oversight

Little Flower Estates, Ponchatoula, LA

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-09-23.

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

                                                                   Issue Date

                                                                        September 23, 1996
                                                                   Audit Case Number

                                                                        96-FW-219-1003




TO:           Ann Kissier
              Director, Multifamily Housing Division, 6HHM


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

SUBJECT:      Little Flower Estates
              Project Number 064-35026
              Ponchatoula, Louisiana


We performed an audit of Little Flower Estates for the period January 1992 through October
1994. The objective of our audit was to determine whether expenditures and disbursements
complied with the terms and conditions of the Regulatory Agreement and other HUD
requirements. Because of serious problems found at the property, we also reviewed the New
Orleans Multifamily Housing Division to determine if it adequately monitored the project.

While the project was in a non-surplus cash position, the owner/management agent improperly
spent $284,786 of project funds. Further, HUD did not take appropriate action to detect and
prevent the improperly spent funds.

Within 60 days, please furnish this office, for each recommendation in this report, a status on:
(1) corrective action taken, (2) the proposed corrective action and the date to be completed, or
(3) why action is not considered necessary. Also, please furnish us copies of any correspondence
or directives issued related to the audit.

If you or you staff have any questions, please contact Frank Baca, Assistant District Inspector
General for Audit, at (817) 885-5551.
Management Memorandum




                 (THIS PAGE LEFT BLANK INTENTIONALLY)




96-FW-219-1003                   Page ii
Executive Summary
We performed an audit of Little Flower Estates. The purpose of the audit was to determine
whether expenditures and disbursements complied with the terms and conditions of the
Regulatory Agreement and other HUD requirements. The review disclosed the owner/
management agent disregarded the Regulatory Agreement and HUD requirements and
diverted $284,786 of Project funds. The $284,786 includes $243,555 in ineligible and
$41,230 in unsupported or unreasonable costs. This occurred during a period when the
project was in a non-surplus cash position. Because of serious problems found at the
property, we also reviewed the New Orleans Multifamily Housing Division to determine if
it adequately monitored the project. We found HUD did not take appropriate action to
detect and prevent the improperly spent funds.




                                  During the audit review period, and while the project was
 Owner Made Unapproved
                                  in a non-surplus cash position, the owner withdrew
 Withdrawals and Loan
                                  $102,021 in project funds in the form of loan repayments
 Repayments
                                  and owner advances. The owner did not have written HUD
                                  approval to repay or withdraw the funds. Further, the
                                  owner made and repaid loans to third parties in the project's
                                  name and without HUD authorization. The repayments
                                  totaled $25,765.

                                  The owner paid himself from project funds for other
 Owner Charged
                                  ineligible, unsupported, or unreasonable expenses. For
 Numerous Ineligible and
                                  example, the owner paid himself a "construction
 Unsupported Costs to
                                  supervision fee" of $70 per day or $49,414 during the
 Project
                                  review period. The owner could not provide us with
                                  documentation supporting the need, duties, and
                                  accomplishments of his services as a construction
                                  supervisor.

                                  Other costs the owner charged to the project should have
                                  been included in the management agent fee, or were
                                  otherwise ineligible, unsupported, or unreasonable. These
                                  costs included travel ($24,707), health benefits ($7,460),
                                  unreasonable office rent ($16,200), rent for an off-site
                                  office ($4,400), rent for a launderette facility ($10,075),
                                  telephone ($2,700), bookkeeping ($12,163), consulting
                                  ($8,029), bank charges ($2,293), and other miscellaneous
                                  charges ($19,559).




                                          Page iii                                96-FW-219-1003
Executive Summary



                          The New Orleans Multifamily Housing Division
 Field Office Did Not
                          (Multifamily) needs to strengthen its monitoring of owners
 Effectively Monitor
                          and management agents. Multifamily staff did not always
 Project Expenditures
                          require the owner to submit audited financial statements or
                          monthly accounting reports. In addition, Multifamily did
                          not question many suspect payments appearing in financial
                          records. Although Multifamily questioned some potential
                          deficiencies, it did not take effective action to ensure the
                          owner corrected the deficiencies. As a result the improper
                          owner/agent activities went unnoticed or unresolved. Also,
                          Multifamily's inadequate monitoring may jeopardize its
                          ability to recover funds or take action against the
                          owner/agent.

                          We are recommending the Multifamily Housing Division
 Report Recommendations
                          require the owner to immediately cease the improper
                          activities. Further, Multifamily should take action to
                          recover the diverted funds and recover any improper
                          payments the owner/agent made subsequent to our audit
                          period. Multifamily should also take administrative
                          sanctions and other appropriate remedies against the owner
                          to protect HUD's interest.

                          In addition, we are recommending the field office take
                          action to ensure owners' submit financial reports.
                          Multifamily staff should review the reports to detect and
                          prevent improper expenditures and take effective action to
                          correct deficiencies noted.

                          OIG sent a draft of Finding 1 to the owner on January 26,
 Owner Disagrees with
                          1996. The owner responded to the draft finding in a letter
 Finding; HUD Agrees to
                          dated March 4, 1996, strongly disagreeing with the finding
 Take Action
                          (Appendix D). At an exit conference held on April 17,
                          1996, to discuss Finding 1 results, the owner maintained his
                          strong disagreement. HUD Multifamily officials at the exit
                          conference supported OIG's position.

                          We provided the Multifamily Housing Division with the a
                          draft of Finding 2 on April 9, 1996. At an exit conference
                          held on April 18, 1996, Multifamily officials agreed with
                          the finding and said corrective action would be taken.
                          Multifamily provided a written response on August 27,
                          1996 (Appendix E).



96-FW-219-1003                    Page iv
Table of Contents

Management Memorandum                                              i


Executive Summary                                                 iii


Introduction                                                       1


Findings

    1      Owner Improperly Spent $284,000 in
           Project Funds                                           3

    2      Multifamily Division Needs to Improve Its
           Oversight of Project Management                       13


Internal Controls                                                19


Appendices

    A      Schedule of Questioned Costs                          21

    B      Questioned Amounts by Cost Category                   23

    C      Schedule of Ineligible and Questioned
           Disbursements Supporting Finding 1                    25

    D      Owner Comments (regarding Finding 1)                  37

    E      Multifamily Division Comments (regarding
           Finding 2)                                            41




                              Page v                   96-FW-219-1003
Table of Contents




        F        Distribution                                           43



Abbreviations
        FHA         Federal Housing Administration
        HUD         U. S. Department of Housing and Urban Development
        OIG         Office of Inspector General




96-FW-219-1003                             Page vi
Introduction
Little Flower Estates, FHA Project 064-35026, is a 50-unit apartment complex located in
Ponchatoula, Louisiana. Mr. Michael R. Ragusa owns and manages the project. HUD
insured the mortgage of Little Flower Estates under Section 221(d)(3) of the National
Housing Act. HUD endorsed the $622,100 loan on November 18, 1971. All 50 units receive
Section 8 subsidies from HUD under a Housing Assistance Payments (HAP) contract.

Mr. Michael R. Ragusa signed the Regulatory Agreement on September 30, 1969, along
with Mr. Joseph R. Ragusa and Mr. Sam V. Mannino. Mr. Michael R. Ragusa acquired
the remaining 36.111 percent ownership interest from The Estate of Samuel V. Mannino,
Sr. on December 3, 1993, to become sole owner of Little Flower Estates.

The owner has kept current on the mortgage; hence, the project is not in default. However,
for our review period the project was in a non-surplus cash position. The Regulatory
Agreement prohibits any owner distributions, including repayment of owner advances,
when the property is in a non-surplus cash position.




                                  The purpose of our audit was to determine whether project
 Audit Objectives
                                  expenditures and disbursements complied with the terms
                                  and conditions of the Regulatory Agreement and other
                                  HUD requirements. Because of serious problems found at
                                  the property, we performed a limited reviewed of the New
                                  Orleans Multifamily Housing Division to determine if it
                                  adequately monitored the project.

