oversight

Multifamily Insured Project Saint Timothy's Tower, Compton, CA, Was Not Administered in Accordance With HUD Rules and Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-06-20.

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

                                                                  Issue Date
                                                                           June 20, 2011
                                                                  Audit Report Number
                                                                               2011-LA-1011




TO:         Kelly Boyer, Director, Los Angeles Multifamily Housing Hub, 9DHML

            Dane Narode, Associate General Counsel for Program Enforcement, CACC




FROM:       Tanya E. Schulze, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: Multifamily Insured Project Saint Timothy’s Tower, Compton, CA, Was Not
         Administered in Accordance With HUD Rules and Regulations


                                    HIGHLIGHTS

 What We Audited and Why

      We reviewed the books and records of Saint Timothy’s Tower (project), a 114-unit U.S.
      Department of Housing and Urban Development (HUD)-insured (Section 236) Section 8
      multifamily project consisting of 1 high-rise elevator building located in Compton, CA.
      We initiated the review in response to a request from the Departmental Enforcement
      Center due to its concerns about the owner’s use of project funds. Our objective was to
      determine whether the project was administered in accordance with HUD rules and
      regulations. Specifically, we wanted to determine whether project funds were used for
      eligible purposes and whether the project was decent, safe, sanitary, and in good repair.
    What We Found


         The owner/agent improperly used or lacked supporting documentation for the use of
         $286,326 in project funds. The owner/management agent inappropriately used $154,421
         in project funds for nonproject (ineligible) purposes in violation of its regulatory
         agreement. The ineligible uses included $94,815 for senior enrichment; $30,560 for a
         vacant lot; and $9,358 for lobbying, donations, and entertainment. Additional improper
         uses consisted of $8,388 paid to a resident to assist management in providing ineligible
         senior enrichment activities and unauthorized loans of $11,300. The owner also lacked
         documentation to support disbursements of $95,036 in office salaries and $36,869 in bad
         debt expenses.

         The owner’s procurement activities were also not adequately supported in accordance
         with HUD requirements. As a result, the owner did not ensure that it obtained $146,058
         in goods and services at a reasonable cost and in accordance with HUD rules and
         regulations.

         Finally, the owner did not always ensure that the project was decent, safe, sanitary, and in
         good repair. Our inspections revealed that the building and 18 of the 32 units inspected
         did not meet HUD’s physical condition standards for HUD housing.

    What We Recommend


         We recommend that the Director of HUD’s Los Angeles Office of Multifamily Housing
         require the owner/management agent to (1) repay the project operating account $143,1211
         used for ineligible expenses from non-Federal sources; (2) support $36,869 in bad debt
         expenses or repay the project’s operating account from non-Federal sources; (3)
         discontinue the practice of using project operating funds to pay for payroll advances; and
         (4) establish and implement controls and procedures to ensure compliance with the
         regulatory agreement and other HUD requirements for documenting payroll, using
         payroll advances, and maintaining procurement documentation and to ensure that all
         units, common areas, and the emergency call system are decent, safe, sanitary, and in
         good repair. We also recommend that HUD perform a limited review of St. Timothy’s
         Manor’s ineligible senior enrichment expenses.

         For each recommendation without a management decision, please respond and provide
         status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us
         copies of any correspondences or directives issued because of the audit.




1
  Since unauthorized loans of $11,300 were repaid to the project, that amount is not included as part of the
recommendations for repayment.


                                                          2
Auditee’s Response


     We provided our discussion draft report to the owner/agent on May 9, 2011, and held an
     exit conference on May 12, 2011. The owner/agent generally agreed with the facts of the
     findings and had already made some efforts to implement some corrective action, but
     disagreed it should be required to repay the questioned costs.

     The complete text of the auditee’s response, along with our evaluation of that response,
     can be found in appendix B of this report. The auditee also provided additional
     documentation related to the eligibility of the expenses. We did not include this in the
     report because it was too voluminous; however, it is available upon request.




                                             3
                            TABLE OF CONTENTS

Background and Objective                                                        5

Results of Audit
Finding 1: The Owner/Agent Improperly Used or Lacked Supporting Documentation   6
           for the Use of $286,326 in Project Funds

Finding 2: The Owner/Agent Did Not Always Ensure That the Project Was Decent,   12
           Safe, Sanitary, and in Good Repair

Finding 3: The Owner/Agent Did Not Adequately Support Its Project Procurement   17
           Activities

Scope and Methodology                                                           19

Internal Controls                                                               21

Appendixes

       A.   Schedule of Questioned Costs                                        23
       B.   Auditee Comments and OIG’s Evaluation                               24
       C.   Criteria                                                            31
       D.   Schedule of Ineligible Costs                                        38
       E.   Schedule of Inspection Results                                      39




                                            4
                       BACKGROUND AND OBJECTIVE

Saint Timothy’s Tower (project) is located in Compton, CA. The project is owned by the
nonprofit corporation, Saint Timothy’s Manor doing business as Saint Timothy’s Tower and
Manor, Incorporated (Inc.). Saint Timothy’s Tower and Manor, Inc., was incorporated with the
Secretary of the State of California through its Articles of Incorporation on October 2, 1961. The
nonprofit corporation, Saint Timothy’s Manor, entered into a regulatory agreement with the U.S.
Department of Housing and Urban Development (HUD) on July 1, 1970. Saint Timothy’s
Tower and Manor, Inc., owns and manages two separate HUD-insured projects: Saint Timothy’s
Tower and Saint Timothy’s Manor. The project is located at 425 South Oleander Avenue in
Compton, CA, and it shares management and common areas with the Saint Timothy’s Manor
project.

The project is a 114-unit HUD-insured (Section 236) Section 8 multifamily project consisting of
1 high-rise elevator building. The mortgage is due to be paid in full on September 1, 2011; thus,
the regulatory agreement is in place until that date. Section 8 assistance is provided to 112 of the
units. The project’s residents are low-income senior citizens and people with disabilities. The
facility provides housing, senior activities, and an interface for social services through the City of
Compton and the County of Los Angeles. It received more than $1.4 million in Section 8
housing assistance payments from January 2008 to September 2010. Section 8 housing
assistance payments are expected to continue after the mortgage is paid in full. Specifically, the
housing assistance payments contract is active and does not expire until October 1, 2014.

Saint Timothy’s Manor (manor) is a 21-unit apartment project for the elderly located in
Compton, CA. It is operated under Section 202 of the National Housing Act. Its major program
is its Section 202 HUD-insured direct loan. It is also subject to Section 8 housing assistance
payments agreements with HUD.

Audit Objective

Our objective was to determine whether the project was administered in compliance with HUD
rules and regulations. Specifically, we wanted to determine whether project funds were used for
eligible purposes and whether the project was decent, safe, sanitary and in good repair.




