FALLON MEDICAL COMPLEX INC.

2021-003 Department of Health and Human Services Federal Financial Assistance Listing/CFDA #93.498 COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution Applicable Federal Award Number and Year ? Period 1 TIN #363808993 Department of Health and Human Services Federal Financial Assistance Listing/CFDA #93.697 COVID-19 Testing and Mitigation for Rural Health Clinics Department of Health and Human Services Federal Financial Assistance Listing/CFDA #93.301 Small Rural Hospital Improvement Grant Program Auditor Preparation of Schedule of Expenditures of Federal Awards Material Weakness in Internal Control Over Compliance ? Other Criteria ? A properly designed system of internal control over financial reporting includes preparation of the schedule of federal awards (the schedule) that are materially correct and include all required disclosures. Condition ? Fallon Medical Complex, Inc. and Affiliate does not have an internal control system designed to provide for the preparation of the schedule of expenditures of federal awards. As auditors, we were requested to draft the schedule of expenditures of federal awards and accompanying notes to the financial statements. Cause ? This deficiency is partially due to the limited resources in the financial reporting process due to budgetary constraints. Effect? There is a reasonable possibility that the Complex would not be able to draft the schedule and accompanying footnotes that are correct without the assistance of the auditors. Questioned Costs ? None reported. Context/Sampling ? Sampling was not used Repeat Finding from Prior Year(s) ? No. Recommendation ? While we recognize that this condition is not unusual for an organization with limited staffing, it is important that the Complex is aware of this condition for financial reporting purposes. Management and the board of directors should continually be aware of the financial accounting and reporting of the Complex and changes in the accounting and reporting requirements. Views of Responsible Officials ? Management agrees with the finding.

2021-004 Department of Health and Human Services Federal Financial Assistance Listing/CFDA #93.498 COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution Applicable Federal Award Number and Year ? Period 1 TIN #363808993 Activities Allowed or Unallowed and Allowable Costs/Cost Principles and Reporting Material Weakness in Internal Control over Compliance 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 ? The Complex?s final expenditures identified as eligible and claimed under the Provider Relief Fund program were reviewed and approved by separate individuals outside of the preparer. However, the Complex?s special reports submitted to the Department of Health and Human Services for Period 1 TIN #363808993 had no evidence of review and approval by a separate individual outside of the preparer. Cause ? The Complex had multiple individuals identifying and compiling eligible costs, however, the Complex did not have an internal control process in place to ensure evidence of a secondary review and approval, of eligible expenditures that were summarized from the underlying supporting spreadsheets to the final expenditure listing, was documented. The final expenditure listing was used to claim allowable costs under the federal program. The review and approval of the final expenditure listing submitted to the Department of Health and Human Services for Period 1 was not performed by someone other than the preparer of the report. Effect ? Without a secondary review and approval, there is a possibility that ineligible expenditures may be claimed under the program and the report may not be accurately completed. Questioned Costs ? None reported. Context/Sampling ? Testing was performed over payroll, equipment, and supplies for activities allowed and unallowed and allowable costs/cost principles. Key line items were tested on the Period 1 Department of Health and Human Services special reports. A nonstatistical sample of 12 expenditures for equipment and supplies were selected for testing and accounted for $82,330 of direct program expenditures. Expenditures for payroll of $169,470 were tested at the summary level. Expenditures totaling $251,800 of the total program expenditures of $279,538 were selected for testing. Repeat Finding from Prior Year(s) ? No. Recommendation ? We recommend the Complex implement a control process which includes a secondary review and approval of the summarized final expenditure listing used to claim the allowable costs under the federal program and a secondary review and approval of required reports submitted to the federal agency. Views of Responsible Officials ? Management agrees with the finding.

2021-005 Department of Health and Human Services Federal Financial Assistance Listing/CFDA #93.498 COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution Applicable Federal Award Number and Year ? Period 1 TIN #363808993 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting 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 ? The Complex?s final expenditures identified as lost revenue and claimed under the Provider Relief Fund program were not calculated under a method which was based on the fiscal year of the Complex. Cause ? The Complex determined it had lost revenue due to COVID-19 and totaled its net revenue by quarter based on its internally prepared monthly financial statements. The Complex noted the contractual adjustments related to the net revenue for each month or quarter were not determined on a consistent basis across each quarter. Therefore, the Complex adjusted the contractual adjustments for each quarter using a method which created a similar adjustment percentage for each payor type for each calendar year. Effect ? The reporting to HHS for Period 1 was considered incorrect. The adjustment to the contractual adjustment percentage should have been based on the contractual adjustment percentage for each fiscal year of the Complex, in order to report the fiscal year audited net patient revenue. Total lost revenue with changes to contractual adjustments based on a calendar year was $1,277,030 as reported on the Period 1 special report. The calculation of lost revenue with changes to contractual adjustments based on the fiscal year was $1,102,162. The difference between the calendar year methodology and the proper fiscal year basis was $174,868. Questioned Costs ? $174,868 Context/Sampling ? Key line items were tested on the Period 1 Department of Health and Human Services special reports. Repeat Finding from Prior Year(s) ? No. Recommendation ? We recommend the Complex implement procedures to ensure the lost revenue is calculated in accordance with the terms and conditions of the federal program. Views of Responsible Officials ? Management agrees with the finding.