Issue Date
January 26, 2006
Audit Report Number
2006-SE-1001
TO: Renee' Greenman, Region X, Director, Multifamily Housing Hub, 0AH
FROM: Joan S. Hobbs, Regional Inspector General for Audit, Region X, 0AGA
SUBJECT: Idaho Housing and Finance Association, Boise, Idaho, Did Not Monitor
Subsidized Multifamily Projects in Accordance with Regulations or its Annual
Contributions Contract with HUD
HIGHLIGHTS
What We Audited and Why
At the request of the Region X Multifamily Housing Hub, we audited Idaho
Housing and Finance Association (Idaho Housing) due to concerns that (1) it
allowed excess owner distributions; (2) it did not properly administer projects’
residual receipts and replacement reserve accounts; and (3) a conflict of interest
exists because Idaho Housing acts as lender, owner, management agent, and
Section 8 contract administrator. In addition, we were concerned that Idaho
Housing did not properly review changes in management fees to determine
whether they were reasonable.
Our overall audit objective was to determine whether Idaho Housing monitored
projects in accordance with its annual contributions contract with the U.S.
Department of Housing and Urban Development (HUD) to ensure that project
funds were expended appropriately.
What We Found
Idaho Housing did not monitor its subsidized multifamily housing projects in
accordance with federal regulations or its annual contributions contract with
HUD. Idaho Housing inappropriately authorized $3,721,738 in owner
distributions in excess of allowable amounts from project funds. Idaho Housing
allowed nonprofit owners, who are not entitled to any distributions, to receive
distributions of project funds and limited distribution owners to receive
distributions of funds in excess of the limitations imposed by federal regulations.
Idaho Housing also approved a duplicate request for reimbursement of $24,562
from a project’s replacement reserve funds and approved $182,264 in
disbursements from projects’ replacement reserves without obtaining adequate
supporting documentation.
In addition, contrary to the requirements of the Code of Federal Regulations, the
housing assistance payments contracts, and its annual contributions contract,
Idaho Housing allowed a conflict of interest situation to exist between itself and
The Housing Company, a nonprofit owner of subsidized multifamily projects. A
conflict of interest situation exists because Idaho Housing formed and holds
substantial control over The Housing Company and is paid by HUD, under terms
of its annual contributions contract, to monitor The Housing Company’s
subsidized projects.
Further, between January 1, 2001, and December 31, 2004, Idaho Housing
approved revised management agreements for 10 projects. The revised
agreements increased the management fees for these projects to $121,521 in
excess of HUD’s residential management fee range for Idaho.
What We Recommend
We recommend that the director, Region X Multifamily Housing Hub, require
Idaho Housing to reimburse the projects $3,867,821 and to provide supporting
documentation for $182,264 in unsupported costs or also return this amount to the
projects. In addition, we recommend that HUD require Idaho Housing to comply
with federal regulations and HUD guidelines when processing owner
distributions, distributions from residual receipts and replacement reserves, and
changes in management fees. We also recommend that the director, Region X
Multifamily Housing Hub, require Idaho Housing take corrective action to
dissolve the conflict of interest relationship or make a determination of default in
accordance with paragraph 2.16(b)(2) of its annual contributions contract with
Idaho Housing. If Idaho Housing is declared in default of the annual
2
contributions contract, we recommend the director assume the role of contract
administrator or assign another contract administrator (including any associated
administrative fee) over any projects that (1) are owned by The Housing
Company, (2) receive Section 8 subsidy from HUD, and (3) are currently
monitored by Idaho Housing.
For each recommendation without a management decision, please respond and
provide status reports in accordance with HUD Handbook 2000.06, REV-3.
Please furnish us copies of any correspondence or directives issued because of the
audit.
Auditee’s Response
We provided Idaho Housing a draft report on December 13, 2005, and held an
exit conference on January 6, 2006. Idaho Housing provided written comments
on January 13, 2006. Idaho Housing agreed with much of the report in general,
but disagreed with the inclusion of specific projects in the findings and
recommendations. The complete text of Idaho Housing’s response, along with
our evaluation of that response, can be found in appendix B of this report. The
exhibits Idaho Housing supplied with its response are too voluminous to include
in this report but are available upon request. We considered Idaho Housing’s
response and exhibits and made changes to the report as appropriate.
3
TABLE OF CONTENTS
Background and Objectives 5
Results of Audit
Finding 1: Idaho Housing Inappropriately Authorized $3,721,744 in Owner 7
Distributions in Excess of Allowable Amounts from Project Funds
Finding 2: Idaho Housing Approved One Duplicate and Other Unsupported 13
Requests for Reimbursement from Project Replacement Reserves
Finding 3: A Conflict of Interest Exists between Idaho Housing and The 16
Housing Company
Finding 4: Idaho Housing Approved Excessive Management Fees for 10 Idaho 19
Projects
Scope and Methodology 22
Internal Controls 23
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 25
B. Auditee Comments and OIG’s Evaluation 26
C. Schedule of Excessive Owner Distributions (Finding 1) 47
D. Unsupported Disbursements from Replacement Reserve Accounts (Finding 2) 49
E. Excessive Management Fees (Finding 4) 50
4
BACKGROUND AND OBJECTIVES
Idaho Housing and Finance Association (Idaho Housing) is Idaho’s housing finance agency. Idaho
Housing does not receive state-appropriated funds for its operations. However, it funds its
programs from various sources, including the sale of tax-exempt mortgage revenue bonds. Its
mission is to provide funding for affordable housing opportunities in Idaho communities where
they are most needed and when it is economically feasible.
Idaho Housing participates in the development, finance, management, and tenant support for 59
projects under an annual contributions contract with the U.S. Department of Housing and Urban
Development (HUD). Under this agreement, it functions as the agent for HUD in performing tasks
in these areas as the Section 8 subsidy contract administrator. Idaho Housing’s subsidy contract
administration responsibilities include program compliance functions, to ensure that HUD-
subsidized projects are serving eligible families at the correct level of assistance, and asset
management functions, to ensure the physical and financial health of the projects. It processes the
monthly housing assistance payments and is responsible for asset management functions, housing
assistance payments contract (contract) compliance, and monitoring functions. It performs
compliance reviews on these developments, including physical inspections and occupancy
reviews. It holds and administers the replacement reserve, residual receipts, and all other
appropriate escrow accounts for these projects. It also processes the monthly housing assistance
payments.
The monthly housing assistance payments are based on contracts between the owner and Idaho
Housing. These contracts are categorized as either old regulation or new regulation. New
regulation projects are those with a signed agreement to enter into a contract on February 29, 1980,
or later.
