Finding Text
FINDING 2022-004 – Reporting, Non-compliance (Material Weakness) Federal Program: U.S. Department of Agriculture – ALN 10.766, USDA Community Facilities Loans and Grants Cluster Criteria: 7 CFR Part 1942, Subpart A – Community Facility Loans, which governs loan servicing and post‑closing requirements for Community Facilities Loans, including borrower financial viability and compliance with loan covenants. USDA Rural Development Community Facilities Loan Agreement / Letter of Conditions, which requires: Establishment of a Debt Service Reserve Fund equal to at least one annual loan installment that accumulates at the rate of 10% of one annual payment per year for ten years or until the balance is equal to one annual loan payment; and Maintenance of a minimum Debt Service Coverage Ratio (DSCR) of at least 1.0 beginning with fiscal year ending December 31, 2016, demonstrating sufficient net operating revenues to meet annual debt service obligations; and Furnishing the USDA with audit reports annually. Condition: The Hospital failed to establish and maintain the required Debt Service Reserve Fund in accordance with the USDA Loan Agreement. The Hospital did not maintain a Debt Service Coverage Ratio of at least 1.0, as required by the loan covenants, based on audited financial results for the year ended December 31, 2022. The Hospital did not furnish the USDA with audit reports annually. Context: The USDA Loan Letter of Conditions details eight continuing compliance requirements that were tested. Noncompliance with the ongoing compliance requirements was noted for three of the eight requirements. Cause and Effect: The Hospital inherited the USDA loan from the previous owner of the Hospital and did not receive any correspondence from the USDA; therefore, the Hospital was unaware of the required ongoing compliance requirements necessary in addition to the required loan payments. As a result, some USDA loan compliance requirements were not met. Questioned Costs: None Repeat Finding: No Recommendation: We recommend that the Hospital strengthen its internal controls related to USDA compliance and establish regular contact with USDA representatives to ensure future compliance requirements are met. Views of Responsible Officials of the Auditee: Management agrees with the finding and the auditors’ recommendation. See Management’s full response in the Corrective Action Plan at the end of this report.