Finding 2025-003 - Internal Control Deficiencies Over Financial Reporting and Audit Readiness (Significant Deficiency) Information on Federal Programs – U.S. Department of Health and Human Services — Health Resources and Services Administration (HRSA), FALN 93.224 Health Center Program (and other HRSA programs, as applicable) Compliance Requirement Financial Management / Reporting (2 CFR 200.302; 2 CFR 200.303) Criteria – 1. Under 2 CFR 200.302 (Financial Management), non-Federal entities must maintain financial records that: • Accurately reflect financial transactions, and • Are supported by source documentation sufficient for audit purposes. 2. Under 2 CFR 200.303 (Internal Controls), non-Federal entities must establish and maintain effective internal controls to provide reasonable assurance that: • Financial reporting is reliable, and • Federal awards are managed in compliance with applicable requirements. Federal awarding agencies, including HRSA, and auditing standards further expect timely preparation of financial statements and adequate documentation supporting material account balances. Condition – During the audit of the financial statements and the Single Audit for the year ended June 30, 2025, we identified deficiencies in the Organization’s internal controls related to financial reporting timeliness, documentation, and audit readiness. Specifically: • The year-end financial close process was significantly delayed, with the fiscal year ended June 30, 2025 not substantially completed until May 2026. • Turnover in key accounting and finance personnel during the audit period adversely affected continuity in financial reporting and audit preparation. • The Organization experienced difficulty reconciling and substantiating beginning balances carried forward from the predecessor auditor, including limited supporting documentation. • The Organization was unable to timely provide sufficient supporting documentation for: - Property and equipment balances, including historical cost, additions, and accumulated depreciation, and - Lease accounting balances, including lease amortization schedules and related calculations. • As a result, audit completion required multiple follow-up requests and alternative audit procedures to obtain sufficient audit evidence. Cause – The deficiencies appear to be the result of a combination of factors, including: • Turnover in key accounting personnel, resulting in loss of institutional knowledge. • Inadequate transition documentation during the change in audit firms, leading to insufficient support for opening balances. • Lack of fully documented policies and procedures governing: - Fixed asset accounting and reconciliation, - Lease accounting and amortization tracking, and - Period-end financial close processes. • Insufficient supervisory review controls to ensure timely reconciliation and documentation of significant balances. Effect – These deficiencies increase the risk that: • Financial information used to support federal awards may be incomplete, inaccurate, or unsupported. • Audit completion timelines may be significantly delayed, increasing administrative burden and audit costs. • Management’s ability to rely on timely financial information for compliance and decision-making may be impaired. Auditor’s Perspective – From the auditor’s perspective, these deficiencies affected audit efficiency and timeliness, but did not prevent the auditor from ultimately obtaining sufficient and appropriate audit evidence to support the financial statements and the Schedule of Expenditures of Federal and State Grant Awards. No material misstatements were identified in the financial statements or in federal award amounts reported, and no questioned costs were noted. Accordingly, the deficiencies relate primarily to audit readiness, documentation, and governance processes, rather than a systemic failure of controls over financial reporting or federal compliance. Based on the nature of the deficiencies and the audit evidence obtained, the finding is appropriately classified as a significant deficiency and does not rise to the level of a material weakness. Questioned Costs – None. Auditor’s Recommendations – From an internal control and audit-readiness perspective, we recommend that management strengthen controls over financial reporting and documentation by implementing the following actions: • Formal Financial Close Process - Implement a documented monthly and year-end financial close process that includes defined timelines, assigned responsibilities, and required supervisory review and approval. • Fixed Asset and Lease Accounting Support - Establish and maintain complete supporting schedules for material asset-related balances, including: - A fixed asset subsidiary ledger reconciled to the general ledger, and - Lease accounting and amortization schedules prepared and reviewed in accordance with applicable accounting standards. • Balance-Sheet Reconciliations - Perform and document timely reconciliations of all significant balance-sheet accounts, including explicit reconciliation of beginning balances following changes in auditors or accounting personnel. • Documentation Retention Practices - Enhance documentation retention procedures to ensure that all material balances are supported by verifiable source records that are readily available for audit and management review. • Personnel and Auditor Transition Procedures - Develop and implement formal transition procedures for changes in key accounting personnel or external auditors to promote continuity of financial records and institutional knowledge. • Supervisory Review Controls - Strengthen supervisory review controls by requiring documented evidence of review and approval of account reconciliations and key supporting schedules. • Training and Technical Expertise Provide targeted internal training and/or obtain external technical support, as needed, to ensure adequate expertise in complex accounting areas such as fixed assets and leases. Implementation of these actions is expected to improve the timeliness and reliability of financial reporting, reduce audit delays, and strengthen compliance with Uniform Guidance and HRSA financial-management expectations. Views of Responsible Officials – Management concurs with the finding. OIC experienced turnover in key finance positions, delayed year-end close activities, and documentation challenges during the auditor transition; management will strengthen close, documentation, and audit readiness controls.
