oversight

Mount Saint Francis Heath Center Federal Housing Administration Loan Number 016-43077, Woonsocket, Rhode Island

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-03-03.

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

             AUDIT REPORT




          Mount Saint Francis Health Center
Federal Housing Administration Loan Number 016-43077
              Woonsocket, Rhode Island

                   2006-BO-1004

                   March 3, 2006




              OFFICE OF AUDIT, REGION 1
                  Boston, Massachusetts
                                                                   Issue Date
                                                                            March 3, 2006

                                                                   Audit Report Number
                                                                            2006-BO-1004




TO:            Ellen R. Connolly, Director of Boston Multifamily Housing Hub, 1 AHMLA
               Margarita Maisonet, Acting Director, Departmental Enforcement Center, CV


FROM:          John A. Dvorak, Regional Inspector General for Audit, 1AGA


SUBJECT:       Mount Saint Francis Health Center
               Federal Housing Administration Loan Number 016-43077
               Woonsocket, Rhode Island

We audited Mount Saint Francis Health Center (project), located in Woonsocket, Rhode Island, to
determine whether the owner complied with its U.S. Department of Housing and Urban
Development (HUD) regulatory agreement and other applicable laws and regulations.

We identified $4,402,305 in questionable cash disbursements and accrued expenses made by the
project. We found that (1) under the direction of the owner and the identity-of-interest management
agent, the project made questionable cash disbursements of $1,646,669 and accrued questionable
expenses of $192,487 while in a non-surplus-cash position, and (2) The owner and identity-of-
interest management agent billed $1,162,150 and $1,288,745, respectively, for services not
provided (unsupported). In addition, the general manager of the management agent received a
salary as the assistant administrator of the nursing home for a total of $112,254 in unnecessary
expenses.

In accordance with HUD Handbook 2000.06, REV-3, within 60 days, please provide us, for each
recommendation without a management decision, a status report on (1) the corrective action taken,
(2) the proposed corrective action and the date to be completed, or (3) why action is considered
unnecessary. Additional status reports are required at 90 days and 120 days after report issuance for
any recommendation without a management decision. Also, please furnish us copies of any
correspondence or directives issued because of the audit.

Should you or your staff have any questions, please contact Michael Motulski, Assistant Regional
Inspector General for Audit, at (617) 994-8380.
Executive Summary
We audited Mount Saint Francis Health Center (project), located in Woonsocket, Rhode Island.
The primary purpose of our audit was to determine whether the project operated in accordance
with the U.S. Department of Housing and Urban Development’s (HUD) regulatory agreement
and other applicable laws and regulations.



                                    We identified $4,402,305 in questionable costs incurred.
 Audit Results                      The project disbursed and accrued questionable costs for
                                    non-project-related expenses, loan repayments, partnership
                                    management fees, and unnecessary services while the
                                    project was in a non-surplus-cash position. Of the
                                    $4,402,305 in questioned costs, we classified $1,024,148 as
                                    ineligible project costs, $2,743,728 as unsupported costs,
                                    and $634,429 as unnecessary project costs (see appendix
                                    A).

                                    The owner/management agent caused the conditions
                                    identified above by failing to operate the project in
                                    accordance with HUD’s regulatory agreement and other
                                    applicable laws and regulations. The owner/management
                                    agent disregarded prudent business practices and exploited
                                    weak management controls.

                                    As a result of these disbursements and accruals, the project
                                    encountered financial problems resulting in

                                    •   Late mortgage payments,
                                    •   Lack of funds to adequately fulfill its payroll
                                        obligations, and
                                    •   Failure to pay approximately $3,741,000 in payroll
                                        taxes to the Internal Revenue Service.

                                    In addition, these actions resulted in federal tax liens on the
                                    property and generated several thousand dollars in
                                    unnecessary interest penalties and legal fees.

                                    The owner and management agent disbursed $1,646,669 in
 Disbursements and Payables         questionable expenses to identity-of-interest and non-
                                    identity-of-interest entities while the project was in a non-
                                    surplus-cash position. The project improperly disbursed
                                    $978,675 to identity-of-interest entities and $667,994 to
                                    non-identity-of-interest entities (see finding 1). We
                                    consider these disbursements to be in violation of
                                    applicable federal statutes and HUD regulations. The


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                                disbursements were not for reasonable or necessary goods
                                and services.

                                In addition, the project had accrued $192,487 in
                                questionable expenses as of December 31, 2003, for
                                services we determined to be ineligible, unsupported, or
                                unnecessary.

                                Our review disclosed that the owner and identity-of-interest
Disbursements and Payables      management agent, Sterling Health Care Management
to Owner/Identity-of-Interest   Company (Sterling), did not perform the services required
Management Agent                by their management agreements. As a result, neither the
                                owner nor Sterling earned its annual management fees.
                                Instead, project staff and consultants managed the project
                                by performing the services described in the management
                                agreements.

                                The owner was compensated at 3 percent of net patient
Owner Did Not Earn Fees         revenue for services. According to the management agent
                                profile submitted to HUD, the services provided by the
                                owner were peculiar to the project’s status as a special-
                                purpose and regulated facility. However, our review
                                determined that the services identified in the management
                                agent profile were either identical or similar to the services
                                identified in the project’s management agreement with
                                Sterling. Additionally, we determined that neither the
                                owner nor Sterling provided the services required
                                according to their management agreements. Instead, staff
                                at the project and consultants performed these services.
                                During our audit period, the owner billed the project
                                $1,162,150 in unnecessary partnership management fees.
                                We questioned $1,053,550 in payments to the owner and an
                                additional $108,600 in accrued payables (see finding 2).

                                Sterling was also compensated at 3 percent of net patient
Management Agent Did Not        revenue. It agreed to provide services (under the
Earn Fees                       management agreement) that were performed by project
                                employees or subcontracted out. The management agent
                                billed the project $1,288,745 in unnecessary management
                                fees during our audit period. We questioned $1,248,668 in
                                payments to the management agent and an additional
                                $40,077 in accrued payables (see finding 2).

                                In addition, the general manager of Sterling received
Disbursements to Assistant      $112,254 from the project as the assistant administrator of
Administrator                   the nursing home during our audit period. The duties of the
                                assistant administrator duplicated the duties of the


                                          3
                            administrator and business office manager and were similar
                            to those required of the management agent (Sterling).
                            Therefore, the assistant administrator position was not a
                            necessary and reasonable project expense according to the
                            regulatory agreement. These unnecessary payments place
                            the HUD insured mortgage at risk and threaten the project’s
                            financial viability. (See finding 2)

                            We recommend that the director, Rhode Island Multifamily
Recommendations             Program Center,

                            •   Pursue the recovery of double the amount of questionable
                                cash disbursements to identities-of-interest as stipulated
                                in 12 U.S.C. [United States Code] Sec. 1715z-4a.
                            •   Obtain from the owner justification supporting the cash
                                disbursements for unsupported costs.
                            •   Obtain from the owner adequate justification for
                                disbursements that were deemed unnecessary to the
                                nursing home.
                            •   Pursue the recovery of questionable distributions to non-
                                identities-of-interest.
                            •   Take appropriate action to prevent payment of ineligible
                                and unnecessary cash disbursements after our audit
                                period, including the payment of questionable accrued
                                payables.
                            •   Develop and implement procedures that ensure only
                                eligible expenses are paid from project funds and that
                                documentation is maintained to support the eligibility and
                                the amount of operating funds expended.
                            •   Remove the management agent in accordance with the
                                management certification and HUD regulations.
                            •   Pursue all applicable administrative sanctions against the
                                owner, management agent, and identity-of-interest
                                companies, specifically debarment.

                            We discussed the findings in this report with the
Findings and                responsible auditee officials, as well as HUD program
Recommendations Discussed   officials during the course of the audit. We provided our
                            draft audit report to the owner’s general partner on
                            November 10, 2005, requesting written comments by
                            November 28, 2005 and offered to conduct an exit
                            conference if one was desired. On November 21, 2005, we
                            received a letter from the owner’s legal counsel requesting a
                            60 day extension. We granted an extension to December 14,
                            2005 and received the auditee’s written response that day via
                            FAX through the owner’s legal counsel.


                                       4
Appropriate revisions were made to the audit report where
deemed necessary. We included a complete copy of the
auditee’s responses in appendix B of the report along with
our evaluation.




          5
Table of Contents

Management Memorandum                                                 1



Executive Summary                                                     2


Introduction                                                          7



Findings
 1. The Owner and Identity-of-Interest Management Agent Diverted
    Funds from the Project                                           11

 2. The Owner/Identity-of Interest Management Agent and Assistant
    Administrator Received and Accrued $2,563,149 for Services Not
    Provided                                                         24


Management Controls                                                  31


Appendixes
  A. Summary of Questioned Costs                                     33

  B. Auditee Comments and OIG’s Evaluation                           34




                                 6
Introduction
Mount Saint Francis Health Center (project) is a 194-unit nursing home for the elderly and disabled,
located in Woonsocket, Rhode Island. It is owned and operated by Mount St. Francis Associates,
a Rhode Island for-profit limited partnership. Under Section 232 of the National Housing Act,
the U.S. Department of Housing and Urban Development (HUD) insured a mortgage for
$6,129,900 on November 9, 1983 (Federal Housing Administration Loan Number 016-43044).

Congress established the Section 232 nursing home program in 1969. HUD’s Office of
Multifamily Housing administers the program. The program’s primary purpose is to insure
mortgages made by private lending institutions. These mortgages are used to finance
construction or renovation of nursing homes and assisted living and rest homes for the elderly.

