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The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audited Breakthrough Living Program based on an audit referral memorandum received from the Director of HUD’s Southwest Region, Office of Multifamily Housing Programs.  The referral cited several concerns, including the property’s unilateral withdrawal of funds from the reserve for replacement account.  Our audit objective was to determine whether Breakthrough Living (1) properly transferred funds from its reserve for replacement account, (2) properly charged its Section 8 tenants additional rental fees with the required approval, and (3) improperly paid overhead costs for its management agent.

Breakthrough Living violated its regulatory agreement with HUD by improperly transferring funds from its reserve for replacement account and paying overhead expenses for its management agent.  In addition, it improperly charged its Section 8 tenants $69,000 in program fees.

We recommend that HUD require Breakthrough Living to (1) repay the $47,690 that it transferred from its reserve for replacement account, (2) repay $5,642 that it used for its management agent’s overhead expenses, (3) repay the $69,577 that it improperly collected from its tenants, (4) ensure that its board hires a new HUD-approved independent management agent, and (5) ensure that its board receives adequate training regarding the financial operations of a HUD property.

We also recommend that HUD take appropriate administrative actions, up to and including debarment, against Breakthrough Living’s former executive director for her part in repeatedly violating the property’s regulatory agreement.