U.S. Department of Housing and Urban Development District Office of the Inspector General Richard B. Russell Federal Building 75 Spring Street, SW, Room 700 Atlanta, GA 30303-3388 (404) 331-3369 June 21, 1996 Audit-Related Memorandum 96-AT-211-1820 MEMORANDUM FOR: Reba Cook, Director, Multifamily Housing Division, 4GHM FROM: Kathryn Kuhl-Inclan District Inspector General for Audit-Southeast/Caribbean, 4AGA SUBJECT: Survey of Broadmeadow Apartments Jackson, Mississippi We completed a survey of Broadmeadow Apartments and its management agent (MA), Intervest Corporation. Our s urvey was conducted at the request of the United States Attorney to identify potential equity skimming candidates. Based on the res ults of our survey and the project owners' decisions to repay ineligible distributions, the U. S. Attorney has concluded that he will no t pursue affirmative civil enforcement in this case. However, our results do warrant continue d intervention by your staff to ensure that housing units are brought up to quality standards. SUMMARY Our survey showed that the owners had taken unauthorized distributions in 1994 while th e property was experiencing significant maintenance deficiencies. By the close of our on-sit e survey in March 1996, the owners had repaid the $69,475 in distributions made. The units , however, continued to show evidence of poor maintenance. Consequently, vacant units were not being promptly rented, and housing assi stance payments were being withheld by the Mississippi Regional Housing Authority adding to the financial strain on the complex. If this MA cannot be compelled to repair and properly maintain this project, we are reco mmending that you take action to replace it. Attachment 1 contains two findings with recommendations. Attachment 2 is a list of the deficiencies noted during our March 12, 1996, inspection of 28 units. During our review, we noted one additional administrat ive issue which you may want to address. Contrary to the Regulatory Agreement, the MA maintained project receipts in bank accounts in the name of the MA. The MA deposited rental receipts (account #580-6267900) and securit y deposits (account #580-6267918) in Deposit Guaranty National Bank accounts titled "Intervest Corporation for Broadmeadow Apartments." The MA transferred fund s to account #1009361200 at Trustmark Bank entitle d "Broadmeadow Apartments by Intervest Corporation" from which it paid monthly bills. The MA also transferred some project funds t o a Universal Accounts Payable (UAP) account (#500-2701209) maintai ned at Deposit Guaranty National Bank. The title of the account was "Intervest Corporation." The Regulatory Agreement requires that accounts be set up in the project's name rather than the MA's name. The MA thought that having th e Broadmeado w name on the accounts was sufficient. Maintaining project receipts in account s identified by names other than the project creates opportunities for misuse of funds. Suc h opportunities increase when funds are commingled, such as in a UAP account. BACKGROUND Broadmeadow Apartments is a 17-year old 221(d)(4) project of 60 Section 8 subsidized units. HUD's August 11, 1995 phys ical inspection showed $178,056 in estimated repair costs. Due to its poor physical status, the project was also in poor financial condition with unrented units and housing assistance payments drastically down since December 1995. The project had bee n delinquent on its February and March 1996 mortgage payments but was brought current o n March 13, 1996. Intervest Corporation was the MA during our survey period from 1993 through March 27, 1996. The General Partners for the project were J. Steve Nail and Charles F. Craig. Brantley Pace was a limited partner. Mr. Nail was also president of the MA. Our survey focused on detecting improper distributions through: - review of HUD Mississippi State Office files; - review of Broadmeadow Apartments records; - discussions with one of the general partne rs, HUD Mississippi State Office staff, and Brad Pigott, U.S. Attorney for the Southern District of Mississippi; and, - site inspections at Broadmeadow Apartments. Our fieldwork was performed between February 20, 1996 and March 27, 1996. * * * * * Within 60 days, please furnish us a status report on each recommenda tion showing: (1) corrective action taken; (2) the proposed corrective action and the date to be completed; or (3) why action is not consid ered necessary. Also, please furnish us copies of any related correspondence o r directives. Should you have any questions, please call Nancy H. Cooper, Assistant Dist rict Inspector General for Audit, at 404-331-3369 or Auditor Maxie Walls at 205-290-7630. Attachments 1 - Findings and Recommendations 2 - Unit Deficiencies Noted During Inspection 3 - Distribution ATTACHMENT 1 FINDING 1 - Management Agent Made Unauthorized Distributions The MA made un authorized distributions of $69,475 during 1994. The MA contended that the distributions were allowable based on a cash surplus reported in the 1993 financial statements. At the time, however, the property had significant maintenance deficiencies. Thus, the owners were not entitled to the distribution. The MA misapplie d project funds needed for those property repairs. On April 13, 1994, the MA made the following distribut ions from the Broadmeadow Apartments Rental Agency Account at Trustmark Bank: Check# Payee Amount 003431 Charles Craig $ 17,855 003432 Brantley Pace 33,765 003433 J. Steve Nail 17,855 Total $ 69,475 On August 30, 1993, prior to the distributions, HUD rated the ove rall property condition at below average with esti mated repairs totaling $80,601. In addition, the Mississippi Regional Housing Authority's November 10, 1993 inspection rated the project as below average. The Housin g Authority commented that the apartments were in desperate need of maintenance and th e complex was rapidly deteriorating due to the lack of routine maintenance. Subsequent to th e 1994 distributions, HUD and the Housing Authority continued to rate the property either below average or unsatisfactory. Paragraph 10 of the mortgagor's Regulatory Agreement with HUD requires that the mortgagor maintain the project in good repai r and condition. Paragraph 8(e)(4) states that owners shall not take any distribution when there has not been "...compliance with all outstanding notices o f requirements for proper maintenance of the project." HUD requested repayment of the distributions in letters dated May 1, July 25, September 1 , November 14, and December 15, 1995. HUD's position was that a ny distributions earned in 1993 and taken in 1994 were unauthorized, due to the property's existing poor physical condition . When we began site work, the MA had not repaid the distributions. However, on March 27 , 1996, before we left the audit site, the MA repaid the distributions totaling $69,475. Recommendation: 1A. We recommend that you instruct the m anagement agent that the funds recently returned to the project must be applied towards correcting existing maintenance deficiencies. 3 FINDING 2 - Vacant Units Were Not Promptly Made Rentable The MA did not promptly return units to rentable co ndition. The delay appeared to be due to the lack of routine preventive maintenance and to staff management problems. As a result, the MA deprived the project of rental income and potential tenants of needed housing. For 10 units shown as vacant on February 21, 1996, unit down time average d 267 days. For units vacant anytime between January 1, 1995 and February 21, 1996, the down time resulted in lost revenue of $63,644 . Correspondence of the Mississippi Regional Housing Authority showed it had been withholding housing assistance payments on 40 units s ince December 1995 because the MA had not completed repairs. Based on the MA's records at October 2, 1995, there wer e applicants waiting to rent these vacant units. Our physical insp ection in March 1996 of 28 of the 60 units confirmed that significant ongoing physical problems remained unresolved and that the MA had not complied with Paragraph 10 of the Regulatory Agreement to maintain the property in goo d repair and condition. While the MA had addressed some deficiencies such as appliance replacement, electrical repairs, and drywall repairs, such actions w ere minimal compared to the overall deficiencies needing correction (see Attachment 2). Unit inspections and review of tenant files revealed the following internal control weaknesses: A poor system for processing work orders - Generally, 1995 work orders were no t maintained in the applicable tenant file and were improperly completed. Work orders for 1994 were unnumbered. Site personnel did not review work orders to ensure that repairs were promptly performed and that tenants were appropriately charged. The site manager stated she had never been furnished a schedule of charges. Inadequate unit inspections - Of 12 tenant files reviewed, 1 did not contain a move-i n inspection, 3 did not contain a move-out inspection, and 2 did not contain monthl y inspections. Where inspections were documented in the files, we concluded that they were either not actually performed or were inadequate. For example, monthly inspection reports appeared to be merely copied from a prior one. In 4 of the 12 files reviewed, documents showed the units had been painted during a series of inspections yet the inspection