Finding Text
FINDING 2023-002 DEBT SERVICE COVERAGE RATIO COMPLAINCE
Federal programs
Federal Assistance Listing Number 10.766
U.S. Department of Agriculture (USDA)
Direct Award, Community Facilities Loans and Grants
Material Weakness
Criteria
The Hospital is required to maintain a debt service coverage ratio of 1.5.
Condition
The Hospital’s debt service coverage ratio for the year ended June 30, 2023 was 1.1, resulting in the Hospital not being in compliance with the 1.5 requirement.
Cause
The Hospital implemented a new accounting and electronic health record (EHR) system in May of 2023 and experienced significant delays in being able to bill and process claims. The delays had a negative impact on overall operating results as additional accounts receivable allowances for both contractual adjustments and bad debts were necessary at June 30, 2023.
Effect
The Hospital was unable to meet the required 1.5 debt service coverage ratio.
Questioned costs
None.
Perspective/Context
The majority of the implementation issues were outside of Hospital management’s control and directly related to issues associated with the accounting and EHR system vendor. Hospital management also notified its USDA representatives and received a waiver from the required 1.5 debt service coverage ratio for the period ended June 30, 2023.
Recommendation
We suggest Hospital management continue working with its accounting and EHR system vendor to resolve issues affecting its operating results.
Views of responsible officials and planned corrective actions
The implementation of the new electronic health records created a delay in operational workflow processes which required vendor modifications and corrections to the system. This delayed submitting insurance claims for reimbursement which continued throughout fiscal year 2024. Operations have now stabilized and the debt service coverage ratio is expected to be in compliance in fiscal year 2025.