                                  To determine whether project expenditures and
 Scope and Methodology
                                  disbursements complied with the terms and conditions of
                                  the Regulatory Agreement and other HUD requirements
                                  we:

                                  •   Reviewed Regulatory Agreement and HUD Handbook
                                      requirements for assisted projects. We also reviewed
                                      the Renting and Managing Agreement between the
                                      owner and project dated October 11, 1988.

                                  •   Examined project records and documentation for the
                                      audit period, including financial statements, general
                                      ledgers, check register, bank records (bank statements,
                                      canceled checks, deposit slips), files of paid bills, and
                                      supporting invoices.




                                           Page 1                                  96-FW-219-1003
Introduction



                 •   Reviewed monthly accounting reports obtained from
                     Multifamily.

                 •   Interviewed the owner, his representatives, and project
                     staff.

                 To determine if the Multifamily Housing Division
                 adequately monitored the project we:

                 •   Reviewed HUD Handbooks to determine Multifamily's
                     responsibilities relating to monitoring project
                     management.

                 •   Examined documentation maintained by Multifamily,
                     including project financial reports, management
                     reviews, and physical inspection reports.

                 •   Interviewed Multifamily staff.

                 The audit covered the period January 1, 1992, through
                 October 31, 1994. We did the field work between October
                 and December 1994. We conducted the audit in accordance
                 with generally accepted government auditing standards.




96-FW-219-1003            Page 2
                                                                                  Introduction




           Owner Improperly Spent $284,000
                   in Project Funds
Contrary to the Regulatory Agreement, HUD requirements, and the Management
Agreement, the owner spent $284,786 in project funds for ineligible and questionable
expenses while the project was in a non-surplus cash position. These payments included:
owner withdrawals; loan repayments; payments to the owner for "construction
supervision" fees; owner health insurance costs; unreasonable office rent charges; rent
subsidies for a launderette; rent charges for a second office; ineligible and questionable
travel, bookkeeping, consulting, and telephone expenses; ineligible bank fees; and other
improper disbursements. The improper payments put the project at risk of default and
resulted in HUD paying inflated Section 8 rental subsidies to the owner. This occurred
because the owner disregarded HUD requirements.




                                  The Regulatory Agreement states owners shall not without
 Regulatory Agreement
                                  the prior written approval of the Secretary:
 Requirements
    •                             Assign, transfer, dispose of, or encumber any personal
                                  property of the project, including rents, or pay out any
                                  funds except from surplus cash, except for reasonable
                                  operating expenses and necessary repairs (paragraph 6(b));

                                  •   Incur any liability, direct or contingent, other than for
                                      current operating expenses, exclusive of the
                                      indebtedness secured by the mortgage and necessarily
                                      incident to the execution and delivery thereof
                                      (paragraph 6(i)); or

                                  •   Enter into any contract or contracts for supervisory or
                                      managerial services (paragraph 6(k)).

                                  Further, the Regulatory Agreement limits the amount of
                                  surplus cash that the owner can withdraw in any 1 year to
                                  6 percent of the initial investment ($6,620) (paragraph
                                  6(e)). Surplus cash is any cash remaining after the payment
                                  of all sums due or currently required to be paid under the
                                  terms of any mortgage or note insured or held by the
                                  Secretary (paragraph 13(f)).



                                           Page 3                                  96-FW-219-1003
Finding 1




                        During the audit review period, and while the project was
 Owner Improperly
                        in a non-surplus cash position, the owner withdrew
 Withdrew $102,021 in
                        $102,021 in project funds in the form of loan repayments
 Project Funds
                        and owner advances. The $102,021 included $97,645 in
                        ineligible and $4,376 in unsupported payments. The
                        ineligible amounts represent checks written directly to the
                        owner and affiliates, and amounts charged to the project for
                        materials used to renovate the owner's house. The
                        unsupported amount represents materials that the owner
                        claims to have used to renovate his personal residence but
                        could not locate the related invoices.

                        The Regulatory Agreement specifies that owners shall not,
                        without prior written approval of HUD pay out any funds
                        except for reasonable operating expenses and necessary
                        repairs. Further, the owner can not make, or receive and
                        retain, any distribution of assets or any income of any kind
                        of the project except surplus cash (as defined in the
                        Regulatory Agreement).

                        HUD Handbook 4370.2 REV-1, Financial Operations and
                        Accounting Procedures for Insured Multifamily Projects,
                        paragraph 2-11(A) states that repayment of owner advances
                        when the project is in a non-surplus cash position will
                        subject the owner to criminal and civil monetary actions.

                        Contrary to the Regulatory Agreement, the owner, without
 Owner Improperly
                        written authorization, borrowed money in the project's
 Borrowed and Repaid
                        name. The owner repaid the borrowed amounts using
 Funds
                        project funds, again without HUD's written approval. The
                        amount of the repayments totaled $25,765. Of this amount,
                        the owner repaid his mother $14,481, and a business
                        associate $3,517. HUD staff said they were aware of the
                        loans but believed the owner took out the loans in his name.
                        HUD staff state they never gave approval to the owner for
                        the loans or subsequent repayment of the loans. Although
                        HUD staff may not have had a problem approving the
                        loans, the owner never asked for approval. According to
                        the Regulatory Agreement, the owner cannot without the
                        prior written approval of HUD incur any liability, direct or
                        contingent, other than for current operating expenses.
                        Because the owner did not have approval for the loans, the



96-FW-219-1003                  Page 4
                                                                             Finding 1



                           subsequent repayment of such loans is an ineligible use of
                           project funds.


                           In addition to the management agent fee, the owner paid
Owner Paid Himself
                           himself $49,414 from project funds for "construction
$49,414 in Construction
                           supervisor fees," violating the Regulatory Agreement and
Supervision Fees
                           HUD requirements. The owner paid himself these fees
                           continuously throughout the review period based on a flat
                           rate of $70 per day. The owner stated that he used his
                           expertise in construction in providing services to the
                           project.   However, he could not provide us with
                           documentation supporting the need, duties, and
                           accomplishments of his services as a construction
                           supervisor. Further, the owner did not have written
                           approval from HUD for this fee.

                           According to the Regulatory Agreement, the owner cannot
                           without the prior written approval of HUD, enter into any
                           contract(s) for supervisory or managerial services.
                           Additionally, HUD Handbook 4381.5 REV-1, Paragraph 2-
                           13(B) states the "agent must absorb the costs of supervising
                           and overseeing project operations."

                           The owner used project funds to pay his health insurance
Project Paid $7,460 for
                           ($7,460). The owner stated he believes he was an employee
Owner's Health Insurance
                           of the project since he was the "construction supervisor,"
                           and therefore the project should pay for his health
                           insurance. However, the owner was not a project employee
                           and, as stated above, the construction supervision fees were
                           ineligible costs. Therefore, the owner's health insurance is
                           not an eligible project expenditure.

                           The owner owns a building adjacent to the property. This
Charges for Office Rent
                           building houses the project office and a launderette. The
Appear Unreasonable
                           owner purchased the building from a relative for $15,000 in
                           1988. According to the owner and HUD documents, this
                           building is not part of the project. In 1992 the owner
                           charged the project $400 per month for office space rental,
                           and $500 per month for 1993 and 1994. During the audit
                           period, the office space rental charges amounted to
                           $16,200. The rent charges appear to be inflated considering
                           the owner purchased the entire building for $15,000 in 1988
                           and has charged the project $16,200 in rent for use of half


                                   Page 5                                  96-FW-219-1003
Finding 1



                           the building during the 34 months under review. HUD
                           should require the owner to support the reasonableness of
                           the rent charges.

