The audit found no legal reason why the sale could not proceed, and county officials said they would move forward because Menkowitz's actions "did not in any way influence the selection process."
But the results will further anger critics who opposed the sale of the land as part of the deal, citing concerns about development on the hilly, 288-acre campus. The sale was supposed to close in December, but has been delayed by ongoing inspections and repairs.
In a statement released late Tuesday, Menkowitz, 71, said: "During the course of this transaction, I have fully disclosed who I was and what my affiliation was with Parkhouse. If I was not supposed to participate in this transaction, then someone on the [county's bid review panel] should have told me."
Menkowitz's attorney, Jeffrey M. Lindy, said he did not see how his client's position as a Parkhouse employee for decades would have given Mid-Atlantic an unfair advantage.
The county controller launched the investigation and audit in January, after Menkowitz "visited the retirement department of the Controller's Office and made statements concerning his dual role as county employee and [Mid-Atlantic] business partner," the report says.
Mid-Atlantic disclosed its dealings with Menkowitz and his company, Ganas, on the first page of its bid. But chief executive Scott Rifkin said he did not know Menkowitz was on the Parkhouse payroll until after the purchase agreement had been signed.
County spokesman Frank Custer said senior staff evaluating the bids did not recognize Menkowitz as an employee until the Controller's Office began its investigation.
According to the auditors, Parkhouse administrator Melanie McGarry - a key member of the panel that evaluated the bids and recommended Mid-Atlantic's - knew of Menkowitz's involvement as early as June 2013, when the county publicly announced its willingness to sell.
Menkowitz called McGarry "and advised her he wanted to 'invest' in the sale of Parkhouse," according to the report. He asked, " 'Who do you like?' Ms. McGarry responded that, if she had to choose at that time, she would choose Mid-Atlantic."
Ganas, co-owned by Menkowitz and Joshua Rosenbloom, presented itself to Mid-Atlantic as a real estate partner with expertise in the Royersford area, Rifkin said in an interview.
After joining forces with Mid-Atlantic, Menkowitz sent e-mails outlining concerns of Parkhouse staff, with instructions for Mid-Atlantic's team "to prepare to answer these types of questions," according to the audit.
He also asked Parkhouse's chief financial officer about revenue generated by the facility, but according to the controller's report, the chief financial officer and McGarry agreed "that the request was inappropriate" and did not give him the information.
The county panel was then deciding between Mid-Atlantic and another company, whose bid was lower, according to the audit.
The bid by Mid-Atlantic, a Maryland-based company that operates skilled-nursing facilities in Philadelphia, Delaware and elsewhere, was the highest and received unanimous support from county officials and the commissioners in October. The sale would drastically reduce the county's debt and operating expenses and restore the county's reserve fund after years of depletion.
Menkowitz, of Pottstown, has been at Parkhouse for more than 30 years, but in recent years has worked less than two hours a week, county officials said.
He is unlikely to face criminal charges because the Pennsylvania Public Official and Employee Ethics Act applies only to elected officials or employees responsible for procurement. His role as a part-time clinician did not include procurement.
His company, Ganas, was to receive 5 percent equity in Parkhouse, worth about $2 million a year, and exclusive development rights for the vacant land for 21/2 years, according to the controller's report.
Rifkin said Mid-Atlantic would retain control over any development, so Ganas would only have "the exclusive right to bring us ideas."
The $35 million sale would include Parkhouse's three buildings - independent-living apartments, short-term and long-term care, and day services - and about 220 acres of surrounding land along the Schuylkill.
The prospect of development on that land sparked an outcry in Upper Providence Township, where many residents wanted it protected as open space.
In its bid, Mid-Atlantic said it planned to spend $15 million to renovate the facility, upgrade equipment and add beds, and also consider building a continuing-care retirement community.
In a letter this month, Rifkin told the commissioners that such a facility "would take only 10 to 20 acres, leaving the rest of the space for community use." But after hearing the community opposition, Rifkin wrote, "we decided not to pursue that option."
Josh Stein, a solicitor for the county, confirmed that Mid-Atlantic does not plan to build on the land and said, "We're looking at what we can do, in terms of the agreement, to allay some of those concerns."
Asked whether Ganas was still working with Mid-Atlantic, Rifkin said he was looking into it.
The audit does not fault Mid-Atlantic, saying the county's procurement policy "fails to prohibit contractors from obtaining material information relating to a procurement from county employees."