Finding Text
Department of Housing and Urban Development Federal Financial Assistance Listing #14.128 Section 242 – Mortgage Insurance - Hospitals Special Tests and Provisions Significant Deficiency in Internal Control Over Compliance Criteria: A good system on internal controls over compliance includes processes to ensure all provisions within the agreements are fully followed as well as following generally accepted accounting principles. Condition: During the fiscal year, the Organization entered into two new short term loans. A new loan is identified in the Mortgage Note Insured by HUD as the incurrence of additional indebtedness which, by terms of the agreement, should be approved by HUD in advance of entering into the loan agreement unless the loan meets certain requirements. If those requirements are met, then the Organization just needs to inform HUD of the new loan agreement. Cause: During the course of our engagement, we noted that management did not receive approval from HUD in advance of entering into the agreements. The new loans would have met the exception require approval from HUD prior to entering into the agreement. However, management did not make this evaluation prior to entering into the agreements. Effect: The Organization violated a covenant within the Mortgage Note Insured by HUD agreement. Question Costs: None reported. Context/Sampling: None as there were only one lease agreement and two new loan agreements entered into during the fiscal year that was additional financing and all were tested. Repeat Finding from Prior Year: No Recommendation: We recommend that management should request and receive approval from HUD prior to entering into lease agreements and complete the necessary evaluation of short-term loans prior to entering into the short-term loan to determine whether approval or notification to HUD is required. Views of Responsible Officials: Management agrees with the finding.