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We audited Health Concepts Ltd., a management agent that administers six Federal Housing Administration (FHA)-insured nursing homes.  We conducted this audit based on our review of the Pine Grove Health Center.  The review found that Pine Grove’s owners paid salaries for onsite staff that were covered under the management agreement and charged for services that should have been included in the management fee.  Our objectives for this audit were to determine whether the management agent, Health Concepts, had the other five nursing homes’ owners pay salaries for onsite staff that were covered under the management agreement and charged for services provided under the management fee.

The nursing homes’ owners paid salaries for onsite bookkeepers and accounts payable staff whose services were to be performed by the management agent.  However, the U.S. Department of Housing and Urban Development (HUD) approved management certifications that allowed nursing home funds to be used for these onsite staff.  Although the management certifications conflicted with the management agreements, we had no concerns since HUD approved these costs based on the approved certifications.  Similar to Pine Grove, Health Concepts’ owners also charged the nursing homes for services that were included in the management agreement and were to be paid for as part of the management fee.  This condition occurred because the nursing homes lacked adequate controls over payments for services that were part of the management fee.  As a result, the nursing homes incurred unnecessary costs that could add financial burden.

We recommend that the Director of HUD’s Office of Residential Care Facilities require Health Concepts to develop and implement adequate controls over payments for services that are part of the management fee.