                           The owner rents the launderette to an unrelated individual
 Owner Subsidized
                           for $175 per month. Using project funds, the owner pays
 Launderette
                           himself the difference between the higher office rent and
                           the $175 charged for the launderette. This difference
                           totaled $10,075 for the audit period. The owner justifies
                           this subsidy for the launderette by claiming HUD forces
                           him to have a launderette. HUD staff were unaware of the
                           owner charging the project rent or the launderette subsidy.
                           Further, there is no documentation in the files indicating
                           that the owner received HUD approval to pay the
                           launderette subsidy. Other than providing the owner
                           additional income, there is no reason or justification for the
                           subsidy.

                           The owner paid an identity-of-interest company $4,400 for
 Rent Payments Made to
                           "office rent" for an office located in Natalbany, Louisiana.
 an Identity-of-Interest
                           The owner did not have HUD's written approval for these
 Company
                           payments. There is no evidence to support the necessity of
                           this office. As discussed above, the owner already has an
                           office adjacent to the project; therefore, these payments are
                           ineligible.

                           The owner reimbursed himself $24,707 from project funds
 Owner Reimbursed
                           for travel expenses that should have been paid from his
 Himself $24,707 for
                           management fee. Much of the travel expenses related to
 Ineligible Travel Costs
                           mileage to and from the project. For example, in
                           September 1992 the owner reimbursed himself $601 for
                           travel expenses. According to supporting documentation,
                           the owner traveled 2,186 miles during the month at a
                           reimbursement rate of $.275 per mile. The documentation
                           indicates the owner traveled the miles for purpose of
                           construction supervision, office supervision, and site
                           inspection. Other reimbursed travel expenses did not have
                           a stated purpose. These expenses should have been paid
                           from the management fee and not from project funds.

                           The Regulatory Agreement states owners shall not without
                           the prior written approval of the Commissioner pay out any
                           funds except from "surplus cash," except for reasonable
                           operating expenses and necessary repairs. Further, HUD


96-FW-219-1003                      Page 6
                                                                                Finding 1



                              Handbook 4381.5 REV-1, Paragraph 2-14(A) states the
                              management fee must pay for salaries, fringe benefits,
                              office expenses, fees, and contract costs incurred in
                              supervising project personnel, and monitoring project
                              operations by visiting the project.

                              The Renting and Managing Agreement states all salaries for
Owner Charged
                              management personnel, including the bookkeeper (but not
Questionable
                              the auditing accountant) will be paid by the agent out of the
Bookkeeping Expenses
                              management agent fee. The owner violated this agreement
                              by charging the project $9,163 for bookkeeping expenses.
                              Also, the owner paid another $3,000 to an accountant for
                              compilation of annual financial statements. This amount
                              appears to be unreasonable considering the accountant did
                              not audit financial statements.

                              The owner spent $8,055 for ineligible and questionable
Owner Improperly
                              consulting fees. Of this amount, the owner made payments
Charged Consultant Fees
                              totaling $6,200 for consulting work involving advice on
to the Project
                              how to apply for grants to obtain security fencing, and the
                              advisability of enlarging the project to 100 units and the
                              possible syndication thereof. These expenses are neither
                              operating expenses nor necessary repairs and therefore,
                              can't be paid from project funds. Also, the owner's records
                              disclosed payments of $1,830 to a law firm that do not
                              appear to be eligible expenses.

                              The owner paid himself $60 per month in project funds for
Owner Paid Himself
                              telephone expenses ($2,700). According to the owner, the
$2,700 for Arbitrary
                              reimbursements represent charges in addition to the project
Telephone Costs
                              telephone, such as the phone at the Natalbany office. The
                              owner could not justify the reasonableness of the $60 per
                              month reimbursement. Any reimbursement to the owner
                              should be for actual expenses, not an arbitrarily set fee.
                              Additionally, the owner would have to document why the
                              phone charges are project expenses and not management
                              agent expenses. HUD Handbook Figure 2-4 lists overhead
                              expenses such as supplies and equipment, transportation
                              and phone calls to projects, office space, data processing,
                              etc. as examples of costs paid from the management fee.

                              The owner incurred and paid $2,293 in mortgage late fees
Project Paid for Ineligible
                              and non-sufficient fund charges. These expenditures do not
Bank Charges



                                       Page 7                                 96-FW-219-1003
Finding 1



      constitute reasonable operating expenses and should not be charged to the project.




                                                 In addition to the above ineligible and unsupported
 Project Incurred $19,500
                                                 payments, the owner improperly disbursed $19,559 in
 in Other Questionable
                                                 project funds for various expenses. The $19,559 included
 Costs
                                                 $3,735 for ineligible and $15,824 for unsupported purposes.

                                                 The ineligible payments include purchase and repairs to a
                                                 copy machine located at the Natalbany office ($1,994),
                                                 flowers for a wedding ($145), and flowers for a church
                                                 function ($249). The owner, also, reimbursed himself from
                                                 project funds for personal items. For instance, the owner
                                                 issued a check to himself for $536.51 for reimbursement of
                                                 office expenses1. The supporting receipts show the
                                                 purchase of such items as aspirin ($42.38), juice ($28.57),
                                                 bubble gum ($24.87), taper candles ($9.81), and other
                                                 items. Ineligible expenses accounted for $477.51 of the
                                                 $536.51 reimbursement. In addition, the owner could not
                                                 provide support for checks totaling $15,824 that appeared
                                                 to be for questionable items.

                                                 The owner's improper use of project funds has had adverse
                                                 effects on both HUD and the project residents. As stated
                                                 previously, all 50 units are subsidized through the Section
                                                 8 Program. The amount of project expenses determines the
                                                 Section 8 subsidy. The improper expenses have resulted in
                                                 HUD paying inflated rental subsidies to the owner2. The
                                                 owner has jeopardized the financial position of the project
                                                 by using project funds for ineligible purposes.



Auditee Comments                                 In general, the auditee denies any wrongdoing and attempts
                                                 to portray himself as a victim of "administrative
                                                 persecution." The owner regards OIG's contention of
                                                 improperly spent funds as "... simply a partial truth--most of


  1
      Check number 2980, dated August 7, 1992.

   2
     Based on available records, we estimate that the inclusion of ineligible costs in budgets may have resulted in the owner
 receiving inflated rental income of about $116,000 for 1992 and 1993.


96-FW-219-1003                                              Page 8
                                                   Finding 1



the items quoted were spent in conformity with the
regulatory and management agreements for reasonable
operating expenses and necessary repairs, no liability was
incurred other than for current operating expenses and no
contracts or agreements for supervisory services were
entered into without the suggestion and approval of the
project's loan servicer."

The owner states:

•   Withdrawal and loan repayments. During the review
    period, he deposited $111,821 into the bank account.
    Further, HUD was aware of borrowing and repayments
    and received the project's detailed general ledger which
    reflected every transaction in detail.

•   Construction supervision fees. The project's loan
    servicer told him to use this category since the project
    "...had to practically be rebuilt from lack of
    maintenance and funds prior to the current managing
    agent's tenure."

•   Office rent. The costs are supported. "Just because the
    owner received this property as a bargain from his
    family, does not preclude him from receiving rent."

•   Subsidized launderette. "In order to clean up the project
    it was necessary to stop tenants from placing washers
    and dryers in the units since they do not have hookups,
    therefore it was necessary to contract for a washateria
    service to operate one on the site, since the site would
    not produce enough revenue to justify the washateria,
    the project had to subsidize the washateria by way of
    rent."

•   Bookkeeping/accounting services. Have been accepted
    since 1969 by HUD as an allowable project expense.
    The owner has reported such expenses under the HUD
    chart of accounts #6351. The owner and managing
    agent consider the consulting expenses as ordinary and
    necessary expenses of the project. The project paid
    such fees in other years without being questioned by
    HUD.



         Page 9                                  96-FW-219-1003
Finding 1



                    •   Legal fees. "...were all incurred in tenant evictions or
                        other direct project legal expenses."

