We audited Saltillo Assisted Living (project), an assisted living facility located in Saltillo, MS, based on a referral from the U.S. Department of Housing and Urban Development’s (HUD) Departmental Enforcement Center and activities included in our 2015 annual audit plan. Our audit objective was to determine whether the members and operator of Saltillo Assisted Living complied with the executed regulatory agreement and HUD’s requirements.
The member, managing member, and operator did not comply with the executed regulatory agreement and HUD’s requirements. Specifically, in managing and operating the project, the members or operator did not (1) follow the regulatory agreement by taking and using more than $246,000 in distributions and ineligible and unreasonable project expenses, (2) ensure that project expenses totaling more than $865,000 were properly supported, (3) submit audited financial statements as required, (4) maintain the project in good repair and condition, (5) obtain HUD’s approval for leasing the project, and (6) maintain books and records in reasonable condition for proper audit. These conditions occurred because the members and operator did not implement adequate controls and lacked appropriate experience and the member was unavailable to ensure compliance with the regulatory agreement and HUD’s requirements. As a result, the project lacked financial viability, HUD incurred a net loss of more than $1.5 million, and HUD lacked assurance that program requirements were met.
We recommend that the Director of the Office of Residential Care Facilities require the members to reimburse HUD’s FHA insurance fund for more than $246,000 in ineligible and unreasonable costs and provide support for or reimburse more than $865,000 in unsupported costs. We also recommend that HUD’s Office of Program Enforcement pursue double damages against the responsible parties for the ineligible distributions, unreasonable, and unsupported disbursements that violated the project’s regulatory agreement. Further, we recommend that the Director of HUD’s Departmental Enforcement Center pursue civil money penalties, administrative action, and monetary sanctions against the responsible parties as applicable.