Congress established the program to

   •   Conserve and increase the supply of nursing homes, intermediate care facilities, and
       board and care homes,
   •   Provide credit enhancement through insurance of mortgages for new or substantially
       rehabilitated projects, and
   •   Purchase or refinance existing Section 232-insured projects with or without repair

The nursing home program is unique because in many instances, there can be several parties
involved in the arrangement as follows:

   •   HUD/insurer
   •   The mortgagee/lender
   •   The mortgagor/owner of the property/borrower
   •   The operating entity/lessee/operator
   •   The management agent/manager

In addition, the owner, management agent, and operating entity may have an identity-of-interest
relationship. An identity-of-interest relationship exists when companies/partnerships are owned
and/or controlled through common ownership and/or management. For the project, an identity
of interest relationship exists among the owner, lender, management agent and companies that
provided services to the nursing home. A listing of related companies and their officers is
provided as Attachment F to this report. Identity-of-interest relationships can result in a control
structure that may not be sufficient to ensure identity-of-interest transactions are at “arms length”
and in the best interest of the project or HUD.

On November 1, 1984, the project entered into a management agreement with Health
Management Services Company. Health Management Services Company was a Rhode Island-
based management company not affiliated with the owner. Health Management Services
Company was compensated at 3 percent net patient revenue for its services. On August 17,
1993, HUD approved a project owner’s and management agent’s certification for multifamily
housing project for identity-of-interest agents, which lists the project’s general partner (owner) as
the management agent. The owner was to be compensated at 3 percent of net patient revenue for


                                                 7
services required by the special-purpose nature of the facility. This partnership management fee
was in addition to the management fee received by Health Management Services Company.

On January 1, 1995, the owner entered into a management agreement with Sterling Health Care
Management Company (Sterling), an identity-of-interest company that provided a management
fee of 3 percent of net patient revenue. Sterling replaced Health Management Services Company
as the management agent. Therefore, since January 1, 1995, the owner and identity-of-interest
related management agent have had full control over the project’s ownership, operations, and
management.

On July 13, 1995, the owner refinanced the existing HUD-insured mortgage for $8,622,900
(Federal Housing Administration Loan Number 016-43077). On July 14, 1995, the owner signed
a new regulatory agreement. The final endorsement, which occurred on July 10, 1996, reduced
the mortgage amount to $8,616,900. After payoff of the existing mortgage, the project used the
remaining proceeds to rehabilitate the project. As of December 1, 2003, the unpaid principal
balance of the mortgage was $8,359,468.

On June 22, 1999, the project received an operating loss (working capital) loan insured by HUD
for $1,103,600 (Federal Housing Administration Loan Number 016-15011). The regulatory
agreement was amended on June 22, 1999, to include the operating loss loan. Suburban
Mortgage Associates, Incorporated, an identity-of-interest company, financed and serviced both
the mortgage and operating loss loan. As of December 1, 2003, the unpaid principal balance of
the operating loss loan was $1,071,940.



                                     The overall audit objective was to determine whether the
 Audit Objectives
                                     project operated according to HUD’s regulatory agreement
                                     and other applicable laws and regulations.

                                     To accomplish the audit objectives, we
 Audit Scope and
 Methodology
                                         Reviewed federal requirements, including the Code of
                                         Federal Regulations, HUD handbooks, and civil
                                         statutes.

                                         Reviewed the project’s project files maintained by the
                                         HUD Rhode Island Multifamily Program Center;
                                         specifically, the reserve fund for replacements account;
                                         mortgage instruments; management
                                         certification/management agreement; regulatory
                                         agreement; monthly accounting reports, and
                                         independent public accountants’ reports for fiscal years
                                         ending December 31, 1999 through 2002 (2003 reports
                                         had not been prepared as of March 2004).




                                               8
Interviewed the management agent, nursing home staff,
and HUD personnel to obtain procedures for
administration, procurement, maintenance, cash
receipts, cash disbursements accounting, and computer
procedures to determine whether the project had
adequate management controls in place to operate in
accordance with the regulatory agreement.

Tested management controls relevant to the audit
through inspection, review, and analysis of documents
and records and evaluated the effects of any exceptions.

Reviewed the project’s books and records to determine
a) the reliability of information, b) the appropriateness
of disbursements, and c) the sampling methods to be
used to test payroll and disbursements for the necessity
and reasonableness of costs.

Reviewed a statistical sample of payroll errors to
determine whether payroll funds were properly used
and deducted from the employee’s net pay.

Tested a sample of transactions, within the audit period,
from the operating account for unusual and
questionable disbursements. Our sample was based on
high-dollar value and risk. Our results relate only to
those items reviewed.

Reviewed 100 percent of disbursements and accruals
related to a) identity-of-interest vendors and
individuals; b) non-identity-of-interest vendors
providing legal, audit, and accounting services; c)
vendors for renovations; and d) activity from the
reserve fund for replacements account.

Reviewed the project’s last two inspections performed
by HUD’s Real Estate Assessment Center on March 2,
2000, and May 15, 2003, and an inspection performed
by Suburban Mortgage Associates on November 11,
2000. We also conducted a walk-through inspection of
the facility on September 23, 2003, and inspected the
maintenance systems with the maintenance director on
December 30, 2003, to determine the physical condition
of the project.




       9
   Reviewed the land records for the project maintained at
   the Office of the City Clerk (Woonsocket, Rhode
   Island) for liens and discharges.

The audit was conducted on site between September 2003
and March 2004 and covered the period from January 1,
2000, to December 31, 2003. When appropriate, the audit
was extended to include other periods. We conducted our
audit in accordance with generally accepted government
auditing standards.




         10
Finding 1

The Owner and Identity-of-Interest
Management Agent Diverted Funds from the
Project
The owner and management agent of the project directed the payment of $1,646,669 in
questionable cash disbursements between January 2000 and December 2003. In addition, the
project had accrued $192,487 in questionable expenses as of December 31, 2003. The owner
and management agent diverted operating funds to identity-of-interest entities of the project and
paid for non-project-related expenses; loan repayments; and ineligible, unsupported, or
unnecessary services while the project was in a non-surplus-cash position. This constituted a
direct violation of HUD’s regulatory agreement. The owner and management agent disregarded
prudent business practices and exploited weak management controls. This misuse of funds
places the HUD-insured mortgages in jeopardy and threatens the project’s financial viability.
The owner and management agent’s actions contributed to (1) late mortgage payments, which
resulted in late fee penalties; (2) lack of funds to make payroll obligations; and (3) failure to pay
payroll taxes to the Internal Revenue Service, which resulted in approximately $3,741,000 in
federal liens being placed on the property and unnecessary interest penalties and legal fees.



                                       HUD has issued regulations governing the insurance
 Program Regulations                   programs. These regulations provide for HUD to regulate
                                       and restrict the borrower by means of a regulatory
                                       agreement as long as HUD insures the mortgage. The
                                       regulatory agreement requires that owners shall not pay out
                                       any project funds except for reasonable operating expenses
                                       and necessary project repairs. The agreement further states
                                       that the owner shall not transfer any personal property of
                                       the project without prior HUD approval.

                                       The United States Code at 12 U.S.C. Sec. 1715z-4a
                                       stipulates that HUD may recover any assets or income used
                                       by any person in violation of a regulatory agreement
                                       applicable to a multifamily project insured by HUD. For
                                       purposes of this statute, the “use of assets or income”
                                       includes any use not established by records and
                                       documentation as a reasonable or necessary operating
                                       expense of the project. For purposes of a mortgage insured
                                       under Title II of the National Housing Act, the term “any
                                       person” refers to any person or entity which owns a project,
                                       including stockholders, and any beneficial owner, officer,
                                       director, or partner of an entity owning the project. The
                                       U.S. government may recover double the value of any



                                                 11
                                         assets and income of the project that have been used in
                                         violation of the regulatory agreement, plus all related costs
                                         such as reasonable attorney and auditing fees.

                                         The owner and management agent directed disbursements
Cash Disbursements and                   of operating funds of the project in the form of loan
Accrued Payables                         repayments, payments for services that were ineligible,
                                         unsupported, and/or unnecessary. From January 2000 to
                                         December 2003, we identified a total of $1,646,669 in
                                         questionable cash disbursements while the project was in a
                                         non-surplus-cash position. Of the total $1,646,669 in
                                         questioned costs, we classified $931,849 as ineligible
                                         project costs, $288,445 as unsupported costs and $426,375
                                         as unnecessary project costs. The following chart further
                                         summarizes the questionable disbursements from the
                                         project.

                                 Summary of questionable cash disbursements
                                                                         Questioned costs                   Total
           Payees                       Disbursement
                                                                                                            paid
                                                            Ineligible   Unsupported        Unnecessary
           Consultants, Inc.             Loan/payments        $61,247           $8,000               $0     $69,247
           Consultants Associates        Loan/payments       $244,720               $0               $0    $244,720
           My Place, Inc.                Emp. relations            $0           $4,000         $268,200    $272,200
           Construction Software,
                                         Acct. services             $0          $1,200          $46,080     $47,280
           Inc.
           Hillside Health Center        Loan/payments       $104,520               $0               $0    $104,520
           Sterling                      Loan/expenses       $101,141           $8,671               $0    $109,812
           Suburban Mortgage, Inc.       Late fees            $22,326               $0               $0     $22,326
            Director of purchasing        Payroll                  $0               $0         $108,570    $108,570
                    Identity-of-interest subtotal            $533,954          $21,871         $422,850    $978,675
           Adler, Pollock & Sheehan      Legal fees           $78,536             $250               $0     $78,786
           George Babcock                Legal fees            $9,249               $0               $0      $9,249
           Chaine des Rotisseurs          Entertainment            $0               $0           $3,525      $3,525
            Lefkowitz, Garfinkel,
                                         Acct. fees                 $0       $263,832                $0    $263,832
           Champi & DeRienzo
           O. Ahlborg & Sons, Inc.       Renovations         $223,308              $0                $0     $223,308
           Various vendors               Various              $86,802          $2,492                $0      $89,294
                 Non-identity-of-interest subtotals          $397,895        $266,574            $3,525     $667,994
                             Grand total                     $931,849        $288,445          $426,375   $1,646,669



                                         In addition, as of December 31, 2003, the project had a
                                         total of $192,487 classified as accrued payables for services
                                         that we determined were ineligible, unsupported, or
                                         unnecessary.




