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We audited the Lake Village of Auburn Hills multifamily project as part of the activities in our fiscal year 2014 annual audit plan.  We selected the project based on a request from the U.S. Department of Housing and Urban Development’s (HUD) Detroit Office of Multifamily Housing.  Our objective was to determine whether the project’s owner and former management agents operated the project in accordance with the regulatory agreement and HUD’s requirements.

The project’s owner and former management agents did not ensure that (1) adequate documentation was maintained to support disbursements or that funds were used for reasonable operating expenses or necessary repairs of the project, (2) the project’s housing units were used for their intended purpose, and (3) tenants’ security deposits were appropriately maintained.  As a result, HUD lacked assurance that more than $7.1 million was used for reasonable operating expenses or necessary repairs of the project and nearly $116,000 in additional rental revenue was not lost.  Further, more than $8,400 in project funds and nearly $134,000 in lost rental revenue was not available for reasonable operating expenses and necessary repairs of the project.  In addition, nearly $192,000 in tenant security deposits was not available to (1) pay for damages to the project’s housing units, (2) apply toward tenants’ unpaid rent, or (3) reimburse households.

We recommend that HUD require the owner to (1) support or reimburse the project for the unsupported disbursements and rental credits; (2) reimburse the project from nonproject funds for the non-revenue-generating housing units, ineligible expenditures, and the underfunded security deposit account; and (3) implement adequate procedures and controls to address the finding cited in this report.  We also recommend that HUD pursue double damages, civil money penalties, and administrative sanctions, as appropriate, for the finding cited in this report.