LifeCare Medical CenterNon-Profit

2023‐002 Department of Health and Human Services Federal Assistance Listing #93.498 COVID‐19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution Applicable Federal Award Number and Year – Period 4 TIN #411804205 Reporting Material Weakness in Internal Control over Compliance and Material Noncompliance Criteria ‐ 2 CFR 200.33(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 statues, regulations, and conditions of the federal award. The Medical Center is required to submit an accurate report to HHS for the filing period that funds were received. Condition ‐ The Medical Center claimed lost revenues attributable to coronavirus in which the revenue calculation did not agree to the HHS special report for one key line item. Cause ‐ The Medical Center had a revenue calculation error of $192,326 on the HHS special report with no impact to the actual lost revenues as the quarter with the error did not result in any lost revenue being reported (i.e., lost revenue claimed was accurate on the HHS special report but key line items were misstated). Effect ‐ While the calculation error did not provide a difference in total between the lost revenues utilized on the HHS special report and the lost revenue calculation, the Medical Center’s reported quarterly resident revenues were inaccurate. This calculation error also indicated a lack of proper reconciliation between the Medical Center’s audited financial statements and the revenues reported within the HHS special report. Questioned Costs ‐ None reported. Context ‐ There were 40 lost revenue key line items tested on which one key line item contained an error which totaled $192,326 (explicit price concessions were overstated for one quarter). The error had no impact on the amount of lost revenue as the quarter impacted did not result in any lost revenue. Repeat Finding from Prior Years – No Recommendation ‐ We recommend that the Medical Center enhance internal control policies to ensure the HHS special report is supported by accurate revenue calculations. This would include reconciling the lost revenue calculation to the audited financial statements within the secondary review of the HHS special report. Views of Responsible Officials ‐ Management agrees with the finding.

2021-002 Department of Health and Human Services Federal Assistance Listing/CFDA #93.498 COVID-19 Provider Relief Fund and American Rescue Plan Rural Distribution Applicable Federal Award Number and Year- Period 1 TIN #411804205 Preparation of the Schedule of Expenditures of Federal Awards Material Weakness in Internal Control Over Compliance - Other Criteria: Proper controls over financial reporting include the ability to prepare the schedule of expenditures of federal awards (Schedule) and accompanying notes to the Schedule. Condition: The Medical Center does not have an internal control system designed to provide for a complete and accurate consolidated schedule of expenditures of federal awards being audited. We were requested to draft the Schedule. Cause: Auditor assistance with preparation of the Schedule is not unusual, as the Schedule has unique and specialized requirements and preparation is only required when the Medical Center meets a specified threshold of federal expenditures. Effect: There is a reasonable possibility that the Medical Center would not be able to draft a Schedule that is correct without assistance of the auditors. Questioned Costs: None reported. Context: Sampling was not used. Repeat Finding from Prior Years: No Recommendation: We recommend that be aware of the financial reporting requirements relating to the Medical Center?s schedule of expenditures of federal awards and internal controls that impact financial reporting. Views of Responsible Officials: Management agrees with the finding.

2021-003 Department of Health and Human Services Federal Assistance Listing/CFDA #93.498 COVID-19 Provider Relief Fund and American Rescue Plan Rural Distribution Applicable Federal Award Number and Year ? Period 1 TIN #411804205 Activities Allowed or Unallowed and Allowable Cost/Cost Principles Significant Deficiency 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. The federal award?s Terms and Conditions Section 202 Executive Pay states none of the funds appropriated under this federal program shall be used to pay the salary of an individual, through a grant or other mechanism, at a rate in excess of Executive Level II of the Federal Executive PayScale determined to be $197,300 effective January 2020 and $199,300 effective January 2021. The interpretation of the Executive Level II limitations is subjective as to whether the rate of pay is to be assessed solely on an annual basis or if it is assessed based on the rate of pay, if annualized, does not exceed an annual amount based on full-time equivalent basis. Condition: Three executives were identified that may have exceeded the Executive Level II limitations if assessed based on the rate of pay being annualized. Cause: The Medical Center did not consider the Executive Level II salary limit when reporting salaries under the federal program. Effect: Without consideration of Executive Level II salary limit, there is a possibility that ineligible expenditures may be reported under the program. Questioned Costs: None reported. The salary in excess of the Executive Level II limit for the identified executive that may have exceeded the Executive Level II limitation, if assessed based on the rate of pay being annualized, was less than $25,000. Context: Detail testing was performed over Incident Command payroll expenses. Of the nine employees that made up Incident Command, three employees were over the executive compensation level. Repeat Finding from Prior Years: No Recommendation: We recommend the Medical Center document the consideration of the Executive Level II salary limit interpretation when reporting salaries under the federal program. Views of Responsible Officials: Management agrees with the finding.

2021-004 Department of Health and Human Services Federal Assistance Listing/CFDA #93.498 COVID-19 Provider Relief Fund and American Rescue Plan Rural Distribution Applicable Federal Award Number and Year ? Period 1 TIN #411804205 Activities Allowed or Unallowed and Allowable Cost/Cost Principles 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: There was no formal documentation of review and approval of the listing of eligible expenditures claimed under the program. There was also no formal review over tracking of other sources of funding to ensure that expenses claimed for the program were not claimed by other funding sources. The Medical Center?s calculation of lost revenue claimed under the federal program as an allowable cost contained no formal review or approval by a separate individual outside of the preparer. Cause: The Medical Center did not have an adequate internal control policy in place to ensure review and approval of direct and incremental COVID expenses, tracking of other funding sources, or calculation of lost revenue. Effect: The lack of adequate policies governing review and approval increases the risk that employees participating in the federal award administration may not be able to detect and correct noncompliance in a timely manner. Questioned Costs: None reported. Context/Sampling: Detail testing was performed over eligible expenditures for activities allowed and unallowable and allowable cost/cost principles. In addition, the lost revenue calculation for all applicable quarters was tested. Repeat Finding from Prior Years: No Recommendation: We recommend that the Medical Center enhance internal control policies to ensure that formal documentation of review and approval is present. Views of Responsible Officials: Management agrees with the finding.