Knox Community Hospital and SubsidiariesNon-Profit

Assistance Listing, Federal Agency, and Program Name - 14.128, Department of Housing and Urban Development Mortgage Insurance Hospitals Federal Award Identification Number and Year - N/A Pass through Entity - None Finding Type - Material weakness and material noncompliance with laws and regulations Repeat Finding - No Criteria - Section 20(b)(iii) of the Organization's Regulatory Agreement with Housing and Urban Development (HUD), includes the following requirements. Short-term debt in the form of a line of credit (the "Short-Term LOC") is permitted with prior approval of HUD pursuant to the following: The Short-Term LOC may not have a limit exceeding 15 days of adjusted operating expenses as reflected on the most recent audited financial statements. Condition - The Organization obtained a short-term line of credit without formal approval from HUD from Park National Bank in 2024 with access to credit up to $15 million, which exceeds the limits in section 20b(iii) as described above. Questioned Costs - None If questioned costs are not determinable, description of why known questioned costs were undetermined or otherwise could not be reported - N/A Identification of How Questioned Costs Were Computed - N/A Context - The Organization failed to adequately review the requirements of the regulatory agreement prior to executing the short term line of credit agreement. Cause and Effect - The lack of effectively review of the regulatory and loan agreements could result in non compliance the loan agreements, which could result in long term debt obligations being called by the lender. Recommendation - Regulatory agreement requirements should be timely and thoughroughly reviewed by financial management any time there are new agreements or modifcations made to existing agreements to ensure compliance with each agreement. Views of Responsible Officials and Corrective Action Plan - On February 21, 2024, Change Healthcare/Optum sustained a cyber-attack and completely shut down claim’s submission processes for Knox Community Hospital. With over 3 weeks of not releasing insurance claims that amounted to over $40M, this impacted the cashflow greatly on the organization. The CFO at that time made the decision to seek a Line of Credit with Park National Bank for $15M to fund operations. Due to the urgency and short timeline, formal approval was not obtained from HUD. A detailed event log was maintained around the cyber-attack and provided to our Board and HUD representative. In the future, all regulatory agreements’ requirements will be reviewed by the CFO and in time there are new agreements or modifications made to existing agreements to ensure compliance with each agreement. HUD has since issued a letter approving KCH’s $15M Line of Credit.

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