Finding Text
Department of Agriculture
Federal Financial Assistance Listing #10.766
Community Facilities Loans and Grants – Guaranteed Loan
Special Test and Provisions
Significant Deficiency in Internal Control over Compliance
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. The commitment letter for the term loan with the bank requires debt service coverage ratio and working capital to be calculated yearly using audited financial statements.
Condition: Management does not have a formally documented review and approval process in place to ensure compliance with the debt service coverage ratio and working capital calculations.
Cause: The Health Center calculated the annual debt service coverage ratio as of year‐end and the year‐end financial statements provided the current assets and current liabilities for the working capital calculation; however, there was no formally documented review and approval in place.
Effect: The Health Center may have errors in the calculations or be in violation of the debt service coverage ratio and working capital requirements if there is no formal documented review or approval.
Questioned Costs: None reported.
Context/Sampling: Sampling was not used.
Repeat Finding from Prior Year: Yes, similar Finding 2023‐003
Recommendation: We recommend management implement a formal documented review and approval process to monitor the debt service coverage ratio and working capital as a part of their year‐end close process to ensure all covenants of the loan are met.
Views of Responsible Officials: Management agrees with the finding.