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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