                    The owner said he would not attempt to rebut each check or
                    invoice as this would "...bog this project down in more
                    administrative paperwork and thus lose sight of our
                    recovery from HUD for abusive 'administrative persecution'
                    among other things."

                    The owner disagrees with the OIG's computation of inflated
                    rent. To the contrary, the owner feels that the project has
                    been delayed a rent increase, and therefore, the owner has
                    been damaged "$20,000 per year plus the costs that he has
                    incurred to deal with and answer this "administrative
                    persecution."

                    In conclusion, the owner disagrees with "with every
                    assumption and recommendation" that the OIG made."



OIG Evaluation of   The owner did not provide any explanations or evidence to
Auditee Comments    significantly change our conclusions. We acknowledge the
                    owner made contributions to the project. Nevertheless, to
                    protect HUD's and the tenants' interests, the Regulatory
                    Agreement prohibits repayments for those contributions,
                    without HUD approval, when the project is in a non-surplus
                    cash position. HUD program staff deny they approved the
                    above practices, and the owner could not provide us with
                    anything in writing to show HUD approval. His response
                    does not explain how the office rent is reasonable. We still
                    do not understand why the project should be subsidizing the
                    launderette. The Renting and Management Agreement
                    signed by the owner, not HUD, deems bookkeeping as a
                    management agent expense, not a project expense. The
                    owner did not submit any evidence why the consultant fees
                    should be considered reasonable operating expenses or for
                    necessary repairs. With respect to the legal fees, we did
                    question items based upon the attorney's statement of
                    account supplied by the owner. The owner must supply
                    additional information to prove the following line items are
                    direct project legal expenses: "closing cost, Genesee Road"
                    ($1,254.50); "review of abstracts to land and response to
                    Kipp at HUD" ($400); "office visit re: HUD ltr to


96-FW-219-1003              Page 10
                                                                  Finding 1



                  Southeast Bank, Mannino" ($150); and "preparation of will
                  for mother" ($25). The owner did not supply any
                  information determining how the above expenses relate to
                  the project.

                  Overall, the owner argues that because HUD did not
                  enforce the Regulatory Agreement in the past, the owner
                  should be allowed to violate the Regulatory Agreement
                  indefinitely without consequence. The owner freely entered
                  into the Regulatory Agreement with the government.
                  Without HUD, the owner probably would not have this
                  project. According to information supplied by the owner,
                  the government provided $847,969 of the $1,076,039
                  (78.80%) funds deposited into the bank account during the
                  2-year period ending December 1994. Yet when the
                  government requires adherence to the terms of the
                  Regulatory Agreement, the owner argues he should not
                  have to comply. The owner views any attempt by the
                  government to try to ensure compliance and safeguard the
                  taxpayers against loss as "administrative persecution."



Recommendations   We recommend the New Orleans Office:

                  1A.    Require the owner to immediately cease the
                         improper activities described in this finding and
                         adhere to the Regulatory Agreement, HUD
                         requirements, and the Management Agreement;

                  1B.    Take action to recover $243,556 of improperly
                         expended funds;

                  1C.    Obtain documentation or justification for the
                         $40,730 in unsupported expenditures and recover
                         from the owner costs you determine to be
                         unallowable;

                  1D.    Review project costs subsequent to October 31,
                         1994, and recover amounts that you determine are
                         ineligible or unsupported;




                          Page 11                               96-FW-219-1003
Finding 1



                 1E.   If the owner does not repay HUD for the improper
                       diversion of property funds, take appropriate civil
                       action and HUD prescribed remedies; and




                 1F.   Because of the serious violations of the Regulatory
                       Agreement and disregard of HUD requirements,
                       take appropriate administrative action through
                       sanctions to protect HUD's interest.




96-FW-219-1003          Page 12
                                                                                    Finding 2




    Multifamily Division Needs to Improve Its
        Oversight of Project Management
The Multifamily Housing Division (Multifamily) needs to take proactive measures to ensure
that owners/management agents adhere to the Regulatory Agreement and HUD
requirements. During the course of our review, we noted two troubling conditions with
Multifamily's monitoring of Little Flower Estates (Little Flower). First, clear indications
of violations of the Regulatory Agreement and HUD requirements went unnoticed or
unquestioned. Second, when Multifamily did question possible deficiencies, it did not
pursue and correct the noted deficiencies. As a result, the program deficiencies discussed
in Finding 1 went undiscovered or unresolved. Also, Multifamily may have impeded its
ability to recover diverted funds.




                                  HUD Handbooks 4350.1 REV-1 "Multifamily Asset
 Multifamily's
                                  Management and Project Servicing," and HUD Handbook
 Responsibilities
                                  4370.1 REV-2 "Reviewing Annual and Monthly Financial
                                  Reports" provide guidance to field offices on how to
                                  oversee multifamily projects.

                                  •   Section 3-4 of Handbook 4350.1 REV-1 requires
                                      mortgagors to submit to HUD annual audited financial
                                      statements. Chapter 2 of 4370.1 REV-2 provides HUD
                                      staff with detailed instructions on reviewing annual
                                      statements.

                                  •   Section 1-4 of 4370.1 REV-2 lists four "Goals of
                                      Financial Analysis":

                                      1. Financial health of project. To provide stability,
                                         rents must be set at sufficient levels. The Asset
                                         Management staff's objective is to keep rent
                                         increases to necessary amounts and to minimize the
                                         impact of the increase on lower-income residents.

                                      2. Protect the FHA insurance fund.                 Asset
                                         Management staff can help protect the FHA fund by
                                         monitoring the project's physical and financial status
                                         and providing solutions to current and anticipated
                                         physical and financial problems.


                                          Page 13                                 96-FW-219-1003
Finding 2



                           3. Ensure that rental revenue and rental subsidies are
                              used properly. Asset Management staff should
                              review financial statements carefully to identify
                              instances where funds have been diverted
                              improperly or are not being used in compliance with
                              previous agreements.

                           4. Compliance with Regulatory Agreement and
                              subsidy contracts. Compliance is essential to
                              providing decent, safe, and affordable housing to all
                              eligible tenants and maintaining a financially sound
                              project with the ability to sustain future operations.
                              Asset Management staff can help by reviewing the
                              auditor's Report on Compliance for reported
                              deficiencies and performing tests on the financial
                              statements.

                        Multifamily did not notice or question possible violations of
 Violations Went
                        the Regulatory Agreement and HUD requirements.
 Unnoticed or
 Unquestioned
                        Unaudited financial statements. Little Flower submitted
                        unaudited financial statements for calendar years 1991 and
                        1992. Multifamily's files do not indicate that the owner was
                        informed of the deficiencies or that Little Flower submitted
                        audited financial statements.          Unaudited financial
                        statements do not provide HUD with reasonable assurance
                        regarding the accuracy or completeness of what is being
                        reported. The Regulatory Agreement and HUD Handbook
                        4350.1 REV-1 require that the owner submit audited
                        financial statements within 60 days of year end.3 According
                        to HUD Handbook 4370.1 REV-2 Paragraph 2-5, HUD's
                        review of the annual financial statements includes ensuring
                        the statements contain an auditor's opinion in proper form.

                        Multifamily did require Little Flower to submit audited
                        financial statements for 1993. After receiving an extension,
                        Little Flower submitted unaudited financial statements for
                        1993. On May 9, 1994, Multifamily informed the owner to
                        contract the auditing services to an Independent Public
                        Accountant. Further, the letter states "if project funds were
                        used to pay for this compiled report, we direct you to
                        reimburse the project the total cost of the compiled report."

  3
      Paragraph 9(e).


96-FW-219-1003                  Page 14
                                                      Finding 2



    The audited financial statements are dated September 28,
    1994.

