oversight

The Owner of Ebony Lake Healthcare Center, Brownsville, Texas, Violated Its Regulatory Agreement with HUD

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-11-25.

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

                                                                   Issue Date
                                                                          November 25, 2008
                                                                   Audit Report Number
                                                                          2009-FW-1002




TO:         Gretchen Marchand, Director, Multifamily Housing Division, 6JHMLAX

            Henry S. Czauski, Acting Director, Departmental Enforcement Center, CV


FROM:       Gerald R. Kirkland
            Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The Owner of Ebony Lake Healthcare Center, Brownsville, Texas, Violated Its
         Regulatory Agreement with HUD


                                    HIGHLIGHTS

 What We Audited and Why

             As part of the Office of Inspector General’s (OIG) annual audit plan and because
             of significant regulatory violations identified at another property owned by an
             entity related to Century Ebony Lake - GEAC, LLC (owner), we audited Ebony
             Lake Healthcare Center (project). Our objectives were to determine whether the
             project’s owner (1) transferred funds from the project in violation of its regulatory
             agreement with the U. S. Department of Housing and Urban Development (HUD)
             and HUD directives and (2) expended property funds for only reasonable and
             necessary project expenses in accordance with the regulatory agreement.


 What We Found

             The owner violated the regulatory agreement when its managers ignored HUD
             directives by making 96 transfers from the project that totaled more than $4
             million from January through December 31, 2007. Of that $4 million, $497,000
             had not been repaid to the project as of December 31, 2007. In addition, the
             managers did not follow the regulatory agreement and instructions from HUD’s
           Departmental Enforcement Center (DEC) which caused ineligible and
           unsupported costs of $340,549 to be charged to the project. The managers’
           actions also unnecessarily depleted the project’s operating resources and
           increased the risk of default on the project’s Federal Housing Administration
           (FHA)-insured loan. Additionally, the managers’ unauthorized transfers during
           June 2007 prevented $167,026 from being deposited into the project’s residual
           receipts account. We also found that the owner did not implement the required
           financial and accounting controls which resulted in incomplete and inaccurate
           financial records for the project. Consequently, HUD and other stakeholders
           could not reasonably assess the financial condition of the project.


What We Recommend

           We recommend that the Director of HUD’s San Antonio Multifamily Program
           Center require the owner to (1) ensure that unauthorized transfers of funds do not
           resume, (2) deposit $657,449 into the project’s residual receipts account for the
           $497,000 in outstanding transfers and $160,449 in ineligible costs, (3) provide
           support for $180,000 in accrued legal fees, or make the necessary adjustments to
           the financial records, (4) implement financial and accounting controls, and (5)
           correct and maintain accounting records in compliance with the regulatory
           agreement. We also recommend that HUD’s Acting Director of the DEC seek
           civil money penalties and administrative sanctions, as appropriate, against the
           responsible parties for using project funds in violation of the regulatory
           agreement.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We provided the draft report to the owner on October 29, 2008, with comments
           due by November 14, 2008. We held an exit conference on November 10, 2008.
           On November 14, 2008, the counsel for the sole member of the owner responded
           on behalf of the owner. The owner both agreed and disagreed with the findings
           and recommendations in the draft report. The complete text of the response
           narrative along with our evaluation is included in appendix B of this report. The
           owner also provided financial information as attachments to the response that are
           not included in appendix B, but are available upon request.




                                            2
                           TABLE OF CONTENTS

Background and Objectives                                                  4

Results of Audit
      Finding 1:    Managers Improperly Transferred More Than $4 Million   5
                    in Project Funds

      Finding 2:    The Owner Incurred More Than $340,000 in Questioned    8
                    Costs

      Finding 3:    The Owner Did Not Maintain Complete and Accurate       11
                    Financial Information

Scope and Methodology                                                      14

Internal Controls                                                          15

Appendixes
   A. Schedule of Questioned Costs                                         16
   B. Auditee Comments and OIG’s Evaluation                                17




                                           3
                      BACKGROUND AND OBJECTIVES

Ebony Lake Healthcare Center (project) is owned by Century Ebony Lake - GEAC, LLC
(owner), a not-for-profit, limited liability company. The Governmental and Educational
Assistance Corporation (GEAC) is the sole member and 100 percent owner of Century Ebony
Lake - GEAC, LLC. According to the limited liability company’s articles of organization,
GEAC is responsible for selecting property management and ensuring compliance with HUD
requirements. The project, located at 1001 Central Boulevard in Brownsville, Texas, is a 122-
bed licensed nursing facility specializing in the care of elderly residents. The project’s mortgage
is insured by the Federal Housing Administration (FHA) under Section 223(f) of the National
Housing Act.

