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We audited the U.S. Department of Housing and Urban Development’s (HUD) monitoring of the financial performance of Section 232 nursing homes based on the size of their program, the inherent risks in the program, the length of time since our last audit, and the inclusion of this review in the annual audit plan.  Our audit objective was to determine whether HUD had sufficient financial information and used this information to adequately assess and monitor the financial status of the nursing homes. 

HUD did not always have and use sufficient financial information to adequately assess and monitor nursing homes.  Specifically, it (1) allowed four defaulted nursing homes to remain in its portfolio for up to 6½ years; (2) made a partial payment to help one nursing home return to solvency, and it went bankrupt 14 months later; (3) insured a nursing home that did not operate as a single-asset entity and a nursing home that did not submit a marketing plan; (4) did not enforce its regulatory agreements at six nursing homes; and (5) did not properly classify nine nursing homes as troubled.  In addition, HUD did not require owners, operators, and lenders to routinely submit financial data that were sufficient, accurate, complete, and timely.  These deficiencies occurred because HUD’s actions did not always identify and address the root causes of a nursing home’s financial challenges.  As a result, HUD could lose more than $32.1 million for the defaulted mortgages and owed more than $10 million in carrying costs.  It did not act on ineligible expenses of more than $7.8 million, unsupported expenses of more than $8.9 million, and accrued expenses of more than $44.4 million.  Additionally, nine nursing homes, with more than $82.4 million in HUD-insured mortgages, were at risk of default.

We recommend that the Director of Asset Management and Lender Relations, Office of Residential Care Facilities, (1) develop, implement, and enforce action plans with defined completion dates to address each nursing home’s challenges; (2) require support for more than $8.9 million in expenses and documentation for the validity of the more than $44.4 million in accounts payable; (3) require repayment of more than $7.8 million in ineligible expenses; and (4) follow up on inaccurate, incomplete, conflicting, and late financial data.