                                                       12
                                                                            Questioned payables         Total
                                          Payee
                                                               Ineligible    Unsupported Unnecessary   payables
                              George Babcock                      $6,775                $0        $0      $6,775
                              Lefkowitz, Garfinkel, Champi            $0           $4,388         $0      $4,388
                              & DeRienzo
                              O. Ahlborg & Sons, Inc.           $85,524               $0          $0     $85,524
                                    Non-identity-of-interest    $92,299           $4,388          $0     $96,687
                                                    subtotal
                              My Place, Inc. (identity-of-            $0             $0      $95,800     $95,800
                              interest)
                                        Grand total             $92,299           $4,388     $95,800    $192,487



                                        The owner, management agent (Sterling) and the lender
Disbursements to Identity-              (Suburban Mortgage Associates, Inc.) all have identity-of-
of-Interest Entities                    interest relationships. In addition, several other identity-of-
                                        interest companies have business connections with the
                                        project. These identity-of-interest relationships created an
                                        environment that made it possible for the
                                        owner/management agent to direct questionable cash
                                        disbursements with little risk of detection. To accomplish
                                        this end, the owner/management agent disregarded prudent
                                        business practices and exploited weak management
                                        controls.

                                        We identified $978,675 in questionable cash disbursements
                                        to identity-of-interest companies during our audit period
                                        and $95,800 in accrued payables as of December 31, 2003,
                                        as explained below.

                                        The project disbursed $69,247 to Consultants, Inc., for loan
Consultants, Inc.                       repayments and unsupported costs while in a non-surplus-
(Identity-of-Interest)                  cash position. Neither the project nor Consultants, Inc.
                                        notified HUD of these advances. According to the
                                        regulatory agreement, the project could not pay back
                                        advances from operations except from surplus cash unless
                                        the HUD office approved the payments. HUD did not
                                        approve repayment of these loans to Consultants, Inc., (as it
                                        was unaware of the advances). Therefore, we determined
                                        these payments totaling $61,247 to be ineligible. The
                                        project also paid $8,000 to Consultants, Inc., in
                                        unsupported costs.

                                        The project disbursed $244,720 to Consultants Associates,
Consultants Associates,                 Inc., for loan repayments while in a non-surplus-cash
Inc. (Identity-of-Interest)             position. Consultants Associates, Inc., made loans to the
                                        project to cover mortgage and payroll obligations. Neither
                                        the project nor Consultants Associates, Inc., notified HUD


                                                     13
                               of these advances. According to the regulatory agreement,
                               the project could not pay back advances from operations
                               except from surplus cash unless the HUD office approved
                               the payments. HUD did not approve repayment of these
                               loans to Consultants Associates, Inc. Therefore, we
                               determined these payments totaling $244,720 to be
                               ineligible.

                               The project disbursed $272,200 to My Place, Inc., which is
My Place, Inc. (Identity-      owned and operated by the owner’s daughter. The project
of-Interest)                   paid My Place, Inc., to provide social services, educational
                               services, administrative consulting services, promotional
                               activities, and a comprehensive child-care program.
                               However, our review determined that this contract was not
                               properly procured and the services provided were not
                               reasonable or necessary operating expenses.

                               My Place, Inc. provided incentive programs for project
                               employees to show appreciation for the staff. For example, it
                               held parties for the staff and their families, conducted raffles,
                               and provided gifts of nominal value to project employees. It
                               did not provide child-care services but, rather only provided
                               referrals for child-care needs and for support services on an
                               as-needed basis. My Place, Inc., provided seminars for the
                               staff; however, the seminars were subcontracted out to Delta
                               Consultants. The project had a human resources department
                               on site that could have provided these services.

                               We determined that My Place, Inc.’s services were not
                               necessary and reasonable operating expenses of the nursing
                               home. Therefore, we classified $268,200 as unnecessary
                               payments to My Place, Inc. We also identified one payment
                               to My Place, Inc., for $4,000 based on a memo from the
                               administrator to the accounts payable clerk. The project did
                               not provide any further explanation or support for this
                               disbursement. In addition, as of December 31, 2003, the
                               project had accrued $95,800 payable to My Place, Inc., for
                               services related to the contract for employee relations and a
                               community outreach program, which we determined to be
                               unnecessary expenses.


 Construction Software,        The project disbursed $47,280 to Construction Software, Inc.,
 Inc. (Identity-of-Interest)   an identity-of-interest company. According to the monthly
                               invoices, Construction Software, Inc., provided the following
                               services:



                                         14
                         •   Accounting and general ledger review,
                         •   Review of monthly reports,
                         •   Submission of monthly reports to HUD,
                         •   Review of input for financial statements, and
                         •   Review of quarterly operations report

                         However, the business office manager at the project stated
                         that these tasks were performed in house. The administrator
                         and business office manager acknowledged that Construction
                         Software, Inc., employees never worked at or came to the
                         nursing home at any time, although the project paid
                         Construction Software, Inc., $960 per month. Further,
                         according to the administrator, who approves the payments,
                         he was not sure what services Construction Software, Inc.,
                         provided and did not know whether it performed any work at
                         the project. The administrator believed it provided computer
                         software to Sterling.

                         Therefore, we consider payments of $46,080 unnecessary
                         since the duties were performed by in-house staff and the
                         project’s accountants. In addition, we identified a payment to
                         Construction Software, Inc., for $1,200 based on a memo
                         from the administrator to the accounts payable clerk. The
                         project did not provide any further explanation or support
                         regarding the services provided for this disbursement.

                         We identified one disbursement of $104,520 to Hillside
Hillside Health Center   Health Center, an identity-of-interest nursing home. This
(Identity-of-Interest)   disbursement was to repay a loan Hillside Health Center
                         made to the project for a mortgage payment. Neither the
                         project nor Hillside Health Center notified HUD of this
                         advance. According to the regulatory agreement, the
                         project could not pay back advances from operations except
                         from surplus cash unless the HUD office approved such
                         payment. HUD did not approve repayment of these loans
                         to Hillside Health Center (as it was unaware of the
                         advances). Therefore, we determined this disbursement to
                         be ineligible.

                         We determined that the project disbursed $109,812 in
Sterling (Management     questionable costs to Sterling. Of this amount, the project
Agent) (Identity-of-     disbursed $95,000 for loans to Sterling without HUD
Interest)                approval and in direct violation of the regulatory
                         agreement. Therefore, we determined these disbursements



                                   15
                              to be ineligible because the project was in a non-surplus-
                              cash position.

                              Furthermore, the project disbursed $14,812 to Sterling for
                              questionable miscellaneous expenses. Our review of these
                              expenses disclosed $6,141 in ineligible expenses, which
                              included services that were the responsibility of the
                              management agent and should have been paid from the
                              management fee. The remaining $8,671 was classified as
                              unsupported. Sterling submitted invoices to the project for
                              expenses it incurred. However, Sterling did not provide us
                              with original invoices from the vendors for these costs as
                              requested. (See finding 2 for the management agent fee.)

                              The project disbursed $5,050,617 to Suburban Mortgage
Suburban Mortgage             Associates, Inc., an identity-of-interest company, for
Associates, Inc. (Identity-   mortgage payments and operating loss loan payments
of-Interest)                  during our audit period. We determined a portion of the
                              disbursements totaling $22,326 to be ineligible project
                              expenses. The ineligible amounts included late charges due
                              to mortgage and/or operating loss loan payments after the
                              15th of the month and bank charges for returned check
                              fees. Additionally, we noted that the project submitted
                              numerous letters to Suburban Mortgage Associates, Inc.,
                              with its regular mortgage payments, requesting Suburban
                              Mortgage Associates, Inc., to hold the check until a
                              specified time, usually between the 16th and 21st of the
                              month.


                              The director of purchasing was previously the general
Director of Purchasing        partner of the owner. Currently, he is the vice president of
Salary (Identity-of-          two identity-of-interest companies, Gregory Building
Interest)                     Company and Mast Construction. The project created the
                              director of purchasing position at the project in October
                              2001. The director of purchasing was hired a few days
                              after submitting an application and used the general
                              manager of Sterling as his reference.

                              There was no clear distinction between the director of
                              purchasing position and the following positions at the
                              nursing home:

                              •   Medical supply clerk, who responsibilities included
                                  purchasing all medical supplies for the facility. The




                                        16
                            medical supply clerk stated that he does not interact
                            with the director of purchasing and has never met him.

                        •   Maintenance director, who is involved with researching
                            and purchasing major capital equipment. The
                            maintenance director stated that the director of
                            purchasing helped him contact the “right” companies
                            when a job needed to be completed.

                        The amount of major capital equipment purchased does not
                        appear to justify a position at the project for 20 hours per
                        week at $47 per hour. Further, the maintenance director and
                        administrator performed these tasks as necessary. In
                        addition, according to paragraph 2, section 2.2 (c), of the
                        management agreement between the owner and Sterling, the
                        management agent was to arrange contracts for the purchase
                        of all medical supplies and dietary, office, and other items
                        required to operate the facility.

                        According to the Director of Purchasing’s time cards, he
                        worked the same hours every week at the project.
                        However, while conducting our audit fieldwork, we never
                        observed the director of purchasing at the project. The
                        general manager of Sterling stated the director of
                        purchasing worked at the management agent site.

                        Based on our review, we concluded that the director of
                        purchasing position was not necessary. We identified
                        $108,570 in unnecessary payments to the director of
                        purchasing during our audit period. (See related finding 2
                        for unnecessary salary to the assistant administrator.)

