As part of the Office of Inspector General's (OIG) annual audit plan and because of significant regulatory violations identified at another property owned by an entity related to Century Ebony Lake - GEAC, LLC (owner), we audited Ebony Lake Healthcare Center (project). Our objectives were to determine whether the project's owner (1) transferred funds from the project in violation of its regulatory agreement with the U. S. Department of Housing and Urban Development (HUD) and HUD directives and (2) expended property funds for only reasonable and necessary project expenses in accordance with the regulatory agreement.

We found that the owner violated the regulatory agreement when its managers ignored HUD directives by making 96 transfers from the project, totaling more than $4 million from January through December 31, 2007 of which $497,000 had not been repaid to the project. In addition, the managers did not follow the regulatory agreement and instructions from HUD's Departmental Enforcement Center (DEC), which caused ineligible and unsupported costs of $340,549 to be charged to the project. Additionally, the managers' unauthorized transfers during June 2007 prevented $167,026 from being deposited into the project's residual receipts account. Further, the owner did not implement the required financial and accounting controls.

Our recommendations include requiring the owner to ensure that unauthorized transfers of funds do not resume, deposit $657,449 into the project's residual receipts account, provide support for $180,000 in accrued legal fees, or make the necessary adjustments to the financial records, implement financial and accounting controls, and correct and maintain accounting records in compliance with the regulatory agreement. We also recommend that HUD's Acting Director of the DEC seek civil money penalties and administrative sanctions, as appropriate, against the responsible parties.