forms were marked the same each month. The inspections dated before, during, and after painting consistently showed the walls, baseboards, and ceilings as a "high urgency" and the unit's general appearance as poor. The audit of the 1995 financial statements also reported a finding on poorly documented move-in and move-out inspections. No equipment and inventory controls - The MA's operations manual required tha t maintenance personnel keep an inventory of all equipment and supplies on file with the site manager. The inventory should include such items as office equipme nt and furnishings and maintenance equipment and supplies. We found that the site manager did not have a n equipment inventory or supply lists. She had one list of refrigerators and serial numbers for nine of the units. 4 Recommendations: We recommend that your staff instruct the MA to: 2A. Bring all units up to quality standards by December 31, 1996. If the MA cannot comply, your office should require the owners to find a new MA. 2B. Establish procedures to promptly determine what repairs are needed to renovate vacate d units and make those repairs immediately to minimize rent losses. 2C. Develop a preventive maintenance program. 2D. Develop procedures to conduct unit inspections, design an effective work order system, and implement an equipment and supplies inventory system. 5 ATTACHMENT 2 RESULTS OF UNIT INSPECTIONS During our March 12, 1996, inspection, we noted the following items needing repair o r replacement. UNIT # DEFICIENCY A-106 1. fix sink faucet knob (cold) 2. bathroom faucet drips 3. small holes in living room tile 4. no screen door 5. repair/replace kitchen cabinets 6. vent hood A-108 1. repair screen door 2. needs closet door 3. fix wall receptacle in bedroom 4. repair/replace screen door 5. repair/replace kitchen cabinets A-109 1. bathroom faucet drips 2. needs door stops A-110 1. replace kitchen sink knob (hot) 2. bathroom faucet drips 3. repair vent hood A-112 1. vent hood 2. replace kitchen cabinets 3. replace smoke detector 4. bathroom faucet drips 5. needs door stops B-116 1. install bathroom ceiling light cover 2. repair/repaint kitchen ceiling 3. repair/replace kitchen cabinets 4. needs door stops B-119 1. replace receptacle in living room 2. damaged kitchen cabinets 3. bedroom wall hole/emergency pull cord 4. needs light cover in bathroom 6 RESULTS OF UNIT INSPECTIONS UNIT # DEFICIENCY C-125 1. repair screen door 2. repair/replace some kitchen cabinets 3. paint door 4. needs screens in back bedroom C-126 1. repair living room ceiling 2. reattach baseboard in right bedroom 3. replace tile in kitchen, bathroom etc. 4. repair/replace kitchen cabinets C-128 1. replace screen in living room 2. replace kitchen cabinets 3. replace stove and refrigerator 4. paint entire unit 5. ceiling stain in closet 6. paint rusted front door 7. repair/replace closet door in hall 8. repair wall in front bedroom 9. door stops missing 10. replace bulb in bathroom 11. repair hole in bathroom wall 12. replace screen door C-129 1. repair/replace screen door 2. torn shade in living room 3. repair/replace some kitchen cabinets 4. torn shade in right bedroom 5. replace smoke detector 6. replace hot water knob in bathroom D-131 1. replace screen door 2. replace hall closet door 3. replace damaged floor tile 4. replace shoe mold in hallway 5. replace screens in bedrooms and living room 6. replace kitchen cabinets 7. repair bathroom vent 8. repair door knob in back bedroom 9. replace window panes in living room and bedroom 10. replace screen in living room 11. freezer left in unit 7 RESULTS OF UNIT INSPECTIONS UNIT # DEFICIENCY D-132 1. reattach return air vent 2. replace kitchen cabinets, none in unit 3. replace kick plate on stove 4. door stops missing 5. repair tile near commode 6. repair countertop D-135 1. replace screen door 2. replace door frame 3. replace screens in living room 4. repair tub drain 5. repair bathroom vent 6. replace kitchen cabinets 7. door stops missing 8. roaches 9. repair attic fan louvers 10. repair holes in kitchen wall 11. bathroom faucet leaks 12. repair bath ceiling D-137 1. replace tile/subfloor problem 2. paint entire unit 3. replace receptacle in living room, front and back bedrooms 4. replace water heater 5. replace breaker box cover 6. replace baseboard in back bedroom 7. door stops missing 8. repair holes in front bedroom and back bedroom walls 9. repair/replace screens in living room and back bedroom 10. repair damaged attic vent 11. reattach return air vent 12. replace window pane in back bedroom D-139 1. chipped tile in living room 2. remove old freezer from unit 3. replace screen door 4. replace window pane in living room 5. replace