    Questionable transactions. The 1991 and 1992 unaudited,
    and the 1993 audited financial statements disclosed
    violations of the Regulatory Agreement and other apparent
    questionable transactions:

    Although the Regulatory Agreement Paragraph 6(i) does
    not allow the owner to incur any liability except for current
    operating expenses without prior HUD approval, the 1991
    and 1992 financial statements disclosed that Little Flower
    had notes payable to the owner and others of $73,624 and
    $99,507, respectively. The financial statements also
    showed the notes payable earned $497 in interest for 1991
    and $4,128 for 1992. According to an asset manager,
    Multifamily never approved any loans to Little Flower or
    the subsequent repayments of the loans. Further, the 1993
    cash flow statement and related notes to financial
    statements disclosed that the project spent $22,145 to repay
    long-term debt to related parties. Multifamily did not
    question the repayments of related-party notes while the
    Project was in a non-surplus cash position.

    The 1991 and 1992 financial statements disclosed
    questionable costs on a page entitled "Compensation of
    Officers or Owners." The 1993 financial statements
    disclosed similar questionable costs in the Schedule of
    Findings and Questioned Costs as "unauthorized
    distributions to partner and related parties":


 Transaction Category         1991         1992        1993

Construction supervision     $16,730      $18,410     $19,387
Office rent                    $6,875      $8,125     $12,300
Expense allowed              $14,445      $13,540
Travel                                                $14,140
Principal and interest                                $35,762

    These payments were in addition to management fees paid
    the owner. An asset manager said Multifamily never


              Page 15                               96-FW-219-1003
Finding 2



                                                  approved the construction supervision fee or payments for
                                                  office rent. In fact, the asset manager was not aware that
                                                  Little Flower paid office rent. The files do not indicate that
                                                  Multifamily ever questioned the appropriateness of these
                                                  payments. A review of 1992 and 1993 transactions found
                                                  most of the above items to be ineligible or unsupported (see
                                                  Finding 1). The review period did not include 1991.

                                                  According to an asset manager, Multifamily does not
                                                  involve itself with a project unless it hears from the tenants
                                                  or the mortgage company. Another asset manager said
                                                  Multifamily questioned some of the payments to the owner
                                                  in their latest review. On May 3, 1994, Multifamily
                                                  reported the results of its Management Review of Little
                                                  Flower. The review noted 45 findings. Finding 12
                                                  questioned many payments to the owner between January
                                                  and March 1994. According to correspondence dated
                                                  April 25, 1995, the finding remains open pending OIG's
                                                  report. An asset manager said the owner never sent
                                                  paperwork addressing the payments.               As a result,
                                                  Multifamily was unable to declare the payments ineligible.

                                                  Multifamily did request and receive some Monthly
                                                  Accounting Reports (MARs) for the project. Based on
                                                  these reports, Multifamily questioned some of Little
                                                  Flower's expenditures.        The owner's response on
                                                  September 19, 1994, indicates that many of the questioned
                                                  payments are ineligible. For example, the owner states that
                                                  one check for $2,500 was an "advance"4 and another check
                                                  went to pay consultant fees for "the advisability of
                                                  enlarging the project to 100 units, and the possible
                                                  syndication thereof." Both of the above purposes are
                                                  clearly ineligible uses of project funds, and Multifamily
                                                  should have taken appropriate measures to have the funds
                                                  repaid to the project and ensure that such payments do not
                                                  occur in the future. Further, this correspondence reveals
                                                  that the owner is charging Little Flower for office rent, a
                                                  construction supervision fee, telephone, and travel.
                                                  According to an asset manager, Multifamily has not
                                                  received any MARs since December 1994 even though it
                                                  has not instructed the owner to stop submitting MARs.

   4
     The owner's correspondence states that the "advance" was repaid to the project. However, the fact that the "advance"   was
repaid does not excuse the violation of the Regulatory Agreement.



96-FW-219-1003                                               Page 16
                                                                              Finding 2



                           Multifamily referred Little Flower for OIG review and may
 Multifamily Inaction
                           have waited for the results before acting. However,
 Could Hinder Corrective
                           Multifamily's silence when the owner provides information
 Action
                           indicating that ineligible or questionable expenditures could
                           give the owner the false impression that Multifamily
                           approves of the payments. This could also hinder
                           Multifamily's ability to require the owner to pay back the
                           funds or other sanctions.

                           Based upon a cursory file review, it appears Multifamily
                           ensured the owner corrected physical discrepancies.
                           Multifamily should use this same efficiency in correcting
                           financial discrepancies.



Auditee Comments and       In its written response to the draft finding, Multifamily said
OIG Evaluation             it was taking action to correct reported deficiencies. They
                           now have sufficient staff to ensure files are complete, and
                           also have available contractors to assist them. In addition,
                           they are entering financial statement data into an automated
                           system, and are implementing procedures to ensure timely
                           review and follow-up of possible violations. The response
                           also stated Multifamily is exploring the possibility of
                           converting one of the asset managers to a financial analyst,
                           whose primary function would be to review financial
                           statements.

                           Multifamily appears to be taking effective action to address
                           concerns reported in this finding.



Recommendations            We recommend the New Orleans Office ensure:

                           2A.    Project owners submit required information,
                                  including audited financial statement, and Monthly
                                  Accounting Reports, when appropriate and take
                                  appropriate administrative action through sanctions,
                                  if warranted and

                           2B.    Multifamily staff review financial statements in
                                  accordance with HUD handbook requirements, and
                                  question and resolve indications of noncompliance.


                                   Page 17                                  96-FW-219-1003
Internal Controls
In planning and performing our audit, we considered internal controls relating to the
operation of Little Flower Estates. We also considered internal controls relating to the
Multifamily Housing Division's monitoring of the project.

Internal controls consist of the plan of organization and methods and procedures adopted
by management to ensure that resource use is consistent with laws, regulations, and
policies; that resources are safeguarded against waste, loss, and misuse; and that reliable
data is obtained, maintained, and fairly disclosed in reports.




                                  We determined that a review of Little Flower Estates'
 Relevant Internal
                                  internal controls was not relevant to accomplishing our
 Controls
                                  audit objectives and accordingly did not review them. We
                                  concluded this due to the small size of the operation, and
                                  because the owner was the management agent and could
                                  override controls.

                                  Our review of the Multifamily Housing Division was
                                  limited to Little Flower Estates, and HUD requirements for
                                  obtaining and reviewing financial reports as stated in HUD
                                  Handbooks 4350.1 REV-1, and 4370.1 REV-2. We
                                  assessed Multifamily's controls over obtaining and
                                  reviewing financial reports from the project and following
                                  up on identified deficiencies.

                                  As discussed in Finding 2, Multifamily Housing Division
 Significant Weakness
                                  needs to strengthen its controls over its review of financial
                                  reports and follow-up of identified deficiencies.




96-FW-219-1003                            Page 18
                                       Internal Controls




(THIS PAGE LEFT BLANK INTENTIONALLY)




                Page 19                     96-FW-219-1003
                                                                                                              Appendix A

Schedule of Questioned Costs


                   Recommendation
                     Number                                Ineligible 1                  Unsupported 2

                              1B                           $243,556

                              1C                                                           $40,730




        1
             Costs clearly not allowed by law, contract, HUD, or local agency policies or regulations.

         2
            Costs not clearly eligible but which warrant being considered (e.g., lack of satisfactory documentation to support
     the eligibility of the cost, etc.).



