Finding Text
U.S. Department of Agricultures
Federal Assistance Listing #10.766
Community Facilities Loan and Grant Cluster
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, and conditions of the
federal award.
Condition: During our testing, there was no formal review documented over the reserve
fund reconciliations, no monitoring and review of the debt covenants, and the debt service
reserve fund accounts were underfunded by approximately $701,000 for the federal
program. In addition, there were two separate withdrawals totaling $94,000 from the debt
service reserve fund that were not properly approved by the USDA.
Cause: The Hospital did not have adequate internal control policies in place to ensure review
and approval over the reserve funds, monitoring of all required debt covenants, proper
funding of the reserve accounts, or to ensure that proper procedures are followed for
obtaining USDA approval for any withdrawals from the debt service reserve funds.
Effect: The lack of adequate policies governing the review and monitoring of the required
debt covenants increases the risk that employees participating in the federal award
administration may not be able to detect and correct noncompliance in a timely manner. In
addition, the lack of adequate policies governing proper funding of reserves and ensuring
proper procedures are followed to obtain USDA approval for any withdrawals, increases the
risk that employees participating in the federal award administration may not be able to
detect and correct noncompliance in a timely manner.
Questioned Costs: None reported.
Context: Sampling was not used. The Hospital has two reserve accounts that were tested.
Repeat Finding from Prior Years: No
Recommendation: We recommend the Hospital enhance internal control policies to ensure
formal documentation of reviews for the reserve fund reconciliations is retained, monitoring
that the required debt covenants are monitored and reviewed, reserve funds are properly
funded, and that there are proper procedures in place for obtaining USDA approval for any
future withdrawals from the debt service reserve funds.
Views of Responsible Officials: Management agrees with the finding.