oversight

Audit Report on the District of Columbia Housing Authority Section 8 Certificate and Voucher Payments System

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-06-18.

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

                                                                  Issue Date
                                                                           August 31, 2006
                                                                  Audit Report Number:
                                                                           2006-AO-1002




TO:        Ben L. Johnson, Director, Single Family Homeownership Center, 8AHH


FROM:      Rose Capalungan, Director, Hurricane Recovery Audit Oversight Division, GAH

SUBJECT: Cityside Management Corporation, Hammond, Louisiana, Did Not Enforce The
            Lease Terms Over Payment of Property Utilities

                                    HIGHLIGHTS

 What We Audited and Why

            We audited Cityside Management Corporation (Cityside), a management and
            marketing contractor for the U.S. Department of Housing and Urban
            Development’s (HUD) real estate-owned properties held off market to house
            disaster victims.

            The audit was initiated in conjunction with the President’s Council on Integrity
            and Efficiency, as part of its examination of relief efforts provided by the federal
            government in the aftermath of hurricanes Katrina and Rita. Our objective was to
            determine whether Cityside complied with HUD’s regulations, procedures, and
            instructions in the management of HUD’s real estate-owned properties held off
            market to house disaster victims.

 What We Found

            Cityside complied with HUD’s regulations, procedures, and instructions in the
            management of HUD’s real estate-owned properties held off market to house
            disaster victims, with one exception. It did not ensure that all disaster victims
            transferred the billing of property utility services into their names and paid
            charges for utility services in full, as required by the lease agreements. This
           occurred because Cityside did not take timely and proactive measures to enforce
           full tenant compliance with the lease terms over payment of property utilities,
           when staff became aware of the issue. Instead, Cityside used $17,744 in HUD
           funds to pay the monthly billings on 133 leased properties during the period
           October 13, 2005 through March 31, 2006.

What We Recommend

           We recommend that the Director of the Denver Office of Single Family
           Homeownership Center instruct Cityside Management Corporation to take
           appropriate action against the tenants who do not comply with the instruction and
           requirements regarding utility payments, and require Cityside Management
           Corporation to initiate collection actions against tenants to recover the $17,744
           that HUD paid for utility costs and any additional costs HUD had incurred after
           March 31, 2006.

           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 correspondence or directives issued because of the
           audit.

Auditee’s Response

           During the audit, we provided the results of our review to Cityside management.
           We also provided our discussion draft audit report to HUD’s staff during the
           audit. We conducted an exit conference with Cityside’s management on July 21,
           2006.

           We asked the president of Cityside to provide comments on our discussion draft
           audit report by July 25, 2006. The president provided written comments dated
           July 25, 2006. The complete text of the written response, along with our
           evaluation of that response, can be found in appendix B of this report.




                                            2
                           TABLE OF CONTENTS

Background and Objective                                                     4

Results of Audit

  Finding: Cityside Management Corporation Did Not Enforce The Lease Terms   5
           Over Payment Of Property Utilities

Scope and Methodology                                                        7

Internal Controls                                                            8

Followup on Prior Audits                                                     10

Appendixes
   A. Schedule of Questioned Costs                                           11
   B. Auditee Comments and OIG’s Evaluation                                  12




                                          3
                      BACKGROUND AND OBJECTIVES

Founded in 1996, Cityside Management Corporation (Cityside) is a real estate company.
Cityside specializes in the management and marketing of U.S. Department of Housing and
Urban Development (HUD)-owned real estate portfolios as well as the management of many
other commercial and residential properties located in the New England area. Christopher
Dolloff is the president and founder of Cityside.

In August 2004, HUD contracted with Cityside to provide management and marketing services
for its single-family program in the states of Arkansas and Louisiana. In September 2005, HUD
made homes available for disaster victims under the Temporary Housing Assistance Program of
the Robert T. Stafford Disaster Relief and Emergency Assistance Act following Hurricanes
Katrina and Rita. The program was designed to provide people whose homes have been
damaged by disaster a temporary place to live until repairs can be completed or a permanent
housing solution is identified. The program is available only to homeowners and renters who are
legal residents of the United States and who have been displaced by the disaster. HUD modified
its initial contract with Cityside to provide services in managing, marketing, preparing and
repairing properties held off market to house disaster victims.

In October 2005, HUD advanced $3.12 million to Cityside to repair and prepare 312 properties,
held off market to house disaster victims, for occupancy. As of February 2006, Cityside had
expended $956,800. As of April 25, 2006, Cityside managed 165 properties that were occupied
by disaster victims and located in Arkansas and Louisiana.
We audited Cityside’s management of HUD’s real estate-owned properties for disaster victims.
The audit was initiated in conjunction with the President’s Council on Integrity and Efficiency,
as part of its examination of relief efforts provided by the federal government in the aftermath of
hurricanes Katrina and Rita.

Our objective was to determine whether Cityside complied with HUD’s regulations, procedures,
and instructions in the management of HUD’s real estate-owned properties held off market to
house disaster victims.




                                                 4
                              RESULTS OF AUDIT

  Cityside Management Corporation Did Not Enforce The Lease Terms
                 Over Payment Of Property Utilities
Cityside complied with HUD’s regulations, procedures, and instructions in the management of
HUD’s real estate-owned properties held off market to house disaster victims, with one
exception. It did not enforce the lease terms over payment of property utilities for 133 tenant
families during the period October 13, 2005 through March 31, 2006. Cityside was required to
ensure that the disaster victims timely transferred the billing of property utility services into their
names and paid all charges for utility services. This occurred because Cityside did not take
timely and adequate corrective actions, as provided for in the lease agreements. Instead, Cityside
used $17,744 in HUD funds to pay the tenants’ obligations.