                                                  5
                                      RESULTS OF AUDIT

Finding 1: The Owner/Agent Improperly Used or Lacked Supporting
           Documentation for the Use of $286,326 in Project Funds
The project owner/agent did not comply with the terms of its regulatory agreement when it
improperly used or lacked supporting documentation for the use of $286,326 in project operating
funds. Specifically, the project owner/agent used $154,421 in project funds for ineligible
expenses, and it could not support the eligibility of $131,905 in project funds. The problems
occurred because the owner did not follow its regulatory agreement with HUD and did not
ensure that it complied with HUD and Office of Management and Budget (OMB) rules and
regulations. As a result, $286,326 in project funds was not available for reasonable operating
expenses and necessary repairs.



    The Owner Spent $286,326 on
    Ineligible and Unsupported
    Expenses

         The owner spent $286,326 in project funds for ineligible ($154,421) and unsupported
         ($131,905) expenses (see appendix D). More specifically, the ineligible expenses related
         to the following:

                 Senior enrichment costs of $94,815 for activities such as memorial services for
                 deceased seniors, luncheons, gifts, fundraisers, and counseling services;
                 Disbursements of $8,388 made to a tenant to assist management in providing
                 senior enrichment activities;
                 Payments totaling $30,560 for the occasional use of a vacant lot adjacent to the
                 project;
                 Unauthorized loans totaling $11,3002 to employees/consultants in the form of
                 payroll advances (however, all funds were paid back to the project’s operating
                 account); and
                 Miscellaneous costs of $9,358 for activities such as lobbying, donations, and
                 entertainment costs.

         The unsupported expenses related to the following:

                 Payroll expenses of $95,036 for employees that did not have timesheets or time
                 activity reports to support that the employees worked on project activities and

2
 The actual amount of unauthorized loans was $12,800. Since $1,500 of this amount was included in the $8,388
paid to a tenant to assist management in providing senior enrichment activities, the amount was reduced to $11,300
($12,800 – $1,500).


                                                         6
            Bad debt expenses of $36,869 for which there were no records to support the
            nature of the costs.

     Details of the expenses are discussed separately below.

The Owner Spent $154,421 in
Project Funds for Ineligible
Expenses

     Ineligible Senior Enrichment Expenses

     The owner used project operating funds totaling $94,815 for ineligible senior enrichment
     expenses (see appendix D). The regulatory agreement states that owners shall not “…
     pay out any funds, except for reasonable operating expenses and necessary repairs.”
     Additionally, OMB Circular A-122, Attachment B: Selected Items of Cost, states that
     donations, contributions, and entertainment costs are not allowable (refer to appendix C).
     Contrary to HUD rules and regulations, project operating funds were frequently used for
     entertainment, counseling and church services, donations, memorial services, fundraisers,
     education, and gifts. Examples of specific ineligible senior enrichment expenses
     included the following:

            Donations to the California Community Foundation, Black History Program, Arts
            Council for Long Beach, Union of Black Episcopalians, and nonprofit
            organizations such as Food on Foot;
            Tickets to a Hollywood Bowl annual fundraiser;
            Tickets to attend the International City Theatre Anniversary Opening Gala;
            Tickets for a gala dinner hosted by 100 Black Men of Los Angeles; and
            Tickets to attend the 10th Anniversary of Opera Noir.

     In addition, more than 50 percent of the senior enrichment expenses went to Saint
     Timothy’s Episcopal Church and its affiliates such as the Episcopal Men’s Group, a Saint
     Timothy’s Episcopal Church priest, and the Union of Black Episcopalians. For instance,
     project operating funds were used to pay a monthly enrichment fee of $2,000 to Saint
     Timothy’s Episcopal Church. The fee was reportedly for the priest and assistant priest to
     provide services to the residents including counseling, Bible study, communion, and
     home prayer services for residents who were ill. We did not consider such operating
     expenses necessary to the project operations and, consequently, concluded that the senior
     enrichment expenses of $94,815 were ineligible project operating costs.

     Ineligible Payments to Senior Services Coordinator

     The project hired a resident as its senior services coordinator and paid $8,388 (see
     appendix D) for her services. According to the agreement, the coordinator’s duties
     included organizing trips, town hall meetings, and holiday celebrations for the residents.
     These were not eligible project costs or activities because such duties were not necessary


                                              7
to the project operations, and as a result, we concluded that the $8,388 paid to the
coordinator was ineligible.

St. Timothy’s Manor

The senior enrichment expenses were shared with the owner’s other HUD-insured
project, the manor. The manor shared resources such as management, staff, and common
areas with the project. The project and manor also had joint community activities. As a
result, each project paid an allocated portion of these costs. For example, the project paid
a percentage of senior enrichment costs that ranged from 82 to 85 percent during our
audit period. Therefore, it appeared that the manor may have paid for the remaining 15 to
18 percent of these costs. We will address a separate memo to HUD on this issue.

Ineligible Payments for Vacant Lot

Contrary to the regulatory agreement, the owner used $30,560 (see appendix D) in
project funds for monthly lease payments for the occasional use of a vacant lot adjacent
to the project located at 401 South Oleander Avenue in Compton, CA. In 2008, operating
funds of $2,000 were used at an auction for a deposit on the lot. Although Saint
Timothy’s Tower and Manor, Inc., used nonproject funds to purchase the property, the
project made monthly lease payments of $2,040 to Saint Timothy’s Tower and Manor,
Inc., for the occasional use of the lot for celebrations, holidays, and parking. We
concluded that the $2,040 was an unnecessary cost since it was only for occasional use
and the project had other common areas and parking. Further, the lot was zoned for
residential and not commercial use. Therefore, the owner did not have the authority to
bill the project for use of the land for which it was not zoned. The loan was due to be
repaid by the owner on the same date as the final payment was due on the project’s
mortgage; thus, it appeared that the $2,040 monthly payments were calculated to
essentially repay the owner for the loan it had taken out for the purchase of the property.
Consequently, we concluded that the $30,560 in expenditures was ineligible.

Unauthorized Loans

Contrary to the regulatory agreement, the owner made $11,300 in loans from project
funds to project personnel, including the project administrator, secretary, and a general
maintenance worker, for payroll advances; however, these amounts were repaid.

The regulatory agreement provides that the owner shall not pay out any funds except for
reasonable operating expenses or encumber any personal property of the project without
written approval from HUD. Although the funds were repaid, this was an ineligible use
of project funds, and the owner needs to discontinue its practice of using project funds for
payroll advances.

Due to the ineligible use of funds described above, $11,300 in project funds was not
available to pay for operating expenses of the project at the time when the payroll
advances occurred.



