L.A. Affordable Housing Project Didn't Comply with HUD Requirements

HUD’s OIG audited the Dolores Frances Affordable Housing project, based on a citizen complaint and a suggestion from the HUD’s Departmental Enforcement Center. The complaint alleged nonpayment of HUD utility allowances and security deposits, mismanagement of the maintenance department, related parties hired in supervisory positions, and conflict-of-interest vendor contracts by the related party of Dolores Frances.

OIG found that the allegations stated in the complaint were generally unsubstantiated and had no merit. However, Dolores Frances wasn’t administered in accordance with HUD requirements. The project made ineligible payments of $531,186 for expenses that weren’t reasonable and necessary for the operation of the project. In addition, Dolores Frances inappropriately secured more than $10.9 million in unsupported loans that encumbered the properties of the project without HUD approval. These actions increased the project’s risk of mortgage default.

Auditors recommended that the Acting Director of HUD’s Los Angeles Office of Multifamily Housing Programs require the owners of Dolores Frances to: (1) stop disbursing project funds for ineligible social services fees and reimburse the project $300,000; (2) reimburse the project for $74,784 in consulting fees and $18,178 in fees charged by the management agent that were ineligible; (3) reimburse the project for $114,068 in ineligible legal fees; (4) provide documentation to support HUD approval for the loan between Dolores Frances and Pico Union for more than $6.3 million and how the funds were used or remove the loan and associated encumbrance from the project; (5) provide documentation to support that the loan between Dolores Frances and Alliant for more than $4.5 million was approved by HUD or remove the loan and any associated encumbrance from the project; and (6) implement controls to ensure that management and ownership follow the project’s policies and procedures, the regulatory agreement, and HUD program requirements. OIG also recommend that the Director of the Departmental Enforcement Center pursue civil and administrative remedies, as appropriate, against the owners of Dolores Frances.

• HUD Audit 2016-LA-1008, August 2016