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We audited the SFDS Development Corporation (agent), management agent for three U.S. Department of Housing and Urban Development (HUD) subsidized Section 202 elderly housing direct loan properties, in response to a complaint to
the Office ofInspector General (OlG) Hotline that alleged misappropriation of HUD funds by the agent. The objective of our review was to assess the merits of the complaint. It was expanded to assess the agent's compliance with HUD financial, procurement, and administrative regulations applicable to the Section 202 elderly housing program.

The complaint had some merit, because as documented on page 5 of the report, some ineligible salary costs were erroneously allocated to the projects. In addition, weaknesses in the agent's financial, procurement, and administrative controls caused noncompliance with HUD regulations pertaining to the agent's management of the Section 202 properties. Specifically, the agent charged ineligible and unsupported expenses to the projects, failed to make required
deposits to, or seek HUD approval for withdrawals from the replacement for reserve account, did not always conduct unit inspections or procure services in a prudent manner, and failed to file financial statements in a timely manner. As a
result, the projects were deprived of $177,406, and HUD lacked assurance that $498,643 was disbursed for eligible expenses, units were properly maintained, and services were obtained at the most economical price. In addition, HUD was
not made aware of the financial condition of the projects in a timely manner.

We recommend that the Director of the New York Office of Multifamily Housing instruct the owner/agent to repay ineligible costs charged to the projects, provide documentation for unsupported costs, and if support cannot be provided, repay the amount with nonfederal funds, and strengthen controls over financial, procurement, and administrative functions.