Early in 2004, the U. S. Department of Housing and Urban Development’s (HUD) Departmental
Enforcement Center (DEC) reviewed five HUD-insured projects (including the project) affiliated
with GEAC. It found that for fiscal years 2001 through 2003, GEAC violated the terms of the
regulatory agreements for all five HUD-insured projects by (1) transferring funds between
projects without prior written authorization, (2) disbursing residual receipts which were based on
an erroneous computation of surplus cash, and (3) paying excessive management agent fees and
unauthorized consultant fees. HUD also questioned legal fees that the owner charged to the
project and reminded it that such fees required documentary support. As a result of the review,
HUD required the owner to change the management agent on or before December 31, 2004.
HUD approved an interim management entity to manage property operations until the project
became owner operated on April 1, 2005. The owner contracted with a bookkeeping firm to
provide accounting services for the project. It also appointed two managers to represent it and
run the project’s day-to-day operations. While reviewing the project’s fiscal year 2007 financial
statements, the owner discovered that the managers were making unauthorized transfers from
project accounts. It terminated the managers and contracted with a HUD-approved management
agent. The new management agent began managing the project in December 2007.

Our objectives were to determine whether the project’s owner (1) transferred funds from the
project in violation of the regulatory agreement and HUD directives and (2) expended property
funds for only reasonable and necessary project expenses in accordance with the regulatory
agreement.




                                                 4
                                         RESULTS OF AUDIT

Finding 1: Managers Improperly Transferred More Than $4 Million in
           Project Funds
Property managers appointed by the owner improperly transferred more than $4 million in
project funds to affiliated projects from January 1 through December 31, 2007. Of the $4 million
transferred out, $497,000 had not been repaid to the project as of December 31, 2007. This
condition occurred because the owner did not implement required controls,1 and because the
managers ignored HUD instructions. As a result, fewer project funds were available for
mortgage payments, $167,026 was not deposited into the project’s residual receipts account on
June 30, 2007, and the risk to the FHA insurance fund was unnecessarily increased.



    Managers Ignored HUD
    Instructions and the Regulatory
    Agreement

                   The managers repeatedly violated the regulatory agreement2 and HUD directives
                   when they authorized 96 transactions to transfer more than $4 million to three
                   affiliated projects during calendar year 2007. DEC previously told the owner in
                   April 2004 that it had to obtain HUD approval before making transfers between
                   projects. However, the owner did not implement controls to help ensure that the
                   unauthorized transfers did not occur again. Additionally, the managers ignored
                   HUD’s instructions and continued to transfer funds between projects to meet
                   operational needs. As of December 31, 2007, the managers had not repaid the
                   project for transfers of $497,000. The owner should repay the outstanding
                   transfers to the project’s residual receipts account to help ensure future
                   expenditures are for only eligible property expenses.

    The Managers’ Actions Kept
    $167,026 from Being Deposited
    into the Residual Receipts
    Account

                   The managers’ unauthorized transfers reduced project cash, resulting in a negative
                   surplus cash balance of $327,974 on June 30, 2007. If the managers had not

1
      Section 9 (c) of the regulatory agreement requires project funds be used for services, supplies, and materials that
      are reasonably necessary for the operation of the project.
2
      Section 4(b) of the regulatory agreement states that without prior HUD approval, the owner shall not assign,
      transfer, dispose of, or encumber any personal property of the project, including rents, and shall not disburse or
      pay out any funds except for usual operating expenses and necessary repairs.

