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 December 30, 1996 Audit Related Memorandum No. 97-PH-212-1802 MEMORANDUM FOR: Charlie Famuliner, Director, Multifamily Division, Virginia State Office, 3FHM FROM: Edward F. Momorella, District Inspector General for Audit, Mid-Atlantic, 3AGA SUBJECT: Chesterfield Square Mutual Homes, Inc. Mortgagor Operations Richmond, Virginia Pursuant to your request, we have completed a review of projec t operations for Chesterfield Square Mutual Homes, Inc. Your request identified questionable transactions and indicated potentia l mismanagement of project affairs by the Management Agent (Agent). The purpos e of our review was to determine if the project wa s operated in accordance with the terms and conditions set forth in the Regulatory Agreement and applicable HUD directives. We reviewed project records and reports, analyzed cas h disbursements and reserve account activity, performed on-sit e testing of tenant housing assi stance eligibility, and examined the preparation of the annual budg et. We interviewed Asset Management Branch staff in your office and project personnel. Results of Review Our review disclosed the following: - Evaluation of expenditure documentation from June 1993 t o May 1996 showed that project f unds totalling $4,175 were used to pay health insurance p remiums for a non-employee painting contractor. This improper procedure wa s perm itted by the Agent. The contractor made periodi c payments and reimbursed the project $4,020. Th e contractor, who relocated out-of-state, still owes th e project $155. Visit the Office of Inspector General's World Wide Web site at http://www.hud.gov/oig/oigindex.html 2 - Expenditure documentation supp orts the reasonableness of the project's $11,200 purchase of the Agent's persona l truck in 1993. No evidence was found to indicate tha t the purchase was other than necessary to meet projec t requir ements, and approved by the project's Board o f Directors. - Expe nditures may not have been made at the lowes t poss ible cost to the project. Contrary to provision s contained in the Housing Management Agreement, writte n cost estimates from three sources were not alway s obtained for project expenses valued at $5,000 or more. In addition, documentation was not available to show tha t verbal and written quotes were solicited to validate the reas onableness of costs for ongoing supply or servic e requir ements valued at less than $5,000 as required b y the Management Agreement and the Managemen t Certification. - Required reserve deposits were made, reserve accoun t levels were maintained, and disbursements from reserv e fund accounts were proper. However, as of November 20, 1996, excess cash amounting to $107,425 was contained in the project's reserve accounts . The Agent maintained an unneeded painting reserve fund, valued at $65,792. The Agent also held earned interest in the membership trust and general operating reserve accounts, totalling $36,25 2 and $5,381, respectively. The Agent stated that th e accoun ts were used to hold excess cash to preclud e residual receipts identificati on and restriction, and to maintain control over the funds. The Regulator y Agreement requires that any residual receipts realize d from property operations be deposited into the reserv e fund for replacements and shall at all times be subject to HUD's control. - The Fi scal Year 1996 and 1997 annual budgets were no t properly prepared, overstating project expenses b y $21,036 and $28,788, respectiv ely. The Agent overstated the bu dgeted expense for the reserve fund fo r replacements deposit requirement by the amount of planne d interest to be earned on the account. The Agent stated that the interest amount was added to the expense i n ord er to offset the income since it was restricted an d not readily available for proj ect use. According to the Regulatory Agreement, housing charges shall be in amount s suffic ient to meet the estimated expenses set forth i n the operating budget. Ownership should revise th e current budget and eliminate overstated expenses. 