96-FW-219-1003                                               Page 20
                                       Appendix A




(THIS PAGE LEFT BLANK INTENTIONALLY)




                Page 21                96-FW-219-1003
                                                                                                              Appendix B

Questioned Amounts by Cost Category
                 Category                       Ineligible             Unsupported              Total Amount
                                                Amount 1/              Amount2/
       Owner withdrawals                          $ 97,644.42                 $ 4,376.29        $102,020.71
       Loan Repayments                                25,764.70                                  25,764.70
       Construction supervision                       49,414.00                                  49,414.00
       fee
       Health Benefits                                  7,460.37                                  7,460.37
       Office rent - project                                                  16,200.00             16,200.00
       Launderette rent                               10,075.00                                     10,075.00
       Office rent - Natalbany                          4,400.00                                   4,400.00
       Travel                                         24,706.76                                  24,706.76
       Bookkeeping                                      9,162.50                3,000.00         12,162.50
       Consulting                                       6,200.00                1,829.50          8,029.50
       Telephone reimbursement                          2,700.00                                  2,700.00
       Late fees/ NSF charges                           2,293.10                                  2,293.10
       Miscellaneous                                    3,734.70              15,824.55          19,559.25
       TOTALS                                     $243,555.55                $41,230.34          $284,785.89




        1/        Costs clearly not allowed by law, contract, HUD, or local agency policies or regulations.

        2/        Costs not clearly eligible or ineligible but which warrant being contested (e.g., lack of satisfactory
                  documentation to support the eligibility of the cost, etc.).




96-FW-219-1003                                             Page 22
                                       Appendix B




(THIS PAGE LEFT BLANK INTENTIONALLY)




                Page 23                96-FW-219-1003
                                                                                 Appendix C

Schedule of Ineligible and Questioned
Disbursements Supporting Finding 1
Legend:          BS - Bank statement
                 DM - Debit memo
                 WO - Withdrawal order
                 WT - Wire transfer
                 NTF - Note to file
                 DS - Deposit slip
                 NSF - Non-sufficient funds
                 OD - overdraft
                 Material chg - See section in Finding 1 entitled "Owner Improperly Withdrew
                                          $102,021 in Project Funds"


Owner Advances
Check No\                          Check             Ineligible     Unsupported
 Source     Date                  Amount             Amount          Amount
2956       06/11/92               $1,434.03      $1,434.03
2818       08/03/92                2,965.70       2,965.70
3056       09/28/92                1,500.00       1,500.00
3073       10/01/92                2,970.00       2,970.00
114        10/15/92                2,120.00       2,120.00
121        10/21/92                2,000.00       2,000.00
3114       11/02/92                3,600.00       3,600.00
3176       12/01/92                1,200.00       1,200.00
3239       12/31/92                4,003.33       4,003.33
3241       12/31/92               11,807.30      11,807.30
3411       02/09/93                5,277.81       5,277.81
BS         02/11/93                1,000.00       1,000.00
3452       03/09/93                2,105.61       2,105.61
3465       04/01/93                4,000.00       4,000.00
3587       05/23/93                5,420.00       5,420.00
3602       06/01/93                2,000.00       2,000.00
DM         07/30/93                3,200.00       3,200.00
DM         07/30/93                5,000.00       5,000.00
WO         09/14/93                2,500.00       2,500.00
WT         12/09/93                4,000.00       4,000.00
BS         01/21/94                1,800.00       1,800.00
1061       05/03/94                1,223.94       1,223.94
1157       06/03/94                1,220.82       1,220.82
1183       06/06/94                1,000.00       1,000.00
1225       07/01/94                3,500.00       3,500.00
1393       08/31/94                  628.00         628.00


96-FW-219-1003                                Page 24
                                                                      Appendix C



1466        10/03/94    2,200.00       2,200.00
1546        10/06/94    2,200.00       2,200.00
NTF         09/30/92   Material chg       15,767.88
NTF         09/30/92   Material chg                        1,038.15
NTF         09/30/92   Material chg                          800.00
NTF         09/30/92   Material chg                        1,832.50
NTF         09/30/92   Material chg                          705.64
Total Owner Advances                         $97,644.42   $4,376.29


Loan Repayments
Check No\               Check             Ineligible      Unsupported
 Source     Date       Amount             Amount           Amount
2857       05/03/92      $689.58        $689.58
2907       06/01/92       689.58         689.58
2728       07/02/92       689.58         689.58
2804       08/03/92       689.58         689.58
3014       09/02/92       689.58         689.58
118        10/15/92       689.58         689.58
3108       11/02/92       689.58         689.58
3214       12/18/92       689.58         689.58
3245       01/05/93       689.58         689.58
3343       02/09/93       689.58         689.58
3417       03/01/93       689.58         689.58
3480       04/01/93       689.58         689.58
3535       05/01/93       689.59         689.59
3603       06/01/93       689.59         689.59
3656       07/01/93       689.59         689.59
3731       08/05/93       689.59         689.59
3836       09/13/93       689.59         689.59
3892       10/07/93       689.58         689.58
3984       11/30/93       689.58         689.58
4020       12/01/93       689.58         689.58
4054       01/01/94       689.58         689.58
2479       01/06/92       763.49         763.49
2481       01/06/92       439.58         439.58
2527       02/05/92       763.49         763.49
2528       02/05/92       439.58         439.58
2582       03/02/92       439.58             439.58
2586       03/04/92       763.49         763.49
2630       03/18/92       151.36         151.36
2653       04/01/92       763.49         763.49
2655       04/01/92       439.58         439.58
2852       05/02/92       439.58         439.58


                                   Page 25                            96-FW-219-1003
Appendix C



2856       05/03/92          763.49                 763.49
2901       06/01/92          763.49                 763.49
2899       06/02/92          439.58                 439.58
2727       07/02/92          439.58                 439.58
2729       07/02/92          439.58                 763.49
2761       07/08/92          248.02                 248.02
2801       08/03/92          763.49                 763.49
2803       08/03/92          439.58                 439.58
2815       08/03/92          248.02                 248.02
3012       09/02/92          763.49                 763.49
3013       09/02/92          248.02                 248.02
Total Amount of Loan Repayments                     $25,764.70



Construction Supervision Fees
Check No\                      Check             Ineligible      Unsupported
 Source       Date            Amount             Amount           Amount
3253         01/05/92         $1,470.00      $1,470.00
2625         03/17/92          6,090.00       6,090.00
2657         04/01/92          1,540.00       1,540.00
2722         05/01/92          1,470.00       1,470.00
3069         09/30/92          1,540.00       1,540.00
3110         11/02/92          1,470.00       1,470.00
3178         12/01/92          1,610.00       1,610.00
3353         02/01/93          1,400.00       1,400.00
3420         03/01/93          1,610.00       1,610.00
3575         05/01/93          3,010.00       3,010.00
3606         06/01/93          1,540.00       1,540.00
3660         07/01/93          1,540.00       1,540.00
3709         08/01/93          1,570.00       1,570.00
3788         09/01/93          1,540.00       1,540.00
3848         10/01/93          1,470.00       1,470.00
3860         10/01/93          1,087.00       1,087.00
3937         11/01/93          1,540.00       1,540.00
3986         11/30/93          1,610.00       1,610.00
4056         01/01/94          1,610.00       1,610.00
4103         01/31/94          1,470.00       1,470.00
4107         01/31/94          1,187.00       1,187.00
4153         02/28/94          1,400.00       1,400.00
4269         04/04/94          1,470.00       1,470.00
1048         05/02/94          1,540.00       1,540.00
1133         06/02/94          1,540.00       1,540.00
1224         07/01/94          1,470.00       1,470.00


96-FW-219-1003                            Page 26
                                                                       Appendix C



1302        08/02/94           1,540.00       1,540.00
1310        08/02/94              70.00          70.00
1391        08/31/94           1,540.00       1,540.00
1513        10/05/94           1,470.00       1,470.00
Total Construction Supervision Fees             $49,414.00