                                         8
           Other Ineligible Miscellaneous Costs

           Project funds totaling $9,358 (see appendix D) were used for miscellaneous expenses as
           follows:

                    Operating funds totaling $7,013 were disbursed to entities for donations. The
                    entities that benefited from the donations included but were not limited to the
                    Union of Black Episcopalian, the Episcopal Church Men’s Association, and Saint
                    Timothy’s Church Choir. The owner also used project funds for lobbying,
                    including donations to a United States presidential candidate campaign.
                    Operating funds totaling $1,070 were used for entertainment expenses, such as a
                    consultant hired to organize a New Year’s party.
                    Operating funds of $600 were used for bereavement donations, such as when
                    tenants passed away.
                    Operating funds of $675 were used to pay for ineligible advertising and public
                    relations costs. For instance, the owner promoted its non-profit organization in
                    its own newsletter. In addition, funds were used to pay memberships to the
                    Compton Chamber of Commerce and art decorations. The owner/agent recorded
                    these ineligible costs as advertising expenses.

    The Owner Spent $131,905 in
    Project Funds for Unsupported
    Expenses


           Unsupported Payroll Costs

           Contrary to Office of Management and Budget Circular A-122, the project did not have
           payroll records such as timesheets for its employees or consultants. Instead, the payroll
           costs were allocated and charged to the project.3 Of the salaries reviewed, we identified
           $95,036 in unsupported employee and consultant costs (see table below).

                                          Position                         Amount
                            1      Bookkeeper                           $69,126
                            2      Secretary                            $14,664
                            3      Administrator                        $11,246
                                   Total                                $95,036

           Since we confirmed that these employees and consultants worked for the project, we did
           not recommend additional support or repayment of the expenses. However, future
           payroll costs should be adequately supported by timesheets or other supporting
           documentation.


3
    The allocation ranged from 82 to 85 percent during our audit period. The difference was allocated to the manor.


                                                           9
     Unsupported Bad Debt Expenses

     The project had bad debt expenses totaling $36,869 in fiscal years 2008 ($19,652) and
     2009 ($17,217). The owner was unable to provide sufficient documentation showing
     how the amounts were determined. According to the project bookkeeper, the audit
     adjustment requests were made by the certified public accountant during the project’s
     annual financial statement audits. The bookkeeper added that the accountant did not
     provide supporting documentation for the request. Since the bookkeeper did not know
     how the amounts were determined, the bookkeeper wrote off the amounts and recorded
     them as bad debt expenses. In addition to the lack of supporting documentation, the
     amounts exceeded one percent of gross rents due from tenants which surpassed HUD’s
     reasonable amount of bad debt expenses. Consequently, bad debt expenses of $36,869
     were unsupported.

Conclusion



     The owner/management agent used $286,326 in project funds for ineligible purposes or
     unsupported expenses. In addition, the owner may have charged ineligible expenses to
     its affiliated St. Timothy’s Manor project. The deficiencies occurred because the owner
     did not establish and implement controls and procedures to ensure that project
     expenditures were eligible under the regulatory agreement and other HUD rules and
     regulations. As a result, $286,326 in project funds was not available for reasonable
     operating expenses and necessary repairs.

Recommendations



     We recommend that the Director of HUD’s Los Angeles Office of Multifamily Housing:

     1A.     Require the owner/agent to repay the project’s operating account $94,815 from
             non-Federal sources for project funds used for ineligible senior enrichment
             expenses (see appendix D).

     1B.     Require the owner/agent to repay the project’s operating account $8,388 from
             non-Federal sources for project funds paid to a tenant to assist management in
             providing senior enrichment activities (see appendix D).

     1C.     Require the owner/agent to repay the project operating account $30,560 from non-
             Federal sources for project funds used for the occasional use of a vacant lot (see
             appendix D).




                                             10
1D.    Require the owner/agent to repay the project operating account $9,358 from non-
       Federal sources for miscellaneous activities such as lobbying, donations, and
       entertainment costs (see appendix D).

1E.    Require the owner/agent to support $36,869 in bad debt expenses or repay the
       project’s operating account from non-Federal sources.


1F.    Establish and implement controls and procedures to ensure compliance with HUD
       requirements and with all terms and conditions of the regulatory agreement
       including documenting payroll and payroll advances.

1G.    Require the owner to support the eligibility of senior enrichment expenses paid by
       the manor or repay that amount from non-Federal sources.

We recommend that HUD’s Associate Counsel for Program Enforcement, in
coordination with the Director of the Los Angeles Office of Multifamily Housing and
HUD’s Office of Inspector General (OIG):

1H.    Pursue double damages remedies against the responsible parties for the
       ineligible/inappropriate disbursements and the applicable portion of the
       unsupported disbursements that were used in violation of the project’s regulatory
       agreement.

We recommend that HUD’s Associate Counsel for Program Enforcement:

1I.    Pursue civil money penalties and administrative sanctions, as appropriate, against
       the owner, operator, and/or their principals/owners for their part in the regulatory
       violations cited in this report.




                                        11
Finding 2: The Owner/Agent Did Not Always Ensure That the Project
           Was Decent, Safe, Sanitary, and in Good Repair
The owner did not always ensure that the project was decent, safe, sanitary, and in good repair.
Our inspections of 32 randomly selected units showed that 18 of these units and the building did
not meet HUD’s physical condition standards for HUD housing. These conditions occurred
because the owner lacked sufficient policies, procedures, and controls to ensure that the project
complied with HUD’s rules and regulations regarding housing that is decent, safe, sanitary, and
in good repair. Consequently, HUD funds were placed at significant financial and legal risk. In
addition, tenants residing in the project were subject to health and safety risks.



 Project Units Inspected Were
 Not Decent, Safe, and Sanitary


       Our inspection of 32 randomly selected units and all 8 floors of the building identified 38
       total deficiencies in 18 of the units and the building itself. Of the 38 deficiencies
       identified, 34 were considered 24-hour emergency repairs. One of the most significant
       and prevalent deficiencies was the obstruction of the tenants’ emergency call systems by
       furniture, which prevented them from accessing the cords to request emergency
       assistance. In addition, the inspection identified four common area deficiencies on three
       of the eight floors of the project. For instance, a fire safety door did not close properly on
       the eighth floor. Fire doors are designed to withstand fire, heat, and smoke for a period
       of time; thus, the deficiency in the fire safety door was an unnecessary health and safety
       risk imposed on the elderly and/or disabled tenants living in the project. The units and
       floors that did not pass inspection are summarized in the table below (see appendix E for
       specific inspection results).

       Saint Timothy’s       Floor failed      Number of        Number of      Deficiencies
       Tower                                     units          units failed
                                               inspected
       First floor                No               4                 1               3
       Second floor               No               4                 3               4
       Third floor                No               4                 3               6
       Fourth floor               No               4                 3               6
       Fifth floor                No               4                 3               5
       Sixth floor                Yes              4                 2               5
       Seventh floor              Yes              4                 1               5
       Eighth floor               Yes              4                 2               4
       Total                       3              32                18              38




                                                12
HUD requirements under 24 CFR (Code of Federal Regulations) 5.701 and 5.703 state
that owners of HUD-insured projects and facilities with project-based Section 8 funding
must maintain the dwelling units, site, building systems, and common areas free of health
and safety hazards and in good repair. The deficiencies resulted in 56 percent of the units
inspected failing physical condition standards for HUD housing. The photographs below
illustrate some of the conditions found in the project units.

