cost of telephone calls to the project and regularly scheduled long distance calls
from the project to the agent.5 We did not solicit comments from Domicile’s owner since

4
    HUD Handbook 4381.5 REV-2, The Management Agent Handbook, 6.38 c. (1).
5
    HUD Handbook 4381.5 REV-2, The Management Agent Handbook, Figure 6-2.


                                             11
the calls were placed from his office to the project and according to HUD Handbook
4381.5 these type of costs are clearly ineligible.

Unsupported Costs

Domicile did not document $1,469,926 in costs paid to Domicile and charged to insured
projects as required by HUD handbooks and the Civil Equity Skimming Statute. We
could not find bills, invoices, payroll records, or computations to support these costs as
either reasonable or necessary.

Settlement of 1995

Domicile did not abide by the 1995 agreement with the United States Attorney’s office.
The agreement with the United States Attorney’s office settled a HUD equity-skimming
claim of $272,113 covering the years 1992 and 1993. The agreement involved violations
for overcharging payroll costs, ineligible telephone charges, and overcharges for Section
8 subsidies. Domicile paid $272,113. Domicile agreed to terminate the health insurance
no later than July 30, 1996, and produce an accounting to HUD no later than120 days
after termination. As of the current date, Domicile has not provided the information but
has recognized a $49,262 liability on its books for self-funded health insurance.

Audit Costs

In addition, the government may claim $352,053 in reasonable audit costs allowed by the
Civil Equity Skimming Statute. We started the audit in September 2000. Domicile has
stalled and attempted to block our audit at every turn. We issued a letter on October 17,
2001, demanding records. We issued a subpoena for property and management agent
records on December 13, 2001. The United States Attorney’s office was required to
enforce the subpoena and still Domicile did not provide the records until March 6, 2002.
Further, due to the nature of the diversions and the huge number of disputed transactions
of a relatively small dollar amount, considerable audit effort was required to review each
property on a transaction-by-transaction basis.


                                RECOMMENDATIONS

We recommend the HUD Director of Multifamily Housing, through the Office of
Regional Counsel and the United States Attorney’s Office, as appropriate, require
Domicile and its owner:

1A.    To repay the properties $771,103 diversions identified in the current audit.

1B.    To repay the properties or provide adequate support for the $1,469,926 in
       unsupported costs.

1C.    To repay the properties $49,262 owed from the 1995 settlement.



                                            12
1D.    To pay the government reasonable audit costs of $352,053, as permitted by Title
       12, United States Code, Section 1715z-4a.

Also, we recommend the Director, Enforcement Center to:

1E.    Take administrative sanctions against the owner and Domicile.




                                          13
                            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:

       Methods and procedures to ensure disbursements are in compliance with the
       regulatory agreements.

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.

We gained an understanding of the management controls but did not rely on them during
our review. Based on our review, the owner of the Domicile Property Management, Inc.
was able to override any method or procedure used to ensure disbursements were in
compliance with the Regulatory Agreement (see Finding).




                                           14
                                                                                              Appendix A

    SCHEDULE OF QUESTIONED COSTS AND FUNDS PUT TO BETTER USE




              Recommendation                                                   Funds Put to
                                                     1                     2
              Number                    Ineligible        Unsupported          Better Use 3
                      1A                    $771,103
                      1B                                      $1,469,926
                      1C                       49,262
                      1D                                                           $352,053
                     Totals                 $820,365          $1,469,926           $352,053




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 polices or regulations.
2
    Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity
    where we cannot determine eligibility at the time of audit. 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 quantifiable savings that are anticipated to occur if an OIG
    recommendation is implemented resulting in reduced expenditures in subsequent period for the
    activities in question. Specifically, this includes costs not incurred, de-obligation of funds, withdrawal
    of interest, reductions in outlays, avoidance of unnecessary expenditures, loans and guarantees not
    made, and other savings.




                                                     15
                                                                                  Appendix B
                       Domicile Property Management Inc.
       Schedule of HUD Insured and Assisted Properties Managed by Domicile
                               As of July 31, 2003


                         Act                     Non-
  Property               Section   Loan/FHA #    Profit      FYE Loan Status
 1 AGI-1                    236      115-44046      Yes                 Current
 2 AGI-2                   221d3     115-35102      Yes                 Current
 3 Alexandra Place         221d4     112-35325             Dec 31       Current
 4 Alice Village           221d4     115-35238             Dec 31       Current
 5 Antioch Village         221d3     115-35012      Yes                 Current
 6 Aurora                  221d4     115-35234             Dec 31       Current
 7 Chisolm Trace           221d4     115-35183             Dec 31       Current
 8 Cliff Maus Village      221d3     115-35015      Yes                 Current
 9 Clinton Parkway         221d4     102-35131               Dec 31     Current
10 Dove Valley Ranch       221d3                 still in development
11 Fairhaven - 1            202      118-EH002       Yes                not applicable
12 Fairhaven - 2            202      118-EH023       Yes                not applicable
13 Fairhaven - 3            202      117-EH069       Yes                not applicable
14 Fairhaven - 4            202      118-EH030       Yes                not applicable
15 Golden Terrace           202      113-EE013       Yes                not applicable
16 Houston House            236      115-44038       Yes                Current
17 Kings Cove              221d4      08435253               Dec 31     Current
18 Knightsbridge Manor     221d4     102-35159               Dec 31     Current
19 La Luz                  221d3     115-35113       Yes                Current
20 Las Puertas             221d3                 still in development
21 La Quinta               221d3     115-35131       Yes                Current
22 Lulac Amistad           221d3     115-35039       Yes                Current
23 Lulac West Park          236      115-44013       Yes                Current
24 Mercedes Palms          221d4     115-35217               Dec 31     Current
25 Mission Village         221d4     115-35200               Dec 31     Current
26 Monarch Place            202      115-HH005       Yes                not applicable
27 Mt. Carmel               236      115-44199       Yes                Current
28 Mulberry Court          221d4     102-35139               Dec 31     default 9/1/01
29 New Lake Village         236      118-44032       Yes                Current
30 Pan American            221d3     115-35004       Yes                Current
31 Regal Village            811      115-HD014       Yes                not applicable
32 Silverwood              221d4     102-35153               Dec 31     Current
33 Stockton Village        221d3     133-35032       Yes                Current
34 Tomball Pines            811      114-HD006       Yes                not applicable
35 West End Baptist        221d3     115-35032       Yes                Current




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                   Appendix C

AUDITEE COMMENTS




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