Finding Text
Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: Mortgage Insurance ? Nursing Homes, Intermediate Care Facilities, Board and Care Homes and Assisted Living Facilities Assistance Listing Number: 14.129 Federal Award Identification Number and Year: N/A Award Period: N/A Type of Finding: Compliance and Material Weakness in Internal Control over Compliance Criteria or Specific Requirement: Paragraph 4(b) of the HUD regulatory agreement prohibits loans or advances to affiliated entities without HUD authorization. Condition: The project made unauthorized transfers of funds to a related party, which are considered loans or advances without HUD approval. The advances reduced funds available to the Organization to carry on its operations. Questioned Costs: $1,724,732 Context: The project made advances to a related party that was experiencing recuring losses from operations and persistence shortages of working capital and was in need of assistance to maintain its operations to avoid a significant disruption in the services it provides to its residents. Cause: Management deemed the transfer to be a necessary last resort to assist a related party organization to sustain its operations for a limited amount of time. Effect: The Project is not in compliance with the regulatory agreement regarding adherence to the transferring of funds between entities in the consolidated group. Repeat Finding: Yes. Recommendation: We recommend that the Project work with their Regional HUD representative to discuss the unauthorized loan to result in either approval or a plan for resolution. Views of Responsible Officials: There is no disagreement with the audit finding. The unauthorized loan was due to an increasing intercompany balance due from an affiliated nursing home (?Bethesda?) who was losing money and unable to reimburse Norwood Crossing (the Project). Due to continued losses, Management realized this issue was unable to be resolved without disposing of Bethesda. The sale of Bethesda Home was set to be completed in 2022, but was delayed numerous times due to serious issues. The actual sale date occurred on July 1, 2023. The audit finding for the unauthorized intercompany loan was for $1,724,732. However, the intercompany balance continued to grow in 2023 and had an additional $574,584 of expenses that built up in 2023 before the sale occurred. This made a grand total of $2,299,316 that needed to be repaid from Bethesda to the Project for the unauthorized intercompany loans through the sale date. Bethesda tried the best it could and repaid $1,025,000 in May 2023 prior to the completion of the sale. In mid-July 2023 after the sale was finalized, the remaining intercompany balance of $1,274,316 was repaid in full to the Project.