We audited the Avesta Housing Management Corporation (Avesta), located in Portland, ME, in response to a request from the U.S. Department of Housing and Urban Development’s (HUD) Manchester, NH, Office of Housing field office. The request came after the completion of an Office of Inspector General (OIG) audit of the Orchard Court project. Avesta was the previous manager of Orchard Court and is the current manager of 30 other HUD projects.
Our overall audit objective was to review Avesta’s management of the other HUD projects and determine whether HUD funds were used in accordance with the regulatory agreement and HUD requirements. Specifically, we wanted to determine whether (1) Avesta complied with HUD procurement policies and procedures, (2) services provided by Avesta under identity-of-interest contracts were reasonable and adequately supported, and (3) Avesta’s method of cost allocation was adequate and supported.
The audit showed that Avesta did not always comply with HUD regulations. Our audit identified several specific deficiencies that need to be addressed. The audit also showed Avesta maintained its properties in good condition, REAC scores have been high, and it’s management reviews conducted by Maine State Housing and Rural Development have been excellent. Also, the vacancy rates at its properties have been around 1% with collection rates at 99%.
However, Avesta did not comply with HUD procurement procedures because it could not furnish documentation to substantiate that it solicited bids and/or obtained cost estimates when procuring ongoing services and construction contracts. In addition, it had not established written procurement policies. Procurements totaling more than $2.6 million covering a 3-year period were unsupported.
Additionally, Avesta could not demonstrate that the identity-of-interest services it provided to the HUD projects it managed were not in excess of costs that would be incurred in arms-length transactions. Therefore, there was no assurance that the HUD projects incurred an appropriate or reasonable cost for these services. The cost of the services for maintenance, janitorial, and resident service fees totaling more than $1.6 million over a 3-year period was considered unsupported.
Lastly, Avesta failed to comply with HUD requirements to ensure that the allocation of the time spent by its property managers working with HUD projects was adequately supported. As a result, there was no assurance that the property manager salaries were allocated equably among the 30 HUD and 30 non-HUD projects managed by it. Avesta also did not properly ensure the reasonableness of costs for accounting/bookkeeping services. Costs of more than $796,000 covering a 3-year period were unsupported.
We recommend that the Director of Multifamily Housing in the HUD Manchester, NH, field office require Avesta to comply with all terms and conditions of its management certifications and HUD requirements for soliciting written or verbal cost estimates and maintaining documentation supporting the basis for contract awards. In addition, Avesta should provide an independent cost analysis for each procurement citied in this report to ensure that more than $2.6 million was reasonable and supportable. For any amounts not reasonable or supportable, it should reimburse the HUD projects from non-Federal funds.
We also recommend that the Director require Avesta to ensure compliance with the requirements for the (1) cost for services provided under arms-length transactions not exceeding the amount ordinarily paid for such services, (2) disbursements to HUD projects being reasonable and adequately supported, and (3) supervisory salary costs attributable to administrative duties being properly absorbed by management fees. The Director should also require Avesta to provide acceptable documentation in support of the more than $1.6 million charged for maintenance, janitorial, and resident service coordinator fees and determine whether the costs were reasonable. For fees not considered reasonable, HUD should ask Avesta to reimburse the HUD projects from non-Federal funds.
Lastly, we recommend that the Director require Avesta to provide documentation in support of the distribution of $470,358 in property manager salaries to the HUD projects. For any costs not supported, reimburse the HUD projects from non federal funds. In addition, we recommend that the Director require Avesta to provide documentation to determine if $325,832 in accounting/bookkeeping service costs were at or below market rate. For any service costs that exceeded the market rate, Avesta should reimburse the HUD projects from non-Federal funds.