Owners of old regulation projects are not limited as to the amount of distributions they may receive
from the project, except that the distribution may only be made after funds have been set aside or
payment has been made for all project expenses.
Pipeline projects are treated like old regulation projects with respect to distributions. Although
these projects are technically new regulation projects because the date of submission of the initial
application was during a time of transition for HUD regulations, HUD allowed the projects to opt
out of the limitation on distributions. Therefore, these projects, like old regulation projects, are
not limited with regard to distributions.
New regulation projects are of two types: nonprofit and profit-motivated. Owners of new
regulation nonprofit ownership projects are not entitled to distributions. Owners of profit-
motivated new regulation limited distribution projects may only receive 6 percent (projects with
elderly tenants) or 10 percent (family projects) of owner equity determined when the project was
constructed. Owners of profit-motivated projects that are family projects with 50 or fewer units
are exempt from the limitations on distributions. In this way, these projects are treated like old
5
regulation projects. Additionally, the contract for new regulation projects states that the contract
will remain in effect for at least 20 years, regardless of whether the mortgage is prepaid.
Our overall audit objective was to determine whether Idaho Housing monitored projects in
accordance with its annual contributions contract with HUD to ensure that project funds were
expended appropriately. We also wanted to quantify any inappropriate owner distributions,
disbursements from the residual receipts and replacement reserve accounts, and any excessive
management fees.
6
RESULTS OF AUDIT
Finding 1: Idaho Housing Inappropriately Authorized $3,721,738 in
Owner Distributions in Excess of Allowable Amounts from
Project Funds
Idaho Housing inappropriately authorized owner distributions in excess of allowable amounts
from project funds. It allowed nonprofit owners, who are not entitled to any distributions, to
receive distributions of project funds and limited distribution owners to receive distributions of
funds in excess of HUD’s limitations. In addition, Idaho Housing improperly allowed
distributions to be paid from the projects’ residual receipts accounts and replacement reserves.
This occurred because Idaho Housing did not properly implement federal regulations at 24 CFR
[Code of Federal Regulations] Part 883 and HUD guidelines regarding owner distributions and
use of residual receipts and replacement reserves. As a result, $3,721,738 in excessive
distributions is unavailable to use for the projects’ purposes. Of that amount, $747,776 disbursed
from the residual receipts accounts is not available to reduce housing assistance payments or for
HUD’s use to provide housing assistance to other low-income individuals upon termination of
the contracts.
Projects Adopted Subpart G of
24 CFR Part 883
We reviewed owner distributions for 19 projects under Idaho Housing’s annual
contributions contract with HUD. In 1988, owners of 11 of these projects
amended their old regulation contracts and adopted 24 CFR [Code of Federal
Regulations] subpart G, incorporating the limitation on distributions.
Idaho Housing told us these amendments were entered into with the understanding
that there would be no limitation on distributions, as provided in 24 CFR [Code of
Federal Regulations] 883.105(b)(2). Under this provision, the agency, the owner,
and HUD may agree to make the revised subpart G applicable to the project with or
without limitations on distributions and execute the appropriate amendments to the
contract. However, there was nothing in the amendments or other documentation to
indicate any of the parties originally agreed to opt out of the limitation on
distributions. Further, the regulatory agreement for each project already limited
distributions from the time of the projects’ inceptions.
7
The owners of 9 of the 11 projects subject to the 1988 amendment later sold the
projects to The Housing Company, a nonprofit owner/ management agent. This
nonprofit assumed the prior owners’ regulatory agreements as well as the
contracts and amendments. Another project was already owned by a nonprofit.
According to 24 CFR [Code of Federal Regulations] 883.306, as nonprofits, these
owners are not entitled to any distribution of project funds. Nonetheless, we
found Idaho Housing inappropriately authorized distributions to these owners
from 1994 through 2004.
Idaho Housing Did Not Require
the Projects to Use HUD’s
Surplus Cash Statement
Idaho Housing implemented a distribution policy, effective January 1, 1994, that
conflicts with the federal regulations and HUD guidelines in HUD-OIG
Handbook 2000.04 and HUD Handbook 4381.5. This policy requires the use of
its own form rather than the HUD-required surplus cash statement. Idaho
Housing did not direct owners to complete the HUD-required surplus cash
statement to determine surplus cash, the amount of allowable owner distribution,
and the amount to be deposited to residual receipts. Instead, Idaho Housing used
its own form, the partnership distribution worksheet. This worksheet often gives
a different result than the required surplus cash statement.
We calculated surplus cash for 16 projects from 2001 through 2004 using the
required surplus cash statement. During this period for 11 of these projects, 31
distributions allowed by Idaho Housing were greater than available surplus cash
calculated using HUD’s surplus cash statement. For example,
• At the end of 2002, Aspenwood Apartments had a cash deficit according
to HUD’s surplus cash statement, but Idaho Housing authorized a
distribution of $70,826 in early 2003;
• At the end of 2003, Eagle Manor had a cash surplus of $169,371, but
Idaho Housing authorized a distribution of $187,010 in early 2004; and
• At the end of 2002, Westside Court had a cash surplus of only $2,579, but
Idaho Housing authorized a distribution of $143,565 in early 2003.
8
Idaho Housing Policy Allows
Special Purpose Distributions
Idaho Housing’s 1994 distribution policy allows project owners distributions
equal to the limited distribution allowed, plus a distribution for projects that meet
Idaho Housing’s special purpose criteria. Idaho Housing’s senior compliance
manager confirmed that this policy is effective for new regulation limited
distribution and nonprofit projects. This is contrary to 24 CFR [Code of Federal
Regulations] 883.306, which allows only limited distributions to profit-motivated
project owners of elderly or large family projects and does not allow any
distributions to nonprofit owners. As a result, the owner of Riverside Senior
Housing, an old regulation nonprofit project subject to the 1988 amendment,
inappropriately received a $242,666 special purpose distribution.
Owners Signed Perpetual
Affordability Agreements
In 1994, Idaho Housing required some owners to sign a perpetual affordability
agreement in exchange for an equity takeout as part of a bond refunding.1 In
1997, Idaho Housing informed The Housing Company that distribution of “excess
reserves” was an option. However, projects that had not yet committed to
perpetual affordability would have to do so to receive distributions from the
“excess reserves.” The initial 1997 “excess reserves” distribution included the
sum of the replacement reserve balance, interest earned, and residual receipts
balance, less two months worth of operating budget and $3,000 per unit for
replacement reserves. Later distributions for projects with perpetual affordability
agreements also included operating cash on hand.
