oversight

University Forest Nursing Care Center University City, Missouri (FHA # 085-43064)

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-11-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

Telephone: (913) 551-5870            www.hudoig.gov                          Fax: (913) 551-5877




                                             U.S. Department of Housing and Urban Development
                                             Office of Inspector General for Audit
                                             Great Plains Region, 7AGA
                                             Gateway Tower II - 5th Floor
                                             400 State Avenue
                                             Kansas City, Kansas 66101-2406




                                                      MEMORANDUM NO: 2003-KC-1801

November 14, 2002

MEMORANDUM FOR: Charles Hester, Director, St. Louis Multifamily Program
                  Center, 7EHM
                Jon Gant, Director, Departmental Enforcement Center, CV



FROM: Roger E. Niesen, Regional Inspector General for Audit, 7AGA

SUBJECT: University Forest Nursing Care Center
         University City, Missouri
         (FHA # 085-43064)


                                   INTRODUCTION

We have completed a review of the University Forest Nursing Care Center. The review
was initiated as a result of our local audit planning and concerns raised by the St. Louis
Multi-Family Program Center on a project related to University Forest. Our objective was
to determine if University Forest Nursing Care Center Inc. complied with the provisions of
its Regulatory Agreement with HUD. Specifically, our concerns related to potential equity
skimming from University Forest by the owner and the management agent and the
eligibility of the expenses incurred by University Forest.

We identified significant violations of University Forest’s Regulatory Agreement involving
unauthorized payments and unnecessary expenses. During our review we actively
coordinated our efforts with HUD’s Office of Housing and Office of General Counsel to
resolve these violations. While our review was in progress and HUD was actively pursuing
corrective actions, the owner sold the project.

We recommend that the St. Louis Multi-Family Program Center ensure that the project’s
mortgage insurance is terminated and the Enforcement Center take appropriate
administrative actions against University Forest’s president and chairman of the board,
members of the board, and the management agent for their noncompliance with HUD’s
requirements and the Regulatory Agreement.
 Telephone: (913) 551-5870                http://www.hud.gov/oig/oigindex.html   Fax: (913) 551-5877




                                   METHODOLOGY AND SCOPE

In completing this review, we interviewed the management agent, appropriate HUD and
General Motors Acceptance Corporation staff, and researched Lexis Nexis and St. Louis
County Recorder of Deeds files to obtain background information on the owner, officers,
management agent and project. We also analyzed the following documentation to
determine if project officials complied with the Regulatory Agreement:

                 ·     St. Louis Multi-Family Program Center files and records
                 ·     University Forest’s management agent’s files
                 ·     Bank statements and disbursement journals
                 ·     Cancelled checks, deposit and wire transfer documents
                 ·     Corporate minutes
                 ·     General Motors Acceptance Corporation files
                 ·     Enforcement Center’s Team Report
                 ·     Resident Trust Fund

In addition, we reviewed the project’s year-end financial statements for the periods ended
December 31, 1996 through December 31, 1999.

Our review covered the period January 1, 1996 through December 31, 1999. We extended
the review period to include activity occurring in 2000.


                                             BACKGROUND

On September 25, 1995, the Department of Housing and Urban Development insured,
under the 232 program, a $4,784,000 mortgage for University Forest Nursing Care Center.
University Forest is a 120-bed nursing home located in University City, Missouri.
University Forest Nursing Care Center Inc., a not-for-profit corporation, owns the facility.
The owner defaulted on August 1, 2002. Then, on October 8, 2002, the owner sold the
project and fully satisfied HUD’s insured mortgage.

University Forest contracted with MuniCorp Medical Management Services, Inc. for
management of the Nursing Care facility. University Forest’s president and chairman of
the board’s son owns MuniCorp Medical Management Services.


                                       RESULTS OF REVIEW

We found that the corporation, president and chairman of the board, members of the board,
and the management agent were responsible for using approximately $2.4 million of
project funds for unauthorized compensation and unnecessary operating expenses.
Specifically, they used the following project funds in the manner indicated without HUD
approval:
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 Telephone: (913) 551-5870                  http://www.hud.gov/oig/oigindex.html        Fax: (913) 551-5877




                      ·      The corporation incurred a $592,816 premium to call the 1989 series
                             revenue bonds when the nursing home was refinanced in September of
                             1995. This was treated as an extraordinary loss affecting cash on the
                             financial statements.

                      ·      The president and chairman of the board received a total of $679,953 in
                             unauthorized salary, fees and contractual payments.

                      ·      The directors (excluding the chairman) were paid $44,534 in salary and
                             fees.

                      ·      The management agent incurred $143,495 in costs associated with an
                             unsuccessful attempt to obtain a 241 Supplemental Loan for a Sub-
                             Acute Care addition to the project. In addition, the management agent
                             misappropriated $983,095 for expenses that benefited the Management
                             Agent’s related entities.