                                                            5
             transferred cash from the project, the surplus cash balance would have been
             $167,026. The regulatory agreement requires that surplus cash be deposited into
             the project’s residual receipts account, a restricted access account. Therefore, the
             managers’ unauthorized transfers prevented $167,026 from being deposited into
             the project’s residual receipts account.

The Owner Terminated
Managers Responsible for the
Transfers

             In a letter dated October 5, 2007, the owner terminated the managers responsible
             for making the improper transfers after noticing unpaid, interproject transfers on
             the project’s June 30, 2007 financial statements. There were no additional
             transfers from the project after that date.


Conclusion


             Although HUD previously informed the owner to cease making transfers of
             project funds, its managers ignored HUD’s directives and continued to make a
             significant number of unauthorized material transfers. The unauthorized transfers
             reduced the amount of available operating funds and prevented $167,026 from
             being deposited into the residual receipts account. In addition, the managers’
             actions increased the risk that the project would not have sufficient funds to pay
             its mortgage premium; thereby, unnecessarily placed the FHA insurance fund at
             increased risk.

Recommendations



             We recommend that the Director of HUD’s San Antonio Multifamily Program
             Center require the owner to

             1A. Implement controls over project disbursements to help ensure that
                 unauthorized transfers of funds between affiliated HUD-insured properties
                 do not resume.

             1B. Deposit $497,000 from nonfederal funds into the project’s residual receipts
                 account.




                                               6
We further recommend that the Acting Director of HUD’s Departmental
Enforcement Center

1C.   Pursue civil money penalties and administrative sanctions, as appropriate,
      against the owner, operator, and/or their principals/owners for their part in
      the regulatory violations cited in this report.




                                7
Finding 2: The Owner Incurred More Than $340,000 in Questioned
           Costs
The owner violated the regulatory agreement3 and did not take appropriate actions to recover
project revenues, causing the project to incur questioned costs of $340,549. The questioned
costs included $140,438 in unauthorized owner distributions; $20,011 in ineligible costs for
flowers, gifts, and excessive management fees; and $180,100 in unsupported costs for legal and
administrative fees. This condition occurred because the owner did not implement the required
financial and accounting controls that included HUD’s accounting requirements. The owner’s
actions unnecessarily depleted the project’s operating resources and increased the risk of default
on the project’s FHA-insured loan.


    Unauthorized Distributions
    Totaled $140,438

                  Even though the regulatory agreements require project receipts to be deposited
                  into an account in the project’s name, the former owner failed to do so.4 Instead,
                  the former owner took funds that belonged to the project resulting in unauthorized
                  distributions. 5 When the deposits were made, the project’s manager was also a
                  principal of the former owner.6 Although the project became HUD insured in
                  November 2000, in March and October of 2001 Medicaid and Medicare receipts
                  of $140,438 were deposited into the former owner’s bank account rather than the
                  project’s account. The current owner learned about the unauthorized distributions
                  on or before September 20, 2004, but it has not taken appropriate actions to
                  recover the funds.




3
     Sections 9(b), (c), and (e), require the owner to provide satisfactory project management, keep the books and
     account of project operations in accordance with HUD requirements, and pay for supplies and services rendered
     and reasonably necessary for the operation of the project.
4
     Section 9 (h) states that all receipts of the project shall be deposited in the name of the project into a bank
     insured by the Federal Deposit Insurance Corporation. Such funds shall be withdrawn in accordance with the
     provisions of this agreement for expenses of the project. Any person receiving funds of the project shall
     immediately deposit such funds into the project bank account and failing to do so in violation of this agreement
     shall hold such funds in trust.
5
     Section 16(e) of the Regulatory Agreement: “Distribution” means any withdrawal or taking of cash or other
     assets of the project other than for mortgage payments or reasonable expenses.
6
     The chief executive officer of Century Care, Inc.,--the project’s manager was also the president and director of
     Brownsville Nursing Center, Inc., --the former owner.