Finding 2025-006 Revenue Recognition, Contractual Allowances, Accounts Receivable, and Billing System Reconciliations (Material Weakness) Information on Federal Programs – HHS–HRSA Section 330 Health Center Program, June 30, 2025; U.S. Department of Labor Workforce Development Awards, June 30, 2025 Criteria – Under 2 CFR § 200.302 and § 200.303, non-Federal entities must maintain financial management systems and internal controls that provide reasonable assurance that federal funds are properly managed, financial results are accurately reported, and assets are safeguarded. These controls must align with GAAP and recognized internal control frameworks (COSO). GAAP (ASC 606) requires patient service revenue to be recognized at net realizable value, reflecting contractual allowances, sliding-fee discounts, and implicit price concessions at the time revenue is recorded. Accounts receivable must be evaluated for collectability, supported by an allowance for doubtful accounts, and written off only through documented and approved processes. HRSA Section 330 financial management requirements further require health centers to maintain accurate billing, accounts receivable, and reconciliation processes to support fiscal integrity and compliance with federal award conditions. Condition – OIC’s revenue-cycle processes exhibit multiple, interrelated control deficiencies that collectively impair the accuracy and reliability of patient service revenue and accounts receivable reporting: 1. Revenue Recognition Methodology • Patient revenue recorded in the general ledger is based on an estimated flat per-encounter rate multiplied by total encounters, rather than at net realizable value. • Contractual allowances, payer-specific discounts, and implicit price concessions are not estimated or recognized at the time revenue is initially recorded. 2. Accounts Receivable Valuation and Write-Off Controls • Patient receivables are written off within the EPIC billing system without documented review of collectability, allowance analysis, or documented approval by Executive Management. • Write-offs processed in EPIC do not consistently result in corresponding adjustments to general ledger accounts receivable. 3. Billing System and General Ledger Reconciliations • EPIC and eClinicalWorks billing systems are not integrated with the Sage MIP general ledger. • Patient revenue and accounts receivable balances are recorded through manual journal entries. • Formal, consistent, and documented reconciliations between billing system activity (gross charges, contractual adjustments, collections) and the general ledger are not performed as part of the monthly close. 4. Revenue Cycle Oversight and Monitoring • Patient statements are generated only when a patient balance is due, limiting an independent verification mechanism over gross charges and third-party payment processing. • Given the absence of system integration and reliance on manual processes, compensating oversight controls are insufficient to mitigate the combined risks noted above. Cause – Management has not implemented a comprehensive, GAAP-aligned revenue-cycle control framework that integrates revenue recognition, contractual allowance estimation, accounts receivable management, billing system reconciliation, and write-off governance. System limitations, reliance on historical estimation practices, and incomplete documentation of review and approval controls have contributed to the deficiencies. Effect – The combined effect of these deficiencies is an increased risk that patient service revenue and accounts receivable are materially overstated and not reflective of amounts expected to be collected. This condition: • Impairs the reliability and auditability of financial statements • Weakens internal control over federal program financial reporting • Increases the likelihood that material misstatements could occur and not be prevented or detected timely • Creates elevated compliance risk under Uniform Guidance, HRSA Section 330 financial management standards, and Single Audit reporting requirements Given the materiality of patient service revenue and accounts receivable to the financial statements, this condition constitutes a material weakness in internal control over financial reporting. Perspective – This material weakness reflects pervasive deficiencies across OIC’s revenue cycle that affect the accuracy, integrity, and auditability of patient service revenue and accounts receivable, which represent significant components of the financial statements and federal program reporting. The absence of GAAP-aligned revenue recognition, effective accounts receivable oversight, and reliable reconciliation between billing systems and the general ledger limits management’s and the Board’s ability to rely on reported financial results for decision-making and program oversight. Given the reliance on federal funding, particularly under the HRSA Section 330 Health Center Program, these deficiencies elevate compliance risk under Uniform Guidance and increase exposure to adverse Single Audit outcomes if not timely remediated. The Board and Audit Committee should view this matter as a high-priority governance issue requiring active oversight of management’s remediation efforts, including clear timelines, accountability, and validation that revised controls are designed and operating effectively. Prompt and sustained corrective action is necessary to restore confidence in financial reporting, demonstrate stewardship of federal resources, and reduce the risk of recurring audit findings. Questioned Costs – None identified. Recommendation – Management should implement a coordinated remediation strategy to strengthen the revenue cycle and restore compliance with GAAP and Uniform Guidance requirements. At a minimum, management should: • Discontinue or substantially revise the flat per-encounter revenue estimation methodology. • Record patient revenue at net realizable value at initial recognition, including estimated contractual allowances and implicit price concessions. 