The Department of Housing & Urban Development (HUD) recently sent a series of emails and published newsletters issuing announcements regarding restrictions on the distribution of project assets. The announcements were sent at the request of the HUD Office of Inspector General (OIG) based on the results of recent OIG audits that showed a pattern of improper asset disbursement. Following is an example of the language used in the HUD email:
“This email is intended to remind all project owners of their responsibility to know HUD’s restrictions concerning the distribution of project assets. It is being sent at the request of the Office of the Inspector General based on the results of a recently conducted audit of Multifamily Housing projects.
This knowledge is critically important because Owners who make or take distributions from project funds in violation of their business agreements with HUD may be subject to both civil and criminal penalties, as well as administrative sanctions, such as debarment from participating in federal programs.
HUD defines a distribution as any withdrawal or taking of cash or any assets of a project other than for the payment of reasonable expenses necessary to the operation and maintenance of the project.
Examples of distributions include, but are not limited to, the disbursement of project assets as payments to the project’s owning entity or its members, partners, or shareholders; the disbursement of project cash in payment of non-project (entity) expenses; the taking of project property (supplies or fixed assets) from the project for non-project purposes; the disbursement of project assets as loans to other entities; and the disbursement of project assets as repayments on outstanding owner advances.
The specific restrictions regarding distributions from your project are identified in your business agreements with HUD.
Additional requirements may also be found in HUD’s Multifamily Housing Handbooks and Notices, which are updated periodically and are available on-line at Hud.gov. Please take this opportunity to familiarize yourself with those restrictions, if any, and ensure that they are fully incorporated into your system of internal controls. Your auditor, if you have one, should be able to assist you in this regard”.
If you should have any questions about your particular business agreements, you should contact your local HUD office.