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We audited the Michigan State Housing Development Authority’s multifamily project-based Section 8 program for new-regulation projects as part of the activities in our fiscal year 2013 annual audit plan.  We selected the Authority based on a referral from U.S. Department of Housing and Urban Development (HUD) management.  Our objective was to determine whether the Authority administered its program in accordance with HUD’s requirements.

The Authority did not comply with HUD’s requirements regarding the administration of its multifamily project-based Section 8 program for new-regulation projects.  Specifically, it failed to use program residual receipts to reduce or offset housing assistance payments for new-regulation projects.  As a result, nearly $31.6 million in unused or excess project funds was not available for HUD to offset future subsidy expenditures.

The Authority did not remit unused or excess funds upon termination of the housing assistance payments contracts for three new-regulation projects.  As a result, more than $1.2 million in unused or excess project funds was not available for HUD to achieve program savings.

The Authority inappropriately disbursed replacement reserves for four projects.  As a result, more than $290,000 was not available to benefit its multifamily projects.  Further, its projects lost more than $175,000 in interest income.

We recommend that the Director of HUD’s Detroit Office of Multifamily Housing Programs require the Authority to (1) ensure that program residual receipts of nearly $31.6 million are used instead of seeking unnecessary housing subsidies; (2) reimburse HUD and the U.S. Treasury more than $1.2 million for the projects with terminated program contracts; (3) reimburse its project’s escrow accounts more than $465,000 for the inappropriate disbursements of replacement reserves; and (4) implement adequate controls to address the findings cited in this audit report.