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The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audited Milestone Management Services, Inc. (Milestone), of Topeka, Kansas, in response to a request from the HUD's Office of Multifamily Housing in Kansas City, Kansas. HUD was concerned that Milestone had not complied with cash management requirements. Our audit objective was to determine whether Milestone complied with HUD’s cash management requirements for management agents.

Milestone’s management controls were not adequate in three respects. Milestone did not (1) adequately segregate duties of on-site staff or provide proper oversight of these employees, (2) have a system for tracking significant rehabilitation and related costs for individual units, or (3) practice proper budgetary controls. In addition, Milestone did not provide its properties with adequate fidelity bond coverage, and it overpaid itself management fees.

We recommended that HUD ensure that Milestone/property owners implement an adequate system of management controls and provide technical assistance and guidance as needed. We also recommended that HUD require Milestone/property owners to implement procedures to periodically assess the adequacy of fidelity bond coverage and adjust the coverage for each property when needed. Further, we recommended that HUD ensure that Milestone/property owners use a reliable process to calculate and pay management fees and that Milestone immediately repays overpaid management fees to the overcharged properties. Lastly, we recommended that HUD take appropriate administrative actions against Milestone/property owners if Milestone is unable or unwilling to comply with HUD requirements.