We audited Lighthouse Inn, an assisted living facility located in Pompano Beach, FL.  In April 2008, the U.S. Department of Housing and Urban Development (HUD) insured the $5.1 million mortgage on the property under Section 232 of the National Housing Act.  In September 2010, the facility defaulted on the mortgage loan.  Our overall audit objective was to determine whether the owner of Lighthouse Inn complied with the executed regulatory agreement and HUD requirements.

The owner of Lighthouse Inn did not comply with the regulatory agreement and HUD requirements.  Specifically, it did not ensure (1) that all disbursements were eligible and supported, (2) that all receipts from tenants were eligible, (3) prompt mortgage payments, (4) the annual submission of audited financial reports, (5) proper maintenance of the tenant security deposit account, (6) the accuracy of books and accounts, and (7) that the facility was in good repair and condition.  These conditions occurred because the owner disregarded the stipulations in the executed regulatory agreement.  Consequently, Lighthouse Inn disbursed approximately $147,000 in ineligible costs and $208,000 in unsupported costs and collected $10,950 in ineligible fees.  In addition, HUD paid a claim of nearly $5.8 million to the lender on February 20, 2013.  Then, on August 20, 2013, HUD sold the note on the facility for a little over $1 million.

We recommend that the Director of the Office of Residential Care Facilities require the owner of Lighthouse Inn reimburse HUD’s Federal Housing Administration fund $146,983 in ineligible costs and $208,154 in unsupported costs if it cannot provide documentation to support that they are eligible and return the $10,950 in collected fees to tenants.  Also, we recommend that the Director of the Departmental Enforcement Center pursue civil money penalties and administrative sanctions against the owner for regulatory agreement violations.