Health Insurance
Check No\                     Check             Ineligible   Unsupported
 Source        Date          Amount             Amount        Amount
2477         01/06/92         $ 992.11       $ 301.49
2539         02/05/92            992.11        301.49
2596         03/04/92            992.11        301.49
2651         04/01/92            992.11        301.49
2853         05/03/92            992.11        301.49
2912         06/03/92          1,008.54        307.28
2975         07/02/92          1,008.54        307.28
2799         08/03/92          1,136.48        307.28
3042         09/09/92          1,232.79        535.08
3308         01/12/93            575.00        186.00
3344         02/01/93            698.00        186.00
3440         03/03/93            698.00        186.00
3474         04/01/93            698.00        186.00
3550         05/05/93            514.00        186.00
3601         06/01/93            515.00        186.00
3655         07/01/93            754.00        186.00
3724         08/05/93            634.00        186.00
3800         09/07/93            634.00        186.00
3870         10/05/93            634.00        186.00
3964         11/10/93            634.00        186.00
4011         12/02/93            915.00        208.00
4053         01/01/94            806.00        208.00
4120         02/03/94            806.00        208.00
4155         02/28/94            806.00        208.00
4255         04/04/94            806.00        208.00
1053         05/03/94            812.00        235.00
1127         06/02/94            852.00        235.00
1212         07/01/94            832.00        235.00
1295         08/02/94            544.00        235.00
1377         08/31/94            736.00        235.00
1467         10/17/94            736.00        235.00
Total for Health Insurance                      $7,460.37




                                          Page 27                      96-FW-219-1003
Appendix C




Rent
Check No\                    Check                 Ineligible     Unsupported
 Source           Date      Amount                 Amount           Amount
2474             01/06/91     $800.00                           $ 800.00
2475             01/06/92      450.00      $ 450.00 (1)
2531             02/05/92      400.00                              400.00
2532             02/05/92      225.00             225.00 (1)
2579             03/02/92      685.00             225.00 (1)    400.00
2658             04/01/92      685.00             225.00 (1)    400.00
2721             05/01/92      625.00             225.00 (1)    400.00
2902             06/02/92      625.00             225.00 (1)    400.00
2730             07/02/92      685.00             225.00 (1)    400.00
2805             08/03/92      625.00             225.00 (1)    400.00
2999             09/01/92      625.00             225.00 (1)    400.00
3071             10/01/92      625.00             225.00 (1)    400.00
3111             11/02/92      625.00             225.00 (1)    400.00
3175             12/02/92      625.00             225.00 (1)    400.00
3246             01/05/93      825.00             325.00 (1)    500.00
3359             02/01/93      500.00                              500.00
3360             02/01/93      325.00             325.00 (1)
3421             03/01/93      500.00                              500.00
3422             03/01/93      325.00             325.00 (1)
3432             03/01/93      600.00             600.00 (2)
3489             04/01/93      200.00             200.00 (2)
3528             04/23/93      825.00             325.00 (1)    500.00
3540             05/01/93      825.00             325.00 (1)    500.00
3541             05/01/93      200.00             200.00 (2)
3609             06/01/93      825.00             325.00 (1)    500.00
3610             06/01/93      200.00             200.00 (2)
3654             07/01/93      825.00             325.00 (1)    500.00
3662             07/01/93      200.00             200.00 (2)
3711             08/01/93      825.00             325.00 (1)    500.00
3712             08/01/93      200.00             200.00 (2)
3786             09/01/93      825.00             325.00 (1)    500.00
3791             09/01/93      200.00             200.00 (2)
3844             10/01/93      825.00             325.00 (1)    500.00
3850             10/01/93      200.00             200.00 (2)
3934             11/01/93      825.00             325.00 (1)    500.00
3935             11/01/93      200.00             200.00 (2)
3988             11/30/93      825.00             325.00 (1)    500.00
4027             12/01/93      200.00             200.00 (2)
4058             01/01/94      825.00             325.00 (1)    500.00


96-FW-219-1003                          Page 28
                                                                              Appendix C



4066         01/04/94      200.00             200.00 (2)
4109         01/31/94      825.00             325.00 (1)       500.00
4110         01/31/94      200.00             200.00 (2)
4151         02/28/94      825.00             325.00 (1)       500.00
4152         02/28/94      200.00             200.00 (2)
4272         04/04/94      825.00             325.00 (1)       500.00
4273         04/04/94      200.00             200.00 (2)
1046         05/02/94      825.00             325.00 (1)       500.00
1060         05/03/94      200.00             200.00 (2)
1129         06/02/94      200.00             200.00 (2)
1131         06/02/94      825.00             325.00 (1)       500.00
1220         07/01/94      200.00             200.00 (2)
1222         07/01/94      825.00             325.00 (1)       500.00
1301         08/02/94      825.00             325.00 (1)       500.00
1334         08/02/94      200.00             200.00 (2)
1384         08/31/94      200.00             200.00 (2)
1390         08/31/94      825.00             325.00 (1)       500.00
1509         10/05/94      200.00             200.00 (2)
1512         10/05/94      825.00             325.00 (1)       500.00
Total Spent on Rent
     Project office                                              $16,200.00
     Launderette                              $10,075.00 (1)
     Natalbany office                           4,400.00 (2)


Travel
Check No\                Check             Ineligible             Unsupported
 Source      Date       Amount             Amount                  Amount
2512        01/27/92      $577.04        $577.04
2521        01/29/92       867.14         765.88
2575        02/29/92       551.93         551.93
2627        03/17/92       400.00         400.00
2648        03/31/92       570.51         570.51
2701        04/20/92       300.00         300.00
2704        04/24/92       100.00         100.00
2715        04/30/92       209.65         209.65
2884        05/18/92        10.95          10.95
2893        05/29/92       568.43         568.43
2972        06/30/92       620.68         620.68
2795        07/31/92       654.76         562.65
2991        08/21/92       700.00         350.00
3064        09/30/92       601.15         601.15
3118        10/31/92       746.66         746.66
3168        11/30/92       762.03         762.03


                                    Page 29                                   96-FW-219-1003
Appendix C



3238             12/23/92      757.00         757.00
3357             02/01/93      774.16         774.16
3408             02/09/93      131.47         131.47
3412             02/09/93      161.74         161.74
3428             03/01/93      821.43         821.43
3487             04/01/93      929.78         929.78
3530             04/30/93      500.00         500.00
3544             05/01/93      432.58         432.58
3590             05/23/93      918.40         862.68
3623             06/01/9       334.00          34.00
3653             06/23/93      886.56         886.56
3706             07/15/93      800.00         800.00
3769             08/20/93      267.59         267.59
3774             08/20/93      838.00         838.00
3790             09/01/93      120.00         120.00
3835             09/13/93      560.00         560.00
3840             09/20/93      506.31         506.31
3893             10/07/93      264.64         264.64
3938             11/01/93      920.00         920.00
3930             10/25/93      506.31         506.31
4007             11/30/93      947.00         947.00
4048             12/23/93      348.39         348.39
4060             01/04/94    1,012.00       1,012.00
4173             02/28/94      210.00         210.00
4271             04/04/94      695.24         695.24
1264             07/08/94      932.61         932.61
1304             08/02/94      685.00         685.00
1510             10/05/94      892.40         892.40
4044             12/13/93      212.31         212.31
Total Travel                                  $24,706.76


Bookkeeping
Check No\                    Check            Ineligible   Unsupported
 Source           Date      Amount            Amount        Amount
2573             02/21/92    $ 500.00      $ 500.00
2633             03/18/92      600.00        600.00
2678             04/07/92      452.34        300.00
2851             05/03/92      300.00        300.00
2885             05/20/92      500.00        500.00
2953             06/11/92      300.00        300.00
2779             07/16/92      300.00        300.00
2820             08/07/92      300.00        300.00
3017             09/03/92      300.00        300.00


96-FW-219-1003                          Page 30
                                                                                                             Appendix C



120         10/21/92                          300.00                300.00
3153        11/11/92                          475.00                300.00
3204        12/14/92                          300.00                300.00
3247        01/05/93                          300.00                300.00
3361        02/01/93                          500.00                300.00
3418        03/01/93                          300.00                300.00
3491        04/01/93                          475.00                475.00
3543        05/01/93                          300.00                300.00
3604        06/01/93                          405.22                387.50
3666        07/01/93                          700.00                700.00
3736        08/05/93                          300.00                300.00
3784        09/01/93                          400.00                400.00
3887        10/07/93                          300.00                300.00
3950        11/03/93                          300.00                300.00
4029        12/02/93                          300.00                300.00
1364        08/29/94                          500.00                500.00
154         10/13/94                        3,000.00                                    3,000.00
Total Bookkeeping                                                    $9,162.50            $3,000.00


