Finding Text
2023-003 United States Department of Agriculture
Federal Financial Assistance Listing #10.766
Community Facilities Loans and Grants Cluster
Special Test and Provisions
Material Weakness in Internal Control over Compliance
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, and conditions of the federal award. The commitment letter for the term loan with
the bank requires debt service coverage ratio and working capital calculations to be calculated yearly using
audited financial statements.
Condition: Management does not have controls in place to ensure compliance with the requirements as they
have not been calculating or monitoring the required ratios internally.
Cause: The Health Center was relying on the annual calculations performed by the audit team.
Effect: The Health Center could be in violation of the debt coverage ratio and working capital requirements if
management is not monitoring compliance.
Questioned Costs: None reported
Context/Sampling: Sampling was not used
Repeat Finding from Prior Year: Yes, Finding 2022-003
Recommendation: We recommend management implement processes and controls to monitor the debt service
coverage ratio and working capital calculations as a part of their year-end close process to ensure all covenants
of the loan are met.
Views of Responsible Officials: Management agrees with the finding.