oversight

AUDIT RELATED MEMORANDUM
96-CH-212-1802
October 27, 1995

TO: John E. Breuer, Acting Director, Multifamily Housing Division,
   Grand Rapids Area Office

FROM: Dale L. Chouteau, District Inspector General for Audit, Midwest

SUBJECT: Harbors Health Facility
    Multifamily Mortgagor Operations
    Douglas, Michigan

We completed an audit of the books and records of Harbors Health
Facility. The audit was part of our program of periodic reviews of
multifamily mortgagor operations. Harbors Health Facility is nursing
home in Douglas, Michigan. The project has a 35 bed skilled nursing unit
and a 63 bed for the aged unit. On February 6, 1985, HUD insured the
project for $2,325,000 under Section 232 of the National Housing Act.

Harbors Health Facility, a non-profit corporation, was organized in the
State of Michigan on August 2, 1982 and amended on February 6, 1985. The
corporation was organized to construct and operate a nursing home.
Harbors Health Care, Inc. is the parent corporation. A five-member Board
governs the Corporation. The Board's President is Stanley Ellens. The
Operations President/Chief Executive Officer of Harbors Health Facility
and the Operations President of Harbors Health Care, Inc. is Leslie C.
Baird. Harbors Health Facility keeps its books and records at its
administrative offices, 415 Wiley Road, and the project site, 243 Wiley
Road, Douglas, Michigan.

Our audit objectives were to determine whether the use of project
operating funds was reasonable and in compliance with the Regulatory
Agreement and applicable HUD requirements.

We concluded that the use of project operating funds was not reasonable
and did not comply with the Regulatory Agreement. Specifically:

-- Harbors Health Facility improperly disbursed $48,157 of project
   funds to an affiliated company, Harbors Health Care, Inc. The use
   of funds was not necessary for the project's operations.

-- Harbors Health Facility used project funds to pay Harbors Health
   Care, Inc., an affiliated company, $7,655 in unnecessary or
   excessive rent payments.
As a consequence of improper and excessive disbursements, the project had
fewer funds to pay its normal operating expenses and has incurred late
payment penalties. The disbursements occurred when the project was in a
non-surplus cash position.

We provided our draft findings to the Project's Operations President/
Chief Executive Officer and HUD's Grand Rapids Office during the audit.
We held an exit conference on April 14, 1995. The Project's Operations
President/Chief Executive Officer provided written comments to our draft
findings and recommendations.

The comments did not adequately present actions to be taken or solutions
to the problems identified. Therefore, using procedures developed under
Operation Safe Home, we submitted the draft findings and auditee comments
to the Assistant U.S. Attorney for civil matters in Grand Rapids. The
Assistant U.S. Attorney negotiated a settlement with the principles
involved. Under the terms of the agreement, Harbors Health Care will pay
Harbors Health Facility $86,013 through rent offsets and a cash payment
for the difference when Harbors Health Care sells its building. The
$86,013 exceeds the amounts in the findings because of adjustments that
were made for transactions that occurred after the audit field work was
completed. Harbors Health Care also executed a $150,000 promissory note
to Harbors Health Facility to show its intention to repay the debt.

If you or your staff have any questions, please contact me at (312)
353-832.

Appendix A

Settlement Agreement

[Available in official printed copy ONLY.]

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