               Under its Marketing and Management contract with HUD, Cityside is responsible
               for ensuring that the utility costs for properties leased to hurricane victims were
               paid before lease up, and after occupancy, that tenants timely assumed this
               responsibility.

               Cityside did not enforce the lease requirements over utility payments for all
               tenants. As of April 25, 2006, Cityside had leased 165 properties requiring tenant
               payments of utility services. However, for 133 leased properties, Cityside used
               HUD funds to pay for the utility costs owed by the tenants month after month.

               Cityside knew that tenants were not paying for their utility bills, because the
               utility billings for the 133 noncompliant tenants continued to be addressed to its
               offices. The president of Cityside told us that Cityside did not see a need to
               monitor tenants if and when tenants converted utilities into their names.
               However, as HUD’s contractor, Cityside was responsible for taking timely and
               proactive steps to enforce the lease terms. In this case, enforcement involved
               converting the utility services and the billing addresses at lease up from Cityside’s
               to the tenants’ names and periodic monitoring to ensure that tenants converted
               utilities into their names.

               Cityside took a more proactive approach in February 2006 by sending notification
               letters to all tenants reminding them of their utility obligations. In addition, Cityside
               implemented a proactive measure for new tenants such as requiring them to sign the
               Utility Activation Acknowledgement form that stated their responsibility to transfer
               utility services into their names and that their continued occupancy in the leased
               properties was dependent upon such transfer. Tenant noncompliance, however, has
               not been resolved, and HUD has since (April, 2006) directed Cityside and other
               Marketing and Management contractors not to disconnect utility services for
               noncompliant tenants.



                                                   5
          By early and proactive enforcement actions, Cityside could have minimized the
          ineligible utility costs paid from HUD funds. As of March 31, 2006, HUD had paid
          a total of $17,744 for utility costs and continues to pay utility costs for tenants who
          have not transferred the utility services into their names as required.

Recommendations

          We recommend that the Director of the Denver Office of Single Family
          Homeownership Center

          1A.     Instruct Cityside Management Corporation to take appropriate action
                  against the tenants who do not comply with the instructions and
                  requirements regarding utility payments.

          1B.     Require Cityside Management Corporation to initiate collection actions
                  against tenants to recover the $17,744 that HUD paid for utility costs and
                  any additional costs HUD had incurred after March 31, 2006.




                                             6
                        SCOPE AND METHODOLOGY

We performed our audit work between January and May 2006. We conducted our audit at
Cityside’s Office in Hammond, Louisiana and the HUD Office of Inspector General’s (OIG)
New Orleans, Louisiana field office.

To achieve our audit objective, we relied on electronic and hard-copy data from Cityside and
HUD.

In addition, we interviewed eight tenants; the appropriate HUD management and staff; and
Cityside’s management, staff, and contractors involved in managing and marketing HUD’s real
estate-owned properties, overseeing and/or processing the repairs of the properties, lease
agreements and other related agreements, and inspecting the properties.

Further, we reviewed HUD’s directives, management and marketing contract and any
modifications or change orders, monthly evaluation or assessment reports on Cityside’s
management of HUD’s real estate-owned properties, and the standard lease executed between
HUD and the tenants. We also reviewed Cityside’s property management plan, accounting,
inspection, repair, and other relevant records; and the utility activation acknowledgment form
signed by the tenants. We performed site visits to six properties.

The audit covered the period September 1 through December 31, 2005. This period was adjusted
as necessary. We conducted the audit in accordance with generally accepted government
auditing standards.




                                                7
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

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

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls

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

                  •   Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

                  •   Validity and reliability of data - Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

                  •   Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

                  •   Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if internal controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




                                                8
Significant Weaknesses


           Based on our audit, we determined there were no significant weaknesses existed
           in Cityside’s management of HUD’s Real Estate-Owned properties held off
           market to house disaster victims.




                                           9
                      FOLLOW-UP ON PRIOR AUDITS

This is the first audit of Cityside Management Corporation by HUD OIG.

HUD did not require Cityside to submit independent auditors’ reports. It modified Cityside’s HUD
management and marketing contract on September 1, 2005, deleting the annual audit requirement
and replacing it with an annual compiled financial statement requirement.




                                               10
                                   APPENDIXES
Appendix A

                SCHEDULE OF QUESTIONED COSTS


                              Recommendation       Ineligible
                                  number               1/
                                     1B            $ 17,744

                                    Totals          $17,744


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.




                                             11
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         12
                     OIG Evaluation of Auditee Comments

            Cityside contends it followed HUD’s directions/instructions to pay all utilities
Comment 1
            that were not transferred by tenants and not to evict tenants for failure to pay
            utilities. Although Cityside was following HUD’s directions/instructions,
            Cityside, as a management and marketing contractor, has the responsibility for
            taking timely and proactive steps to enforce the lease terms. Cityside did not
            take timely and proactive measures to enforce full tenant compliance with the
            lease terms over payment of property utilities, when staff became aware of the
            issue. In addition, Cityside did not seek guidance from HUD regarding
            payment of utilities for months. Cityside continued to pay utilities for
            noncompliant tenants six months before HUD actually provided the direction
            to not evict noncompliant tenants in April 2006.




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