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Finding 2022-01 Material Weakness U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Assistance Listing No. 93.244 Health Center Program Cluster Criteria On May 1, 2012, the Health Resources and Services Administration (HRSA) awarded a grant to SHEF. The grant provided capital development funds for building constrction at 651 E. Prescott, Salina, Kansas. A Notice of Federal Interest was recorded with the Salina County, Kansas, Register of Deeds on May 30, 2012, relating to property owned by SHEF. This notice restricts the property from being mortgaged or otherwise used as collateral on any debt without the written approval of HRSA. Condition On May 17, 2022, SHEF entered into a promissory note with a financial institution with the property at 651 E. Prescott, Salina, Kansas, used as collateral. SHEF did not obtain written approval from HRSA. Cause SHEF management was aware of the need for HRSA approval for a sale or other disposition but did not verify that HRSA approval was needed to use the property as collateral. Potential Effect and Context Property with a federal interest could be inappropriately used to satisfy a mortgage in default. Recommendations We recommend that SHEF contact HRSA to inform HRSA of the matter, and that the promissory note be modified to remove the property at 651 E. Prescott, Salina, Kansas, as collateral. In addition, we recommend that management develop and implement a procedure to review any property liens or other restrictions when property is considered for collateral. View of Responsible Officials Once SHEF learned of this matter, the CFO took immediate action to notify HRSA and make arrangements with the financial institution to remove the property at 651 E. Prescott, Salina, Kansas, as collateral on the promissory note. Management will develop and implement a procedure to review any property liens or other restrictions when property is considered collateral.