Consultant Fees
Check No\                                  Check                  Ineligible               Unsupported
 Source       Date                        Amount                  Amount                    Amount
3230         12/22/92                     $1,825.00           $1,850.00
3376         02/09/93                        925.00              925.00
3466         04/01/93                        925.00              925.00
3715         08/03/93                      1,000.00            1,000.00
3953         11/04/93                        250.00              250.00
3952         11/04/93                        250.00              250.00
1108         05/05/94                      1,000.00            1,000.00
3413         02/25/93                      1,829.501                                         1,829.50
3481         04/01/93                          "
3837         09/13/93                          "
Total Consultant Fees                                                $6,200.00             $1,829.50


Telephone Expense
Check No\                                  Check                     Ineligible            Unsupported
 Source      Date                         Amount                     Amount                 Amount
2529        02/05/92                        $720.00                 720.00
2530        02/05/92                         120.00                 120.00

  1
    The $1,829.50 relates to checks 3413, 3481, and 3837. The owner made payments on account to the attorney, some for
costs that we are not questioning. The $1,829.50 in questioned costs are not specifically tied to any particular check(s).



                                                          Page 31                                             96-FW-219-1003
Appendix C



2579        03/02/92           685.00             60.00
2658        04/01/92           685.00             60.00
2725        05/01/92            60.00             60.00
2903        06/01/92            60.00             60.00
2730        07/02/92           685.00             60.00
2806        08/03/92            60.00             60.00
3000        09/01/92            60.00             60.00
3072        10/01/92            60.00             60.00
3112        11/02/92            60.00             60.00
3179        12/01/92            60.00             60.00
3332        01/01/93            60.00             60.00
3358        02/01/93            60.00             60.00
3429        03/01/93            60.00             60.00
3488        04/01/93            60.00             60.00
3608        06/01/93            60.00             60.00
3661        07/01/93            60.00             60.00
3710        08/01/93            60.00             60.00
3789        09/01/93            60.00             60.00
3861        10/01/93            60.00             60.00
3949        11/01/93            60.00             60.00
3987        11/30/93            60.00             60.00
4057        01/01/94            60.00             60.00
4108        01/31/94            60.00             60.00
4166        02/28/94            60.00             60.00
4268        04/04/94            60.00             60.00
1047        05/02/94            60.00             60.00
1132        06/02/94            60.00             60.00
1223        07/01/94            60.00             60.00
1303        08/02/94            60.00             60.00
1392        08/31/94            60.00             60.00
1514        10/05/94            60.00             60.00
Total Telephone Expense                           $2,700.00


Late Fees and Bank Charges
Check No\                     Check            Ineligible     Unsupported
 Source        Date          Amount            Amount          Amount
2507         01/01/92        $7,400.37       $ 81.87
2574         02/15/92         5,400.37         81.87
2588         03/02/92         5,326.89         81.87
BS           08/31/92        NSF Charges       36.00
BS           09/30/92        NSF Charges      108.00
3161         11/15/92         5,329.07         81.87
3227         12/15/92         5,329.07         81.87


96-FW-219-1003                          Page 32
                                                                           Appendix C



3243         01/05/93        5,818.14             46.54
3457         03/01/93        5,877.49             81.82
3526         04/15/93        5,823.74             28.07
3527         04/15/93            53.80            53.80
3597         05/15/93        5,877.57             81.90
3651         06/15/93        5,920.81            148.94
3697         07/15/93        5,885.35            143.48
3777         08/20/93        5,969.96            174.29
BS           09/30/93       NSF/OD fees           36.00
3845         10/01/93          135.67            135.67
4019         12/02/93        5,953.66            157.99
BS           12/31/93       OD Charges               144.00
1430         09/09/94            21.25            21.25
BS           09/30/94       OD Charges               486.00
Total Late Fees and Bank Charges                  $2,293.10


Other Questionable
Check No\                   Check            Ineligible          Unsupported
 Source       Date         Amount            Amount               Amount
2618         03/05/92        $337.45      $ 337.45
2677         04/06/92         450.00        450.00
2871         05/07/92         450.00        450.00
2884         05/18/92         221.60        200.00             10.64
2893         05/29/92         855.45        263.95             23.07
2778         07/13/92         164.75        117.50             40.25
2795         07/31/92         654.76         60.00             32.11
2988         08/21/92           9.24          9.24
2980         08/07/92         536.51        477.51
3153         11/11/92         475.00         25.00            150.00
4135         02/08/94         651.08        162.44
4252         04/04/94         298.73        290.00
1096         05/05/94         249.61        249.61
1097         05/05/94         215.00        215.00
1353         08/19/94         448.29        427.00
2502         01/10/92          94.71                              94.71
2521         01/29/92         867.14                             101.26
2584         03/02/92         300.00                             300.00
2585         03/02/92       1,350.00                           1,350.00
2600         03/05/92         216.05                             216.05
2678         04/07/92         452.34                             152.34
2680         04/08/92       1,000.00                           1,000.00
2945         06/08/92         200.00                             200.00
2968         06/29/92         532.31                             532.31


                                       Page 33                             96-FW-219-1003
Appendix C



2740        07/07/92    1,054.00                          1,054.00
2991        08/21/92      700.00                            350.00
3005        08/31/92      496.61                            496.61
3050        09/09/92      237.62                            237.62
3065        09/30/92      259.64                            259.64
122         10/23/92      500.00                            500.00
123         10/26/92      122.08                            122.08
3102        10/30/92      200.00                            200.00
DS          11/06/92   Withdrawal                               74.00
3160        11/23/92      664.75                            664.75
3170        11/30/92      387.00                            387.00
3181        12/01/92      765.00                            765.00
3203        12/14/92      200.00                            200.00
3202        12/14/92      400.00                            400.00
3215        12/18/92      200.00                            200.00
3361        02/01/93      500.00                            200.00
3590        05/23/93      918.40                             55.72
3622        06/01/93    1,400.00                          1,400.00
4089        01/11/94      217.09                            217.09
4125        02/07/94      100.00                            100.00
4133        02/08/94      686.29                            686.29
4168        02/28/94    1,133.94                          1,133.94
4193        03/08/94      290.07                            290.07
1062        05/03/94    1,190.00                          1,190.00
1388        08/31/94      438.00                            438.00
Total Other Expenses                          $3,734.70    $15,824.55




96-FW-219-1003                      Page 34
                                       Appendix C




(THIS PAGE LEFT BLANK INTENTIONALLY)




                Page 35                96-FW-219-1003
                                       Appendix D

Owner Comments (regarding Finding 1)
 Pages 37 - 40




96-FW-219-1003     Page 36
                                  Appendix E

Multifamily Division Comments (regarding
Finding 2)
Pages 41 - 42




                  Page 37          96-FW-219-1003
                                                                         Appendix F

Distribution
Secretary's Representative, 6AS
State Coordinator
Comptroller, 6AF
Director, Housing, 6AH
Director, Accounting, 6AAF
Kizzier, New Orleans (4)
Assistant to the Secretary for Field Management, SC (Room 7106)
Assistant to the Deputy Secretary for Field Management, SC (Room 7106)
Housing ALO, HFM (Room 2108) (5)
Acquisitions Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10166) (2)
Deputy Chief Financial Officer for Operations, F (Room 10166) (2)
Associate Director, US GAO, 820 1st St. NE Union Plaza,
 Bldg. 2, Suite 150, Washington, DC 20002
 Attn: Jacquelyn Williams-Bridgers (2)
Auditee




96-FW-219-1003                           Page 38