Opinion ID: 754135
Heading Depth: 2
Heading Rank: 3

Heading: Auditors' Findings

Text: 10 When Goldenberg issued its final 1994 year-end report, it opined that plaintiff was responsible for material instances of noncompliance with HUD regulations. While a number of findings were made, four are relevant to the issues on this appeal. 11 First, Goldenberg discovered that NCAS caused Academy to overpay Noral Security Systems by $179,493 for hours of work that were never performed. Second, Academy paid $26,045 in interest that Noral Security Systems had accumulated on a sales tax deficiency. Third, both Academy and Buckingham paid plaintiff funds in excess of allowable expenses for management fees, payroll and payroll taxes. Fourth, Buckingham paid plaintiff certain management fees prematurely because they were based on anticipated, as opposed to actual, rent collections. The nature of the Goldenberg report prompted the New York City Housing Development Corporation to initiate its own investigation, which uncovered similar wrongdoings. Plaintiff does not deny that it engaged in this questionable conduct. In response to the findings, plaintiff prepared a corrective action plan. 12 Subsequent to Goldenberg's audit, Deloitte in April 1995 reviewed certain books and records of plaintiff's identity-of-interest companies that had provided services to Academy and Buckingham. The magistrate judge observed that the type of review Deloitte performed was more detailed than the scope of an audit involving financial statements, because Deloitte focused on books, records and source documentation. In addition, the trial court found the resulting report was prepared in good faith and in accordance with generally accepted accounting principles, as well as with HUD regulations. 13 Listed below are Deloitte's findings with respect to Academy's funds, which we set forth in full because they are critical to resolving the issues raised before us. Some mirror those set forth in the Goldenberg report. 14 1) Academy overpaid Noral Security Systems for hours of work that were never performed. For the years 1991, 1993, and 1994, the amount totalled $265,724. 15 2) Academy funds were used to pay the interest that had accumulated on Noral Security System's sales tax deficiency, in the amount of $26,045. 16 3) Academy paid improper bonuses to employees of Noral Security Systems, NCAS (as management agent), and other non-partnership employees. 17 4) NCAS improperly calculated its management fee. 18 5) NCAS deposited partnership funds in its payroll account.6) NCAS passed to the partnership properties the payroll tax penalties that it owed. 19 7) NCAS used partnership property funds to pay for professional services for which it was liable. 20 8) NCAS used partnership property funds to pay for civil penalties that it had incurred. 21 Plaintiff misused Buckingham property in much the same way, in addition to collecting on its management fee a total of $12,000 more than it was entitled to and causing Buckingham to make a double payment to Durable Painting Corporation. On a final note, Deloitte concluded that the partnerships were overcharged for services provided by Noral Security Systems, Durable Painting, and Alpha Plumbing and Heating.