Call-for-aid pull cords registered to the project’s emergency call system in units 214, 304,
507, and 807 were blocked by tenants’ furniture and personal items.




                                         13
Unit 205: Risk of electric shock due to inoperative ground fault circuit interrupter
Unit 211: Unsecured handle to the shower/tub to control the temperature of the water
Unit 314: Excessive grease on the wall near the stove, posing a fire hazard

Unit 205                         Unit 211                      Unit 314




Unit 400: Control knobs not secured to the stove
Unit 514: Electrical wall heater missing safety screen

                      Unit 400                      Unit 514




       The project had corrected the deficiencies. However, these deficiencies occurred because
       the owner did not establish adequate policies, procedures, and controls to ensure
       compliance with HUD rules and regulations regarding housing that is decent, safe,
       sanitary, and in good repair. Consequently, tenants were subjected to potential health and
       safety risks.




                                               14
The Emergency Call System
Was Not Monitored 24 Hours A
Day

     The owner/agent did not monitor the project’s emergency call system 24-hours a day, as
     required by HUD Handbook 4910.1, Minimum Property Standards for Housing, because
     it lacked sufficient policies, procedures, and controls. The handbook states that in
     projects “containing 20 or more living units, each bathroom and one bed location in each
     living unit shall by furnished with one of following emergency call systems: an
     emergency call system which registers a call (annunciator and alarm) at one or more
     central supervised locations, an intercommunication telephone system connected to a
     switchboard which is monitored 24 hrs a day...”

     The project had emergency call system panels in the management office and in a unit
     occupied by a tenant. The panel located in the office was monitored by the staff during
     business hours. However, the backup system panel located in the tenant’s unit was not
     monitored, as it was blocked from clear view by a refrigerator at the time of the
     inspection. Further, the tenant did not have a contractual obligation to monitor the
     system. Emergencies can occur outside of business hours. Consequently, the absence of
     24-hour monitoring of the system posed unnecessary health and safety hazards to the
     elderly and disabled tenants who may have required emergency assistance and placed
     HUD funds at significant financial and legal risk. In addition, both panels did not have
     the capability to be tested daily to determine whether the call-for-aid lights were
     functioning properly.

 Conclusion



     The owner did not always ensure that the project was decent, safe, sanitary, and in good
     repair. These deficiencies occurred because the project lacked sufficient policies,
     procedures, and controls to ensure that it complied with HUD’s rules and regulations
     regarding housing that is decent, safe, sanitary, and in good repair. As a result, tenants
     residing in the project were subjected to potential health and safety risks. In addition,
     HUD funds were place at significant financial and legal risk because the project is HUD-
     insured and its units are subject to a housing assistance payments contract with HUD.

 Recommendation



     We recommend that the Director of HUD’s Los Angeles Office of Multifamily Housing
     require the project to:

     2A.      Establish and implement sufficient written policies, procedures, and controls to
              ensure that all units, common areas, and the emergency call system comply with



                                              15
      HUD rules and regulations regarding housing that is decent, safe, sanitary, and in
      good repair.

2B.   Install an additional emergency call-for-aid system panel at the lobby security
      desk or in another location that can be monitored by security personnel when the
      office is closed.

2C.   Install an on/off check light switch or button that can be tested daily to determine
      whether the call-for-aid lights on each of the call-for-aid system panels are
      functioning properly.




                                       16
Finding 3: The Owner/Agent Did Not Adequately Support Its Project
           Procurement Activities
The owner/agent awarded contracts for goods and services without maintaining procurement
records as required by HUD regulations. This condition occurred because the project lacked
sufficient written procurement policies, procedures, and controls to ensure that it retained
procurement documentation for at least 3 years following the completion of the work. As a
result, the project paid at least $146,058 to vendors without adequate support to show whether
the goods and services were provided at a reasonable cost.



 Procurement Documents Were
 Not Retained

       The project was unable to provide documentation showing that it properly procured
       vendors for elevator repair, security services, and hazard insurance totaling $146,058 (see
       table below). Specifically, the project’s administrator stated that bids and cost estimates
       were obtained when selecting its vendors but that the project did not keep the records.
       However, HUD Handbook 4381.5, paragraph 6.50(c), states that documentation of all
       bids should be retained as part of the project’s records for 3 years following the
       completion of the work. Consequently, all records of bids should have been retained to
       show that goods or services were obtained at a reasonable cost and in accordance with
       HUD rules and regulations.

                              Vendors                Amount compensated
                                                       (January 2008-
                                                     September 30, 2010)
                   Thyssen Krupp Elevator                  $49,441
                   RFP Ins. Agency                         $23,626
                   Fountain Security                       $53,236
                   Demsey Insurance                        $19,755
                   Total                                  $146,058


 The Project Did Not Have
 Adequate Written Policies and
 Procedures

       We attribute the deficiency described above to the project’s insufficient written policies
       and procedures. Although its procurement policy specified that management was
       required to obtain three estimates before purchasing goods or services, it did not provide
       details to ensure that the project retained procurement documentation for at least 3 years



                                               17
    following completion of the work. Instead, it stated that management was required to
    obtain three estimates and obtain executive director approval for purchases exceeding
    $500 or obtain board of director’s approval for purchases exceeding $2,500.

Conclusion



    The project did not meet HUD procurement requirements. This condition occurred
    because the project lacked sufficient written procurement policies and procedures.
    Although written procurement policies and procedures were established, they did not
    provide details related to retention of records for 3 years following completion of the
    work. As a result, the project paid at least $146,058 to contractors without adequate
    support to show whether goods and services were obtained at a reasonable cost in
    accordance with HUD rules and regulations. However, since the services were
    performed and any potential overpayments did not appear to be material, we are not
    requiring the project to demonstrate the reasonableness to HUD. However, we
    recommend that the project establish and follow sufficient procurement procedures to
    ensure that all services are performed at a reasonable cost and HUD funds are spent
    accordingly.

Recommendations


    We recommend that the Director of HUD’s Los Angeles Office of Multifamily Housing
    require the project to

    3A.      Establish additional policies, procedures, and controls to ensure that it retains
             procurement documentation for at least 3 years following completion of the work.




                                             18
                         SCOPE AND METHODOLOGY

We performed our onsite audit work at the project, located in Compton, CA, between October
2010 and March 2011. Our audit generally covered the period January 1, 2008, through
September 30, 2010.

To accomplish our audit objectives, we

       Reviewed applicable HUD regulations, including Financial Operations and Accounting
       Procedures, HUD Handbook 4370.2, and the Management Agent Handbook 4381.5.
       Reviewed the regulatory agreement and the owner/agent’s internal policies and
       procedures.
       Interviewed the project’s management and staff and HUD employees.
       Reviewed the project’s tenant rents, financial statements, accounting records including
       general ledgers, invoices, and supporting documentation related to the disbursements
       selected for review.
       Conducted a health and safety inspection of the project.

