Finding 403617 (2023-001)

Federal Program: Community Facilities Loans and Grants Cluster: Community Facilities Loans and Grants Assistance Listing Number: 10.766 Federal Agency: U.S. Department of Agriculture Pass-through Agency: N/A Award Number: N/A Award Year: 2023 Compliance Requirement: Special Tests and Provisions Questioned Costs: None Criteria: Section 4.6 of the USDA's Loan Guarantee Agreement stipulates that the borrower must maintain certain financial reporting covenants, such as debt service coverage ratio of at least 1.25, days cash on hand in excess of 65 days, and obtaining an audited fiscal year-end financial statement audited by independent certified public accountants withing one hundred ten days subsequent to year end. Additionally, section 4(d) of the Community Facilities Loan Resolution Agreement stipulates that the Hospital will establish and maintain a bookkeeping or separate bank account for the debt reserve funds. As of September 30, 2023 the Hospital had not maintained a separate account at the bank with sufficient funds, nor was a separate general ledger account established. Condition and Context: The Hospital did not maintain a days cash on hand in excess of 65 days, as of September 30, 2023. Additionally, the Hospital failed to maintain a separate account at the bank with sufficient funds, nor was a separate general ledger account established. The Hospital's audited financial statements as of September 30, 2023 were issued subsequent to one hundred ten days following September 30, 2023. Effect: The Hospital has failed to comply with the debt covenants and subsequently received waivers from the financial institution and Federal Grantor. Cause: The Hospital did not have sufficient internal controls in place to monitor on-going compliance with the loan agreement. Recommendation: We recommend that management implement procedures to ensure that all grant and loan agreements are reviewed on an on-going basis and that compliance requirements are recorded and tracked to ensure on-going compliance. Management's Corrective Action Plan: Management agrees with this finding and has implemented controls to monitor on-going compliance with both financial and non-financial covenants. Additionally, when management became aware of the non-compliance, it notified the financial institution and Federal Grantor and received waivers.