By Cindy Lusk
HUD’S MISSION AND PURPOSE
The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides a variety of programs to the healthcare industry, including mortgages and other assistance. Section 232, Section 223(f) and Section 223(a)(7) provide insured mortgages to finance, rehabilitate or refinance nursing homes, intermediate care, board and care or assisted-living facilities. Section 232 applies to the new construction or substantial rehabilitation of nursing homes, intermediate care, board and care, and assisted living facilities. Section 223(f) provides for the purchase or refinance of existing facilities. Section 223(a)(7) also provides for the refinance of existing facilities.
Participants in HUD programs are required to comply with certain regulations, which vary based on the type of program and are outlined in either a regulatory agreement or other contract with HUD. Project owners are responsible for understanding and complying with the applicable regulations.
Some common compliance requirements for long-term care providers participating in HUD programs include:
- Fair housing and nondiscrimination rules
- Timely payments of mortgage and escrow deposits
- Authorization for disbursements from the reserve for replacements
- Distributions to owners made in accordance with HUD surplus cash requirements
- Proper use of cash disbursements
- HUD approval of the owner and management agent
- Appropriate insurance coverage
- Maintenance of property in good condition
- Authorization for changes in ownership or acquisition of liabilities
- Lease payments for leased nursing homes sufficient to cover debt service, escrow and reserve requirements
COMMON COMPLIANCE DEFICIENCIES
The HUD Office of Inspector General frequently communicates common problems found in OIG audits of multi-family entities including:
- Unallowable costs charged to projects
- Many projects operated by same entity with all indirect costs charged to one project
- Unsupportable cost distributions
- Owner withdrawals in excess of "surplus cash" position
- "Surplus cash" taken was not at end of semiannual or annual fiscal period
- Funds were withdrawn or used by owner and replaced during reporting period
- Unauthorized disbursements from reserve for replacement account
- Payments with no supporting documentation
- Funds improperly loaned to related entities
- No established minimum accounting records
- Financial activities of owner commingled in accounting records
- Management fees paid in excess of HUD approval
- Equity skimming
Chapter 1 of the Consolidated Audit Guide for Audits of HUD Programs states that the objectives of audited financial statements are to assist HUD program managers in determining whether an auditee, or project, has provided financial data and reports that can be relied upon, has internal controls in place to provide reasonable assurance that it is managing HUD programs in compliance with applicable laws and regulations, and has complied with terms and conditions of Federal awards and guarantees, and thus expended Federal funds properly and with supporting documentation.
Typically, projects that obtain HUD assistance are required to submit audited financial statements to HUD within 90 days of year end. There are certain exceptions to the audit requirement for projects of certain nonprofit organizations with $500,000 or less in federal awards and "small projects" as defined in Housing Notice H 99-9.
PENALTIES FOR NON-COMPLIANCE
Chapter 7 of HUD’s Management Agent Handbook (handbook number 4381.5) details HUD’s authority to enforce compliance, the major types of violations, available sanctions, the procedures to follow when a violation occurs and additional enforcement actions that can be taken. Some of the civil penalties detailed by the handbook include removal of the agent, penalties of up to $25,000, a penalty up to double the value of the assets and income that the court determines was used in violation of the regulations, or referral to the Attorney General with a recommendation for civil action. The handbook also provides for criminal penalties, which may include a fine up to $250,000 or imprisonment up to five years. These penalties are dependent on the type and severity of the violation. Property owners and management agents should be knowledgeable about HUD rules and regulations to ensure program compliance.
HOW DECOSIMO CAN HELP
Decosimo performs HUD audits to assist you in meeting your compliance requirements. The firm is a member of the AICPA Center for Audit Quality, Affordable Housing Association of Certified Public Accountants (AHACPA) and the AICPA Governmental Audit Quality Center (GAQC). Contact our healthcare leadership team for more information.