The project expended more than $2.4 million during our audit period of January 1, 2008, through
September 30, 2010. We selected the administrative and operating and maintenance accounts for
detailed testing since these were the two largest expense accounts on the general ledger. We also
selected the elderly and congregate services expense account since the Departmental
Enforcement Center identified in its referral that this account appeared to include ineligible
expenses. We reviewed specific subaccounts of the administrative, operating and maintenance,
and senior and congregate services accounts that exceeded $100,000 during our audit period.
We reviewed (1) three administrative cost subaccounts (consultants, management fees, and
office salaries); (2) three operating and maintenance cost subaccounts (contract and repairs labor,
repair materials, and security contract); and (3) the elderly and congregate services subaccount,
senior enrichment. We reviewed all transactions in these accounts that were more than $1,000.
We selected additional expenditures for review based on auditor judgment.

We used RAT-STATS computer software to randomly select units for a health and safety
inspection of the project. The selection included a random selection of 4 units for each of the 8
floors for a total of 32 units. The selection also included three replacement units for each floor in
the event of rare, unique circumstances that did not affect the outcome of the audit. The
project’s common areas were also inspected for health and safety deficiencies. Our sample
universe included all 114 units in the project.

We did not assess the reliability of computer processed data because we did not use that type of
data, and therefore the assessment was not necessary.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit



                                                 19
objective(s). We believe the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objective.




                                               20
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

       Effectiveness and efficiency of operations,
       Reliability of financial reporting, and
       Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls


       We determined that the following internal controls were relevant to our audit objective:

               Policies and procedures that management has implemented to ensure that HUD
               funds are expended in accordance with HUD rules and regulations.
               Policies, procedures, and controls that management has implemented to ensure
               that all units, common areas, and emergency call systems comply with applicable
               HUD rules and regulations regarding housing that is decent, safe, sanitary, and in
               good repair.

       We assessed the relevant controls identified above.

       A deficiency in internal control exists when the design or operation of a control does not
       allow management or employees, in the normal course of performing their assigned
       functions, the reasonable opportunity to prevent, detect, or correct (1) impairments to
       effectiveness or efficiency of operations, (2) misstatement in financial or performance
       information, or (3) violations of laws and regulations on a timely basis.




                                               21
Significant Deficiencies


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

             The project lacked sufficient policies, procedures, and controls to ensure that
             HUD funds were expended in compliance with HUD rules and regulations.
             (Finding 1 and 3)
             The project lacked sufficient policies and procedures to ensure that units were
             decent, safe, sanitary, and in good repair. (Finding 2)




                                             22
                                              APPENDIXES

Appendix A

                       SCHEDULE OF QUESTIONED COSTS

                          Recommendation                 Ineligible 1/        Unsupported
                                 number                                                2/
                                           1A                  $94,815
                                           1B                   $8,388
                                           1C                  $30,560
                                           1D                   $9,358
                                           1E                                      $36,869

                                        Total               $143,1214              $36,869


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. These ineligible costs consist of project operating funds that were
         not used for reasonable operating expenses or necessary repairs.

2/       Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
         or activity when we cannot determine eligibility at the time of the audit. Unsupported
         costs require a 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. These costs may consist of income or
         receivables that were not collected by the project and were recorded as bad debt
         expenses. However, the owner/agent was unable to provide support that the amount was
         due to uncollectible debts. Therefore, the amount was unsupported.




4
  Since unauthorized loans of $11,300 were repaid to the project, that amount is not included as part of the
recommendations for repayment.


                                                          23
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




Comment 3




                         24
Comment 4




Comment 5




Comment 6




Comment 7




            25
Comment 8




Comment 9




Comment 10




Comment 11




             26
Comment 12


Comment 13




             Name has been redacted for privacy




                                           27
                         OIG Evaluation of Auditee Comments

Comment 1   We appreciate the owner/agent’s willingness to correct some of the deficiencies
            identified during the audit. We did not remove the deficiencies from the report
            since we are obligated to report the deficiencies identified during our audit. The
            owner/agent has a responsibility to comply with the regulatory agreement and
            other HUD requirements regardless of whether HUD contacts the project owner
            regarding the eligibility of project expenses. The audit resolution process will
            provide the owner/agent with ample opportunity to present evidence of corrective
            actions taken for each recommendation to HUD.

Comment 2   We disagree with the owner/agent that it should be absolved from repaying the
            ineligible and unsupported expenditures cited in the audit report. Further, the
            owner/agent’s response incorrectly states that the ineligible and unsupported costs
            total $154,421. The actual amount of ineligible and unsupported costs cited in the
            report total $179,990 ($143,121 + $36,869). The owner/agent used project funds
            for ineligible expenditures in violation of its regulatory agreement with HUD.
            The owner/agent is bound by the terms of its regulatory agreement with HUD
            which limits the use of project funds to reasonable operating expenses and
            necessary repairs. The expenditures were not reasonable operating expenses or
            necessary repairs of the project. Therefore, $179,990 must be paid back to the
            project’s operating account. As stated in Comment 1 above, whether HUD
            contacted the owner/agent or not is moot. The owner/agent has a responsibility
            to ensure it is in compliance with the regulatory agreement and other HUD
            requirements.

Comment 3   The senior enrichment expenses charged to the project were not necessary to the
            project operations; therefore, the costs are ineligible and must be repaid to the
            project’s operating account. We acknowledge that the owner/agent stated that it
            no longer uses project funds for senior enrichment activities.

Comment 4   The senior coordinator’s contract with the project owner/agent specified that she
            would work on senior enrichment activities. However, contrary to the
            owner/agent’s statement, the contract did not specify that she would assist with
            after-hours lock out services or monitor the call for aid station. Since the senior
            coordinator was not contractually obligated to perform management agent duties
            such as lock-outs and call for aid monitoring, her entire stipend is not an eligible
            project operating expense. Therefore, all $8,388 paid to the coordinator are
            ineligible project costs and must be paid back to the project’s operating account.

Comment 5   We agree that the employee loans were payroll advances and that they were paid
            back in full. However, a payroll advance is a type of loan and is not an eligible
            use of project funds. During our review, we determined that project Housing
            Assistance Payments and rental receipts were deposited to the project’s operating
            account and subsequently transferred to the St. Timothy’s Tower and Manor, Inc.
            account to pay for project operating expenses, including employee salaries and



                                             28
              payroll advances. As a result, the advances were ultimately paid with project
              funds. Since all employee payroll advances were repaid, we did not recommend
              repayment of these costs in the audit report.