University Forest Nursing Care Center Inc., as a not-for-profit corporation, is prohibited
from taking distributions from the project. Any surplus cash goes to Residual Receipts and
withdrawal of funds from Residual Receipts requires prior written approval from HUD. A
Regulatory Agreement dated September 25, 1995 and signed by the president and chairman
of the board governs the operation of the project. The provisions of this agreement prohibit
any disbursements to any of its officers, directors or shareholders without prior approval of
the Secretary. These provisions also prohibit disbursing any funds except for usual
operating expenses and necessary repairs.

These improper expenditures were caused by the project officials not adhering to HUD’s
Regulatory Agreement. As a result, these acts increased the risk to HUD’s mortgage
insurance fund and depleted funds needed to provide services and care to residents. HUD
needs to take appropriate action to protect the insurance fund from future transactions by
these project officials. On May 9, 2001, we provided HUD’s Office of General Counsel
information that should assist management in taking administrative actions.

The Multifamily Housing Program Center of the HUD St. Louis Area Office and the
Kansas City Office of General Counsel with OIG’s assistance coordinated a diligent pursuit
of these violations in an attempt to enforce the agreement and obtain reimbursement of
diverted project funds. During the course of our review we provided draft summaries and
discussed discrepancies we found so that HUD’s program office and General Counsel
could pursue corrective actions. Subsequently, the owner sold the project on October 8,
2002 and fully satisfied the mortgage. Because of this sale HUD not only avoided a
$4,784,000 claim to HUD’s insurance fund, but also civil litigation costs associated with
pursuing potential equity skimming issues under Title 12 U. S. Code Section 1715z-4a.



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 Telephone: (913) 551-5870           http://www.hud.gov/oig/oigindex.html     Fax: (913) 551-5877




                                   RECOMMENDATIONS

We recommend that the Director, St. Louis Multifamily Program Center:

           1A. Ensure the project’s mortgage insurance is terminated.

We recommend that the Director, Departmental Enforcement Center:

           1B. Take debarment action against University Forest Nursing Care Center Inc.’s
               president and chairman of the board of directors, members of the board, and
               the management agent from participating in HUD programs.




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Telephone: (913) 551-5870                www.hudoig.gov                       Fax: (913) 551-5877


                                                                                   Appendix A

     SCHEDULE OF QUESTIONED COSTS AND FUNDS
                PUT TO BETTER USE

Recommendation                         Type of Questioned Cost                Funds Put to
   Number                       Ineligible 1/         Unsupported 2/          Better Use 3/

1A                                                                            $4,784,000

1/       Ineligible costs are costs charged to a HUD-financed or HUD-insured program or
         activity that the auditor believes are not allowable by law, contract or Federal, State
         or local policies or regulations.

2/       Unsupported costs are costs charged to a HUD-financed or HUD-insured program
         or activity and eligibility cannot be determined at the time of audit. The costs are
         not supported by adequate documentation or there is a need for a legal or
         administrative determination on the eligibility of the costs. Unsupported costs
         require a future decision by HUD program officials. This decision, in addition to
         obtaining supporting documentation, might involve a legal interpretation or
         clarification of Departmental policies and procedures.

3/       Funds Put to Better Use are costs that will not be expended in the future if our
         recommendations are implemented. (Funds Put to Better Use include: Costs not
         incurred, de-obligation of funds, Withdrawal of Interest, Reductions in Outlays
         Avoidance of Unnecessary Expenditures, Loans and Guarantees not Made, and
         Other Savings (see DAAMS user’s manual Appendix D-73 for definitions)




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Telephone: (913) 551-5870        www.hudoig.gov                   Fax: (913) 551-5877


                                                                       Appendix B

                    DISTRIBUTION OUTSIDE OF HUD
Chairman, Committee of Government Affairs
 (senator_lieberman@lieberman.senate.gov)
Ranking Member, Committee of Governmental Affairs
 (senator_thompson@thompson.senate.gov)
Senior Advisor, Subcommittee of Criminal Justice, Drug Policy & Human Resources
 (sharon.pinkerton@mail.house.gov)
House Committee on Financial Services
 (andy.cochran@mail.house.gov)
Senior Counsel, Committee on Financial Services
 (clinton.jones@mail.house.gov)
Committee on Financial Services
 (kay.gibbs@mail.house.gov)
Director, Housing and Telecommunications Issues, U.S. GAO
 (czerwinskiS@GAO.GOV)
Chief Housing Branch, Office of Management and Budget
 (fredburn@omb.eop.gov)
Department of Veterans Affairs, Office of Inspector General
 (linda.halliday@mail.va.gov)
Assistant Inspector General for Health Care Financing Audits
 (meddo@os.dhhs.gov)
Chairman, Committee of Government Reform, 2185 Rayburn Building, House of
 Representatives, Washington, DC 20515
Ranking Member, Committee on Government Reform, 2204 Rayburn Building, House of
 Representatives, Washington, DC 20515




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