Idaho Housing’s distribution of “excess reserves” in exchange for commitments
to perpetual affordability is contrary to 24 CFR [Code of Federal Regulations]
883.306 for distributions to the owners of four new regulation limited distribution
projects and six old regulation nonprofit projects subject to the 1988 amendment.
1
See audit report no. 2005-SE-1008 for information on the bond refunding.
9
Idaho Housing Authorized
Distributions to Be Paid from
Residual Receipts and
Replacement Reserves
Of the excess distributions Idaho Housing authorized, $747,776 and $11,275 were
disbursed from the projects’ residual receipts and replacement reserves,
respectively. However, according to 24 CFR [Code of Federal Regulations]
883.306(e) and 883.702(e), residual receipts are to be used only to reduce housing
assistance payments or for other project purposes, and upon termination of the
contract, the residual receipts balance must be remitted to HUD. In addition,
according to 24 CFR [Code of Federal Regulations] 883.703 and the contracts,
replacement reserves are to be established to aid in funding extraordinary
maintenance and repair of the project or for replacement of capital items. The
excess owner distributions did not meet these requirements since the funds were
distributed to the owners and were not used for project purposes, extraordinary
maintenance, repairs, or replacement of capital items.
The Rest of the Distributions
Were Paid From the Projects’
Operating Accounts
The balance of the distributions were paid from the projects’ operating accounts.
Federal requirements dictate that any funds in the operating account in excess of
those required to fund project operations and allowable owner distributions must be
deposited to the residual receipts account. Since the distributed funds were in excess
of what was required to operate the projects, the funds should have been deposited to
the residual receipts account.
More Than $3.7 Million in
Excess Distributions Is Not
Available for Project Purposes
Since Idaho Housing did not follow federal regulations and HUD guidelines
regarding owner distributions, excessive distributions to 13 projects totaling
$3,721,738 will not be available to use when or if funds are needed for project
purposes. In addition, these funds are no longer available to reduce housing
10
assistance payments or for HUD’s use to provide housing assistance to other low-
income individuals upon termination of the contracts. Appendix C details the
excessive distributions by project.
The average excess distributions from 1994 through 2004 total $316,279 per year.
These funds could be put to better use over the next year if Idaho Housing stops
allowing these excess distributions.
Recommendations
We recommend that the director, Region X Multifamily Housing Hub,
1A. Require Idaho Housing to reimburse the projects’ residual receipts accounts
from nonfederal funds $3,710,463 for excessive partnership distributions that it
inappropriately allowed (see appendix C).
1B. Require Idaho Housing to reimburse the applicable projects’ replacement
reserve accounts from nonfederal funds $11,275 for excessive partnership
distributions that it inappropriately allowed from those accounts (see appendix C).
However, if these replacement reserve accounts are fully funded, we recommend
HUD require Idaho housing to reimburse the excessive distributions into the
applicable projects’ residual receipts accounts.
1C. Require Idaho Housing to implement procedures to ensure that nonprofit
owners under new regulations (including 1988 amended projects) do not receive
distributions of project funds and that limited distribution project owners do not
receive distributions in excess of their allowed limited distributions. This will
allow $316,279 in project funds to be put to better use over the next year.
1D. Require Idaho Housing to implement procedures to ensure the residual
receipts account is used only to reduce housing assistance payments or for project
purposes and not for owner distribution.
1E. Require Idaho Housing to implement procedures to ensure that replacement
reserves are used only for extraordinary maintenance and repairs or replacement
of capital items and not for owner distribution.
1F. Require that Idaho Housing use HUD’s surplus cash statement to determine
the surplus cash available for partnership distribution.
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1G. Require Idaho Housing to amend its distribution policy to conform to the
new regulations at 24 CFR [Code of Federal Regulations] 883.306 with respect to
owners’ distributions for all new regulation projects as well as for all projects
subject to the 1988 housing assistance payments amendment incorporating
limitations on distributions.
1H. Require Idaho Housing to discontinue use of the perpetual affordability
agreement as a basis for determining owner distributions.
1I. Obtain a formal legal opinion as to whether the 1988 housing assistance
payments amendments subject the owners of the projects to limitations on
distributions in accordance with 24 CFR 883.702(e) and take the appropriate
above actions based on that opinion.
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Finding 2: Idaho Housing Approved One Duplicate and Other
Unsupported Requests for Reimbursement from Project
Replacement Reserves
Idaho Housing approved requests for reimbursement from project replacement reserve funds
without obtaining adequate supporting documentation. This occurred because Idaho Housing did
not always follow HUD guidelines and its own policies and procedures regarding expenditures
from the reserve for replacement accounts. As a result, one project’s replacement reserves were
used to make a $24,562 duplicate payment to a vendor, and $182,264 in expenditures from 13
project replacement reserve accounts was not adequately supported. Idaho Housing’s practices
provide little assurance that reserve for replacement expenditures meet HUD’s restrictions on the
use of reserve for replacement funds.
We Reviewed Replacement
Reserve Transactions for 21
Projects
Federal regulations at 24 CFR [Code of Federal Regulations] 883.703 and the
contracts provide that a replacement reserve must be established and maintained
in an interest-bearing account to aid in funding extraordinary maintenance and
repair and replacement of capital items. We identified 21 limited distribution,
nonprofit, or pipeline projects that are required to maintain this account under
Idaho Housing’s annual contributions contract with HUD. We reviewed
replacement reserve transactions for these 21 projects over the years 2001 through
2004 and found that Idaho Housing staff did not always follow HUD guidelines
or its own written policies and procedures.
Twenty-Six Reimbursements
Were Not Properly Supported
HUD Handbook 4381.5 requires an invoice for payment, a written request, and a
payment voucher in support of capital expenditures. Idaho Housing’s
replacement reserve agreement requires an invoice for payment for expenditures
from the reserve for replacement accounts. Idaho Housing’s new construction
budget procedures also require that bids be submitted to Idaho Housing for all
expenditures of more than $1,000. Nonetheless, from 2001 through 2004, Idaho
Housing approved 24 reimbursements totaling $182,264 from projects’
replacement reserve accounts without obtaining bids or invoices (see appendix
D).
13
Idaho Housing’s compliance manager stated that Idaho Housing is not strict with
regard to compliance with its own requirements for owners to obtain bids,
especially with respect to smaller projects. He also said that, at times, a verbal
approval for the projects not to obtain bids is acceptable.
One Reimbursement Was a
Duplicate
Our review also disclosed one disbursement was a duplicate submission for
reimbursement of $24,562 for parking lot paving at Lake Country Apartments.
The first request for reimbursement for the paving was paid in May 2002. This
package included an invoice from the vendor. The second request for
reimbursement was paid in August 2002. This request was part of a larger request
that included the authorization and purchase order for paving the parking lot but
not the invoice.
