Nelson & Associates, Cincinnati, OH

Published by the Department of Housing and Urban Development, Office of Inspector General on 1995-10-24.

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

                                    U.S. Department of Housing and Urban Development
                                                       Wanamaker Building, Suite 1005
                                                                 100 Penn Square East
                                                          Philadelphia, PA 19107-3380

                                                   District Inspector General for Audit

                                                Audit Related Memorandum
                                                No. 96-PH-214-1801
October 24, 1995

MEMORANDUM FOR: Frederick S. Roncaglione, Director, Multifamily
                  Division, West Virginia State Office, 3CHM

FROM:   Edward F. Momorella, District Inspector General
          for Audit, Mid-Atlantic, 3AGA

SUBJECT: Nelson & Associates
         Management Agent Operations
         Cincinnati, OH

We have completed a review of Nelson & Associates (Agent)
management operations of projects in HUD's Mid-Atlantic district.

Specific areas reviewed were:

    -   payroll;
    -   management and accounting fees;
    -   general physical condition of units;
    -   leasing and occupancy; and
    -   work order system.

We interviewed Multifamily Division staff, Agent and project
personnel. Files were reviewed at the West Virginia State Office,
Pittsburgh Field Office, and Agent's office. Physical inspections
and tenant file reviews were conducted at the following projects:

    West Virginia State Office Jurisdiction

        -   Vandalia Terrace
        -   Rotary Gardens
        -   Westwood Acres

    Pittsburgh Field Office Jurisdiction

        -   Third East Hills Park

Our review disclosed that the Agent paid ineligible salary and
benefits of $75,559 and $14,337 respectively from project operating
funds of the three West Virginia projects. The costs supplemented
salary and benefits for the Senior Site Manager. The costs were
charged contrary to HUD requirements and should have been paid from
the management fee. The West Virginia State Office was aware of
the practice.

We recommend the Agent discontinue the practice of charging
projects for management agent personnel and repay the projects
$89,896 of ineligible salaries and benefits cited through August 4,
1995, and any costs incurred thereafter.

We discussed the draft finding with the Agent who provided a
written response, which we have considered in the finding and
included as Attachment 3.

Several minor problems identified in Agent and project operations
were either resolved or corrective action planned in the other
areas reviewed.

Within 60 days, please give us, for the recommendation made in the
memorandum, a status report on: (1) the corrective action taken;
(2) the proposed corrective action and the date to be completed; or
(3) why action is considered unnecessary. Also, please furnish us
copies of any correspondence or directives issued as a result of
the review.

If you have any questions, please contact Irving I. Guss, Assistant
District Inspector General for Audit at (215) 656-3401.

    1. Finding and Recommendation
    2. Schedule of Ineligible Costs
    3. Auditee Comments
    4. Distribution
                                                   Attachment 1

Finding 1 Agent Employee's Salary And Benefits Improperly Charged
          To Projects

Nelson & Associates used funds from three HUD-insured projects to
pay for an employee's salary and benefits which should have been
paid from the management fee. The costs were charged the projects
contrary to HUD requirements.       Agent staff said the project
operating accounts were charged because the employee performed
front-line duties.    HUD was aware of the practice and did not
inform the Agent that the practice was inappropriate. As a result,
projects were charged ineligible salary and benefit costs of
$75,559 and $14,337 respectively.

HUD Handbook 4381.5 REV-1, CHG 3, Chapter 2, Section II states:

     "(2-13.B.) The agent must absorb the cost of supervising and
     overseeing project operations."

     "(2-14.B.) Supervisory personnel are paid from the management
     fee, whether or not they perform supervisory or front-line
     tasks (e.g. if agent or agent's staff fills in for manager,
     cannot charge project for time.)"

HUD Handbook 4370.2 REV-1 for Account 6130, Office Salaries,

     "...Front-line responsibilities include for example, taking
     applications, verifying income and processing maintenance
     requests.   The account does not include salaries paid to
     occupancy, maintenance and regional supervisors who carry out
     the agent's responsibility for overseeing supervising project
     operations and personnel. These salaries are paid from the
     management fee."

Between December 27, 1991 and August 4, 1995, the Agent charged a
portion of its Senior Site Manager's salary to the operating
accounts of two HUD-insured projects and charged benefits to three
HUD-insured projects, see Attachment 2.