Comment 6     We reviewed a market analysis conducted by the owner/agent for the 401 South
              Oleander lot. We disagree with the conclusions reached by the owner/agent for
              several reasons. As stated in the report, the lot is a vacant residential dirt lot and
              is not zoned for parking. We also disagree with         the estimate that 20 cars park
              on the lot each day. During our field work at the project site, the lot was used
              sparingly to park approximately 4 or 5 vehicles per day. The remainder of the lot
              was not used. As a result, we disagree with the owner/agent’s justification for the
              vacant lot expenditures. The $2,040 monthly lease payment to park 4-5 cars per
              day was excessive and not necessary to the project operations. Therefore, we
              continue to recommend that the owner/agent repay all project funds used for the
              vacant lot to the project’s operating account.

Comment 7     We acknowledge the owner/agent’s efforts to implement a timekeeping system
              for all employees. The owner/agent should provide evidence of its corrective
              action to HUD during the audit resolution process.

Comment 8     We disagree. The documentation provided did not support how bad debt
              expenses totaling $36,869 was determined. The owner/agent also did not provide
              sufficient documentation to show that bad debts were not recorded for 5 years.
              Further, the owner/agent is responsible for ensuring that it pursues collection of
              all delinquent rents. Bad debts should only be charged to the project if necessary.

Comment 9     We appreciate the owner’s willingness to correct the procurement documentation
              issues identified during the audit. We noted that the revised procurement and
              bidding policies and procedures still do not meet all HUD requirements. For
              example, the revised policy requires retention of procurement documentation for
              7 years, while HUD Handbook 4381.5 requires retention of procurement
              documentation for 3 years following completion of the work. As a result, the
              owner/agent will not meet record retention for contracts that exceed 4 years (4
              year contract + 3 year retention = 7 years). The owner/agent can work with HUD
              during the audit resolution process to adequately address the deficiencies.

Comment 10 We appreciate the owner/agent’s efforts. The financial plan specified was not
           attached as indicated for our review. It can be provided to HUD during the audit
           resolution process.

Comment 11 We acknowledge the owner/agent’s corrective action. We observed during the
           exit conference that the call-for-aid panel was installed in the lobby. However,
           we did not verify that it was functioning properly. The owner/agent can provide
           evidence of its corrective action taken to HUD during the audit resolution process.




                                                29
              We also noted that the checklist is not sufficient. The checklist did not state how
              often unit inspections be performed. (i.e. monthly or quarterly). The documents
              provided also did not specify any controls related to common areas and the
              emergency call system. The owner/agent’s preventative maintenance schedule for
              common areas and plant maintenance was not attached as specified for our
              review.

              The owner/agent is responsible for identifying health and safety deficiencies
              during inspections and requiring that deficiencies are corrected and that the
              deficiencies do not reoccur. It is also the responsibility of the owner/agent to
              follow-up on repeated instances for the safety of not only that tenant, but all other
              tenants in the building. The owner/agent is ultimately responsible for what occurs
              between inspections. The owner/agent must also take responsibility to ensure that
              tenants are educated about the deficiencies when repeated instances occur.


Comment 12 We acknowledge that the owner/agent is seeking a professional management
           agent to manage the project. The owner/agent should coordinate their plans with
           HUD to ensure that it obtains the services of a management agent in accordance
           with HUD requirements.

Comment 13 We commend the owner/agent for its efforts to correct the identified deficiencies.
           We did not amend the report to eliminate the deficiencies since they were in
           existence at the time of the audit and there were still items that require corrective
           action. However, we have included the owner/agent’s response in this appendix
           to reflect the owner/agent’s position and planned/taken action on each of the
           items.




                                               30
Appendix C

                                           CRITERIA
Regulatory Agreement
“7. Owners shall not without the prior written approval of the Commissioner:
    (a) Convey, transfer, or encumber any of the mortgaged property, or permit the conveyance,
    transfer or encumbrance of such property;
    (b) Assign, transfer, dispose of, or encumber any personal property of the project, including
    rents, or pay out any funds, except for reasonable operating expenses and necessary repairs;
    (i) Pay any compensation, including wages or salaries, or incur any obligations, to
    themselves, or any officers, directors, stockholders, trustees, partners, beneficiaries under a
    trust, or to any of their nominees;”

OMB Circular 122, Attachment B
1. Advertising and public relations costs.

   a. The term advertising costs means the costs of advertising media and corollary administrative
      costs. Advertising media include magazines, newspapers, radio and television, direct mail,
      exhibits, electronic or computer transmittals, and the like.

   b. The term public relations includes community relations and means those activities dedicated to
      maintaining the image of the non-profit organization or maintaining or promoting understanding
      and favorable relations with the community or public at large or any segment of the public.

   c. The only allowable advertising costs are those which are solely for:

           (1) The recruitment of personnel required for the performance by the non-profit organization
               of obligations arising under a Federal award (See also Attachment B, paragraph 41,
               Recruiting costs, and paragraph 42, Relocation costs);

           (2) The procurement of goods and services for the performance of a Federal award;

           (3) The disposal of scrap or surplus materials acquired in the performance of a Federal award
               except when non-profit organizations are reimbursed for disposal costs at a
               predetermined amount; or

   d. Other specific purposes necessary to meet the requirements of the Federal award.

           (1) Costs specifically required by the Federal award;
           (2) Costs of communicating with the public and press pertaining to specific activities or
               accomplishments which result from performance of Federal awards (these costs are
               considered necessary as part of the outreach effort for the Federal award); or




                                                  31
            (3) Costs of conducting general liaison with news media and government public relations
                officers, to the extent that such activities are limited to communication and liaison
                necessary keep the public informed on matters of public concern, such as notices of
                Federal contract/grant awards, financial matters, etc.

   e. Costs identified in subparagraphs c and d if incurred for more than one Federal award or for both
      sponsored work and other work of the non-profit organization, are allowable to the extent that the
      principles in Attachment A, paragraphs B. (“Direct Costs”) and C. (“Indirect Costs”) are
      observed.

   f.   Unallowable advertising and public relations costs include the following

                (1) All advertising and public relations costs other than as specified in subparagraphs c,
                    d, and e;
                (2) Costs of meetings, conventions, convocations, or other events related to other
                    activities of the non-profit organization, including:

                            (a) Costs of displays, demonstrations, and exhibits;

                            (b) Costs of meeting rooms, hospitality suites, and other special facilities
                                used in conjunction with shows and other special events; and

                            (c) Salaries and wages of employees engaged in setting up and displaying
                                exhibits, making demonstrations, and providing briefings;

                (3) Costs of promotional items and memorabilia, including models, gifts, and souvenirs;

                (4) Costs of advertising and public relations designed solely to promote the non-profit
                    organization.

8. Compensation for personal services.

m. Support of salaries and wages.

(1) Charges to awards for salaries and wages, whether treated as direct costs or indirect costs,
    will be based on documented payrolls approved by a responsible official(s) of the
    organization. The distribution of salaries and wages to awards must be supported by
    personnel activity reports, as prescribed in subparagraph (2), except when a substitute system
    has been approved in writing by the cognizant agency. (See subparagraph E.2 of Attachment
    A.)

