Pursuant to a March 6, 2015 memorandum from The Office of Residential Care Facilities, HUD shared its purpose behind, as well as an outline of the regulatory requirements included in HUD’s Accountability Rule.  It is important for all Section 232 FHA-insured projects to fully understand these financial submission requirements.

• Quarterly balance sheets and income statements are required for all new and existing Section 232 FHA-insured projects. (not just those that came into the Program after the Rule was Published)
•  The requirement is effective for projects with fiscal years commencing on or after December 2, 2014.
•  This requirement also applies to entities using other designations(e.g., Management Agent), but that qualify as Operators based on HUD guidance.
•  If you operate on a calendar year, the reports must be sent to the Lender (via the online 232 Healthcare Portal or email) by May 31 for the first quarter of 2015.
•  The financial statements should be quarterly fiscal year-to-date.
•  The financial statements should reflect operations at the facility level.
•  The financial statements, at the Operator’s option, may be operator-certified rather than audited.  However, if the Operator is also the Borrower, then that entity’s obligation to submit an annual audited financial statement (in addition to its obligations as an Operator to submit financial information on a quarterly and YTD basis) remains and is not obviated.
•  You should have received an email by March 9th to register for an online training about the 232 Healthcare Portal that will be used to submit the financial statements.  If you have not received the training invitation, please send an email to hhcp@hud.gov.
•  The training is scheduled on three consecutive days listed below.  Each session is the same, and it is only necessary to attend on one day:

o March 18-20, 2015
o 2:00 PM – 2:30 PM (Eastern)

•  The requirements are regulatory in nature, and as such, failure to provide the required information could result in the project being referred to HUD’s Departmental.Enforcement Center (DEC), a Notice of Violation could be put in place, and civil money penalties could be levied.
•  If an Operator fails to submit the required financial information within appropriate timeframes, the Borrower will ultimately be responsible for obtaining and submitting the documentation.
The memorandum explained,” the risk of a mortgage default in a residential care facility depends almost entirely on the facility’s viability as an ongoing business enterprise, with census-driven revenue exceeding all facility-related expenses including any operating lease or debt service obligations.”

The memorandum commented on Section 232 Program mortgages that were saved from default through the enormous “turnaround” efforts of HUD and lenders, “The mortgages might not have reached such critical situations if more complete and timely data were available to the lender and HUD.”

The memorandum stated that “even if related to the Borrower, a residential care facility Operator, is often legally distinct. Consequently, audited financials for the Borrower entity often do not shed much light on the financial viability of the facility as an ongoing business enterprise (e.g., expenses, income, and other financial information). This is primarily because they only provide information about the mortgage itself and/or the lease payments. Therefore, Operator financial statements are necessary. Additionally, operational problems often are not evident on the Borrower’s financial statements until the Operator misses a lease payment and by this time, the facility’s financial or operational problems may be acute or even irreversible. Moreover, annual reports are simply not sufficiently frequent given the nature of a residential care facility’s operations, including:
• Licensure and funding issues that can immediately arise in connection with monitoring by state regulatory and funding agencies.
• The significant pace at which the census–and thus essential revenue–can unfavorably change due to numerous deaths or to publicized patient care/operational issues.
See the Section 232 webpage below for a link Healthcare Portal, related instructions and templates here.