oversight

The Owner of a HUD-Insured Multifamily Property Settled Proposed Debarment From Participating in All Procurement and Nonprocurement Transactions With the Executive Branch of the Federal Government for a 5-Year Period

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-03-23.

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

                                                U.S. DEPARTMENT OF
                               HOUSING AND URBAN DEVELOPMENT
                                        OFFICE OF INSPECTOR GENERAL


                       
 
                                              March 17, 2016
                                                                                              MEMORANDUM NO:
                                                                                              2016-DE-1801



Memorandum
TO:           Craig T. Clemmensen
              Director, Departmental Enforcement Center, CACB

              //signed//
FROM:         Ronald J. Hosking
              Regional Inspector General for Audit, Denver Region, 8AGA

SUBJECT:      Final Action Memo: The Owner of a HUD-Insured Multifamily Property Settled
              Proposed Debarment From Participating in All Procurement and Nonprocurement
              Transactions With the Executive Branch of the Federal Government for a 5-Year
              Period


                                           INTRODUCTION

We reviewed subpoenaed bank records based on our audit of The Retreat at Church Ranch
(Office of Inspector General audit report number 2013-DE-1003). The audit found indications
that the owner used project funds for ineligible and questionable costs.

                                             BACKGROUND

The former managing member of a Colorado limited liability company, Signature – The Retreat,
LLC, is the owner of The Retreat at Church Ranch, a 47-unit assisted-living facility located in
Westminster, CO. The owner refinanced the project’s mortgage with a U.S. Department of
Housing and Urban Development (HUD)-insured mortgage under the National Housing Act. On
September 26, 2007, the owner and HUD signed a regulatory agreement, in which the owner
agreed to operate the project in accordance with HUD requirements. This agreement prohibits
Signature from paying out any funds except for reasonable operating expenses or necessary
repairs or from surplus cash without prior written approval from HUD. The agreement defines
surplus cash as cash remaining after the payments required under the mortgage terms, amounts
are deposited in the reserve fund for replacements, project obligations are met, and funds are
segregated for tenant security deposits and special funds required to be maintained by the
project.
                                            Office of Audit Region 8
                                  1670 Broadway, 23rd Floor, Denver, CO 80202
                                    Phone (303) 672-5452, Fax (303) 672-5006
                          Visit the Office of Inspector General Web site at www.hudoig.gov.
 
                                    


                                        RESULTS OF REVIEW

The owner allegedly made payments for personal expenses from the project’s bank account that
were not reasonable operating expenses, necessary repairs, or from surplus cash and without
HUD’s prior written approval. Based on our review, HUD alleged that the owner violated the
regulatory agreement. Although the owner denied HUD’s allegations, the parties negotiated a
settlement in which the owner agreed to pay HUD $500,000 over a 5-year period. We reported
this settlement in final action memorandum 2015-DE-1802.
We also requested that HUD pursue administrative actions, including debarment, against the
owner under 2 CFR (Code of Federal Regulations) Parts 180 and 2424 due to the allegations that
the owner violated the regulatory agreement. HUD notified the owner on July 22, 2015, of his
proposed debarment from future participation in procurement and nonprocurement transactions,
as a participant or principal, with HUD and throughout the Executive Branch of the Federal
Government for an indefinite period.
The owner denied HUD’s allegations. However, to avoid the uncertainty of litigation and to
arrive at a settlement that was satisfactory to both parties, the parties negotiated in good faith and
reached a settlement in which the owner will be debarred from participating in any procurement
and nonprocurement transactions with the Executive Branch of the Federal Government for a 5-
year period.
                                         RECOMMENDATION

We recommend that HUD’s Departmental Enforcement Center

1A.           Ensure that HUD completes the debarment process and appropriately notifies the
              property owner of the debarment decision.

HUD implemented the recommendation, and the final action will be recorded in HUD’s Audit
Resolution and Corrective Actions Tracking System. Therefore, the recommendation will be
closed upon issuance of this memorandum.




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