Audit 372185

Assistance Listing, Federal Agency, and Program Name 10.766, United States Department of Agriculture, Community Facilities Loans and Grants Federal Award Identification Number and Year N/A Pass through Entity N/A Finding Type Material weakness and material noncompliance with laws and regulations Repeat Finding Yes, 2022-02 Criteria - The loan agreement between Avita Health System (the "System") and the United States Department of Agriculture ("USDA") requires the System to establish and maintain a separate debt service reserve fund. If the required debt service reserve falls below the minimum required balance, the System is required to make monthly deposits until the minimum required debt service reserve has been accumulated. Condition - The System failed to make the monthly debt service reserve fund deposits required by the USDA loan agreement. Questioned Costs - None Identification of How Questioned Costs Were Computed - N/A Context - The debt service reserve fund was fully funded upon issuance of the loan. Prior to fiscal year 2022, the System had not made any withdrawals from the debt service reserve fund, therefore there were no monthly deposit requirements. However, during 2022, approximately $4,200,000 was withdrawn from the debt service reserve fund and the required monthly deposits were not made until October 2022. The System made 10 of the required 12 deposits to the debt service reserve fund during the year ended June 30, 2023 and the minimum required balance was funded as of June 30, 2023. Cause and Effect - The lack of review of the debt service reserve requirements in the loan agreement resulted in the required monthly depsitsl not being made timely to the debt service reserve fund during the first two months of the fiscal year ended June 30, 2023 Recommendation - The System should review the loan agreement and applicable compliance requirements related to their loan program to ensure maintenance of the debt service reserve fund is executed in accordance with the required by the USDA loan agreement and other relevant regulations and requirements. Views of Responsible Officials and Corrective Action Plan Once it was determined that it was necessary to keep the balance of the fund at a prorated amount to the required one year of debt service by ten years, we began funding it in order to meet that requirement by the end of fiscal year 2023, which we did, and we have maintained the required funding since then.