Audit 311285

Department of Housing and Urban Development Federal Assistance Listing #14.128 Section 242 – Mortgage Insurance ‐ Hospitals Reporting Material Weakness in Internal Control Over Compliance and Material Noncompliance Criteria: 2 CFR 200.303(a) states that the auditee must establish and maintain effective internal control over federal awards that provides reasonable assurance that the Organization is managing the federal awards in compliance with federal statutes, regulations and terms and conditions of the federal award. Condition: The Department of Housing and Urban Development (HUD) requires a quarterly reporting of financial and statistical data. Amounts reported under “All Non‐Operating Revenue” and “Other Changes in Fund Balance” in the Organization’s third quarter report submitted to HUD were not reconciled to and did not agree with the underlying financial data. The internal financial statements do not present all of the information that is required in the HUD quarterly reports and the differing information was all put to one line on the HUD quarterly report when the differences should have been evaluated and documented. Cause: The Organization does not have a control process in place to ensure the report submitted to HUD agrees to its internal financial statements and that the internal financial statements contain all information needed to properly complete the report. Effect: The Organization reported amounts under “All Non‐Operating Revenue” and “Other Changes in Fund Balance” in a quarterly report that may be inaccurate. Per discussion with the client and observation of the other quarterly reports, it was determined that the other quarterly reports would contain the same error. Therefore, the sample size was not increased. Questioned Costs: None reported. Context: There were a total of eight reports required to be submitted to HUD during the year ended December 31, 2023. Three reports were selected for testing. Of the three reports selected, it was noted that one report contained potential errors. Repeat Finding from Prior Years: Yes, Finding 2022‐004. Recommendation: We recommend the Organization implement a control process which includes a secondary review and approval of the required reports submitted to the federal agency after they have been entered into HUD’s format by an individual who understands the financial statements and the HUD reporting requirements. Views of Responsible Officials: Management agrees with the finding.

Department of Housing and Urban Development Federal Assistance Listing #14.128 Section 242 – Mortgage Insurance ‐ Hospitals Special Tests and Provisions Significant Deficiency in Internal Control Over Compliance Criteria: 2 CFR 200.303(a) states that the auditee must establish and maintain effective internal control over federal awards that provides reasonable assurance that the Organization is managing the federal awards in compliance with federal statutes, regulations and terms and conditions of the federal award. Condition: There was no documentation of review and approval of certain invoices or Purchase Orders. Cause: The Organization did not have an adequate internal control policy in place to ensure review and approval of cash disbursements was properly documented. Effect: The lack of adequate policies governing cash disbursement increases the risk that employees participating in the federal award administration may not be able to detect and correct noncompliance in a timely manner. Questioned Costs: None reported. Context: A nonstatistical sample of 60 expenditures were selected for testing. Of these 60 expenditures ($213,780), three ($14,477) did not show evidence of proper review and approval prior to payment. Repeat Finding from Prior Years: No Recommendation: We recommend the Organization enhance internal control policies to ensure all cash disbursements are reviewed and approval is documented prior to payment to ensure that all payments are necessary and correct. Views of Responsible Officials: Management agrees with the finding.

Department of Housing and Urban Development Federal Assistance Listing #14.128 Section 242 – Mortgage Insurance ‐ Hospitals Special Tests and Provisions Significant Deficiency in Internal Control Over Compliance Criteria: A good system on internal controls over compliance includes processes to ensure all provisions within the agreements are fully followed as well as following generally accepted accounting principles. Condition: The Organization did not request prior approval from HUD before entering into a finance lease agreement. A finance lease is identified in the Mortgage Note Insured by HUD as the incurrence of additional indebtedness which, by terms of the agreement, should be approved by HUD in advance of entering into such agreements. Cause: The finance lease agreement replaced an expiring lease which was recognized as an operating lease under prior accounting standards. As a result, management did not consider a request for approval of the new lease agreement. The new lease was determined to be a finance lease under current accounting standards during the financial statement audit process. Effect: The Organization violated a covenant within the Mortgage Note Insured by HUD agreement. Questioned Costs: None reported. Context: There were three new finance leases entered into during the fiscal year and it was noted that the two of the three leases had proper HUD approval. Repeat Finding from Prior Years: No Recommendation: We recommend that management evaluate all lease agreements to determine whether the lease should be accounted for as an operating or finance lease at the time the lease is entered into. The evaluation process should be documented, and the lease recognized in the financial statements based on the conclusion. If the lease is concluded to be a finance lease, HUD should be notified, and the Organization should request and receive approval from HUD prior to entering into the lease agreement. Views of Responsible Officials: Management agrees with the finding.