Disbursements to Non-   Our audit further identified $667,994 in questionable cash
Identity-of-            disbursements and $96,687 in questionable accrued
InterestVendors         payables to non-identity-of-interest vendors for services
                        and other costs that were not necessary and reasonable
                        expenses of the project. These disbursements were in
                        direct violation of the regulatory agreement. The cash
                        disbursements and payables were for various legal services,
                        auditing and accounting services, renovations, unnecessary
                        employee benefits, and late payments.

                        The project disbursed $3,525 to Chaine des Rotisseurs, an
Chaine des Rotisseurs   organization which the project owner exerted control. The
                        disbursements were related to employee entertainment for
                        dinners in excess of $75 per person. Therefore, we



                                  17
                concluded that the $3,525 was not for reasonable operating
                expenses or necessary repairs of the project.

                The project made $88,035 in questionable cash
Legal Expense   disbursements to two law firms during our audit period.

                •   Adler, Pollock, and Sheehan – the project disbursed
                    $78,536 in ineligible expenses and $250 in unsupported
                    expenses to Adler, Pollock, and Sheehan, the nursing
                    home’s principal law firm. These ineligible
                    disbursements were for

                       ¾        Legal services totaling $44,226 related to the
                                project’s nonpayment of payroll taxes to the
                                Internal Revenue Service. Legal expenses
                                related to this situation were not a reasonable
                                and necessary expense of the project since it
                                should have paid its payroll taxes in a timely
                                manner.

                       ¾        Legal services totaling $19,310 regarding a
                                zoning appeal for the expansion of the
                                property. The costs of expanding the facility
                                were not an allowable expense of the project,
                                and HUD consent should have been obtained
                                for these expenses. HUD did not consent to
                                any payment from the operating account.

                       ¾        Legal services totaling $15,000 related to
                                dismissing the owner and Consultants, Inc., as
                                general partners of Edmund Place Associates
                                in May 2000. This is a legal matter of the
                                partnership for Edmund Place–a different
                                HUD-insured project that defaulted in April
                                2000—not the project.

                       ¾        Legal services totaling $250 that were not
                                properly supported to determine whether they
                                were necessary and reasonable project
                                expenses.

                •   George Babcock Esquire – the project disbursed $9,249
                    in ineligible expenses to George Babcock Esquire.
                    These disbursements were for legal services related to
                    lawsuits filed against Health Facilities Associates, the
                    limited partner of the owner, the general partner of


                           18
                          Health Facilities, and the general partner of the owner.
                          Therefore, these costs were not necessary and
                          reasonable expenses of the project. As of December
                          31, 2003, the project had accrued $6,775 in payables to
                          George Babcock Esquire. The invoices related to these
                          payables were related to the lawsuits mentioned above,
                          which we determined to be ineligible project expenses.

                      The project disbursed a total of $263,832 to Lefkowitz,
Accounting Expenses   Garfinkel, Champi & DeRienzo. P.C., from January 1,
                      2000, to December 31, 2003. Although the costs appear to
                      be for eligible accounting services, we classified the total
                      costs as unsupported due to the following:

                      •   Expenses were invoiced in a manner that did not allow
                          the cost to be reconciled to a specific contract. Instead,
                          services provided and costs billed and paid under
                          different contracts were combined on invoices. Further,
                          the project made partial payments on these invoices and
                          did not identify how to apply the payments.

                      •   The project was only able to provide us with two
                          contracts covering only one year between the project
                          and Lefkowitz, Garfinkel, Champi & DeRienzo for our
                          audit period. One contract was for professional
                          services to “audit the Partnership’s balance sheet as of
                          December 31, 2001 and the related statements of
                          loss...and...audit the Partnership’s compliance with
                          specific requirements applicable to the major HUD-
                          assisted programs for the year ended December 31,
                          2001.” The second contract was an assistance contract
                          “to assist REAC [the Real Estate Assessment Center] in
                          determining whether the electronic submission of
                          certain information agrees with the corresponding hard
                          copy documents included within the Consolidated
                          Audit Guide for Audits of HUD Programs.” The
                          administrator stated that Sterling might have the rest of
                          the contracts. However, since the project made
                          payments on these contracts, a copy should have been
                          available at the project to ensure invoices were accurate
                          according to the terms of the contract.




                                19
                           As of December 31, 2003, the project had accrued $4,388
                           in payables to Lefkowitz, Garfinkel, Champi & DeRienzo.
                           The invoices for these payables are all related to accounting
                           services, which are currently unsupported.

                           Upon receipt of adequate supporting documentation, HUD
                           should perform a review of the necessity and
                           reasonableness of these disbursements and payables.

                           O. Ahlborg and Sons, Inc., was the general contractor
Renovations                during the HUD-approved rehabilitation of the project in
                           1995. After the renovations of the project, it refinanced its
                           HUD-insured mortgage. According to the management
                           agent, the rehabilitation exceeded the HUD-approved
                           mortgage amount. Therefore, the project issued a
                           promissory note for $200,000 to O. Ahlborg and Sons, Inc.,
                           on December 20, 1995. The note was payable upon
                           demand and not secured by the property and no payment
                           terms were specified. The interest on the note accrued at
                           10 percent of the unpaid balance per year. HUD did not
                           approve this obligation; however, the project has been
                           making payments on this note since 1996. It should have
                           issued a HUD-approved surplus cash note, and payments
                           should have only been made on this note if the project was
                           in a surplus-cash position. The project paid O. Ahlborg and
                           Sons, Inc., $223,308 on this promissory note while the
                           project was in a non-surplus-cash position. Therefore, we
                           determined that these disbursements were ineligible project
                           expenses. As of December 31, 2003, the remaining
                           principal balance was $85,524.

                           Our review of 90 questionable disbursements to various
 Various Individual        non-identity-of-interest vendors disclosed $86,802 in
 Payments                  ineligible expenses. The ineligible costs consist of benefits
                           to employees, including Christmas parties, luncheons, gifts,
                           and flowers, and penalties and interest for late tax payments
                           while the nursing home was in a non-surplus-cash position.
                           We further identified $2,492 in unsupported expenses. The
                           project was not able to support the costs to determine
                           whether they were eligible, necessary, and reasonable
                           expenses for nursing home operations.

                           The above deficiencies are contrary to the regulatory
 Consequences of           agreement, management certifications, and HUD
 Diverting Project Funds   handbooks. Project diversions are a serious matter and a
                           direct breach of the owner’s and management agent’s



                                     20
fiduciary responsibilities to the project and to HUD. The
owner and management agent’s actions contributed to

•   Late mortgage payments, which resulted in late
    penalties;
•   Lack of funds to make payroll obligations; and
•   Failure to pay payroll taxes to the Internal Revenue
    Service, which resulted in liens on the property of
    approximately $3,700,000 and unnecessary interest
    penalties and legal fees.

These actions raise concerns pertaining to the owner and
management agent’s ability to comply with HUD
regulations.

The diversion of project funds jeopardizes the project’s
financial condition, and the funds must be repaid to
diminish potential insurance claims against HUD.




          21
Auditee Comments    We received the auditee’s comments to our audit on
                    December 15, 2005 and are located in Appendix B of this
                    report.



OIG Evaluation of   Our evaluation of the auditee’s comments has not changed
Auditee Comments    our audit position. Our responses are located in Appendix B
                    of this report, starting on page 129.



Recommendations     We recommend that the director, Rhode Island Multifamily
                    Program Center:

                    1A. Pursue the recovery of double the amount of
                        $533,954 in ineligible costs to identities-of-interest
                        from the owner/management agent, as stipulated in 12
                        U.S.C. [United States Code] Sec. 1715z-4a.
                    1B. Obtain adequate documentation from the
                        owner/management agent for the cash disbursements
                        for unsupported costs of $21,871 costs to identities-
                        of-interest or pursue the recovery of double this
                        amount as stipulated in 12 U.S.C. [United States
                        Code] Sec. 1715z-4a.
                    1C. Pursue the recovery of double the amount of
                        $426,375 in unnecessary costs to identities-of-interest
                        and non- identities-of-interest from the
                        owner/management agent, as stipulated in 12 U.S.C.
                        [United States Code] Sec. 1715z-4a.
                    1D. Pursue the recovery of $397,895 in ineligible costs to
                        non-identities-of-interest.
                    1E. Obtain justification from the owner/management
                        agent supporting the cash disbursements for
                        unsupported costs of $266,574 to non-identities-of-
                        interest or pursue recovery of this amount.
                    1F. Take appropriate action to prevent payments of
                        ineligible and unnecessary cash disbursements after
                        our audit period, including the payment of
                        questionable accrued payables to identities-of-interest
                        of $95,800. If they have been paid, pursue the



                              22
      recovery of double this amount as stipulated in 12
      U.S.C. [United States Code] Sec. 1715z-4a.
1G. Take appropriate action to prevent payments of
    ineligible accrued payables to non-identities-of-
    interest of $92,299. If they have been paid, pursue
    the recovery of this amount.
1H. Obtain adequate documentation from the
    owner/management agent for the $4,388 in
    unsupported accrued payables or pursue recovery of
    this amount.
1I.   Remove the management agent (Sterling) in
      accordance with the management certification and
      HUD regulations.
1J.   Develop and implement procedures that ensure only
      eligible expenses are paid from project funds and that
      documentation is maintained to support the eligibility
      and the amount of operating funds expended.


In addition, we recommend that HUD’s Departmental
Enforcement Center
1K. Pursue all applicable administrative sanctions against
    the owner, management agent, and identity-of-interest
    companies, specifically debarment.




