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New York City Comptroller William C. Thompson, Jr. today released an audit that revealed that the Department of Housing Preservation and Development (HPD) has not monitored and supervised the award, transfer, and succession of apartments at Mitchell-Lama developments well enough to assure that improprieties have not been occurring.

“I asked my auditors to undertake this audit due to allegations of irregularities and improprieties in the award and tenancy of Mitchell-Lama apartments,” Thompson said. “It’s unfortunate that HPD’s lax supervision has raised doubts about the integrity of the process of awarding these apartments. Mitchell-Lama apartments are in great demand, especially as their numbers continue to dwindle in the City, and it is unacceptable that HPD is not properly supervising these developments and may not be detecting irregularities in the awarding and tenancy of these apartments.”

Created in 1955, the Mitchell-Lama program provides affordable rental and limited-equity cooperative apartments to moderate-and middle-income families. Under the program, private developers received tax exemptions and government-financed, low-interest mortgages in exchange for agreeing to build affordable housing with below-market-value rents and purchase prices. As of August 2007, there were 107 City-sponsored, rental and cooperative Mitchell-Lama developments in New York City comprising approximately 47,000 apartment units. HPD is responsible for regulating and overseeing these Mitchell-Lama developments.

The HPD Division of Housing Supervision is directly responsible for overseeing Mitchell-Lama housing companies. Housing Supervision fully supervises the financial and property management, waiting lists, admission applicants, and related matters for 81 of the 107 City-sponsored Mitchell-Lama developments, and shares the supervision of the remaining 26 developments with the U.S. Department of Housing and Urban Development.

Thompson’s audit - which can be viewed at www.comptroller.nyc.gov – spanned calendar years 2004 through 2006, and reviewed four of the 107 Mitchell-Lama’s developments under HPD’s jurisdiction. Those developments were Chatterton Terrace, a co-op development, and Keith Plaza, a rental development, both in the Bronx; and St. Martin Tower, a co-op development, and Clinton Towers, a rental development, both in Manhattan. St. Martin Tower was selected based on complaints of alleged improprieties regarding tenant eligibility and selection.

Among the audit’s findings were:

• HPD does not maintain applicant eligibility documentation to support the review and final disposition of approved applications for Mitchell-Lama apartments. Therefore, HPD is unable to demonstrate through its records that only qualified applicants were approved or awarded apartments. A review of waiting lists and tenant files at Keith Plaza, Chatterton Terrace and Clinton Towers provided reasonable assurance that the 61 applicants approved and awarded apartments were appropriately selected. However, auditors were unable to verify whether the 12 approved applications for St. Martin Tower were appropriately awarded as neither HPD nor the housing company maintained sufficient documentation to conduct such a review.

• A review of available vacancy reports, waiting lists, and rent rolls submitted by three of the four housing companies disclosed that neither Housing Supervision’s Applications Unit or Audit Unit periodically evaluate and analyze the submitted documentation as part of their routine oversight and monitoring activities of the granting of Mitchell-Lama apartments and continued eligibility of current tenants.

• Housing Supervision’s Audit Unit lacks a formal, risk-based approach to developing its audit plan and does not perform application audits of housing companies on a cyclical basis or with sufficient frequency to determine whether housing companies consistently comply with Mitchell-Lama Rules.

• Housing Supervision does not ensure that all reported audit deficiencies are promptly resolved (corrected or investigated). A review of the deficiencies cited in audits for Clinton Towers, St. Martin Tower and Keith Plaza disclosed that 20 percent of the reported deficiencies were not satisfactorily addressed. At St. Martin’s, two of the seven unresolved cited deficiencies related to tenants’ primary residence. For one apartment auditors found strong evidence that the tenant’s primary residence was not the Mitchell-Lama apartment, including a residence in another state and a vehicle registered in and driver’s license issued by that state. Another tenant also had an out-of-state address. HPD informed auditors that if the tenants had not used their apartments appropriately in the past that legal action would be brought against them.

• Housing Supervision does not have a formal system to log the receipt of complaints and track their assignment and subsequent resolution. Despite being cited for this very weakness in two prior external audits, first in City Comptroller’s audit report issued May 30, 2000, and again in the State Comptroller’s audit report issued August 29, 2005, Housing Supervision has not implemented a system to log and track complaints. Without a formal system, Housing Supervision is hindered in its ability to use tenant complaints as a tool to gauge housing companies’ compliance, significantly increasing the potential for irregularities and improprieties to occur and go undetected in the granting and succession of Mitchell-Lama apartments.

• HPD lacks formal, written policies and procedures to comprehensively address and establish standards for all aspects of the agency’s monitoring and supervision activities of Mitchell-Lama housing companies. The same weakness was cited in the previous City and State Comptroller reports.

“Housing Supervision’s lack of formal written policies and procedures is a chronic, internal control weakness that management has ignored for a number of years,” Thompson wrote in his report.

In his audit, Comptroller Thompson made 15 recommendations. He asked that HPD:

• Require the retention of the application review checklist used in the approval or rejection determination and any other income and occupancy eligibility documentation deemed necessary. If the lack of storage space is a matter of concern, HPD should consider electronically imaging and archiving the documentation to alleviate such difficulties.

• Require the periodic review, evaluation, and comparison of vacancy reports, waiting lists, and rent rolls as part of its routine oversight and monitoring activities to identify and address inaccuracies and deficiencies and investigate any reported discrepancies pertaining to the award, transfer, and succession of Mitchell-Lama apartments.

• Implement a formal audit cycle requiring that each housing company be audited at least once every cycle.

• Design and implement a formal risk-identification methodology and indicators to assess and manage the risk of housing companies’ noncompliance with Mitchell-Lama Rules governing the award and occupancy of apartments. These measures and indicators should be used to develop the Audit Unit’s annual audit plan.

• Implement a system to log, track and monitor tenant complaints about Mitchell-Lama housing companies and the resolution of those complaints. The system should enable Housing Supervision to categorize complaints by type (application, safety, repair, heat, etc.) and evaluate the complaints to identify the frequency of complaint types and the housing companies against which the complaints are made. This information also should be used by both the Audit Unit and the Operations Unit to supplement their monitoring and supervision activities.

In response to the audit, HPD generally agreed with ten recommendations, partially agreed with one, and generally disagreed with four. HPD minimized the audit’s overall finding that its monitoring and supervision of the award, transfer, succession and subsequent retention of apartments of Mitchell-Lama developments does not provide sufficient assurance that housing companies comply with Mitchell-Lama Rules, resulting in greater than reasonable risk that improprieties and irregularities in granting and occupancy of apartments at Mitchell-Lama developments could occur and go undetected and uncorrected.

“We are pleased that HPD recognizes the opportunities for and has agreed to make improvements to its oversight and monitoring activities over the award, transfer and succession of Mitchell-Lama apartments,” Thompson said.

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