Department of Housing and Urban Development Federal Assistance Listing #14.128 Section 242 – Mortgage Insurance ‐ Hospitals Reporting Material Weakness in Internal Control Over Compliance and Material Noncompliance Criteria: 2 CFR 200.303(a) states that the auditee must establish and maintain effective internal control over federal awards that provides reasonable assurance that the Organization is managing the federal awards in compliance with federal statutes, regulations and terms and conditions of the federal award. Condition: The Department of Housing and Urban Development (HUD) requires a quarterly reporting of financial and statistical data. Amounts reported under “All Non‐Operating Revenue” and “Other Changes in Fund Balance” in the Organization’s third quarter report submitted to HUD were not reconciled to and did not agree with the underlying financial data. The internal financial statements do not present all of the information that is required in the HUD quarterly reports and the differing information was all put to one line on the HUD quarterly report when the differences should have been evaluated and documented. Cause: The Organization does not have a control process in place to ensure the report submitted to HUD agrees to its internal financial statements and that the internal financial statements contain all information needed to properly complete the report. Effect: The Organization reported amounts under “All Non‐Operating Revenue” and “Other Changes in Fund Balance” in a quarterly report that may be inaccurate. Per discussion with the client and observation of the other quarterly reports, it was determined that the other quarterly reports would contain the same error. Therefore, the sample size was not increased. Questioned Costs: None reported. Context: There were a total of eight reports required to be submitted to HUD during the year ended December 31, 2023. Three reports were selected for testing. Of the three reports selected, it was noted that one report contained potential errors. Repeat Finding from Prior Years: Yes, Finding 2022‐004. Recommendation: We recommend the Organization implement a control process which includes a secondary review and approval of the required reports submitted to the federal agency after they have been entered into HUD’s format by an individual who understands the financial statements and the HUD reporting requirements. Views of Responsible Officials: Management agrees with the finding.

Department of Housing and Urban Development Federal Assistance Listing #14.128 Section 242 – Mortgage Insurance ‐ Hospitals Special Tests and Provisions Significant Deficiency in Internal Control Over Compliance Criteria: 2 CFR 200.303(a) states that the auditee must establish and maintain effective internal control over federal awards that provides reasonable assurance that the Organization is managing the federal awards in compliance with federal statutes, regulations and terms and conditions of the federal award. Condition: There was no documentation of review and approval of certain invoices or Purchase Orders. Cause: The Organization did not have an adequate internal control policy in place to ensure review and approval of cash disbursements was properly documented. Effect: The lack of adequate policies governing cash disbursement increases the risk that employees participating in the federal award administration may not be able to detect and correct noncompliance in a timely manner. Questioned Costs: None reported. Context: A nonstatistical sample of 60 expenditures were selected for testing. Of these 60 expenditures ($213,780), three ($14,477) did not show evidence of proper review and approval prior to payment. Repeat Finding from Prior Years: No Recommendation: We recommend the Organization enhance internal control policies to ensure all cash disbursements are reviewed and approval is documented prior to payment to ensure that all payments are necessary and correct. Views of Responsible Officials: Management agrees with the finding.

Department of Housing and Urban Development Federal Assistance Listing #14.128 Section 242 – Mortgage Insurance ‐ Hospitals Special Tests and Provisions Significant Deficiency in Internal Control Over Compliance Criteria: A good system on internal controls over compliance includes processes to ensure all provisions within the agreements are fully followed as well as following generally accepted accounting principles. Condition: The Organization did not request prior approval from HUD before entering into a finance lease agreement. A finance lease is identified in the Mortgage Note Insured by HUD as the incurrence of additional indebtedness which, by terms of the agreement, should be approved by HUD in advance of entering into such agreements. Cause: The finance lease agreement replaced an expiring lease which was recognized as an operating lease under prior accounting standards. As a result, management did not consider a request for approval of the new lease agreement. The new lease was determined to be a finance lease under current accounting standards during the financial statement audit process. Effect: The Organization violated a covenant within the Mortgage Note Insured by HUD agreement. Questioned Costs: None reported. Context: There were three new finance leases entered into during the fiscal year and it was noted that the two of the three leases had proper HUD approval. Repeat Finding from Prior Years: No Recommendation: We recommend that management evaluate all lease agreements to determine whether the lease should be accounted for as an operating or finance lease at the time the lease is entered into. The evaluation process should be documented, and the lease recognized in the financial statements based on the conclusion. If the lease is concluded to be a finance lease, HUD should be notified, and the Organization should request and receive approval from HUD prior to entering into the lease agreement. Views of Responsible Officials: Management agrees with the finding.