1. Accounts Receivable and Write-Off Governance • Perform documented monthly reviews of accounts receivable aging and collectability. • Maintain and review an allowance for doubtful accounts prior to any write-off activity. • Require documented CFO or Executive Management approval for all write-offs impacting the general ledger. • Ensure all billing-system write-offs are fully reconciled to the general ledger. 2. Billing System and General Ledger Reconciliations • Evaluate the feasibility of implementing automated interfaces between EPIC, eClinicalWorks, and the general ledger. • Establish formal, timely, and documented reconciliations between billing system reports and general ledger balances, reviewed by personnel independent of preparation. 3. Oversight and Compensating Controls • Enhance revenue-cycle oversight through expanded management review reports, reconciliation procedures, or other compensating controls that provide visibility into gross charges, adjustments, collections, and zero-balance accounts. 4. Oversight and Compensating Controls • Enhance revenue-cycle oversight through expanded management review reports, reconciliation procedures, or other compensating controls that provide visibility into gross charges, adjustments, collections, and zero-balance accounts. Implementing these actions will improve financial reporting accuracy, strengthen internal control over federal programs, and reduce audit and compliance risk. View of Responsible Officials – Management concurs with the finding. OIC will strengthen revenue cycle controls to improve patient service revenue recognition, accounts receivable valuation, write-off governance, and billing system reconciliations.
Finding 2025-007 – Failure to Provide Schedule of Expenditures of Federal and State Grant Awards (Material Weakness) Information on the Federal Program – HRSA Health Center Programs, FALN 93.224, June 30, 2025; U.S. Department of Labor Workforce Development Adult Program, FALN 17.258; Department of Labor Workforce Development Youth Program, FALN 17.259 Criteria – Uniform Guidance 2 CFR §200.302(b) requires financial management systems to provide accurate, current, and complete disclosure of financial results of each federally funded program. Additionally, 2 CFR §200.510(b) requires auditees to prepare a Schedule of Expenditures of Federal and State Grant Awards (SEFA) that properly presents federal expenditures by program and assistance listing, supported by the general ledger and accounting records. Condition – During our review of restricted funding programs, restricted program expenditures could not be readily identified in the general ledger. Additionally, OIC was unable to provide a Schedule of Expenditures of Federal and State Grant Awards (SEFA) for audit review. Cause – OIC has not established formal processes to track federal expenditures by program within the general ledger, nor procedures to compile and reconcile a SEFA annually. Management oversight controls related to federal reporting requirements were not adequately implemented. Effect – The absence of a SEFA and lack of identifiable federal expenditures impair OIC’s ability to demonstrate compliance with Single Audit requirements and federal grant terms. This condition increases the risk of inaccurate federal reporting, audit findings, and potential noncompliance with Uniform Guidance. Questioned Costs – $0 Perspective – Although no questioned costs were identified, the lack of a SEFA represents a fundamental compliance deficiency. The inability to readily identify federal expenditures increases audit risk and limits transparency over federal award activity. This finding affects compliance reporting rather than individual transactions. Recommendation – We recommend that the Board of Directors and Audit Committee require management to develop and execute a comprehensive, time-bound remediation plan to address this material weakness and restore effective internal control over revenue recognition and accounts receivable. The remediation plan should be formally reviewed and approved by the Audit Committee and include clearly defined milestones, responsible owners, and reporting protocols. Additionally, we recommend that the Audit Committee: • Maintain active oversight of remediation progress, including periodic updates from management on the design and implementation status of corrective actions. • Require validation that revised controls are not only designed appropriately but are operating effectively for a sustained period, supported by documentation and management certification. • Ensure adequate resourcing and system capability are in place—whether through process redesign, system integration, or external support—to achieve GAAP-compliant revenue recognition and reliable billing system reconciliations. • Evaluate ongoing compliance implications for federal programs, particularly HRSA Section 330, to confirm that corrective actions sufficiently address Uniform Guidance and Single Audit requirements. Timely and effective remediation of this material weakness is critical to restoring confidence in OIC’s financial reporting, strengthening stewardship of federal funds, and reducing the risk of continued adverse audit and compliance outcomes. View of Responsible Officials – Management concurs with the finding. OIC will formalize federal award tracking and SEFA preparation procedures to ensure federal expenditures are complete, accurate, and readily identifiable by program.