                                                          8
Ineligible Expenses Totaled
$20,011

             The owner violated the regulatory agreement when it used $20,011 for ineligible
             expenses. For example, the owner paid $1,601 to send flowers and gifts to the
             families of deceased residents and project staff which HUD does not consider to be
             reasonable and necessary operating costs of a project. The owner apparently paid
             these costs because it was unaware that they were prohibited by HUD. In addition,
             instead of using the HUD-approved 5 percent management fee rate, the owner used
             a flat monthly rate, which resulted in $18,410 in excessive management fees being
             paid for the month of December 2007. The owner admitted to overpaying the
             management fee but stated it did so because of bond financing requirements.
             However, HUD approval of the change in the management fee calculation and
             payment method was required and had not been obtained.

Unsupported Expenses Totaled
$180,100

             The owner violated the regulatory agreement when it could not support $180,100
             in accrued legal expenses and administrative fees. In April 2004, the DEC
             questioned legal fees that the owner charged to the project, and reminded it that
             such fees required documentary support. The owner accrued $180,000 in legal
             expenses during calendar year 2007, but it could not show that the legal fees were
             reasonable or for services that were actually rendered. The owner also could not
             provide support for $100 that it paid for an interim administrator.


Conclusion


             The owner violated the regulatory agreement when it failed to recover project
             revenues, paid excessive management fees, and did not implement the required
             financial and accounting controls. The owner’s actions caused the property to
             incur $20,111 in unnecessary costs and $140,438 in ineligible distributions. As a
             result, the project had fewer resources to meet its mortgage obligation, which
             increased the risk to the FHA insurance fund. Because of the continuing nature of
             the owner’s regulatory violations, we will recommend the owner repay
             unsupported and ineligible costs to the project’s residual receipts account to help
             ensure future expenditures are for eligible property expenses.




                                              9
Recommendations



          We recommend that the Director of HUD’s San Antonio Multifamily Program
          Center require the owner to

          2A. Reimburse from nonfederal funds $140,438 to the project’s residual receipts
              account for the ineligible distribution.

          2B. Deposit $20,011 for the ineligible disbursements cited in this report into the
              project’s residual receipts account.

          2C. Provide documentation to support $180,000 in accrued legal fees, or make the
              necessary adjustments to the financial records to more accurately reflect the
              financial position of the project.

          2D. Provide documentation to support the $100 in unsupported administrative fees
              cited in this report or reimburse the project’s residual receipt account.

          2E. Implement the required financial and accounting controls to help ensure that
              responsible project personnel have an adequate knowledge of HUD
              accounting requirements and that future expenditures comply with the
              regulatory agreement.

          We further recommend that the Director of HUD’s Departmental Enforcement
          Center

          2F.     Pursue civil money penalties and administrative sanctions, as appropriate,
                  against the owner, operator, and/or their principals/owners for their part in
                  the ineligible expenditures cited in finding 2.




                                           10
Finding 3: The Owner Did Not Maintain Complete and Accurate
           Financial Information
The owner did not maintain complete and accurate financial records resulting in misclassified
expenses and assets in the general ledger and in the June 30, 2007 audited financial statements.
This condition occurred because the owner did not implement the required financial and
accounting controls, and the project’s accounting personnel did not accurately account for its
operating activities. Consequently, HUD and other stakeholders could not reasonably assess the
financial condition of the project.


    Interproject Transfers were
    Not Recorded on the General
    Ledger


                  The interproject transfers were not recorded in the general ledger because the
                  owner did not implement the required financial and accounting controls. HUD
                  requires the owner to maintain complete and accurate financial information.7
                  However, the accounting policies and procedures manuals used by the project’s
                  accountants did not include HUD accounting guidelines. Consequently, the
                  project’s accountants did not record the transfers in compliance with HUD
                  requirements.

                  The accountants did not record the unauthorized transfers as interproject
                  receivables in the general ledger. Instead, they kept an (off-book) record of the
                  transfers and made adjusting entries at fiscal year end. For example on June 30,
                  2007, the accountants reclassified $495,000 from cash to miscellaneous
                  receivables on the general ledger to account for the decrease in cash related to the
                  transfers still due from affiliated projects. Because the accountants did not record
                  the transfers in the general ledger, evidence of the total amount and number of
                  transfers was determined only after an extensive examination of the project’s
                  general ledger accounts and bank records. This method of accounting for
                  interproject transfers is not in compliance with the regulatory agreement because
                  it does not provide for accounting records that are complete, accurate, or in a
                  condition for a proper audit.