screens in living room 6. repair bath ceiling (stucco hanging) 7. replace bathroom vanity and sink 8. reattach return air vent 9. repair left bedroom closet door knob 10. need back bedroom minor tile repair 11. replace missing refrigerator 8 9 RESULTS OF UNIT INSPECTIONS UNIT # DEFICIENCY E-141 1. replace hallway floor tile 2. replace right center and left rear bedroom screens 3. fix right rear bedroom ceiling 4. bathroom faucet leaks 5. kitchen faucet leaks 6. door stops missing 7. repair front bedroom switch 8. replace bathroom vanity 9. replace towel rack and tissue holder E-143 1. replace screen door 2. repair duct system vent 3. paint kitchen 4. repair/replace kitchen cabinets 5. fix bathroom floor 6. replace lavatory cabinet 7. replace bedroom screens 8. roaches 9. reattach return air vent 10. repair/replace damaged countertop 11. bathroom and kitchen faucets drip 12. paint bathroom ceiling 13. repair toilet paper dispenser and towel rack E-146 1. replace screen in front door 2. fix hallway closet door lock 3. replace front bedroom door 4. replace lavatory faucets 5. hole in left center bedroom wall 6. replace screens in left center and left rear bedroom 7. replace shoe mold in left rear bedroom 8. subfloor problem in living room and dining room 9. paint living room and middle bedroom 10. repair hole in front bedroom 11. roaches 12. repair door knob to hallway closet 13. replace bathroom vanity 10 RESULTS OF UNIT INSPECTIONS UNIT # DEFICIENCY F-147 1. repair left front bedroom door frame 2. replace screen door 3. repair floor tile at front door 4. repair hallway wall hole 5. repair kitchen ceiling 6. repair bathroom ceiling 7. replace kick plate on freezer 8. repair light in left rear bedroom 9. replace living room drapes 10. roaches 11. repair closet light switch 12. replace refrigerator 13. door stops missing 14. replace commode F-148 1. replace screen door 2. repair floor tile 3. replace return air duct cover 4. roaches 5. fix kitchen ceiling 6. replace kitchen cabinets 7. repair bathroom ceiling 8. repair back bedroom ceiling 9. repair hole in back bedroom wall 10. replace refrigerator 11. replace baseboard in living room 12. reattach attic fan louver 13. replace medicine cabinet 14. replace smoke detector F-149 1. replace screens 2. replace kitchen cabinets 3. electrical short in dining room light switch 4. subfloor problem in living room 5. replace smoke detector 6. repair attic louver 7. repair kitchen ceiling 8. replace receptacle in living room 11 RESULTS OF UNIT INSPECTIONS UNIT # DEFICIENCY F-151 1. replace living room broken window pane 2. replace living room receptacle 3. replace thermostat 4. r e p l a c e f r o n t door screen 5. replace kitchen cabinets 6. replace lavatory cabinet 7. replace commode 8. replace tub drain 9. repair bathroom faucet leak F-152 1. replace screen door 2. repair front door lock 3. lavatory and sink leaking 4. replace kitchen cabinets 5. repair bathroom ceiling 6. repair bathroom wall/leak inside wall 7. roaches F-153 1. repair right front bedroom door frame 2. repair living room ceiling 3. replace screen door 4. repair kitchen cabinets 5. repair kitchen ceiling 6. replace tile in hallway 7. repair attic fan louver 8. bathroom faucet drips 9. replace lavatory 10. repair screen in back bedroom F-154 1. replace front door screen 2. replace thermostat 3. repair noisy bathroom vent 4. replace bedroom screen 5. repair tile in living room 6. replace kitchen cabinets 7. replace attic fan louvers 8. roaches 12 RESULTS OF UNIT INSPECTIONS UNIT # DEFICIENCY G-155 1. repair screen in living room 2. replace living room drapes 3. repair tile in back bedroom 4. repair ceiling stain in bathroom 5. tub faucet drips 6. repair rusted seal in lavatory 7. replace refrigerator 8. replace kitchen cabinets 9. replace baseboards G-159 1. repair broken tiles 2. repair outlet in living room 3. replace countertop 4. repair kitchen ceiling 5. remove mold in right front bedroom 6. repair bathroom 13 ATTACHMENT 3 DISTRIBUTION Secretary's Representative, Southeast, 4AS Director, Accounting Division, 4AFF Field Comptroller, 4AF State Coordinator, 4GS Director, Multifamily Housing Division, 4GHM Chief Financial Officer, F, Room 10164 (2) Director, Office of Internal Control and Audit Resolution, FOI (Room 10176) (2) Associate Director, US GAO, 820 1st St. NE Union Plaza, Bldg. 2, Suite 150, Washington, DC 20002 (2) Audit Liaison Officer, Office of Housing, HF (Room 5132) (3) Assistant to the Deputy Secretary for Field Management, SDF (Room 7106) President, Intervest Corporation 14
Broadmeadow Apts, Jackson, MS
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-06-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)