Idaho Housing Could Not
Ensure Expense Payments
Were Proper
Since Idaho Housing did not always require sufficient supporting documentation
before reimbursement of expenses from replacement reserves, it did not detect the
duplicate payment and cannot ensure that reserve for replacement expenditures
totaling $182,264 complied with HUD’s and its own restrictions on the use of
reserve for replacement funds.
Recommendations
We recommend that the director, Region X Multifamily Housing Hub, require
Idaho Housing to
2A. Return $24,562 from nonfederal funds for the duplicate payment to the
project’s replacement reserve account. However, if the replacement reserve
account is fully funded, we recommend the reimbursement be made to the
project’s residual receipts account.
2B. Provide supporting documentation for the $182,264 in unsupported costs or
return this amount to the projects’ replacement reserve accounts (see appendix D).
If the replacement reserve accounts are fully funded, we recommend the director
require the reimbursement to be made to the projects’ residual receipts accounts.
14
2C. Comply with HUD guidelines and its own policies and procedures in
processing replacement reserve disbursements.
15
Finding 3: A Conflict of Interest Exists between Idaho Housing and
The Housing Company
Contrary to HUD requirements, Idaho Housing allowed a conflict of interest to exist between
itself and The Housing Company, a nonprofit owner of subsidized multifamily projects. Idaho
Housing created and holds substantial control over The Housing Company; however, under
terms of its annual contributions contract, HUD pays Idaho Housing to monitor The Housing
Company’s subsidized projects. This occurred because management controls are insufficient to
ensure that Idaho Housing complies with federal requirements. Also, the close relationship
between Idaho Housing and The Housing Company exists in order for Idaho Housing to assist
The Housing Company to meet its operational needs for personnel and office space. However,
because of the close relationship, HUD has no independent assurance that projects controlled by
The Housing Company are operated according to program requirements. In addition, there is the
potential for The Housing Company or its projects to receive special consideration.
The Housing Company Is an
Affiliate of Idaho Housing
The Housing Company was formed in 1990 by Idaho Housing to facilitate Idaho
Housing’s mission to preserve affordable housing and develop new housing in
underserved areas of Idaho. It is an affiliate of Idaho Housing. Two of Idaho
Housing’s board members also serve on the board of The Housing Company.
Idaho Housing’s president and executive director serves as the president of The
Housing Company. The Housing Company’s employees are Idaho Housing
employees who are subcontracted to The Housing Company. Idaho Housing and
The Housing Company share telephone and Internet systems, and managers for
both entities meet together weekly. In addition, if The Housing Company ceases
operations, all of its assets become the assets of Idaho Housing.
The vice president of The Housing Company is responsible for oversight of The
Housing Company’s activities and supervises all project management and
development. Her immediate supervisor, who performs her annual evaluation, is
the president and executive director of Idaho Housing. Consequently, the
president of Idaho Housing has a measure of control over The Housing
Company’s activities.
16
Idaho Housing Is the Contract
Administrator for The Housing
Company’s Projects
The Housing Company owns 13 projects that receive Section 8 subsidies under
Idaho Housing’s annual contributions contract with HUD. Idaho Housing is the
contract administrator for these projects. In this capacity, Idaho Housing makes
the monthly housing assistance payments to project owners and is required to
perform various monitoring activities, including reviewing
• Οwner calculations of tenant payments,
• Owner financial statements,
• Expenditures to ensure costs are reasonable and necessary,
• Payments to owners to eliminate overpayments or underpayments of
Section 8 subsidies,
• Owner compliance with Section 8 requirements,
• Tenant files,
• Owner compliance with physical inspections, and
• Actions taken with regard to owner and tenant complaints.
Idaho Housing is also responsible for reviewing and paying special claims for
vacancy loss and unreimbursed tenant damages as well as for calculating owner
distributions.
This Relationship Violates
Housing Assistance Payments
Contracts and the Annual
Contributions Contract
In effect, Idaho Housing is both owner and manager of The Housing Company
and its projects and monitors its own actions with respect to the Section 8
assistance provided to these projects. This relationship violates requirements of
Idaho Housing’s old and new regulation contracts with The Housing Company’s
projects at paragraphs 2.18 and 2.11 respectively as well as its annual
contributions contract with HUD at paragraph 2.18. These contracts prohibit
members or officers of Idaho Housing from having a direct or an indirect interest
in contracts during tenure or for one year after.
17
Idaho Housing Does not Have
Controls in Place to Prevent
Conflicts of Interest
We determined this conflict of interest relationship was allowed because Idaho
Housing lacks the management controls to ensure that it complies with the
requirements of the CFR [Code of Federal Regulations], its annual contributions
contract with HUD, and its housing assistance payments contracts with project
owners. Each of these include prohibitions against this type of relationship.
HUD Has No Assurance These
Projects Are Operated in
Accordance with Program
Requirements
Since Idaho Housing is so closely tied to the ownership of The Housing
Company, HUD has no independent assurance that The Housing Company’s
subsidized projects are operated in accordance with the requirements of the
Section 8 program. Additionally the potential exists for The Housing Company
or its projects to be granted special consideration or concessions not available to
other projects monitored by Idaho Housing.
Recommendations
We recommend that the director, Region X Multifamily Housing Hub,
3A. Require Idaho Housing take corrective action to dissolve the conflict of
interest relationship. If Idaho Housing does not take the corrective action, we
recommend the director make a determination of default in accordance with
paragraph 2.16(b)(2) of its annual contributions contract with Idaho Housing. If
Idaho Housing is declared in default of the annual contributions contract, we
recommend the director assume the role of contract administrator or assign
another contract administrator (including any associated administrative fee) over
any projects that (1) are owned by The Housing Company, (2) receive Section 8
subsidy from HUD, and (3) are currently monitored by Idaho Housing.
3B. Require that Idaho Housing implement controls to ensure that any conflict of
interest relationships will not be allowed in the future.
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Finding 4: Idaho Housing Approved Excessive Management Fees for
10 Idaho Projects
Between January 1, 2001, and December 31, 2004, Idaho Housing approved excessive
management fees for 10 subsidized projects. This occurred because Idaho Housing did not
establish an appropriate management fee range and did not have a process for assessing the
reasonableness of requests for management fee increases. As a result, from 2001 to 2004, 10
projects paid $121,521 in management fees in excess of HUD’s residential management fee
range for Idaho. The excessive management fee payments could have been used for other
project purposes, deposited in the residual receipts account and used to reduce housing assistance
payments, or upon termination of the contract, revert to HUD to be used for other low-income
housing purposes.
