Audit 405071

Department of Agriculture Federal Financial Assistance Listing #10.766 Community Facilities Loans and Grants Special Tests and Provisions Significant Deficiency in Internal Control Over Compliance and Instance of Noncompliance Criteria: The loan agreement and related federal award terms require the auditee to maintain a minimum debt service coverage ratio of 1.20:1, calculated annually based on audited financial statements. Management is responsible for designing and implementing internal controls to ensure compliance with all loan covenant requirements (2 CFR 200.303). Condition: The auditee did not maintain the required debt service coverage ratio for the year ended December 31, 2025. The calculated ratio was 0.66:1, which is below the required threshold. Additionally, the Hospital does not have a control process in place to ensure that the monitored debt service coverage ratio is accurate and non-compliance is reported timely. Cause: The Hospital does not have a control process in place to ensure that the monitored debt service coverage ratio is accurate and non-compliance is reported timely. Effect: Failure to maintain the required debt service coverage ratio resulted in noncompliance with the terms of the federal award. Without effective controls, there is an increased risk that noncompliance with loan covenants may not be prevented or detected in a timely manner. Questioned Costs: None reported Context/Sampling: The auditor recalculated the debt service coverage ratio using audited financial data for the year ended December 31, 2025 and compared the result to the covenant requirement. Repeat Finding from Prior Year(s): No Recommendation: We recommend that management implement formal controls to monitor compliance with debt covenants, including periodic calculation of the debt service coverage ratio, documentation of management review and approval, and timely communication with the lender if noncompliance is identified. Views of Responsible Officials: Management agrees with the finding.