(2) Reports reflecting the distribution of activity of each employee must be maintained for all
    staff members (professionals and nonprofessionals) whose compensation is charged, in
    whole or in part, directly to awards. In addition, in order to support the allocation of indirect
    costs, such reports must also be maintained for other employees whose work involves two or
    more functions or activities if a distribution of their compensation between such functions or
    activities is needed in the determination of the organization’s indirect cost rate(s) (e.g., an
    employee engaged part-time in indirect cost activities and part-time in a direct function).



                                                    32
Reports maintained by non-profit organizations to satisfy these requirements must meet the
following standards:

(a) The reports must reflect an after-the-fact determination of the actual activity of each
employee. Budget estimates (i.e., estimates determined before the services are performed) do
not qualify as support for charges to awards.
(b) Each report must account for the total activity for which employees are compensated and
which is required in fulfillment of their obligations to the organization.
(c) The reports must be signed by the individual employee, or by a responsible supervisory
official having firsthand knowledge of the activities performed by the employee, that the
distribution of activity represents a reasonable estimate of the actual work performed by the
employee during the periods covered by the reports.
(d) The reports must be prepared at least monthly and must coincide with one or more pay
periods.

12. Donations and contributions.

a. Contributions or donations rendered. Contributions or donations, including cash, property, and
services, made by the organization, regardless of the recipient, are unallowable.

14. Entertainment costs.

Costs of entertainment, including amusement, diversion, and social activities and any costs
directly associated with such costs (such as tickets to shows or sports events, meals, lodging,
rentals, transportation, and gratuities) are unallowable.

25. Lobbying.

a. Notwithstanding other provisions of this Circular, costs associated with the following
   activities are unallowable:
   (1) Attempts to influence the outcomes of any Federal, State, or local election, referendum,
       initiative, or similar procedure, through in kind or cash contributions, endorsements,
       publicity, or similar activity;

   (2) Establishing, administering, contributing to, or paying the expenses of a political party,
       campaign, political action committee, or other organization established for the purpose of
       influencing the outcomes of elections;

   (3) Any attempt to influence: (i) The introduction of Federal or State legislation; or (ii) the
       enactment or modification of any pending Federal or State legislation through
       communication with any member or employee of the Congress or State legislature
       (including efforts to influence State or local officials to engage in similar lobbying
       activity), or with any Government official or employee in connection with a decision to
       sign or veto enrolled legislation;




                                                33
   (4) Any attempt to influence: (i) The introduction of Federal or State legislation; or (ii) the
       enactment or modification of any pending Federal or State legislation by preparing,
       distributing or using publicity or propaganda, or by urging members of the general public
       or any segment thereof to contribute to or participate in any mass demonstration, march,
       rally, fundraising drive, lobbying campaign or letter writing or telephone campaign; or

   (5) Legislative liaison activities, including attendance at legislative sessions or committee
       hearings, gathering information regarding legislation, and analyzing the effect of
       legislation, when such activities are carried on in support of or in knowing preparation for
       an effort to engage in unallowable lobbying.

b. The following activities are excepted from the coverage of subparagraph a:
   (1) Providing a technical and factual presentation of information on a topic directly related to
       the performance of a grant, contract or other agreement through hearing testimony,
       statements or letters to the Congress or a State legislature, or subdivision, member, or
       cognizant staff member thereof, in response to a documented request (including a
       Congressional Record notice requesting testimony or statements for the record at a
       regularly scheduled hearing) made by the recipient member, legislative body or
       subdivision, or a cognizant staff member thereof; provided such information is readily
       obtainable and can be readily put in deliverable form; and further provided that costs
       under this section for travel, lodging or meals are unallowable unless incurred to offer
       testimony at a regularly scheduled Congressional hearing pursuant to a written request for
       such presentation made by the Chairman or Ranking Minority Member of the Committee
       or Subcommittee conducting such hearing.

   (2) Any lobbying made unallowable by subparagraph a (3) to influence State legislation in
       order to directly reduce the cost, or to avoid material impairment of the organization’s
       authority to perform the grant, contract, or other agreement.

   (3) Any activity specifically authorized by statute to be undertaken with funds from the
       grant, contract, or other agreement.

c. (1) When an organization seeks reimbursement for indirect costs, total lobbying costs shall
   be separately identified in the indirect cost rate proposal, and thereafter treated as other
   unallowable activity costs in accordance with the procedures of subparagraph B.3 of
   Attachment A.

   (2) Organizations shall submit, as part of the annual indirect cost rate proposal, a certification
   that the requirements and standards of this paragraph have been complied with.

   (3) Organizations shall maintain adequate records to demonstrate that the determination of
   costs as being allowable or unallowable pursuant to paragraph 25 complies with the
   requirements of this Circular.

   (4) Time logs, calendars, or similar records shall not be required to be created for purposes of
   complying with this paragraph during any particular calendar month when: (1) the employee



                                                34
   engages in lobbying (as defined in subparagraphs (a) and (b)) 25 percent or less of the
   employee’s compensated hours of employment during that calendar month, and (2) within
   the preceding five-year period, the organization has not materially misstated allowable or
   unallowable costs of any nature, including legislative lobbying costs. When conditions (1)
   and (2) are met, organizations are not required to establish records to support the
   allowablility of claimed costs in addition to records already required or maintained. Also,
   when conditions (1) and (2) are met, the absence of time logs, calendars, or similar records
   will not serve as a basis for disallowing costs by contesting estimates of lobbying time spent
   by employees during a calendar month.

   (5) Agencies shall establish procedures for resolving in advance, in consultation with OMB,
   any significant questions or disagreements concerning the interpretation or application of
   paragraph 25. Any such advance resolution shall be binding in any subsequent settlements,
   audits or investigations with respect to that grant or contract for purposes of interpretation of
   this Circular; provided, however, that this shall not be construed to prevent a contractor or
   grantee from contesting the lawfulness of such a determination.

d. Executive lobbying costs. Costs incurred in attempting to improperly influence either
   directly or indirectly, an employee or officer of the Executive Branch of the Federal
   Government to give consideration or to act regarding a sponsored agreement or a regulatory
   matter are unallowable. Improper influence means any influence that induces or tends to
   induce a Federal employee or officer to give consideration or to act regarding a federally
   sponsored agreement or regulatory matter on any basis other than the merits of the matter.

30. Memberships, subscriptions, and professional activity costs.

   a. Costs of the non-profit organization’s membership in business, technical, and
      professional organizations are allowable.

   b. Costs of the non-profit organization’s subscriptions to business, professional, and
      technical periodicals are allowable.

   c. Costs of membership in any civic or community organization are allowable with prior
      approval by Federal cognizant agency.

