Finding 1076717 (2023-006)

Finding: 2023-006 Debt service reserve fund Program Name Title: Community Facilities Loans and Grants Federal Assistance Listing Number: 10.766 Federal Agency: U.S. Department of Agriculture Type of Finding: Noncompliance, Material weakness Compliance Requirement: Special Tests and Provisions Repeat Finding: Yes Questioned Cost: None Criteria: 2 CFR 200.303(a) establishes that the auditee must establish and maintain effective internal control over the federal award that provides assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and conditions of the federal award. Condition: The Hospital did not establish a debt reserve fund as required by the federal award agreement. In addition, the Hospital did not meet its debt covenants. Cause: The Hospital has experienced a financial crisis where all available monies were used to fund payroll and pay down immediate debts, resulting in the use of any amounts previously reserved. Effect: The lack of adequate policies governing the monitoring of the required debt covenants and the establishment and funding of reserves increases the risk that employees may not be able to detect and correct noncompliance in a timely manner. Recommendation: We recommend the Hospital establish the required debt reserve fund as soon as possible and provide funds in accordance with the federal award agreement. We also recommend the Hospital create internal controls to monitor debt covenants. View of Responsible Officials: Management agrees with the finding.