AVITA HEALTH SYSTEM

Assistance Listing, Federal Agency, and Program Name 10.766, United States Department of Agriculture, Community Facilities Loans and Grants Federal Award Identification Number and Year N/A Pass through Entity N/A Finding Type Material weakness and material noncompliance with laws and regulations Repeat Finding Yes, 2022-02 Criteria - The loan agreement between Avita Health System (the "System") and the United States Department of Agriculture ("USDA") requires the System to establish and maintain a separate debt service reserve fund. If the required debt service reserve falls below the minimum required balance, the System is required to make monthly deposits until the minimum required debt service reserve has been accumulated. Condition - The System failed to make the monthly debt service reserve fund deposits required by the USDA loan agreement. Questioned Costs - None Identification of How Questioned Costs Were Computed - N/A Context - The debt service reserve fund was fully funded upon issuance of the loan. Prior to fiscal year 2022, the System had not made any withdrawals from the debt service reserve fund, therefore there were no monthly deposit requirements. However, during 2022, approximately $4,200,000 was withdrawn from the debt service reserve fund and the required monthly deposits were not made until October 2022. The System made 10 of the required 12 deposits to the debt service reserve fund during the year ended June 30, 2023 and the minimum required balance was funded as of June 30, 2023. Cause and Effect - The lack of review of the debt service reserve requirements in the loan agreement resulted in the required monthly depsitsl not being made timely to the debt service reserve fund during the first two months of the fiscal year ended June 30, 2023 Recommendation - The System should review the loan agreement and applicable compliance requirements related to their loan program to ensure maintenance of the debt service reserve fund is executed in accordance with the required by the USDA loan agreement and other relevant regulations and requirements. Views of Responsible Officials and Corrective Action Plan Once it was determined that it was necessary to keep the balance of the fund at a prorated amount to the required one year of debt service by ten years, we began funding it in order to meet that requirement by the end of fiscal year 2023, which we did, and we have maintained the required funding since then.

Assistance Listing Number, Federal Agency, and Program Name 10.766, United States Department of Agriculture, Community Facilities Loans and Grants Federal Award Identification Number and Year N/A Pass through Entity N/A Finding Type Material weakness and material noncompliance with laws and regulations Repeat Finding No Criteria: The Loan Agreement between Avita Health System (the "System") and the United States Department of Agriculture ("USDA") requires the System to establish and maintain a separate debt service reserve fund. If the required debt service reserve falls below the minimum required balance, the System is required to make monthly deposits until the minimum required debt service reserve has been accumulated. Condition: The System failed to make the monthly debt service reserve fund deposits required by the USDA loan agreement. Questioned Costs: None Identification of How Questioned Costs Were Computed: N/A Context: The debt service reserve fund was fully funded upon issuance of the loan. Prior to fiscal year 2022, the System had not made any withdrawals from the debt service reserve fund; therefore, there were no monthly deposit requirements. However, during 2022, approximately $4,200,000 was withdrawn from the debt service reserve fund. In accordance with the loan agreement, when the debt service reserve fund falls below one year of annual debt service on the outstanding USDA loans, the System is required to make monthly deposits until the required debt service reserve balance is met. After the withdrawals were made during 2022, the debt service reserve fund balance was approximately $873,000, whereas the required debt service reserve balance was approximately $1,720,000 as of June 30, 2022. The System made no deposits to replenish the debt service reserve fund during the year ended June 30, 2022. Cause and Effect: The lack of review of the debt service reserve requirements in the loan agreement resulted in the underfunding of the debt service reserve account during 2022. Recommendation The System should review the loan agreement and applicable compliance requirements related to their loan program to ensure maintenance of the debt service reserve fund is executed in accordance with the required by the USDA loan agreement and other relevant regulations and requirements. Views of Responsible Officials and Corrective Action Plan Once it was determined that it was necessary to keep the balance of the fund at an amount equal to one year of debt service prorated by 10 years, we began funding it and met that requirement by the end of fiscal year 2023, and we have maintained the required funding since.