Payroll records provided by the Agent were used to schedule salary
and benefits charged to each project.         Nelson & Associates
inadvertently failed to include payroll reports for the time period
January 1993 through September 1993 for one project and records
covering June 1992 through March 1993 for the other project. We
calculated the payroll for the 19 and 21 pay periods, respectively,
by averaging the last and beginning payroll amounts documented for
the above periods. The result, approximately $3,312 was disbursed

by one project and $10,181 by the second project for the salary of
the Senior Site Manager. Both amounts are incorporated into the
total ineligible salary cost of $75,559.

Paid invoices documented that three West Virginia based projects
managed by the Agent were charged for the health and dental costs
of the Senior Site Manager. The costs were initially charged to
one project then equally divided between all three projects in July
1992. From August 1993 to August 1995 the allocation changed and
only two projects were charged for the Senior Site Managers health
and dental benefits.     Health and dental costs charged to the
projects totaled $14,337.

The Senior Site Manager's duties included: the direct supervision
and training of Property Administrators and other administrative
personnel, supervising and setting priorities for maintenance
supervisors, evaluating employees, etc... at three West Virginia
projects, one Pennsylvania project, and one Ohio project.       The
Senior Site Manager spent four days a week at the two West Virginia
projects charged for salary and benefits. One day a week was spent
at the third West Virginia project, charged for benefits, and one
day each month at the Pennsylvania and Ohio projects.

According to the President, the Senior Site Manager performs front-
line duties and is considered a project employee at the two West
Virginia properties charged for salaries and benefits.         When
working at the other three properties the Senior Site Manager
trouble shoots for the management agent, performs no front-line
duties, and is considered the Agent's employee.

The Agent's President explained that the West Virginia State Office
was aware that the two projects were being charged for the salary
and benefits of the Senior Site Manager. The costs were reported
in annual budgets, financial statements, and discussed during a
meeting between HUD and the Agent. The President stated, "I am
willing to discontinue the practice if it is wrong, but Nelson &
Associates should not be made to repay any of the funds."

Officials from the West Virginia State Office were aware that the
Agent charged three West Virginia projects for the Senior Site
Manager's salary and benefits, though nothing was approved in
writing. As long as costs for the Senior Site Manager did not
exceed prior years budgeted staff costs, HUD allowed the practice.
HUD officials also stated there may have been an interim verbal
arrangement to allow the costs to be charged to the projects,
however, it was not the intent to make this practice permanent.

Because the projects were charged with the salary and benefits of

a supervisory employee of the Agent, three West Virginia projects
expended $89,896 which was the Agent's cost.

Auditee Comments

The agent contends that the Senior Site Manager performed typical
front line duties for the three West Virginia properties. The HUD
Office was aware of and verbally approved the concept. The Agent
should not be asked to repay the $89,896 and any costs incurred

Effective October 1, 1995, the Agent agrees to incur the cost of
all salary and benefits of the Senior Site Manager, who will become
the District Manager of the Agent.

OIG Evaluation of Auditee Comments

The duties performed by the Senior Site Manager were supervisory,
as such, an Agent cost and ineligible.


1A. We recommend your staff assure the Agent has discontinued the
practice of charging projects for management agent personnel.
Further assure the Agent repays the three projects the $89,896 of
ineligible salaries and benefits cited through August 4, 1995, and
any costs incurred thereafter.

                                                         Attachment 2


                        SALARY COSTS

                             VANDALIA        ROTARY
             YEARS           TERRACE         GARDENS

               1991          $         154   $    462

               1992               4,140      12,351

             1993                 4,568      15,250

             1994                 5,255      18,169

               1995                7,605         7,605

                                 $21,722     $53,837

             TOTAL               $75,559

                       BENEFITS COSTS

                  VANDALIA       ROTARY      WESTWOOD
     YEARS        TERRACE        GARDENS       ACRES

1991 TO 1995      $ 7,315        $ 5,525     $1,497

TOTAL             $14,337

Finding/Recommendation 1A
TOTAL INELIGIBLE COSTS                 $89,896 1/

1/      Ineligible costs are not allowed by law, contract, or HUD
        policies or regulations.