The Contract Administrator Is
Responsible for Reviewing
Management Fees
Under HUD Handbook 4381.5, Idaho Housing is required to perform a
management fee review when a project owner or agent requests an increase in the
management fee percentage. This is to ensure that approved fees do not
significantly exceed the amount that independent agents and owners would
ordinarily negotiate for comparable services at projects in the same
geographic/cost area, except as justified by conditions that require more time and
effort on the part of the management agent.
The maximum residential management fee range for projects in Idaho, as
computed by HUD for 2001-2005, was $35 per–unit–per–month. Although Idaho
Housing is not required to use HUD’s computed management fee range, it must
use some range. It must follow the same procedures HUD uses to determine the
maximum fee range (i.e., the procedures in chapter 3 of HUD Handbook 4381.5).
Since Idaho Housing did not compute its own residential management fee range,
it should have used HUD’s maximum residential management fee of $35 per–
unit–per–month.
Ten Projects Are Paying
Excessive Management Fees
New regulation limited distribution and nonprofit projects are required to
maintain a residual receipts account. Deposits to this account come from project
19
funds in excess of the amount needed for project operations, reserve requirements,
and permitted distributions. We identified 10 new regulation projects that have
restrictions on their residual receipts accounts that also had a change in the
management agreement between January 1, 2001, and December 31, 2004. Nine
of these projects are owned by The Housing Company, an affiliate of Idaho
Housing (see finding 3).
We selected these projects for review since any excess funds beyond those needed
for project operations and the allowable distributions would ultimately be remitted
back to HUD. We compared the actual management fees paid for these projects
to HUD’s computed maximum residential management fee of $35 per–unit–per–
month. Only eight projects are identified in the chart below because The Housing
Company has historically reported Meadowview and Pondside Gardens together
as one project and Village Community Gardens and Village Gardens together as
one project.
Briarw ood
Bristlecone
Lake Country HUD's calculation of
Meadow view and Pondside reasonable fee per unit
Gardens per month
Ow yhee Place Average per unit per
month paid in excess of
South Meadow the reasonable fee
Village Community Gardens
and Village Gardens
Westside Court
$0 $10 $20 $30 $40 $50
Fee per unit per month
Excessive Management Fees
Could Have Been Used for
Other Low-Income Housing
Purposes
We found that these projects paid $121,521 from 2002 through 2004 for
management fees in excess of the amount they would have paid by using the
maximum HUD-determined fee of $35 per unit per month. These excessive
management fee payments are costing the applicable projects an average total of
$41,707 per year. The excessive payments could have been used for other project
purposes or deposited in the residual receipts account. The additional residual
receipts could then be used to reduce housing assistance payments or, upon
20
termination of the contract, revert to HUD to be used for other low-income
housing purposes (see appendix E).
Lack of Management Controls
Contributed to the Excessive
Management Fees
Idaho Housing’s lack of adequate management controls contributed to the
excessive management fees. Idaho Housing does not have specific written
policies and procedures to ensure management fees are reasonable. Idaho
Housing did not calculate its own reasonable management fee range for
multifamily units in Idaho or adopt HUD’s residential management fee range.
Further, Idaho Housing did not assess requests for increases in the management
fee percentage to determine whether the requested percentage was reasonable.
Recommendations
We recommend that the director, Region X Multifamily Housing Hub,
4A. Require Idaho Housing to reimburse the applicable projects’ residual receipts
accounts from nonfederal funds for excess management fees of $121,521 paid
(see appendix E).
4B. Require Idaho Housing to adopt HUD’s residential fee range for
management’s fees or calculate its own residential fee range for management fees
using the process prescribed in Management Agent Handbook 4381.5, chapter 3.
4C. Require Idaho Housing to instruct the owner/management agents for the
applicable projects to immediately reduce the management fees to a reasonable
amount to allow $41,707 in project funds to be put to better use over the next
year.
4D. Require Idaho Housing to prepare and implement a policy to review
management fee percentage changes for reasonable assurance that management
agents do not receive excessive fees.
4E. Obtain a formal legal opinion as to whether HUD Handbook 4381.5 applies
to these projects and take the appropriate above actions based on that opinion.
21
SCOPE AND METHODOLOGY
To achieve our audit objectives, we reviewed applicable federal regulations, HUD handbooks,
Idaho Housing written policies and procedures, and project files for the 59 subsidized projects
administered under the annual contributions contract between Idaho Housing and HUD. In
addition, we interviewed local HUD staff and Idaho Housing staff. We performed audit work at
Idaho Housing’s offices in Boise, Idaho, and at HUD’s Office of Housing - Multifamily Hub in
Seattle, Washington, from November 2004 through October 2005. Our audit generally covered
the period January 1, 2001, through December 31, 2004, and was expanded as needed.
We performed our review in accordance with generally accepted government auditing standards.
22
INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined the following internal controls were relevant to our audit objectives:
• Program operations – Policies and procedures that officials of the audited
entity have implemented to reasonably ensure that a program meets its
objectives and that unintended actions do not result.
• Compliance with laws and regulations – Policies and procedures that
officials of the audited entity have implemented to reasonably ensure that
resources used are consistent with laws and regulations.
• Safeguarding resources – Policies and procedures that officials of the audited
entity have implemented to reasonably prevent or promptly detect
unauthorized acquisition, use, or disposition of resources.
We assessed the relevant controls identified above.
A significant weakness exists if management controls do not provide reasonable
assurance that the process for planning, organizing, directing, and controlling
program operations will meet the organization’s objectives.
23
Significant Weaknesses
Based on our review, we believe the following items are significant weaknesses:
• Idaho Housing does not have controls in place to ensure that project funds
are used in accordance with federal regulations at 24 CFR [Code of Federal
Regulations] 883.0306 (See findings 1 and 4).
• Management controls do not reasonably prevent or promptly detect the
improper use of project resources (See findings 2 and 4).
• Management controls are insufficient to ensure that Idaho Housing complies
with the requirements of the CFR [Code of Federal Regulations], the
housing assistance payments contracts, and the annual contributions contract
(see finding 3).
24
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported 2/ Funds to be put to
number better use 3/
1A $3,710,463
1B $11,275
1C $316,279
2A $24,562
2B $182,264
4A $121,521
4C $41,707
Totals $3,867,821 $182,264 $357,986
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of audit. Unsupported costs
require a decision by HUD program officials. This decision, in addition to obtaining
supporting documentation, might involve a legal interpretation or clarification of
departmental policies and procedures.