          23
Finding 2


The Owner/Identity-of-Interest Management
Agent and Assistant Administrator Received
and Accrued $2,563,149 for Services Not
Provided
The owner and identity-of-interest management agent (Sterling) did not perform the services
required by their management agreements. As a result, neither the owner nor Sterling earned its
annual management fees. Instead, project staff and consultants performed the services described in
their management agreements. In addition, the general manager of the management agent received
a salary from the project as the assistant administrator of the nursing home. The duties of the
assistant administrator are the same as the duties of the administrator and business office manager
positions and similar to those required of the owner and management agent. During our audit
period:

    • The owner billed the project $1,162,150 in questionable partnership management fees,
    • The management agent billed the project $1,288,745 in questionable management fees, and
    • The assistant administrator received $112,254 in unnecessary salary costs.

The owner and management agent disregarded prudent business practices and exploited weak
management controls. These unsupported fees and unnecessary salaries place the HUD-insured
mortgage at risk and threatens the project’s financial viability.



                                      The regulatory agreement states that owners shall not pay out
 Costs Must Be                        any project funds except for reasonable operating expenses
 Reasonable and Necessary             and necessary project repairs.

                                      The United States Code at 12 U.S.C. Sec. 1715z-4a stipulates
                                      that HUD may recover any assets or income used by any
                                      person in violation a regulatory agreement applicable to a
                                      multifamily project insured by HUD. For purposes of this
                                      statute, the “use of assets or income” includes any use not
                                      established by records and documentation as a reasonable or
                                      necessary operating expense of the project. For purposes of a
                                      mortgage insured under Title II of the National Housing Act,
                                      the term “any person” refers to any person or entity which
                                      owns a project, including stockholders, and any beneficial
                                      owner, officer, director, or partner of an entity owning the
                                      project. The U.S. government may recover double the value
                                      of any assets and income of the project that have been used in


                                                24
                         violation of the regulatory agreement, plus all related costs
                         such as reasonable attorney and auditing fees.

                         Both the regulatory agreement and the certificate executed by
Maintenance of Books     the borrower, at the time the mortgage is insured, contain
and Accounts             provisions that accounts of mortgaged property operations be
                         kept in accordance with the requirements of the HUD
                         secretary and in such form as to permit a speedy and effective
                         audit. Further, the borrower or owner agrees that “The
                         mortgaged property, equipment, buildings, apparatus,
                         devices, books, contracts, records, documents, and other
                         papers relating thereto shall at all times be maintained in
                         reasonable condition for proper audit and shall be subject to
                         examination and inspection at any reasonable time by the
                         HUD Secretary or his duly authorized agents. Owners shall
                         keep copies of all written contracts or other instruments
                         which affect the mortgaged property, all or any of which may
                         be subject to inspection and examination by the Secretary or
                         his duly authorized agents.”

                         On August 17, 1993, HUD approved a project owner’s and
Unsupported Owner        management agent’s certification for multifamily housing
Partnership Management   project for identity-of-interest agents, which lists the general
Fees                     partner (owner) of the project as the management agent. The
                         owner was compensated at 3 percent of net patient revenue
                         for services required by the special-purpose nature of the
                         facility. These fees were in addition to the management fee
                         of 3 percent of net patient revenue to the management agent.

                         According to the management agent profile submitted to
                         HUD, the services provided by the owner were peculiar to
                         the project’s status as a special-purpose and regulated facility.
                         However, our review determined that the owner’s services
                         identified in the management agent profile were either
                         identical or similar to the services identified in the project’s
                         management agreement with Sterling. Further, the owner
                         subcontracted with Consultants, Inc., an identity-of-interest
                         entity controlled by the owner, for a substantial portion of the
                         services. The owner is the president of Consultants, Inc.
                         Other personnel include the general manager of Sterling (also
                         the assistant administrator) and the owner’s son.

                         Additionally, our review determined that neither the owner
                         nor Sterling provided the services required according to its
                         management agreements. Instead, staff at the project and
                         consultants performed these services.



                                   25
                         The owner billed the project $1,162,150 in partnership
                         management fees during our audit period. We identified
                         $1,053,550 in payments to the owner. In addition, as of
                         December 31, 2003, the project had accrued $108,600
                         payable to the owner for partnership management fees. We
                         determined that the partnership management fees to the
                         owner are unsupported due to the lack of evidence that
                         required services were performed.

                         On January 1, 1995, the owner entered into a management
Unsupported Management   agreement with Sterling (an identity-of-interest management
Fees                     agent). As compensation for these services, the owner paid
                         Sterling 3 percent of net patient revenue.

                         During our audit period, the management agent billed the
                         project $1,288,745 for management fees. The project paid
                         $1,248,668 in management fees. It paid $1,230,977 to
                         Sterling and $17,691 to Management Realty Services,
                         another identity-of-interest company. According to the
                         general manager of Sterling, while Sterling was being set up
                         in 1995, the project paid Management Realty Services for
                         management services. The general manager advised that the
                         same employees worked for both Management Realty
                         Services and Sterling. As of December 31, 2003, the project
                         had recorded an additional $40,077 as an accrued payable to
                         Sterling related to the management fee. Due to the lack of
                         adequate documentation of services provided, we determined
                         that the management fees were unsupported project costs.

                         According to the management agreement, Sterling is
                         responsible for keeping the nursing home running smoothly
                         and in conformity with HUD requirements. However, our
                         review determined that project staff and/or consultants
                         performed these responsibilities and were paid directly by the
                         project as explained below.

                         The project had the following positions on site at the facility:
Project Staff
                         •   Administrator,
                         •   Business office manager,
                         •   Accounts payable clerk,
                         •   Accounts receivable clerk, and
                         •   Human resources director




                                   26
              According to the nursing home administrator and the
              business office manager, project nursing home staff carried
              out the majority of the owner and management agent
              functions. These functions included such tasks as:

              •   Analyzing and solving nursing home problems;
              •   Recruiting, hiring, and supervising nursing home
                  personnel; and
              •   Monitoring project operations by visiting the nursing
                  home or analyzing project performance reports

              The project also paid consultants to perform the work
Consultants   described in the management agreement. The management
              agreement stated under section 3, “Statements and Reports,”
              that the management agent shall perform these tasks or cause
              them to be performed. For example, Lefkowitz, Garfinkel,
              Champi & DeRienzo, P.C., a non-identity-of-interest
              company, performed accounting services; these services
              included preparation of Medicaid and Medicare cost reports
              and correspondence with HUD. Before 2003, Sterling had an
              individual in charge of financial reports. Later, Lefkowitz,
              Garfinkel, Champi & DeRienzo, P.C., took over this
              responsibility; however, Sterling did not pay for these
              services from the management fee. Instead, the project
              directly paid for these services.

              As these services described above were the responsibility of
              the owner and Sterling according to the management
              agreements, the services should have been paid with
              management fees rather than directly by the project. Instead,
              the project paid two or three times for these services
              including:

              •   Salaries to the staff employed by and located at the
                  project or fees to consultants,
              •   Partnership management fees to the owner, and
              •   Management fees to the management agent

              We concluded that the administrator, business office staff,
              and human resources personnel are on site daily and actively
              performing the tasks described under their job descriptions.
              We further determined that Sterling did not perform any of
              the services required by the management agreement and did
              not have the necessary staff to perform these services. As a
              result, we concluded that the partnership management fee and
              management fee were unsupported project costs.


                        27
                             The general manager of Sterling was also paid $112,254 for
Unnecessary Assistant        the assistant administrator position at the project during our
Administrator Salary         audit period. The general manager of Sterling has served as
                             the assistant administrator at the nursing home since October
                             2001. According to the current administrator, the owner and
                             management agent created the assistant administrator
                             position to ensure a licensed individual was available to run
                             the facility in the administrator’s absence. The assistant
                             administrator holds a nursing home administrator’s license
                             from the State of Rhode Island. Regardless of whether the
                             administrator is in the office, the project pays the assistant
                             administrator for 20 hours every week.

                             All of the tasks assigned to the assistant administrator are
                             also assigned to the administrator and/or the business office
                             manager, with the exception of the following task
                             contained in his job description: “Assume overall
                             administrative responsibility for the facility operations
                             while the Administrator is away from the facility. May
                             assume direct supervision of specific departments under the
                             guidance of the Administrator.” Additionally, the duties
                             identified in administrator, assistant administrator, and
                             business office manager job descriptions are also similar to
                             those of the management agent. Therefore, not only was
                             the project paying the management agent 3 percent of net
                             patient revenue for services provided by staff at the project,
                             it was also paying the general manager a salary for these
                             services. In addition, according to the owner’s
                             management agent profile, the general manager was also
                             employed by Consultants, Inc., the company used by the
                             owner to perform several of his partnership management
                             tasks.

                             According to the assistant administrator’s time cards, he
   Assistant Administrator   worked the same hours every week at the project.
   Did Not Justify His       However, during the course of conducting our audit
   Hours/Duties              fieldwork, we never observed the assistant administrator at
                             the project. The assistant administrator stated he worked in
                             the capacity of assistant administrator at the management
                             agent site, reviewed reports, worked with project staff, or
                             worked on behalf of the project at least 20 hours per week;
                             however, regardless of the hours worked, he received a
                             salary of $856 every week. The assistant administrator was
                             not able to provide a clear distinction between his duties as
                             the management agent and assistant administrator. During



                                       28
                    this time, the project was in a non-surplus-cash position,
                    and this salary was not a necessary or reasonable operating
                    expense. Therefore, we questioned the salary of $112,254
                    to the assistant administrator.



Auditee Comments    We received the auditee’s comments to our audit on
                    December 15, 2005 and are located in Appendix B of this
                    report.



OIG Evaluation of   Our evaluation of the auditee’s comments has not changed
Auditee Comments    our audit position. Our responses are located in Appendix B
                    of this report, starting on page 129.



