Finding Text
FINDINGS - MAJOR FEDERAL AWARD PROGRAM AUDIT (CONTINUED)
Department of Housing and Urban Development Finding, 2024-003: Major Programs: Capital Advance Program, Federal Assistance Listing Number 14.U01 and Section 8 New Construction and Substantial Rehabilitation, Federal Assistance Listing Number 14.182
STATEMENT OF CONDITION
Management fees were overcharged by $13,884.
CRITERIA
HUD Handbook 4381.5 Revision 2 for HUD Subsidized Multifamily Housing Programs (HUD Handbook) specifies the types of income that may be treated as income when determining the management fee allowed.
EFFECT OF CONDITION
During the changeover of management companies, income was incorrectly calculated twice for one month causing the management fee to be overcharged for the year ended September 30, 2024.
CONTEXT
Management fees were tested for compliance with allowable management fees from project funds criteria. Both management companies charged a management fee at the time of changeover resulting in a higher calculated management fee.
CAUSE OF CONDITION
Both management companies charged a management fee resulting in a overcharged management fee per the HUD Handbook.
RECOMMENDATION
The auditor recommends management review the HUD Handbook on determining eligible income included in the management fee calculation.
VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS
Carrasquillo Management LLC acknowledges the auditor’s finding regarding the overcharged management fee of $13,884 for the fiscal year ended September 30, 2024.
The overcharge occurred during the management transition in March 2024. The outgoing management company, Mount Holyoke Management LLC, issued and received a management fee payment for the full month of March despite their services ending early in the month. Carrasquillo Management LLC officially took over management of the Project on March 9, 2024, and also received the management fee for services rendered during the remainder of that month. This resulted in both management companies receiving compensation for the same period, causing the annual management fee to exceed HUD’s allowable limits.
Corrective Actions:
1. Fee Review and Adjustment
Carrasquillo Management LLC is working with the auditor and ownership to correct the management fee overcharge in the Project’s financial records. Any necessary adjustments or reimbursements will be made to bring the project into compliance.
2. HUD Handbook Compliance Training
Management has reviewed the relevant guidance in HUD Handbook 4381.5 Revision 2 and is ensuring that all future management fee calculations strictly follow HUD’s criteria for eligible income and fee limits.
3. Transition Protocols
To prevent this issue from recurring during future management transitions, Carrasquillo Management LLC has developed a formal transition protocol that includes a reconciliation of income and fees and written confirmation of responsibilities to avoid any overlapping charges.
4. Oversight and Internal Controls
All future management fee calculations will be reviewed and approved by the Regional Manager and Accounting Department to verify accuracy and compliance with HUD guidelines prior to disbursement.
Carrasquillo Management LLC remains committed to ensuring proper financial stewardship of HUD program funds and maintaining compliance with all applicable regulations.