3/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
Office of Inspector General (OIG) recommendation is implemented, resulting in reduced
expenditures at a later time for the activities in question. This includes costs not incurred,
deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of
unnecessary expenditures, loans and guarantees not made, and other savings.
25
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
26
Comment 1
Comment 2
Comment 3
Comment 4
Comment 5
27
Comment 6
Comment 7
Comment 8
Comment 2
Comment 9
28
Comment 10
Comment 11
Comment 12
Comment 13
Comment 11
Comment 14
29
Comment 15
Comments 11, 14
Comment 10
30
Comment 16
Comment 17
Comments 11, 15
Comment 18
31
Comment 19
Comment 19
Comment 15
Comment 15
32
Comment 20
Comment 21
Comment 20
Comment 22
33
Comment 23
Comment 28
Comment 20
Comment 24
34
Comment 3
Comment 25
Comments 20, 22
Comment 26
Comment 27
35
Comment 6
Comment 28
36
Comment 29
Comment 30
Comment 31
Comment 32
Comments 28, 29
37
Comments 28, 29
Comment 30
Comment 33
Comment 34
38
Comments 15, 20
Comment 30
Comment 30
39
Comment 35
Comments 28, 29
40
OIG Evaluation of Auditee Comments
Comment 1 The letter to which Idaho Housing refers also states that HUD made this
acknowledgement subject to a review of the issue by the OIG.
Comment 2 Because of a disagreement with the Region X Multifamily Hub, we included
additional recommendations that they obtain a formal legal opinion and take
action based on that opinion (Findings 1 and 4).
Comment 3 OIG reviewed the documents provided by Idaho Housing in support of the
duplicate payment and the unsupported payments and adjusted the unsupported
amount identified in our report by $6,083 as a result.
Comment 4 Although Idaho Housing disagrees that replacement reserves for all projects we
identified are subject to HUD restrictions, each project we identified is subject to
these restrictions either because they are new regulation projects or because they
adopted 24 CFR 883 Subpart G in 1988. Subpart G of 24 CFR 883 contains
requirements for the replacement reserve accounts for these projects. These
requirements do not exempt any projects except partially assisted projects.
Comment 5 The guidance to which Idaho Housing refers does not consider two very important
facts. The executive director of Idaho Housing is also the president of The
Housing Company. In addition, all assets of The Housing Company revert to
Idaho Housing upon dissolution of The Housing Company. We believe this
would have changed the opinion of HUD’s Portland Regional Office. Also, as
stated in our report, Idaho Housing was told that it should not monitor its own
performance as an owner/manager. Further, this guidance provided an alternative
suggesting that HUD or a public housing authority could provide oversight over
these projects.
Comment 6 In our exit conference with Idaho Housing, the Region X multifamily
representative agreed that it wasn’t until about 2000 that HUD first noticed that
there was such a close relationship between Idaho Housing and The Housing
Company. In December 2004, HUD issued a legal opinion stating that Idaho
Housing was in a conflict of interest situation. However, Idaho Housing has
agreed to implement recommendations 3A and 3B in this report, which should
resolve the conflict of interest issue.
Comment 7 Although Idaho Housing does not believe that HUD Handbook 4381.5 applies to
these projects, the Handbook itself states that it applies to HUD-assisted projects
that receive Section 8 assistance. In addition, the management agreement for all
of The Housing Company projects specifically states that the owner will receive
its management fee in accordance with HUD Handbook 4381.5.
41
Comment 8 Since Idaho Housing does not have its own process to determine whether a fee is
reasonable, it should have followed HUD’s process as found in the Handbook.
Comment 9 Whether the amendments were intended to limit the distributions is immaterial.
The amendments themselves do not state that this provision will not apply.
Comment 10 The Region X HUD office agreed with Idaho Housing’s assessment of which
projects were limited distribution projects under the new regulations subject to
review of the issue by the OIG.
Comment 11 As stated in our report, there was nothing in the amendments to indicate any of
the parties originally agreed to opt out of the limitation on distributions. Further,
the regulatory agreement for each project already limited distributions from the
time of the projects’ inceptions. It was not until after The Housing Company
purchased the projects and entered into a perpetual affordability agreement that
distributions were allowed to The Housing Company in excess of the limitations.
Comment 12 Each of the project owners that Idaho Housing contacted owned projects that now
belong to The Housing Company. In addition, most of the projects for which
Idaho Housing received these statements of intent were small, family projects that
would have been exempt from limitations on distributions in accordance with the
regulations.
Comment 13 These signed statements were received by Idaho Housing 16 years after the
amendments were signed. As stated in our report, there was nothing in the
amendments or other documentation to indicate that the owners originally
intended to opt out of the limitations on distributions.
Comment 14 The projects purchased by The Housing Company were already limited as to
distributions by the regulatory agreements between the owners and Idaho
Housing. In addition, Idaho Housing then allowed no distributions to The
Housing Company on these projects even after purchase, as is proper under the
regulations. However, once The Housing Company entered into a perpetual
affordability agreement, Idaho Housing began allowing distributions.
Comment 15 Since Subpart G of 24 CFR 883 incorporates the limitations on distributions, the
owners of these projects should have made some reference in the amendment if
they did not intend to limit the distributions. For example, the pipeline projects
were allowed to opt out of the limitations on distributions because of the timing of
the signing of the agreement to enter into housing assistance payments contracts.
The owners of these projects, with Idaho Housing and HUD approval, crossed out
the sections of the contract that dealt with limitations on distributions. This was
appropriate. However, as noted before, the amendments are silent on the issue of
whether the owners will opt out of the limitations.
42
Comment 16 The regulatory agreement does not state or even indicate that it is, “…subject to
revision by the Association without restriction for projects not subject to new
regulation limitations on distributions.” In fact, section 13 of the regulatory
agreement states that the agreement shall remain in effect as long as Idaho
Housing is the holder of the mortgage loan or has any interest in the property.
Comment 17 When the owners of projects entered into the housing assistance payments
amendment in 1988, the projects became required to maintain a replacement
reserve account in accordance with 24 CFR 883.703. This is included in Subpart
G. Therefore, regardless of whether these projects are held to limited distribution,
unlimited distribution, or nonprofit status, they are still required to follow the
rules for replacement reserves.
Comment 18 As stated in our report, Idaho Housing did not direct owners to complete the
HUD-required surplus cash statement. In addition, during our review, we found
of 16 projects, only one submitted a surplus cash statement for each year 2001 –
2004 and only one project submitted a surplus cash statement for one year. None
of the other 14 projects submitted a surplus cash statement. In fact, the notes to
the financial statements for four projects stated that computation of surplus cash
based upon HUD guidelines was superseded by the Idaho Housing distribution
policy.
