Sheridan Plaza Apts., Chicago, IL

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-01-21.

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

                                                    U. S. Department of Housing and Urban Development
                                                    Office of Inspector General for Audit, Midwest
                                                    77 West Jackson Boulevard, Room 2646
                                                    Chicago, Illinois 60604-3507

                                                             AUDIT RELATED MEMORANDUM

January 21, 1998

MEMORANDUM FOR:                Beverly Bishop, Director, Office of Housing,
                                Illinois State Office
                               Edward Hinsberger, Director of Multifamily
                                Housing, Illinois State Office

FROM:          Dale L. Chouteau, District Inspector General for Audit,

SUBJECT:       Sheridan Plaza Apartments
               Multifamily Equity Skimming
               Chicago, Illinois

We completed an audit of the books and records of Sheridan Plaza Apartments. We conducted the
audit because the Project's financial statements indicated that the Project's funds may have been
inappropriately used. Sheridan Plaza Apartments is a multifamily project located in Chicago, Illinois.
The mortgage was insured under Section 221(d)(4) of the National Housing Act. The Project
defaulted on the mortgage on March 1, 1990 and the mortgage was assigned to HUD on February
13, 1991. The Project has 140 units, of which 109 were Section 8 subsidized.

Sheridan Plaza Apartments is owned by Sheridan Plaza Associates Partnership, an Illinois Limited
Partnership, and is managed by an identity-of-interest management firm, Promex Midwest
Corporation. Dennis R. Egidi is the President of Promex Midwest Corporation and he is also
Managing General Partner of Sheridan Plaza Associates Partnership. The Project's books and records
are located at 800 South Milwaukee Avenue, Libertyville, Illinois.

The audit objectives were to determine whether the Project owner and management agent used
Project funds in compliance with the Regulatory and other agreements, and applicable HUD policies
and procedures. The audit covered the period of January 1, 1991 through May 31, 1997. We
extended the audit period as necessary. We performed the audit between February 1997 and July
We concluded that Sheridan Plaza Associates Partnership and its management agent:

•        Improperly charged the Project $67,934 for the salary of a General Partner of Sheridan Plaza
         Associates. The General Partner's salary should have been paid from either management fees
         collected or from the identity-of-interest construction company that the General Partner was
         President of. The ineligible disbursements occurred when the Project was in a non-surplus
         cash position. Consequently, fewer funds were available for normal operations of debt service
         and HUD's security interest in the Project was weakened.

•        Improperly used $5,000 of Project operating funds to pay ineligible legal fees. The legal fees
         did not relate to Project operations and instead were applicable to the Project owner's
         attempts to refinance the HUD-insured mortgage. As a result, Project expenses were
         overstated and less funds were available for normal operations and debt service.

We provided our draft findings to the Project owner and management during the audit. We held an
exit conference on July 23, 1997. The Project owner and management agent provided written
comments to our draft findings and recommendations. After additional meetings, the Project owner
agreed to remit $72,934 for the audit findings and $19,136 for the costs of the audit. On December
15, 1997, the Managing General Partner of the Project signed a Promissory Note and Agreement to
pay HUD $92,070 together with an interest rate of 5.4 percent. The agreed payment plan requires
the Project Owner to pay $7,898.77 in 12 monthly installments.

Should your staff have any questions, please have them contact me at (312) 353-7832.

98-CH-211-1806                                   Page 2
                                                                                Appendix A

Secretary's Representative, Midwest
Director, Office of Housing, Illinois State Office (2)
Director, Field Accounting Division, Midwest
Field Comptroller, Midwest
Assistant General Counsel, Midwest
Public Affairs Officer, Midwest
Director, Administrative Service Center, I
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Comptroller/Audit Liaison Officer, Office of Housing, HF (Room 5132) (5)
Acquisitions Librarian, Library, AS (Room 8141)
Director, Participation and Compliance Division, HSLP (Room 9164)
Chief Financial Officer, F (Room 10164) (2)
Deputy Chief Financial Officer for Finance, FF (Room 10164) (2)
General Counsel, C (Room 10214)
Deputy Secretary (Room 10100)
Assistant Secretary for Congressional and Intergovernmental Relations, J
 (Room 10120)
Deputy Assistant Secretary for Public Affairs, W (Room 10220)
Chief of Staff, S (Room 10000)
Counselor to the Secretary, S (Room 10234)
Senior Advisor to the Secretary for Communication and Policy, S (Room 10222)
Assistant Secretary for Housing, H (Room 9100)
Assistant to the Secretary for Labor Relations, SL (Room 7118)
Director, Housing and Community Development Issue Area, U.S. GAO,
 441 G Street N.W., Room 2474, Washington DC 20548
The Honorable John Glenn, Ranking Member, Committee on Governmental Affairs,
 United States Senate, Washington DC 20515-4305
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs,
 United States Senate, Washington DC 20515-4305
Mr. Pete Sessions, Government Reform and Oversight Committee, Congress of
 the United States, House of Representatives, Washington DC 20510-6250
Ms. Cindy Sprunger, Subcommittee on Gen. Oversight and Invest., Room 212,
 O'Neill Office Bldg., Washington DC 20515
Assistant Director in Charge, U.S. General Accounting Office, 820 1st St. NE,
  Union Plaza Bldg. 2, Suite 150, Washington DC 20002

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