Finding Text
CFDA #10.766 USDA Community Facilities Loans and Grants
Continuing Compliance Requirement
Finding 2024‐001 – Failure to Meet Required Loan Covenants
Criteria: The USDA loan agreements require the Home to maintain a debt service coverage ratio
of 1.25x and 65 days of unrestricted cash on hand, as of December 31, 2024.
Condition: At December 31, 2024, the Home did not meet either covenant. The Home has 36 days
of unrestricted cash on hand as of December 31, 2024. The debt service coverage ratio
was 0.32x as of December 31, 2024.
Cause: Due to increased expenses of the Home and negative operating cash flows, as well as
certain cash balances which are restricted to use, management was unable to meet the
loan covenants.
Effect: As a continuing compliance requirement, violation of a loan covenant could place the
loan in default status, which could jeopardize future funding from the lender.
Questioned Costs: There were no questioned costs.
Context: The Home received multiple USDA loans which have ongoing continuing compliance
requirements, including maintaining debt covenants.
Repeat Finding: This is a repeat finding. Recommendation: We recommend management track cash flows monthly to ensure a minimum
of 65 days cash on hand at the end of each six-month reporting period (every June 30th
and December 31st). We further recommend expenses be managed in a way that will
allow the Home to meet its debt service requirements. Views of Responsible Officials and Planned Corrective Action: Management agrees with the
above finding and has implemented a plan to reduce expenses and increase cash flows
going forward. Specifically, we have outlined the following steps that we are taking as
an organization to get back on track:
Cash flow is monitored weekly and forecasted on a rolling 8-week basis.
Existing vendor contracts were reviewed and changes made to reduce expenses
moving forward into the 2025 fiscal year. Contracts are continually evaluated for
potential cost savings.
We implemented a robust and detailed budget development process to continue
cost-cutting measures into 2025 and beyond. Directors are accountable to their
budget guidelines to ensure expenses are appropriately managed.
The 36-unit Independent Living expansion project remains a high priority. The
model home construction is nearing completion, and new homes are expected to
commence construction in 2025. The sale and occupancy of these units are expected
to generate substantial future cash flows for the organization. We continue to prioritize aggressive staff recruitment to eliminate agency staffing
needs. While the organization has already seen a steady decline in contract staff
utilization, it is our goal to fully eliminate agency staffing in 2025.
An administrative restructuring completed in 2024 allowed the organization to
reduce its leadership by 2 positions. Additionally, a review of staffing ratios
identified areas of excess staffing, to which the organization responded by utilizing
fewer contract staff. The organization is committed to further reducing labor costs
appropriately, primarily in supervisory staff through attrition moving forward.
Management enacted a progressive plan to increase census in each of its business
lines to increase revenue, utilizing focused marketing efforts and referral
partnerships.