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September 30, 2017
  • Housing
2017-CH-1009
2017-CH-1009.pdf

We audited Mary Scott Nursing Center (project) based on our analysis of risk factors related to the U.S. Department of Housing and Urban Development’s (HUD) multifamily nursing projects in Region 5’s jurisdiction (States of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin).  The audit was part of the activities in our fiscal year 2017 annual audit plan.  Our objective was to determine whether the project’s owner and management agents operated the project in accordance with HUD’s requirements and the regulatory agreement.

The owner and management agents used project funds for ineligible expenses and did not provide sufficient documentation to support that project funds were used for eligible, reasonable operating expenses or necessary repairs of the project.  Further, the owner and management agents (1) did not ensure that rental revenue was collected for the residents, (2) could not provide sufficient documentation to support that the owner received market value for the sale of the operating rights for 10 licensed beds, and (3) were unable to provide documentation to support that the owner received approval from HUD before entering into agreements with the management agents.  In addition, the owner did not make payments on the project’s mortgage in a timely manner.  As a result, nearly $550,000 in project funds was not available for reasonable or necessary project operations and debt service, HUD and the owner lacked assurance that nearly $261,000 in project funds was used for eligible, reasonable operating expenses or necessary repairs of the project, and the owner did not receive nearly $391,000 in rental revenue.  Further, HUD is at risk of paying a claim of nearly $1.6 million on the mortgage.

We recommend that HUD require the owner to (1) reimburse the project from nonproject funds for inappropriate disbursements and disposal of resident charges, (2) support disbursements or reimburse the project from nonproject funds, and (3) implement adequate procedures and controls to address the weaknesses cited in this audit report.  We also recommend that HUD work with the owner to develop an action plan to prevent a claim on the mortgage.

Recommendations
Recommendation Status Date Issued Summary
2017-CH-1009-001-A Closed September 30, 2017 Reimburse the project from nonproject funds for the $542,443 in disbursements from the project’s general operating fund account that was not used for reasonable operating expenses or necessary repairs of the project.
2017-CH-1009-001-B Closed September 30, 2017 Reimburse the State from nonproject funds for the additional $384,772 in Medicaid overpayments.
2017-CH-1009-001-C Closed September 30, 2017 Support or reimburse the project from nonproject funds for the $189,524, as appropriate, in disbursements from the project’s general operating fund account without sufficient documentation showing that the disbursements were for reasonable operating expenses of the project.
2017-CH-1009-001-D Closed September 30, 2017 Support or reimburse the project from nonproject funds for the $20,000 value of the project’s van, which was transferred without sufficient documentation showing that the transfer was for reasonable operating expenses.
2017-CH-1009-001-E Closed September 30, 2017 Support or reimburse the project from nonproject funds for the $51,261, as appropriated, in credit card purchases without sufficient documentation showing that the purchases were for reasonable operating expenses or necessary repairs of the project.
2017-CH-1009-001-F Closed September 30, 2017 Reimburse the project from nonproject funds for the $2,020 in credit card purchases that was not used for reasonable operating expenses of the project.
2017-CH-1009-001-G Closed September 30, 2017 Reimburse the project from nonproject funds for the $5,302 in petty cash expenditures that was not used for reasonable operating expenses of the project.
2017-CH-1009-001-H Closed September 30, 2017 Pay the project from nonproject funds for the $390,583 in uncollected rental revenue.
2017-CH-1009-001-I Closed September 30, 2017 Determine the market value of the operating rights for the 10 licensed beds sold in April 2015. If the licensed beds were sold for less than market value, the owner should reimburse the project from nonproject funds for the difference between the market value and the $150,000 sales price of the operating rights for the 10 licensed beds.
2017-CH-1009-001-J Closed September 30, 2017 Implement adequate procedures and controls to ensure that it (1) uses project funds for reasonable operating expenses or necessary repairs of the project, (2) obtains HUD approval before disposing of the project’s assets, (3) receives market value for the sale of licensed beds, (4) obtains HUD approval for the entities selected to manage the project before entering into management agent agreements with the entities, (5) properly completes Medicaid applications, and (6) makes timely mortgage payments to prevent a $1,591,849 claim to HUD on the mortgage.
2017-CH-1009-001-K Closed September 30, 2017 Work with the project’s owner and Greystone for the owner to develop an action plan to bring the owner current on the project’s mortgage, reserve for replacements, and taxes and insurance to prevent a claim to HUD on the mortgage.