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We audited Cypress Meadows Assisted Living based on a U.S. Department of Housing and Urban Development (HUD), Departmental Enforcement Center, referral.  The referral asserted that the owner took distributions from Cypress Meadows for expenses other than the operation and maintenance of the project.  Our objective was to determine whether Cypress Meadows was managed in accordance with its regulatory and operating agreements and HUD requirements.

Cypress Meadows was not administered in accordance with its regulatory and operating agreements and HUD requirements.  It disbursed a total of $478,690 for ineligible expenses, was unable to support $65,232 in expenses, and recorded project debt liabilities of an additional $412,723 for ineligible expenses.  Also, Cypress Meadows did not collect $620,937 in rent from residents and did not deposit $163,462 in lease agreement charges into its bank account.  In addition, Cypress Meadows did not make payments on its mortgage and was $2.8 million delinquent on its Federal Housing Administration-insured loan.  This condition occurred because the owner and operator disregarded the project’s regulatory and operating lease agreements and HUD requirements and did not have controls over the operation of the project.

We recommend that HUD’s Associate General Counsel for Program Enforcement pursue civil and administrative remedies against the owner and operator of Cypress Meadows.  We also recommend that the Director of the Departmental Enforcement Center pursue appropriate civil money penalties and administrative actions against the owner and operator.  We further recommend that the Director of Asset Management and Lender Relations require Cypress Meadows to (1) repay $543,922 for ineligible and unsupported expenses, (2) remove $412,723 in improper accrued debt, (3) pay $620,937 in uncollected rent, (4) pay $162,462 in lease agreement charges not deposited, (5) replace Skyline Crest Enterprises as the operator, and (6) develop written policies and procedures including financial policies for cash disbursements and cash receipts

Recommendation Status Date Issued Summary
2017-LA-1004-001-A Cerrado Junio 13, 2017 Determine legal sufficiency and if legally sufficient, pursue civil and administrative remedies against Cypress Meadows, LLC; Skyline Crest Enterprises, LLC; the project’s owner; or all three for inappropriately disbursing funds in violation of the project’s regulatory agreement, operating lease agreement, and HUD requirements.
2017-LA-1004-001-B Cerrado Junio 13, 2017 Pursue appropriate civil money penalties and administrative actions, up to and including debarment, against Cypress Meadows LLC; Skyline Crest Enterprises LLC; the project’s owner; or all three for violating the project’s regulatory agreement, operating lease agreement, and HUD requirements.
2017-LA-1004-001-C Cerrado Junio 13, 2017 Repay the project from non-project funds $263,289 for ineligible salary expenses.
2017-LA-1004-001-D Cerrado Junio 13, 2017 Remove $283,307 in ineligible accrued salary fees payable from its financial statements and records and ensure that these expenses are not accrued or paid for with project funds.
2017-LA-1004-001-E Cerrado Junio 13, 2017 Repay the project from non-project funds $110,710 for ineligible offsite accounting expenses.
2017-LA-1004-001-F Cerrado Junio 13, 2017 Remove $129,416 in ineligible accrued offsite accounting fees payable from its financial statements and records and ensure that these expenses are not accrued or paid for with project funds.
2017-LA-1004-001-G Cerrado Junio 13, 2017 Repay the project from non-project funds $99,160 for ineligible personal health insurance expenses of the owner.
2017-LA-1004-001-H Cerrado Junio 13, 2017 Repay the project from non-project funds $4,179 for excessive bank fees.
2017-LA-1004-001-I Cerrado Junio 13, 2017 Repay the project from non-project funds $1,352 for expenses related to the identity-of-interest hair salon.
2017-LA-1004-001-J Cerrado Junio 13, 2017 Obtain approval from HUD for a lease agreement with the hair salon.
2017-LA-1004-001-K Cerrado Junio 13, 2017 Provide documentation to support that $65,232 in disbursements was used on reasonable and necessary operating expenses or repay the project from non-project funds.
2017-LA-1004-001-L Cerrado Junio 13, 2017 Pay the project $620,937 in uncollected rent from non-project funds.
2017-LA-1004-001-M Cerrado Junio 13, 2017 Pay the project from non-project funds $162,462 in lease agreement charges not deposited into Cypress Meadows’ bank account.
2017-LA-1004-001-N Cerrado Junio 13, 2017 Remove Skyline Crest Enterprises, LLC, as the operator and replace it with a HUD-approved independent operator.
2017-LA-1004-001-O Cerrado Junio 13, 2017 Develop and implement written policies and procedures for the management of the project, including but not limited to financial policies for cash disbursements, cash receipts, and documentation requirements.