7
     Sections 9 (d) and (e) require the owner to keep the books and account of project operations in a condition for a
     proper audit and in accordance with HUD requirements. HUD Handbook 4370.2, paragraph 2-3B, requires that
     financial records be complete, accurate, and updated on a monthly basis.

                                                         11
    The Owner Misclassified Assets and
    Expenses in the Audited Financial
    Statements and the General Ledger

                   The owner misclassified assets and expenses in the project’s financial statements
                   and general ledger. HUD requires the owner to maintain complete and accurate
                   financial information8 and to fully disclose the results of operations and the
                   financial condition of the project in financial reports.9

                           The project inaccurately classified the unauthorized transfers as
                            miscellaneous accounts receivable in the general ledger and inaccurately
                            reported the transfers as miscellaneous other assets, account 1590, in the
                            June 30, 2007 audited financial statements. HUD designated the 1500
                            account series to be used for long-term investments.10 The notes to the
                            financial statements clearly showed that the transactions are notes
                            receivable, thus, the transactions needed to be recorded as such in account
                            series 1150 “Notes Receivable”. Also, the owner recorded the decrease in
                            cash associated with the unauthorized transfers as investment activities on
                            the statement of cash flows which does not fully disclose that the owner
                            advanced funds to related parties.

                           The project’s general ledger recorded the unauthorized distributions of
                            project revenue as a negative notes payable in the general ledger. The
                            independent public accountant reclassified this negative payable as a
                            miscellaneous other assets, account 1590, when preparing the June 30,
                            2007 audited financial statements. The accounting for this transfer did not
                            disclose that project funds were never deposited.

                           The owner misclassified 17 expense items in the project’s general ledger
                            and the June 30, 2007 audited financial statements. For example, garbage
                            and hazardous waste expenses were classified under the category for
                            exterminating supplies, telephone expenses were classified under the
                            category for office supplies, pest control expenses were recorded in the
                            general ledger account for garbage removal, and X-ray expenses were
                            recorded in the general ledger account for barber and beauty expenses.




8
      HUD Handbook 4370.2, paragraph 2-3B, requires that financial records be complete, accurate, and updated on a
      monthly basis.
9
      HUD Handbook 4370.2, paragraph 3-2, requires that financial reports provide a full disclosure of the results of
      operations and the financial condition of the project.
10
      HUD Handbook 4370.2, Financial Operations and Accounting Procedures for Insured Multifamily Projects,
      Chapter 4.

                                                         12
Conclusion


             The owner’s failure to maintain complete and accurate financial records prevented
             HUD and other stakeholders from properly assessing the project’s true financial
             condition. The owner was responsible for implementing the required financial
             and accounting controls to ensure compliance with the regulatory agreement and
             HUD requirements.

Recommendations



             We recommend that the Director of HUD’s San Antonio Multifamily Program
             Center require the owner to

             3A. Correct and maintain accounting records in accordance with requirements.

             3B. Implement the required financial and accounting controls to help ensure that
                 responsible project personnel have an adequate knowledge of HUD
                 accounting requirements and that future expenditures comply with the
                 regulatory agreement.




                                            13
                         SCOPE AND METHODOLOGY

Our objectives were to determine whether the project’s owner (1) transferred funds from the
project in violation of the regulatory agreement and HUD directives and (2) expended property
funds for only reasonable and necessary project expenses in accordance with the regulatory
agreement. We also found that the owner did not implement the required financial and
accounting controls which resulted in incomplete and inaccurate financial records for the project.

To accomplish our objectives, we

       Interviewed HUD management and staff.
       Interviewed the owner and current management agent.
       Reviewed applicable regulations, handbooks, and the regulatory agreement.
       Reviewed previous DEC evaluations of the project.
       Reviewed the independent auditor’s report for June 30, 2007.
       Reviewed the independent auditor’s agreed-upon procedures report dated November 9,
       2007.
       Reviewed the San Antonio, Texas, Office of Multifamily Housing project files.

