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The U.S. Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) reviewed concerns from a complaint within HUD regarding the physical condition of HUD-insured residential care facilities (RCF).  This review is part of an ongoing effort of the Office of Inspector General (OIG).  At least 10 RCFs had received a score below 31 out of a possible 100 on their most recent Real Estate Assessment Center (REAC) inspection performed between June 2016 and March 2017.  The low REAC inspection scores suggested that the physical condition of the facilities was unsatisfactory.  This management alert is the second in a series of memorandums and reports to be issued highlighting the findings of OIG reviews of the Section 232 program.  The Office of Evaluation issued report 2017-OE-0111, The Office of Residential Care Facilities’ Use of Real Estate Assessment Scores, on September 15, 2017.

HUD failed to monitor the physical condition of RCFs in its portfolio to ensure sustainable properties for the life of the HUD-insured mortgage.  HUD’s failure was demonstrated by its not verifying that exigent health and safety violations were mitigated and required repairs were made to the facilities. Additionally, even though roof deficiencies are potentially devastating to the physical condition of properties, the REAC inspectors were not required to access the roof when a permanent means of access was not available.  Further, HUD did not ensure that the routine inspection schedule was followed and had allowed Skilled Nursing Facilities (SNF) to be exempt from REAC physical inspections.  We also found that the REAC inspection scores did not accurately reflect the physical condition of the facilities and could not be used to compare the facilities.

We recommended that the Director of HUD’s Office of Residential Care Facilities implement procedures to ensure that deficiencies identified during the REAC inspections have been corrected, ensure that timely physical condition inspections of all Section 232 program facilities are performed, and reimplement the REAC physical condition inspections for the SNFs that were exempted from routine physical inspections.  We also recommended that the Deputy Assistant Secretary for the Real Estate Assessment Center develop and implement an inspection process for the Section 232 program that better reflects those properties’ physical conditions, and ensure that all areas of the properties are inspected, including the roofs and all buildings located on the property that is insured by HUD.