Finding 976424 (2023-001)

Identification: 10.766 United States Department of Agriculture (USDA), Community Facilities Loans and Grants Cluster; Noncompliance Finding; Special Tests and Provisions Compliance Requirement Criteria: The USDA direct loan and guaranteed loan were entered into in 2010 for renovation of the Medical Center's healthcare facility. One direct loan and one guaranteed loan were received. In connection with the loans, the Medical Center entered into the 2010 bond trust indenture and agreed to the letter of conditions dated November 30, 2009, set forth by the USDA which the Medical Center isrequired to follow. Section 510 of the 2010 bond trust indenture states the insurance coverages that the Medical Center is required to obtain which includes retaining an insurance consultant to provide a written report to the Board of Trustees on a biannual basis. Condition 34 of the letter of conditions further states the Medical Center will have fidelity bond coverage in an amount not less than the annual principal and interest becoming due on the bonds. Condition: The Medical Center did not retain an insurance consultant to provide a written report to the Board of Trustees on a biannual basis in accordance with Section 510 of the 2010 bond trust indenture and the Medical Center is not carrying a sufficient amount of fidelity bond coverage as set forth in the letter of conditions dated November 30, 2009. Cause: The Medical Center did not have adequate procedures in place to ensure it was complying with Section 510 of the 2010 bond trust indenture or the November 30, 2009, letter of conditions as it pertains to the amount of fidelity bond coverage. Effect: The Medical Center is not complying with Section 510 of the 2010 bond indenture or Condition 34 of the letter of conditions dated November 30, 2009. Questioned Costs: None Perspective Information: We reviewed the Medical Center's insurance policies and determined the amount of fidelity bond coverage was insufficient based on annual debt service payments. Repeat Finding: Not applicable Recommendations: We recommend that the Medical Center review Section 510 of the 2010 bond trust indenture and Condition 34 of the letter of conditions and establish procedures so that on a biannual basis the Medical Center's insurance consultant is providing a written report in accordance with Section 510 and that the Medical Center work with its insurance consultant to ensure that it is carrying a sufficient amount of fidelity bond coverage to comply with Condition 34 of the letter of conditions. Views from Responsible Officials: The Medical Center was not aware of the insurance consultant's report on a biannual basis or the fidelity bond coverage requirement until 2023 and the USDA has never questioned us on either of these matters. We will communicate with our USDA representative for guidance on these matters.