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We audited Westbeth Artists Houses (auditee) in response to a complaint submitted to the Office of Inspector General (OIG) hotline alleging that project funds were used to pay an executive director in violation of U.S. Department of Housing and Urban Development (HUD) regulations. Our audit objectives were to assess the merits of the complaint and determine whether project operations generally complied with HUD regulations pertaining to financial, procurement, and tenant certification processes.

The complaint had merit because the duties of the executive director position for which project funds were disbursed were not adequately supported. In addition, although tenant certifications were properly performed, the project’s financial management and procurement processes did not always comply with HUD regulations. Specifically, project funds were used to pay expenses that were inadequately supported, deemed unnecessary and unreasonable, and ineligible. In addition, auditee officials did not always follow prudent procurement practices when executing contracts, resulting in a lack of assurance that services were obtained at the most economical price. These conditions occurred because auditee officials believed that the funds used to pay for the executive director’s position were not subject to HUD regulation and weaknesses existed in the project’s financial and procurement controls.

We recommend that the Director of HUD’s New York Office of Multifamily Housing instruct auditee officials to (1) provide justification for the $304,485 expended for the costs related to the executive director’s position so that HUD can determine whether it is justified and provide documentation to substantiate the $28,351 in unsupported expenses, (2) reimburse the $7,030 in expenses deemed unnecessary and unreasonable, along with the ineligible expenses of $37,650, and (3) ensure that controls over financial management and procurement processes are strengthened.