Finding Text
CFDA #10.766 USDA Community Facilities Loans and Grants
Continuing Compliance Requirement
Finding 2023‐001 – 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, 2023.
Condition: At December 31, 2023, the Home did not meet either covenant. The Home has 41 days
of unrestricted cash on hand as of December 31, 2023. The debt service coverage ratio
was -.40x as of December 31, 2023.
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. While the Home did meet the debt service coverage
requirement in 2022, the Home did not meet the days cash on hand requirement in
2022.
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:
o Outsourcing of finance function to an outside CPA firm with focus on cleaning up
resident billings and enhanced collection efforts of the Home’s outstanding
patient receivables.
o Outsourcing of dining services at both locations, which is expected to save the
Home approximately $100,000 annually.
o Workforce reduction in management and ancillary level staff.Establishment of a committee to focus primarily on recruitment of in-house
staff, in order to fill open positions and thereby seek to minimize reliance on
higher cost contracted/agency staff.
o Review of all contracts and monthly expenses to identify further opportunities
to reduce expenses.
o With the completion of the stormwater infrastructure project in early 2024, the
Home is also planning a 36-unit independent living expansion, which is expected
to increase cash flows in the future.