Finding Text
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 2025, the Home received an equity contribution in the amount of $3,400,000 conveying 12.6% equity to the affiliate along with a loan in the amount of $750,000 from an affiliate without obtaining prior HUD approval. Management informed us that the funds received from these transactions were obtained as a prudent business decision to alleviate cash flow constraints. The funds were necessary to support ongoing operations as well as financing renovations to the property that facilitated its ability to expand services and provide for enhanced revenue generation. Criteria: The HUD regulatory agreement states the borrower shall not encumber the mortgaged property or enter into any contract, agreement or arrangement to borrow funds or finance any purchase or incur any liability, direct or contingent, other than in accordance with the loan documents without prior written approval of HUD. Cause: The Home continued to experience cash flow challenges, requiring a prudent business decision to obtain financing through loans and equity contributions without obtaining prior HUD authorization. Effect: Failure to obtain written approval from HUD constitutes noncompliance with the HUD regulatory agreement. Recommendation: We recommend management adheres 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 executed these transactions as a prudent business decision to meet operating expenses and improve the facility to promote enhanced revenue generation.