Recommendations     We recommend that the director, Rhode Island Multifamily
                    Program Center:

                    2A.    Obtain adequate documentation from the
                           owner/management agent for cash disbursements of
                           $1,053,550 in unsupported partnership management
                           fees paid to the owner or pursue the recovery of
                           double this amount as stipulated in 12 U.S.C. [United
                           States Code] Sec. 1715z-4a.

                    2B.    Obtain adequate documentation from the
                           owner/management agent for unsupported accrued
                           payables of $108,600 payable to the owner or pursue
                           the recovery of double this amount as stipulated in 12
                           U.S.C. [United States Code] Sec. 1715z-4a.

                    2C.    Obtain justification from the owner/management
                           agent supporting the cash disbursements for
                           unsupported costs paid to the owner/management
                           agent of $1,248,668 or pursue the recovery of double
                           this amount as stipulated in 12 U.S.C. [United States
                           Code] Sec. 1715z-4a.

                    2D.    Take appropriate action to prevent unnecessary cash
                           disbursements after our audit period, including the
                           payment of questionable accrued payables to the
                           management agent of $40,077. If they have been


                              29
      paid, pursue the recovery of double this amount as
      stipulated in 12 U.S.C. [United States Code] Sec.
      1715z-4a.

2E.   Pursue recovery of double the amount of $112,254 in
      questionable salary payments paid to the assistant
      administrator as stipulated in 12 U.S.C. [United
      States Code] Sec. 1715z-4a.




        30
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
used by the management agent, Sterling, and those in place at the project that were relevant to our
audit objectives. We reviewed the management control systems to determine our auditing
procedures and not to provide assurance on management controls.

Management controls consist of a plan, organization, methods, and/or procedures adopted by
management to ensure that resource use is consistent with laws, regulations, and policies; that
resources are safeguarded against waste, loss, and misuse; and that reliable data are obtained,
maintained, and fairly disclosed in reports.


                                       We determined the following management controls were
 Relevant Management
                                       relevant to our audit objectives:
 Controls
                                           Management controls over the appropriateness of project
                                           expenditures, specifically assuring compliance with the
                                           provisions of the regulatory agreement, the management
                                           agent certification, applicable laws and regulations, and
                                           other HUD regulations.

                                           Management controls over controls over payroll.

                                           Assuring the safeguarding of project assets.

                                       We assessed the relevant controls identified above.

                                       It is a significant weakness if management controls do not
                                       provide reasonable assurance that the process for planning,
                                       organizing, directing, and controlling program operations
                                       will meet an organization’s objectives.

                                       Based on our review, we believe the following items are
 Significant Weaknesses                significant weaknesses:

                                           Management controls over the appropriateness of project
                                           expenditures, specifically assuring compliance with the
                                           provisions of the regulatory agreement, the management
                                           agent certification, applicable laws and regulations, and
                                           other HUD regulations (See findings 1 and 2).

                                           Assuring the safeguarding of project assets (See finding
                                           1).




                                                 31
We discussed the specific weaknesses in the Findings
 section of this report.




         32
                                                                                         Appendix A


Summary of Questioned Costs
                                                 Type of questioned cost
      Recommendation
          number              Ineligible 1     Unsupported 2      Unnecessary/unreasonable 3
             1A                    $533,954
             1B                                        $21,871
             1C                                                                       $426,375
             1D                    $397,895
             1E                                       $266,574
             1F                                                                        $95,800
             1G                     $92,299
             1H                                        $4,388
             2A                                    $1,053,550
             2B                                      $108,600
             2C                                    $1,248,668
             2D                                       $40,077
             2E                                                                       $112,254
           Totals                $1,024,148        $2,743,728                         $634,429
      Total questioned                                 $4,402,305
            costs


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 polices
   or regulations.

2. Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or
   activity when we cannot determine eligibility at the time of audit. Unsupported costs require
   a 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. Unnecessary/unreasonable costs are those costs not generally recognized as ordinary,
   prudent, relevant, and/or necessary within established practices. Unreasonable costs exceed
   the costs that would be incurred by a prudent person in conducting a competitive business.




                                                 33
                                           Appendix B


Auditee Comments and OIG’s Evaluation
Ref to OIG Evaluation   Auditee Comments




Comment 1




                          34
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3




Comment 4




                          35
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6



Comment 7




Comment 8




                          36
Ref to OIG Evaluation   Auditee Comments




Comment 6



Comment 7




Comment 9


Comment 9



Comment 9


Comment 3




                          37
Ref to OIG Evaluation   Auditee Comments




Comment 10




Comment 11




Comment 5



Comment 10




Comment 12




                          38
Ref to OIG Evaluation   Auditee Comments




Comment 12




                          39
Ref to OIG Evaluation   Auditee Comments




Comment 13




Comment 14




Comment 15




                          40
Ref to OIG Evaluation   Auditee Comments




Comment 16




Comment 13


Comment 17




Comment 18




                          41
Ref to OIG Evaluation   Auditee Comments




                          42
Ref to OIG Evaluation   Auditee Comments

Tab 1




                          43
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                          44
Ref to OIG Evaluation   Auditee Comments




                          45
Ref to OIG Evaluation   Auditee Comments




                          46
Ref to OIG Evaluation   Auditee Comments




                          47
Ref to OIG Evaluation   Auditee Comments




                          48
Ref to OIG Evaluation   Auditee Comments




                          49
Ref to OIG Evaluation   Auditee Comments




                          50
Ref to OIG Evaluation   Auditee Comments




                          51
Ref to OIG Evaluation   Auditee Comments




                          52
Ref to OIG Evaluation   Auditee Comments




                          53
Ref to OIG Evaluation   Auditee Comments




                          54
Ref to OIG Evaluation   Auditee Comments




                          55
Ref to OIG Evaluation   Auditee Comments




                          56
Ref to OIG Evaluation   Auditee Comments




                          57
Ref to OIG Evaluation   Auditee Comments




                          58
Ref to OIG Evaluation   Auditee Comments




                          59
Ref to OIG Evaluation   Auditee Comments




                          60
Ref to OIG Evaluation   Auditee Comments




                          61
Ref to OIG Evaluation   Auditee Comments




                          62
Ref to OIG Evaluation   Auditee Comments




                          63
Ref to OIG Evaluation   Auditee Comments




                          64
Ref to OIG Evaluation   Auditee Comments




                          65
Ref to OIG Evaluation   Auditee Comments




                          66
Ref to OIG Evaluation   Auditee Comments




                          67
Ref to OIG Evaluation   Auditee Comments




                          68
Ref to OIG Evaluation   Auditee Comments




                          69
Ref to OIG Evaluation   Auditee Comments




                          70
Ref to OIG Evaluation   Auditee Comments




                          71
Ref to OIG Evaluation   Auditee Comments




                          72
Ref to OIG Evaluation   Auditee Comments




                          73
Ref to OIG Evaluation   Auditee Comments




                          74
Ref to OIG Evaluation   Auditee Comments




                          75
Ref to OIG Evaluation   Auditee Comments




                          76
Ref to OIG Evaluation   Auditee Comments




                          77
Ref to OIG Evaluation   Auditee Comments




                          78
Ref to OIG Evaluation   Auditee Comments




                          79
Ref to OIG Evaluation   Auditee Comments




                          80
Ref to OIG Evaluation   Auditee Comments




                          81
Ref to OIG Evaluation   Auditee Comments




                          82
Ref to OIG Evaluation   Auditee Comments




                          83
Ref to OIG Evaluation   Auditee Comments




                          84
Ref to OIG Evaluation   Auditee Comments

Tab 2




                          85
Ref to OIG Evaluation   Auditee Comments




                          86
Ref to OIG Evaluation   Auditee Comments




                          87
Ref to OIG Evaluation   Auditee Comments




                          88
Ref to OIG Evaluation   Auditee Comments




                          89
Ref to OIG Evaluation   Auditee Comments




                          90
Ref to OIG Evaluation   Auditee Comments




                          91
Ref to OIG Evaluation   Auditee Comments




                          92
Ref to OIG Evaluation   Auditee Comments




                          93
Ref to OIG Evaluation   Auditee Comments




                          94
Ref to OIG Evaluation   Auditee Comments

Tab 3




                          95
Ref to OIG Evaluation   Auditee Comments




                          96
Ref to OIG Evaluation   Auditee Comments




                          97
Ref to OIG Evaluation   Auditee Comments




                          98
Ref to OIG Evaluation   Auditee Comments




                          99
Ref to OIG Evaluation   Auditee Comments




                         100
Ref to OIG Evaluation   Auditee Comments




                         101
Ref to OIG Evaluation   Auditee Comments




                         102
Ref to OIG Evaluation   Auditee Comments




                         103
Ref to OIG Evaluation   Auditee Comments




                         104
Ref to OIG Evaluation   Auditee Comments




                         105
Ref to OIG Evaluation   Auditee Comments




                         106
Ref to OIG Evaluation   Auditee Comments




                         107
Ref to OIG Evaluation   Auditee Comments




                         108
Ref to OIG Evaluation   Auditee Comments




                         109
Ref to OIG Evaluation   Auditee Comments




                         110
Ref to OIG Evaluation   Auditee Comments

Tab 4




                         111
Ref to OIG Evaluation   Auditee Comments




                         112
Ref to OIG Evaluation   Auditee Comments




                         113
Ref to OIG Evaluation   Auditee Comments




                         114
Ref to OIG Evaluation   Auditee Comments




                         115
Ref to OIG Evaluation   Auditee Comments




                         116
Ref to OIG Evaluation   Auditee Comments




                         117
Ref to OIG Evaluation   Auditee Comments

Tab 5




                         118
Ref to OIG Evaluation   Auditee Comments




                         119
Ref to OIG Evaluation   Auditee Comments




                         120
Ref to OIG Evaluation   Auditee Comments

Tab 6




                         121
Ref to OIG Evaluation   Auditee Comments

Tab 7




                         122
Ref to OIG Evaluation   Auditee Comments




                         123
Ref to OIG Evaluation   Auditee Comments




                         124
Ref to OIG Evaluation   Auditee Comments




                         125
Ref to OIG Evaluation   Auditee Comments




                         126
Ref to OIG Evaluation   Auditee Comments




                         127
Ref to OIG Evaluation   Auditee Comments




                         128
                          OIG Evaluation of Auditee Comments


Comment 1   HUD did not approve the $305,967 in advances or repayments while Mount Saint
            Francis was in a non-surplus cash position. The Mount Saint Francis regulatory
            agreement prohibited the owner or management agent from using project revenue
            to engage in any other business or activity not related and essential to the
            operation of the project. The agreement also stated that the owners shall not
            assign, transfer, dispose of, or encumber any personal property of the project.

