Finding Text
Finding 2023-001
Program: U.S. Department of Housing and Urban Development (HUD) Mortgage Insurance - Nursing Homes, Intermediate Care Facilities, Board and Care Homes, and Assisted Living Facilities (Section 232) Assistance Listing #14.129.
Condition: During 2023, the Home received a related-party loan without obtaining prior HUD approval.
Criteria: The HUD regulatory agreement states there shall not be an encumbrance of
any of the mortgaged property without prior written approval of HUD.
Context: During testing of debt, it was noted that the Home entered into a loan agreement with a related party.
Cause: The Home experienced decreased occupancy, increased labor, benefits, and supply expenditures as a lingering impact of the COVID-19 pandemic. It utilized the U.S. Small Business Administration loan as a means to cover operating expenses.
Effect: Failure to obtain written approval from HUD constitutes noncompliance with the HUD regulatory agreement. Gross amounts loaned from the related party amounted to $500,000 during 2023.
Recommendation: Adhere to the HUD regulatory agreement in relation to obtaining prior written approval from HUD before encumbering the Project.
Views of Responsible
Official of the Auditee: The Home obtained the related party loan as a prudent business decision to meet operating expenses.