3 - In coordination with the HUD Office of the Inspecto r General for Investigation, we determined that the Agent was the subject of an investigation involving another HU D project. As a result of the investigation, the Agent wa s con victed of fraud in June 1996 in connection with hi s posit ion as managing agent for the other project . Because of this conviction, HUD has suspended the Agent from participation in procurement and non-procuremen t transactions as either a participant, principal, o r contractor with HUD. Additionally, HUD is considerin g debarring the Agent for a three year period. Recommendations We recommend the owner: 1A. Obtain from the Agent the $155 owed the project on th e painting contractor's health insurance premiums. 1B. Assure that project expenditures are obtained at th e lowest possible cost by enforcing the provisions of the Housing Management Agreement. 1C. Close the painting reserve account. Transfer th e account's balance and the excess funds contained in the membership trust and the general operating reserv e accounts to the reserve fund for replacements account. 1D. Revis e the FY 1997 operating budget and eliminat e overstated expenses. 1E. Evaluate the Agent's suspension and proposed debarment b y HUD. Determine it's impact on the current managemen t agreement and take whatever action deemed necessary. **** The results of our review were discussed with the project's Board of Directors and your staff. Should you have any questions please contact Irving I. Guss , Assistant District Inspector General for Audit at (215) 656-3401. Attachment - Distribution CC: OSWALD CIANCI 3AGA:GUSS:AMP:12/30/96 Correspondence Code 3AGA Concurrence GUSS Date Attachment DISTRIBUTION Secretary's Representative, Mid-Atlantic, 3AS Internal Control & Audit Resolution Staff, 3AFI Director, Multifamily Division, Virginia State Office, 3FHM Virginia State Coordinator, 3FS Associate General Council Office of Asst Housing and CD, CD (Room 8162) Assistant to the Deputy Secretary for Field Management, SDF (Room 7106) Housing, Comptroller, HF, (Room 5132) Director, Participation & Compliance Division, HSLP (Room 9164) Director, Housing Finance Analysis Division, REF (Room 8204) Chief, Financial Officer, F (Room 10164) Deputy Chief Financial Officer for Finance, FF (Room 10164) Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street, NW, Room 2474, Washington, DC 20548 President Board of Directors, Chesterfield Square Mutual Homes, Inc., 1017 Hioaks Road, Richmond, VA 23225 REPORT NAME: Chesterfield Square Mutual Homes, Inc. Mortgagor Operations Richmond, Virginia REPORT NO: 97-PH-212-1802 ISSUE DATE: December 27, 1996 REGIONAL OFFICE (NON-OIG) Secretary's Representative, Mid-Atlantic, 3AS 1 Internal Control & Audit Resolution Staff, 3AFI 1 Director, Multifamily Division, Virginia State Office, 3FHM 1 Virginia State Coordinator, 3FS 1 HEADQUARTERS (NON-OIG) Associate General Council Office of Asst Housing and CD, CD (Room 8162) 1 Assistant to the Deputy Secretary for Field Management, 1 SDF (Room 7106) Housing, Comptroller, HF (Room 5132) 5 Director, Participation & Compliance Division, HSLP (Room 9164) 1 Director, Housing Finance Analysis, REF (Room 8204) 1 Chief Financial Officer, F (Room 10164) 2 Deputy Chief Financial Officer for Finance, 2 FF (Room 10164) HEADQUARTERS (OIG) Assistant Inspector General, Office of Audit, GA (Room 8286) 1 James M. Martin, Director, Research & Planning 1 Division, GAP (Room 8180) Michael R. Phelps, Deputy Assistant Inspector General for 1 Audit, GA (Room 8286) Director, Financial Audits Division, GAF (Room 8286) 1 Central Files, GF (Room 8266) 4 Semi-Annual Report Coordinator, GF (Room 8254) 1 DISTRIBUTION OUTSIDE HUD Director, Housing and Community Development Issue Area, 1 US GAO, 441 G Street, NW, Room 2474, Washington, DC 20548 Attn: Judy England-Joseph Ms. Elaine Hall, President, Board of Directors, Chesterfield Square 1 Mutual Homes, Inc., 1017 Hioaks Road, Richmond, VA 23225 28 From: Edward F. Momorella, DIGA, Mid-Atlantic Wanamaker Building, Suite 1005 100 Penn Square East Philadelphia, PA 19107-3380
Chesterfield Square Mutual Homes, Inc. Mortgagor Operations, Richmond, Virginia
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-12-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)