            No matter what the reason for the advances, they require prior approval and,
            therefore, the $305,967 is an ineligible cost. In addition, submission of monthly
            accounting reports does not constitute approval of those items from HUD.

            In reviewing the detail of the $305,967 disbursed from Mt. Saint Francis Health
            Center, we realized we inadvertently combined the total disbursements under
            Consultants Inc. There were two companies operating out of 190 Broad Street in
            Providence, Rhode Island with similar registered names. We determined that
            $61,247 was paid to Consultants, Inc. The remaining $244,720 was paid to
            Consultants Associates, Inc., another identity of interest company. We have
            revised the report to reflect the two companies.

Comment 2   The repayment of the Hillside Health Center, LLC’s advance of $104,520 to
            Mount Saint Francis was not approved by HUD. In addition, when Hillside Health
            Center, LLC, a related HUD insured property, made the loan, it violated its
            regulatory agreement with HUD since the Mount Saint Francis mortgage payment
            was not a reasonable and necessary cost of Hillside Health Center, LLC. Also, as
            stated in Comment 1 above, the Mount Saint Francis regulatory agreement
            prohibits such activity. In addition, submission of monthly accounting reports
            does not constitute approval of those items from HUD. Therefore, the $104,520
            is an ineligible cost.

Comment 3   $95,000 of the $109,812 in questionable payments to Mount Saint Francis
            represent loans made to Sterling Health Care Management. We have attached
            details of the remaining $14,812 (see Attachment A), of which $8,671 is
            unsupported.

            HUD approved a Mount Saint Francis request to borrow funds from the Reserve
            Fund for Replacement account to cover payroll expenses of the project. The
            $95,000 was subsequently wired by Suburban Mortgage Associates, Inc., to
            Mount Saint Francis’ bank account. Mount Saint Francis then transferred
            $45,000 of the $95,000 to Sterling Health Care Management’s bank account.
            Sterling Health Care Management ultimately transferred the $45,000 to Hillside
            Health Center, LLC (a related nursing home) for their payroll. The Mount Saint
            Francis regulatory agreement prohibited the owner or management agent from


                                           129
            using project revenue to engage in any other business or activity not related and
            essential to the operation of the project. The agreement also stated that the owners
            shall not assign, transfer, dispose of, or encumber any personal property of the
            project.

            Additionally, the following list of check disbursements by Mount Saint Francis to
            Sterling Health Care Management represents the balance of the $95,000 in
            questionable payments:

            Check No.                     Check Date                   Amount
            15678                         5/18/2001                    $20,000
            15730                         6/14/2001                    $25,000
            15953                         10/4/2001                    $ 5,000
                                                                 Total $50,000

            No approvals were made by HUD for these loans. The fact that payments to
            Sterling Health Care Management were noted in monthly accounting reports to
            HUD is not an authorization of such loans and does not constitute HUD approval.
            In fact, the monthly reports filed with HUD show the disbursement description
            simply as “Management.” This would not necessarily raise suspicion since the
            same description was used every month for Sterling Health Care Management’s
            management fee payments. As stated above, the Mount Saint Francis regulatory
            agreement prohibits such a transfer. Therefore, these costs are ineligible costs.

Comment 4   Mount Saint Francis was well aware of it cash flow cycle given the nature of its
            revenue stream, and should have planned accordingly. For the project to incur
            and pay $22,326 in late fees was avoidable and unreasonable. The fact that the
            late fees ultimately go to an investor is irrelevant.

Comment 5   Payroll taxes are not an optional business expense. Mount Saint Francis used
            monies earmarked for the Internal Revenue Service to support their operations.
            Mount Saint Francis’s failure to submit payroll taxes and subsequently incur legal
            costs to defend possible litigation was not a reasonable operating expense of the
            project since they should have been paid when due and payable. Therefore, the
            $44,226 in legal fees to Adler, Pollock & Sheehan is an ineligible cost.

            Legal fees pertaining to a proposed project expansion are development costs, not
            project operating costs. Therefore, this cost is ineligible as an operating cost.
            Also according to HUD records, there was no approval consenting to the $19,310
            in legal fees to pay for development costs.

            Mount Saint Francis paid $15,000 (Check # 14025, dated 4/18/2000) in legal fees
            to Adler, Pollock, & Sheehan that were invoiced to Sterling Health Care
            Management. The payment was made for non-project expenses to remove
            Antonio L. Giordano as general partner from Edmund Place, another nursing
            home. We determined these costs were not related to the project.


                                            130
              Also, the unsupported disbursement for $250.00 (Check # 14752, dated
              7/28/2000) was made to Adler, Pollack, & Sheehan.

Comment 6     The auditee’s response indicated that the $9,249 in legal fees paid to Mr. Babcock
              were covered under a policy of insurance. Mount Saint Francis should have
              sought recovery from the insurer and repaid the costs to the project. In addition,
              the auditee’s response did not provide supporting documentation indicating the
              removal of $6,775 in accruals to Mr. Babcock.

Comment 7     In 1995, Mount Saint Francis executed a $200,000 promissory note, at an interest
              rate of 10%, with O. Ahlborg & Sons, Inc., for construction costs. Mount Saint
              Francis did not obtain HUD approval for this note and had it done so, the note would
              have required payments only from surplus cash. The rehabilitation should have been
              paid for out of development funds and not operating funds. Additionally, as noted
              above, Mount Saint Francis’s regulatory agreement stated that the owners shall not
              assign, transfer, dispose of, or encumber any personal property of the project or pay
              out any funds except from surplus cash, and except for reasonable operating
              expenses and necessary repairs. Therefore, payments could only have been made
              from surplus cash and Mount Saint Francis’s note repayments from operating funds
              totaling $223,308 violated the project’s regulatory agreement with HUD. Disclosure
              of payments to HUD in monthly accounting reports did not constitute approval of
              such loans. Additionally, the principal balance remaining at December 31, 2003 of
              $85,524 is an ineligible cost.

Comment 8     The details of the $86,802 in non identity-of-interest payments are provided in
              Attachment B.

Comment 9     We determined that payments to My Place Inc., Construction Software, and
              Antonio L. Giordano were made in addition to their regular monthly billing and
              payment cycle. Also, all of these payments were expensed to general ledger
              account 5340 “Other Expense”, including the one made to Consultants, Inc.
              These costs were paid at the direction of the Mount Saint Francis’ administrator
              as noted in an interoffice memo to the business office (See Attachment E). None
              of the payments had any supporting documentation. Therefore, our position that
              these costs are unsupported remains unchanged.

Comment 10 The auditee’s response contained several engagement letters from Lefkowitz,
           Garfinkel, Champi & DeRienzo (Tab 1) to support disbursements totaling
           $263,832 for accounting services. The primary engagement letters were for
           audits of Mount Saint Francis’ financial statements for calendar years 1999, 2000,
           2001, and 2002 with estimated fees totaling $112,000 plus out of pocket
           expenses. Based on these documents it appears that significant additional services
           were performed/billed for which no support was provided. Also, invoices
           obtained at the audit site lacked sufficient detail to allow reconciliation back to
           contracted amounts. Although we believe some of the costs may be eligible, until


                                              131
              detailed backup and reconciliation is provided for all expenditures we consider
              the $263,832 to be unsupported.

Comment 11 The following list of check disbursements provide detail to unsupported payments
           made to various vendors:

              Check No.                     Check Date                     Amount

              13925                         2/16/2000                    $ 250.00
              14679                         7/21/2000                    $ 500.00
              15082                         7/28/2000                    $ 241.82
              20660                         6/13/2003                    $1,500.00
                                                                   Total $2,491.82

Comment 12 The management agent’s certification for Mount Saint Francis and Antonio L.
           Giordano contained in the auditee’s response expired, and was superseded by a
           subsequent management certification for Mount Saint Francis and Sterling Health
           Care Management dated January 1, 1995 (see Attachment C). Section 4 of the
           revised agreement (Special Fees) did not provide for compensation to the owner at
           3% of net patient revenue, in addition to the 3% management agent fee, to Sterling
           Health Care Management. Therefore, the owner’s fees were not approved by HUD
           as auditee’s response claims.

              In addition, copies of partnership management agreements and management agent
              profiles were not sufficient evidence to support the reasonableness and necessity
              of services actually provided. Although monthly accounting reports submitted to
              HUD indicated payments were made for the management fees, HUD’s receipt of
              monthly accounting reports does not constitute approval.

Comment 13 The listing of My Place, Inc. on the management agent certification only
           identifies the business as an identity-of-interest company. However, HUD’s
           approval of the management agent certification did not give My Place, Inc.,
           authority to invoice and receive payment for services that were grossly inflated.
           The auditee did not provide any evidence to support or justify the need for My
           Place Inc.’s services.