Comment 19 If the four projects to which Idaho Housing are referring are allowed to refinance
at a lower rate, use the financing savings to repay the excessive distributions, and
the change in rate is not used to lower the subsidy to the projects, then HUD, in
effect, will be making the reimbursement instead of the owner or Idaho Housing.
In addition, each of these four projects are subject to the McKinney Act and Idaho
Housing would be required to reimburse HUD for one half of the savings
attributed to a refinance.2
Comment 20 The finding does not deal with distributions, but with replacement reserves. As
noted in comment 16, when the projects adopted Subpart G of 24 CFR 833 they
became required to maintain a replacement reserve account for extraordinary
maintenance and repair or replacement of capital items. Additionally, HUD
Handbook 4381.5 states in paragraph 6.51 that HUD may not always be the
contract administrator, but a state agency may be and that state agency Section 8
projects are specifically covered under this section. The Handbook does not
differentiate between old regulation and new regulation projects, nor does it
differentiate between limited distribution, unlimited distribution, and nonprofit
projects. Paragraph 6.53(b)(3) states that the contract administrator will
specifically review replacement reserve transactions for propriety and will ensure
that the owner/manager is complying with regulatory requirements. This chapter
2
See audit report number 2005-SE-1008 for information on McKinney Act projects.
43
further states that monitoring regulatory agreements requires verification that
replacement reserve account transactions are authorized and that vouchers,
invoices, and other evidence of distribution and expense payments are proper.
Comment 21 Replacement reserves are not to be used simply “…for the benefit of the
projects…” but are only to be used, in accordance with 24 CFR 883.703(a), for
extraordinary maintenance and repair and replacement of capital items.
Comment 22 Although 24 CFR 883 does not mandate that bids or invoices for withdrawals of
reserves for replacements be obtained, Idaho Housing policies require both bids
and invoices and HUD Handbook 4381.5 paragraph 6.55 states that vouchers and
invoices should be reviewed to ensure that distribution and expense payments are
proper.
Comment 23 Although HUD allows state housing finance agencies flexibility in monitoring the
management and operation of these projects, the state housing finance agency is
still required to follow the regulations and handbooks that apply to these projects.
Comment 24 Our analysis of the documentation does not show that the duplicate disbursement
from the replacement reserve account was reimbursed to the same account. The
documentation actually shows the following:
• There was a deposit to the replacement reserve account in June of 2004 in an
amount more than three times the amount of the duplicate reimbursement.
• According to the note written on the support, the deposit to the replacement
reserve account was to replenish the $132,000 requirement for replacement
reserves to be fully funded at $3,000 per unit and 44 units, not to reimburse
the account for a duplicate payment as stated by Idaho Housing’s executive
director and its attorney.
• The check for the deposit to the replacement reserve account came from the
project's operating account, not from the twice-paid vendor or the owner.
Comment 25 Our analysis of the documentation Idaho Housing provided for the Briarwood
transaction at our exit conference revealed that it did not support the transaction.
Further, some of the documentation appeared to have been altered. Idaho
Housing then provided us with other documents to support this transaction. The
documents from the vendor did not match the transaction and the work order
again appeared to have been altered.
Comment 26 The purpose of the conflict of interest provision in the annual contributions
contract and the housing assistance payments contracts is to avoid a conflict in
activities performed to serve the public and those performed to promote one’s
own interests and to prevent one from obtaining special benefits as a result of the
close relationship. There is nothing in these provisions that state that the
prohibition is only against a direct financial benefit. Although the executive
director of Idaho Housing may not receive a direct financial benefit as a result of
44
his position as the president of The Housing Company, his actions in that position
and the performance of The Housing Company would directly affect his
reputation and could therefore indirectly affect his future financial position.
Comment 27 Idaho Housing is correct in its quote of HUD’s legal counsel in guidance provided
by HUD’s Portland’s Office of OGC during 1990. However, Idaho Housing did
not complete the quote in which HUD’s legal counsel cautioned very strongly
against monitoring its own performance as an owner/manager. In fact, HUD’s
legal counsel even offered a solution suggesting that HUD or a public housing
authority could perform the contract administrator role with regard to these
projects. In addition, HUD’s legal counsel explained that its guidance should not
be taken as definitive answers. Therefore, since there was an apparent
inconsistency in what was being said, Idaho Housing should have acted further to
resolve the issue. Further, it is not apparent from the letter to which Idaho
Housing refers that it informed HUD that the executive director of Idaho Housing
would also be the president of The Housing Company or that the assets of The
Housing Company would revert to Idaho Housing if The Housing Company was
dissolved. We believe this information could have altered HUD’s legal counsel
opinion in this case.
Comment 28 HUD Handbook 4381.5 states in chapter 1, paragraph 1.1 that the handbook
applies to HUD-assisted as well as HUD-insured projects. Figure 1-2 shows that
the types of properties and programs affected include rental assistance projects in
the Section 8 multifamily program area. Although paragraph 1.2 states that a
state or local agency may be responsible for oversight of management agent
activities, nowhere in the handbook does it say that state housing agencies are
exempt from using this handbook. Also, since Idaho Housing is the agent of
HUD, it must follow these procedures.
Comment 29 Figure 3-5 of HUD Handbook 4381.5 shows that limited distribution and
nonprofit projects, regardless of how project rents are set, are required to receive
an after-the-fact review of management fees. Again, as stated above, nowhere in
this chapter does it say that state housing agencies are exempt from the provisions
of this chapter.
Comment 30 Idaho Housing states that it is responsible for approval of management fees and
other management agent issues under its own procedures. However, by its own
admission, it does not have any procedures in place by which to ensure that
approved fees do not significantly exceed reasonable amounts as described in
HUD Handbook 4381.5. In addition, the management agreement between the
owner and the lender (Idaho Housing) for the projects owned by The Housing
Company states that the owner will receive a management fee, “…in accordance
with HUD Handbook 4381.5 Rev 2…” Therefore, Idaho Housing should have
used HUD’s procedures to determine if the increase in management fees was
reasonable.
45
Comment 31 As stated in our report, the objective of HUD’s requirement that management fees
be reviewed when a project owner or manager requests an increase in the
management fee percentage is to ensure that those fees do not exceed that
ordinarily paid in like circumstances between independent agents and owners.
The authority for state housing agents to assume responsibility for these projects
does not absolve them of the responsibility to review the management fees for
reasonableness.
Comment 32 Idaho Housing did not properly monitor the increase in management fees for these
projects. It simply approved the increases without any analysis of reasonableness.
