Finding Text
Special Tests and Provisions
Material Weakness in Internal Control Over Compliance and Material Noncompliance
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, terms and conditions of the federal award. Section 4 of the Loan Resolution
Security Agreements dated April 24, 2001, November 26, 2002 and June 1, 2004, state that the Hospital must
establish a segregated reserve account or a bookkeeping account. The funds in this account can only be used
with USDA Rural Development concurrence.
Condition – The Hospital did not fund reserves in a federally insured bank for debt service payments. The
Hospital had cash balances on hand exceeding the required reserve amount; as well as board designated
investment balances for debt repayment, however, the reserve funds were not segregated in a separate bank
account or bookkeeping account in the trial balance.
Cause – The Hospital did not have an internal control process in place to ensure that the required debt service
reserve fund was established and maintained.
Effect – The Hospital could be in violation of the reserve amount requirements if management is not monitoring
compliance.
Questioned Costs – None reported.
Context/Sampling – Sampling was not used.
Repeat Finding from Prior Years: No.
Recommendation – We recommend management transfer the required reserve amount to a separate bank
account or establish a bookkeeping account in the trial balance. Controls should be established and documented
to monitor compliance with the reserve fund provisions.
Views of Responsible Officials – Management agrees with the finding.