              The management agent’s certification, dated January 1, 1995, signed by Mount
              Saint Francis and Sterling Health Care Management certified both parties agreed
              to comply with item 3(d) of the certification (see Attachment C). Item 3(d) states
              that, “both parties agree to refrain from purchasing goods and services from
              entities that have identity-of-interest with us unless the costs are low as or lower
              than arms-length, open market purchases.” We could not locate any business that
              My Place, Inc., provided services to other than related nursing homes or affiliates
              owned by Antonio L. Giordano. The auditee did not provide documentation to
              assure that Mount Saint Francis was in fact receiving a competitive price for the
              services provided My Place Inc.


                                              132
              Furthermore, on March 29, 2005, Mount Saint Francis responded (see Attachment
              D) to HUD’s concerns with various expenses related to Mount Saint Francis’s
              January 2005 monthly accounting report. Mount Saint Francis’s response stated
              that contracts with Sterling Health Care Management Co., My Place Inc., and
              Construction Software were canceled; effective July 1, 2004 a full 9 months
              before Mount Saint Francis issued the March 29, 2005 letter. After many years,
              the services provided by these companies were abruptly cut off by the auditee
              with no adverse impact to project operations. Therefore, it is obvious that the
              services were unnecessary. In addition to canceling the contracts, all accrued
              balances owed to the identity-of-interest companies were voluntarily written off.
              These facts further support our position that these services were unreasonable and
              unnecessary.

Comment 14 As stated in comment 13 above, listing Construction Software Inc. in the
           management agent certification only notifies HUD that they are an identity-of-
           interest company. It does not indicate HUD had approved all payments and those
           payments are reasonable and necessary. We identified $46,080 in payments to
           Construction Software Inc. Construction Software Inc. was paid for services that the
           auditee’s response described as systems specialization. However, according to
           various monthly accounting reports submitted to HUD by Mount Saint Francis, the
           services were described simply as either “management” or “management fees.”
           Construction Software Inc., invoice billings to the Mount Saint Francis describe the
           services as accounting related. The invoices list the services provided as follows:

                    1.   Accounting and General Ledger Review
                    2.   Review of Monthly Reports
                    3.   Submission of Monthly Reports to HUD
                    4.   Review of Input for Financial Statements
                    5.   Review of Quarterly Operations Report

              The services provided by Construction Software Inc., overlap and/or conflict with
              services provided by Sterling Health Care Management, which was receiving a
              management fees to perform these functions. Also, Mount Saint Francis’
              accountants, Lefkowitz, Garfinkel, Champi & DeRienzo, as well as Mount Saint
              Francis staff were paid to perform accounting services.

              In the management agent’s certification, both parties certified that all expenses of the
              project would be necessary and reasonable. During our audit, we interviewed the
              nursing home administrator and the management agent’s general manger and neither
              could provide requested, contracts or adequate explanation of the services provided
              by Construction Software, Inc. Therefore, our position remains that these costs were
              unnecessary and unreasonable.

Comment 15 We concur that Chaine Des Rotisseurs was not an “IOI company.” We have
           revised the report to reflect this change. However, Antonio L. Giordano does


                                               133
              have an affiliation and exerts control over the Rhode Island chapter. According to
              the organizations web site “www.chaineus.org/rhodeisland,” Antonio L. Giordano
              is the Rhode Island’s chapter President.

              Gatherings to Chaine De Rotisseurs events were at the request of the project
              owner. Administrators and selected staff were strongly encouraged to attend the
              various events. The cost per attendee varied from $75 to as much as $125 per
              person, a fee the project paid. Given the fact the project was in a non-surplus cash
              position and had failed to pay over $3,700,000 in federal taxes attendance at these
              events was clearly unnecessary to reward management in what resulted in
              unreasonable project expenses.

Comment 16 Mount Saint Francis’s response did not provide adequate documentation to justify
           payment of $108,580 to the Director of Purchasing at Mount Saint Francis. During
           our audit, we determined that Mount Saint Francis had adequate staff in place to
           support purchasing duties. The director of purchasing position was created in late
           2001. Mount Saint Francis had been in existence since the early 1980’s. Since the
           project ran almost 20 years without a purchasing director we disagree that this
           position was even required. We have also demonstrated the most services
           performed by identity-of-interest companies were not properly procured. In
           addition, the management agent’s agreement stated that one of the services to be
           provided was “Arrange for contracts for the purchase of all medical supplies,
           dietary, office and other items required to operate the Facility.” Therefore, $108,580
           paid for a director of purchasing position was clearly unnecessary and unreasonable.
           Lastly, the audits performed by the State of Rhode Island Medicaid program are
           not relevant, since we do not know the scope and objectives of their audit.

Comment 17 The assistant administrator’s position should have been compensated on an as
           needed basis. It was unnecessary and unreasonable for the project to pay for a
           position that was required periodically. The general manager could not justify his
           hours and duties to warrant payment of 20 hours per week as assistant administrator.
           The general manager was already receiving compensation from Construction
           Software and Sterling Health Care Management.

Comment 18 As detailed in our previous comments, all costs were not adequately disclosed to
           HUD, nor approved by HUD. Moreover, receipt of an operating loss (working
           capital) loan insured by HUD does not constitute approval of all prior expenses.
           Therefore, we continue to maintain that the costs claimed were
           unnecessary/unreasonable or unsupported.




                                              134
                  Attachment A




Comment 3




            135
                  Attachment B




Comment 8




            136
                   Attachment C




Comment 12




             137
138
139
140
                   Attachment D




Comment 13




             141
Comment 13




             142
                  Attachment E




Comment 9




            143
                                                                                Attachment F



                       Antonio L. Giordano Related Entities



1. Construction Software Inc.
    (Computer systems business) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    President: John J. Montecalvo, From 2000 to 2004
    Secretary: Janice M. Strang, From 2001 to 2004
    Treasurer: Antonio A. Giordano, From 2001 to 2004, (Son of Antonio L. Giordano)

2. Consultants Associates, Inc.
    (Real estate consulting firm) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    President: Antonio A. Giordano, From 2001 to 2003, (Son of Antonio L. Giordano)
    Vice President: Mary D. Gentili, From 2001 to 2003, (Daughter of Antonio L. Giordano)
    Secretary: Madonna D. Giordano, From 2001 to 2003, (Daughter of Antonio L.
    Giordano)
    Treasurer: Antonio A. Giordano, From 2001 to 2003, (Son of Antonio L. Giordano)
    President: Casimir Kolaski, From 2004 (Former Director of HUD Providence Field
    Office)
    Secretary: Janice M. Strang, From 2004

3. Consultants, Inc.
    (Real estate consulting firm) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    President: Antonio A. Giordano, From 2000 to 2004, (Son of Antonio L. Giordano)
    Vice President: Mary D. Gentili, From 2002 to 2004, (Daughter of Antonio L. Giordano)
    Secretary: Janice M. Strang, From 2000 to 2004
    Treasurer: John J. Montecalvo, From 2000 to 2004

4. Gregory Building Company
    (Construction company) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    President: Antonio A. Giordano, From 2001 to 2004, (Son of Antonio L. Giordano)
    Vice President: Peter Castriotta, From 2001 to 2004
    Secretary: Madonna D. Giordano, From 2002 to 2004, (Daughter of Antonio L.
    Giordano)
    Secretary: Mary D. Gentili, 2001, (Daughter of Antonio L. Giordano)
    Treasurer: Mary D. Gentili, From 2001 to 2004, (Daughter of Antonio L. Giordano)

5. Hillside Health Center Associates, LP
    (Nursing home owner) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    General Partner: Consultants Inc. (See above)


                                             144
6. Hillside Health Center, LLC
    (Nursing home operator) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    Manager: John J. Montecalvo, From 2000 to 2003

7. Management Reality Services
    (Real estate management agent) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    President: Mary D. Gentili, From 2003 to 2004, (Daughter of Antonio L. Giordano)
    President: Mona Renchan, 2002
    President: Juliette A. Vaccaro, 2001
    Vice President: Mary D. Gentili, 2002, (Daughter of Antonio L. Giordano)
    Secretary: Mary D. Gentili, From 2002 to 2004, (Daughter of Antonio L. Giordano)
    Secretary: Janice M. Strang, From 2001 to 2004
    Treasurer: Antonio A. Giordano, From 2001 to 2004, (Son of Antonio L. Giordano)

8. Mount Saint Francis Associates.
    (Nursing home owner/operator) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    General Partner: Antonio L. Giordano

9. My Place, Inc.
    (Employee relations firm) Giordano interest
    RI Office of Secretary of State records indicate the officers as follows;
    President: Mary D. Gentili, From 2001 to 2004, (Daughter of Antonio L. Giordano)
    Vice President: Madonna Giordano, From 2001 to 2004, (Daughter of Antonio L.
    Giordano)
    Secretary: Janice M. Strang, From 2001 to 2004
    Treasurer: John J. Montecalvo, From 2001 to 2004

10. Simon and Windsor Interiors
      (Interior design firm) Giordano interest
      RI Office of Secretary of State records indicate the officers as follows;
      President: Mary D. Gentili, From 2001 to 2004, (Daughter of Antonio L. Giordano)
      Vice President: Antonio A. Giordano, From 2001 to 2004, (Son of Antonio L. Giordano)
      Secretary: Janice M. Strang, From 2001 to 2004
      Treasurer: John J. Montecalvo, From 2001 to 2004


11. Sterling Health Care Management Company, LLC
      (Nursing home management agent) Giordano interest
      RI Office of Secretary of State records indicate the officers as follows;
      Manager: John J. Montecalvo, From 2000 to 2003




                                              145
12. Suburban Mortgage Associates Inc.
     (State of Maryland public records) Giordano interest
     President: J. Walsh Richards, From 1978 to present
     Vice President: Antonio L. Giordano, From 1978 to 2003
     Vice President: Edmond Richards, dates of service unavailable,
     Vice President: Kimberly Papuchis, dates of service unavailable
     Vice President: David N. Eaton, dates of service unavailable
     Treasurer: Ngyuet M. Pham, dates of service unavailable




                                           146