Assistance Listing Number, Federal Agency, and Program Name - 93.498, U.S. Department of Health and Human Services, COVID-19 - Provider Relief Fund Federal Award Identification Number and Year - N/A Pass-through Entity - N/A Finding Type - Material weakness and material noncompliance with laws and regulations Repeat Finding - No Criteria - The Post Payment Notice of Reporting Requirements for Provider Relief Fund General and Target Distributions (the "Notice"), dated June 11, 2021, requires that unreimbursed COVID-19 expenses reported within the HHS reporting portal should be properly supported and reviewed for accuracy, and the lost revenue methodology utilized by the System should be reported accurately within the HHS portal submission. Condition - The information entered into the period one HHS portal submission for Galion Community Hospital was not adequately supported or reviewed in accordance with the terms and conditions of the PRF funding and the Notice. Questioned Costs - None Identification of How Questioned Costs Were Computed - N/A Context - Expenses and lost revenue entered into the period one portal submission for Galion Community Hospital were not adequately reviewed for accuracy and allowability prior to completion of the period one portal submission. After the report was submitted to HHS, the System decided to utilize lost revenues only to justify the expenditures reported on the schedule of expenditures of federal awards. Cause and Effect - The System did not review expenses and lost revenue compiled and reported within the period one portal submission for Galion Community Hospital, which resulted in expenses included in the report not being adequatly supported in accordance with the terms and conditions of the PRF funding and the Notice. Recommendation - The System should review all instructions and FAQs released by the awarding agency and should perform adequate review of the information reported to ensure reporting requirements are completed in accordance with the required regulations. Views of Responsible Officials and Corrective Action Plan - The System utilized lost revenue to support expenditures recognized on the Schedule. For future grant funds received, management will adequately review terms and conditions of the funding received and ensure allowable expense are properly supported and reviewed before completing the required reports.

Assistance Listing Number, Federal Agency, and Program Name - 93.498, U.S. Department of Health and Human Services, COVID-19 - Provider Relief Fund Federal Award Identification Number and Year - N/A Pass-through Entity - N/A Finding Type - Material weakness and material noncompliance with laws and regulations Repeat Finding - No Criteria - In accordance with 2 CFR 200.303, the System must establish and maintain effective internal controls over federal awards that provide reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. The reporting requirements for PRF targeted distributions required the recipient entity to report on the use of the funds. Condition - The System received targeted distributions for Bucyrus Community Hospital. A period one portal submission was completed, but no allowable expenses or lost revenues were reported within the Bucyrus Community Hospital report. All allowable expenses and lost revenues were reported on the first period portal submission for Galion Community Hospital, another hospital of the Avita Health System. Questioned Costs - None Identification of How Questioned Costs Were Computed - Lost revenues related to the targeted distributions of $3,878,983 received by Bucyrus Community Hospital were reported within the Galion Community Hospital period 1 portal submission. Context - Galion Community Hospital and Bucyrus Community Hospital received targeted distributions during period one. The allowable expenses and lost revenues related to the Galion Community Hospital targeted distributions were reported within the recipient entities portal submission, while there were no allowable expenses or lost revenues reported within the Bucyrus Community Hospital period one portal submission. The total lost revenue reported in the Galion Community Hospital period one portal submission was sufficient to cover all period one funding. Cause and Effect - The System failed to review all reporting requirements, which caused the System to fail to report allowable expenses and lost revenues within the portal submission for the specific entity that received targeted PRF. Recommendation - The System should adequately review all applicable reporting requirements for federal funding received. Views of Responsible Officials and Planned Corrective Actions - The portal submission could not be modified by the time we identified the reporting issue. As such, no corrective report was completed, however management will implement procedures to ensure reporting requirements are adequately reviewed for all federal funding.

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