Comment 33 Idaho Housing documentation did not show that it made its determination of
reasonableness of management fee increases on a case-by-case basis. As stated in
comment 30, Idaho Housing does not have a process in place to determine if a
management fee is reasonable. In fact, the senior housing compliance manager
told us that they just looked at the seven percent fee that was being requested by
The Housing Company and decided it was reasonable.
Comment 34 HUD Handbook 4381.5 does not require any review of management fees if there
has not been a request for a change in management fee percentage or a change in
the management agent. This is to give the agent an incentive to maximize
collections as well as to increase the agent’s fee yield to offset the effects of
inflation. Therefore, we did not review management fees established at project
inception. However, a management fee percentage must be reviewed if a change
in the percentage or in the management agent is requested. According to this
Handbook, the fee percentage should be reviewed when one of the above changes
are made in order to determine if the per-unit-per-month dollar amount is
reasonable. The Handbook also states, in 3.19 b. that the "[r]esidential fee yield
used for establishing the range(s) must be computed by applying the residential
fee percentage to the monthly rent potential for all revenue-producing units
(adjusted to reflect a 95 percent collection rate)." In 3.19 b. (2), it states that
"[y]ields must be computed on a per-unit per-month basis." In 3.20 c. it states
that if the yield is not reasonable (in comparison to what was calculated above)
the fee percentage may not be approved. As stated in our finding, HUD
calculated a reasonable management fee in accordance with this Handbook.
Idaho Housing allowed management fees for these projects to exceed that amount
from $5 to $13 per-unit-per-month by approving a flat seven percent fee.
Comment 35 We believe the corrective action referred to may include repayment to projects or
to HUD to correct the improper use of funds authorized by Idaho Housing.
46
Appendix C
SCHEDULE OF EXCESSIVE OWNER DISTRIBUTIONS
(FINDING 1)
Deficiencies
Ineligible
Project amount A B C D E F G
Aspenwood $ 43,186 X X X X
Briarwood 384,116 X X X X
Bristlecone 366,838 X X X X
C Street Manor 92,117 X X X X X
Eagle Manor 168,808 X X X X
Lake Country 471,765 X X
Landmark Tower 125,708 X X X
Meadowview/Pondside 330,004 X X X X X
Owyhee Place 116,602 X
Riverside Senior 979,693 X X X X X X
South Meadow 273,769 X X X X
Village Community
Gardens/Village
Gardens 236,933 X X
Westside Court 132,199 X X X X
Total $3,721,738
A. 1988 housing assistance payments amendment - Owners of these projects signed the 1988
housing assistance payments amendment adopting subpart G of 24 CFR [Code of Federal Regulations]
883. Nonprofit owners should not have been allowed any distributions. Otherwise, distributions should
have been limited.
B. New regulation limited distribution projects - Under the new regulations, distributions to the
owners of these projects are limited to 6 percent on equity. The ineligible amount is the amount in excess
of that 6 percent.
C. Surplus cash statement not used - Owners of these projects received excess distributions in part
due to the difference between use of Idaho Housing's partnership distribution worksheet and HUD's
surplus cash statement.
D. Special purpose distributions - Idaho Housing allowed this owner to receive a special purpose
distribution under its policies even though the owner of this project is a nonprofit organization and is not
entitled to any distributions under the 1988 housing assistance payments amendment (see A. above).
E. Perpetual affordability agreement - Idaho Housing allowed owners of these projects excess
distributions after they signed a perpetual affordability agreement even though these owners are entitled
to only a limited distribution or to no distribution as nonprofit owners under the new regulations or the
1988 amendment.
F. Residual Receipts - Idaho Housing allowed owner distributions to be paid from residual receipts even
though these funds are required to be used to reduce housing assistance payments or for project
purposes only.
47
G. Replacement Reserves - Idaho Housing allowed owner distributions to be paid from replacement
reserves even though these funds are required to be used only for extraordinary maintenance and repair
or replacement of capital items. Specifically, Idaho Housing allowed a total of $11,275 ($8,325, $1,308,
and $1,642) to be paid from the replacement reserves of C Street Manor, Pondside/Meadowview, and
Riverside Senior.
48
Appendix D
UNSUPPORTED DISBURSEMENTS FROM REPLACEMENT
RESERVE ACCOUNTS (FINDING 2)
2001 2002 2003 2004
Project No bids No No bids No No bids No No bids No
invoice invoice invoice invoice
Aspenwood 9,490 1,558* 8,385
Briarwood 1,693
Bristlecone 19,726
C Street Manor 20,000 15,000
Imperial 267
Lake Country 10,091
McConnell
Building 3,429 5,800
Mill Creek 2,115 11,161 3,114
Owyhee Place 2,329
Payette Plaza 4,188 4,011 13,850
Riverside
Senior Housing 17,882
Silver Hills 1,455 1,375
South Meadow 13,000 6,195
6,150
Totals 2,115 49,961 33,252 19,604 25,921 15,408 13,828 22,175
*Information on the invoice was insufficient
Total 2001-2004 expenditures without required bids $ 75,116
Total 2001-2004 expenditures without required invoices $107,148
49
Appendix E
EXCESSIVE MANAGEMENT FEES (FINDING 4)
Project Mgt fee1 Mgt fee1 Mgt fee1 Maximum Excess
2002 2003 2004 mgt fee2 mgt fee4
per year
a b c d e
Briarwood $ 21,624 $ 23,592 $ 23,705 $ 16,800 $ 18,521
Bristlecone 15,484 17,899 17,515 12,600 13,098
Lake Country 23,314 26,060 25,359 18,480 19,293
Meadowview and Pondside 22,940 26,153 26,152 18,480 19,805
Gardens
Owyhee Place 15,719 19,304 19,041 13,440 13,744
South Meadow 20,939 23,334 23,675 17,220 16,288
Village Community Gardens and 26,814 31,405 32,573 23,940 18,972
Village Gardens
Westside Court3 - - 14,400 12,600 1,800
Total $ 146,834 $167,747 $182,420 $ 120,960 $ 121,521
1
This is the actual management fee paid by the owner from project funds according to each
project’s annual audited financial statements.
2
This is the maximum allowable management fee based on 100 percent occupancy and HUD’s
maximum $35 per-unit-per-month residential management fee range for Idaho. The amount
shown for each project equals the number of units multiplied by the $35 fee multiplied by 12
months.
3
Westside Court did not have a change in management fee or management agent until 2004.
Therefore, there is not a value listed in the table above for 2002 and 2003.
4
For all projects except Westside Court, e=(a+b+c)-(d*3). Since Westside Court had no changes
in management fees until 2004, e=c-d.
50
DB&B, Inc., Albany, Or
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-07-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)