We also

       Used bank records to verify the project’s financial information related to the unauthorized
       transfers.
       Reviewed supporting documentation, including checks and invoices, for a
       nonrepresentative sample of general ledger transactions that appeared to have an
       unusually high balance or that appeared questionable.

The owner’s contract bookkeeper provided computerized accounting records taken from its
accounting software. We used computerized accounting data for information and background
purposes only because we found the data to be unreliable. Specifically, the owner did not
completely and accurately record more than $4 million in unauthorized transfers (see finding 1)
and misclassified 17 expense items in the project’s general ledger (see finding 3). Additionally,
we could not readily reconcile the amounts reported on the June 30, 2007, audited financial
statements to the project’s general ledger. Consequently, the audit results are based on our
review of source documentation including checks, invoices, the owner’s signed transfer
approvals, and bank records.

We conducted the audit between May 27 and August 29, 2008, at the HUD San Antonio field
office. The owner and contracted bookkeeper provided the records and documentation via mail,
e-mail, and fax. Our audit covered the period January 1 through December 31, 2007, but we
expanded our scope as necessary for questionable items.

We performed our review in accordance with generally accepted government auditing standards.



                                                14
                             INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

       Effectiveness and efficiency of operations;
       Reliability of financial reporting; and
       Compliance with applicable laws and regulations.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls

              We determined the following internal controls were relevant to our audit objectives:

                   Controls over compliance with laws and regulations;
                   Controls over disbursements; and
                   Controls over financial reporting.

              We assessed the relevant controls identified above.

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

 Significant Weaknesses


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

                  Controls over compliance with laws and regulations were ineffective or
                  nonexistent (findings 1, 2, and 3).
                  Controls over disbursements did not ensure that property funds were expended
                  for only reasonable and necessary expenses (findings 1 and 2).
                  Controls over financial reporting did not ensure that financial records and
                  reports completely and accurately recorded property transactions and fully
                  disclosed the financial position of the property (findings 1 and 3).



                                               15
                                          APPENDIXES

Appendix A

                    SCHEDULE OF QUESTIONED COSTS


     Recommendation                        Ineligible 1/                         Unsupported 2/
         number
           1B                                $497,000
           2A                                 140,438
           2B                                  20,011
           2C                                                                       $180,000
           2D                                                                            100

         Totals                               $657,449                              $180,100




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

2/    Unsupported costs are 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.




                                                     16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




Comment 3




                         18
Comment 4




Comment 5




            19
                       OIG Evaluation of Auditee Comments


Comment 1   The owner agreed that the managers improperly transferred project funds from
            Ebony Lake and has implemented controls and directives to help assure that no
            future unauthorized transfers are made. However, it also stated that it could
            not repay $497,000 to the project because it had no assets or funds available.

            We maintain that HUD should require the owner to repay $497,000 to the
            project from nonfederal funds and if necessary pursue civil money penalties
            and administrative sanctions.

Comment 2   We disagree with the owner’s claim that it was not responsible for $140,438 in
            unauthorized distributions. The owner was responsible for ensuring that
            distributions were in accordance with its regulatory agreement with HUD.
            Hiring a management company to conduct the project operations does not
            relieve the owner of its responsibility; thus, the owner should reimburse the
            residual receipts account as stated in recommendation 2A.

Comment 3   The owner did not agree with the finding and recommendation regarding the
            $1,601 it paid for flowers and gifts. It said these expenditures were necessary
            to maintain goodwill in the community. We disagree. The expenses were not
            reasonable and necessary operating expenses thus were ineligible and should
            be repaid as stated in recommendation 2B.

Comment 4   We are encouraged that the owner agreed to adjust legal fee accruals to
            historical levels. The owner also provided financial records showing that it
            made adjustments to the legal fee accruals for the fiscal year ending June 30,
            2008. HUD should review the accruals to determine if they are reasonable.

Comment 5   We are encouraged that the owner has taken steps to implement financial and
            accounting controls to correct the deficiencies noted in finding 3.




                                           20