HUD Handbook and Regulations

1. HUD Handbook 4566.2 (Management, Service, and Disposition Requirements for Projects)
   and 4350.1, REV-1 (Multifamily Asset Management and Project Servicing) checklists - Has
   annual write-off of tenants’ accounts receivable for the last two fiscal years been less than
   1% of gross rents due from tenants?

2. HUD Handbook 4910.1, Minimum Housing Standards for Housing, 100-2.20,
   Emergency Call Systems - In projects containing 20 or more living units, each bathroom and
   one bed location in each living unit shall be furnished with one of the following emergency
   call systems: an emergency call system which registers a call (annunciator and alarm) at one



                                                35
   or more central supervised locations, an intercommunicating telephone system connected to a
   switchboard which is monitored 24 hours a day, or an emergency call system which sounds
   an alarm (no the fire alarm) in the immediate corridor and automatically actuates a visual
   signal in the corridor at the living unit entrance.

3. HUD Handbook 4381.5, The Management Agent Handbook
     6.50 Contracting Guidelines
     (c) Documentation of all bids should be retained as a part of the project records for three
         years following the completion of the work.

4. 24 CFR 5.703, Physical condition standards for HUD housing that is decent, safe,
   sanitary and in good repair (DSS/GR)
   HUD housing must be decent, safe, sanitary and in good repair. Owners of housing
   described in 5.701(a), mortgagors of housing described in 5.701(b), and PHAs [public
   housing agencies] and other entities approved by HUD owning housing described in
   5.701(c), must maintain such housing in a manner that meets the physical condition standards
   set forth in this section in order to be considered decent, safe sanitary and in good repair.
   These standards address the major areas of the HUD housing: the site; the building exterior;
   the building systems; the dwelling units; the common areas; and health and safety
   considerations.
       (a) Site. The site components, such as fencing and remaining walls, grounds, lighting,
           mailbox/project signs, parking lots/driveways, play areas and equipment, refuse
           disposal, roads, storm drainage and walkways must be free of health and safety
           hazards and be in good repair...
       (b) Building exterior. Each building on the site must be structurally sound, secure,
           habitable, and in good repair. Each building’s doors, fire escapes, foundations,
           lighting, roofs, walls, and windows, were applicable, must be free of health and safety
           hazards, operable, and in good repair.
       (c) Building systems. Each building’s domestic water, electrical system, elevators,
           emergency power, fire protection, HVAC [heating, ventilating, and air conditioning],
           and sanitary system must be free of health and safety hazards, functionally adequate,
           operable, and in good repair.
       (d) Dwelling units.
                  (1) Each dwelling unit within a building must be structurally sound, habitable,
                  and in good repair...
                  (2) Where applicable, the dwelling unit must have hot and cold running water,
                  including an adequate source of potable water...
                  (3) If the dwelling unit includes its own sanitary facility, it must be in proper
                  operating condition, usable in privacy, and adequate for personal hygiene and
                  the disposal of human waste.
                  (4) The dwelling unit must include at least one battery-operated or hardwired
                  smoke detector, in proper working condition, on each level of the unit.
       (e) Common areas. The common areas must be structurally sound, secure, and
           functionally adequate for the purposes intended. The basement/garage/carport,
           restrooms, closets, utility, mechanical, community rooms, day care, halls/corridors,
           stairs, kitchens, laundry rooms, office, porch, patio, balcony, and trash collection



                                                36
areas, if applicable, must be free of health and safety hazards, operable, and in good
repair...
(f) Health and safety concerns. All areas and components of the housing must be free of
    health and safety hazards. These areas include, but are not limited to, air quality,
    electrical hazards, elevators, emergency/fire exits, flammable materials, garbage and
    debris, handrail hazards, infestation, and lead-based paint. For example, the buildings
    must have fire exits that are not blocked and have hand rails that are undamaged and
    have no other observable deficiencies. The housing must have no evidence of
    infestation by rats, mice, or other vermin, or of garbage and debris...
(g) Compliance with State and local codes. The physical condition standards in this
    section do not supersede or preempt State and local codes for building and
    maintenance with which HUD housing must comply. HUD housing must continue to
    adhere to these codes.




                                        37
Appendix D

                       SCHEDULE OF INELIGIBLE COSTS5
          Year                          Type of expense                                   Amount
          2008          Senior enrichment                                                  $38,477
          2009          Senior enrichment                                                  $33,286
          2010          Senior enrichment                                                  $23,052
                        Subtotal senior enrichment                                         $94,815
          2008          Pay to senior services coordinator                                  $4,938
          2009          Pay to senior services coordinator                                  $1,974
          2010          Pay to senior services coordinator                                  $1,476
                        Subtotal pay to senior services coordinator                         $8,388
          2008          Vacant lot                                                          $2,000
          2009          Vacant lot                                                         $10,200
          2010          Vacant lot                                                         $18,360
                        Subtotal vacant lot                                                $30,560
          2008          Miscellaneous expenses                                              $5,918
          2009          Miscellaneous expenses                                              $3,030
          2010          Miscellaneous expenses                                               $410
                        Subtotal miscellaneous expenses                                     $9,358
          Total                                                                           $143,121




5
  The schedule above is a summary of the questioned costs identified during our audit. We provided a detailed
itemized listing of questioned costs with the audit report to project ownership/management and to HUD.
                                                        38
Appendix E

                                       SCHEDULE OF INSPECTION RESULTS

                                                       Deficiencies
                                                           Unit number       24-hour emergency   Total
                                                                                  repairs
      Living room
         Call-for-aid devices                      103, 214, 301, 304, 507          5             5
         Wall heater                               103, 507, 807                    3             3
         Closet doors                              713                             NA*            1
      Kitchen
         Main service electrical panel             103 (24-hr), 713                 1             2
         Electrical receptacles GFIC**             205, 304, 501, 614, 803          5             5
         Stove, controls, door                     400                              1             1
         Inoperative burners, greased stove/wall   314, 612                         2             2
      Bathroom
         Call-for-aid devices                      406                              1             1
         Electrical receptacles GFIC               406, 414, 614                    3             3
         Tub/shower controls                       211, 314                         2             2
         Tub/shower walls, ceilings                414, 713                         2             2
         Mildew                                    314                              1             1
         Wall heater, screen                       514                              1             1
      Bedroom
         Call-for-aid devices                      214, 414, 514, 807                4            4
         Closet doors                              713                              NA            1




                                                            39
                                                     Deficiencies
                                                         Unit number   24-hour emergency   Total
                                                                            repairs
Total 24-hour repairs                                                          31          NA
Subtotal fails                                                                NA           34
                                               Floor number
Emergency exit
Door lock and striker                          7th                            1             1
Trash room
Doors                                          6th, 8th                        2            2
Trash chute door                               6th                            NA            1
Subtotal 24-hour repairs                                                       3           NA
Subtotal fails                                                                NA            4
Total                                                                         34           38

    * NA=not applicable
    ** GFIC=ground fault interrupter circuit




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