FAHRNEY-KEEDY MEMORIAL HOME, INC.Non-Profit

CFDA #10.766 USDA Community Facilities Loans and Grants Continuing Compliance Requirement Finding 2025‐001 – Failure to Meet Required Loan Covenants Criteria: The USDA loan agreements require the Home to maintain a debt service coverage ratio of 1.25x and 65 days of unrestricted cash on hand, as of December 31, 2025. Condition: At December 31, 2025, the Home did not meet either covenant. The Home has 45 days of unrestricted cash on hand as of December 31, 2025. The debt service coverage ratio was 0.65x as of December 31, 2025. Cause: Due to current year net loss, as well as certain cash balances which are restricted to use, management was unable to meet the loan covenants. Effect: As a continuing compliance requirement, violation of a loan covenant could place the loan in default status, which could jeopardize future funding from the lender. Questioned Costs: There were no questioned costs. Context: The Home received multiple USDA loans which have ongoing continuing compliance requirements, including maintaining debt covenants. Repeat Finding: This is a repeat finding. Recommendation: We recommend management track cash flows monthly to ensure a minimum of 65 days cash on hand at the end of each six-month reporting period (every June 30th and December 31st). We further recommend expenses be managed in a way that will allow the Home to meet its debt service requirements. Views of Responsible Officials and Planned Corrective Action: Management agrees with the above finding and has implemented a plan to reduce expenses and increase cash flows going forward. Specifically, we have outlined the following steps that we are taking as an organization to get back on track:  Cash flow is monitored weekly and forecasted on a rolling 12-week basis.  Existing vendor contracts were reviewed and changes made to reduce expenses moving forward into the 2026 fiscal year. Contracts are continually evaluated and renegotiated, where possible, for potential cost savings.  We implemented a robust and detailed budget development process to continue cost-cutting measures into 2026 and beyond. Directors are accountable to their budget guidelines to ensure expenses are appropriately managed.  The 36-unit Independent Living expansion project remains a high priority. The model home construction was completed in November 2025, with showings and open houses now underway. New homes are expected to commence construction in 2026. The sale and occupancy of these units are expected to generate substantial future cash flows for the organization.  We continue to prioritize aggressive staff recruitment to eliminate agency staffing needs. The steady decline in contract staff utilization continued in 2025, with a decrease in contract nursing costs of $317,000 or 15.6% compared to prior year. It is our goal to fully eliminate agency staffing in 2026. Rising labor costs continue to challenge cost savings measures; however, the organization is committed to managing labor costs appropriately and reducing expenses where possible. For example, in 2026, incentive bonuses for nursing shift pick-ups have been eliminated.  Management enacted a progressive plan to increase census in each of its business lines to increase revenue through focused marketing efforts and referral partnerships. Average daily census improved from 133 beds or 79% occupancy in 2024 to 145 beds or 92% occupancy in 2025. Looking ahead to 2026, the organization is focusing its efforts on achieving a more favorable skilled nursing payer mix while maintaining a strong occupancy.

CFDA #10.766 USDA Community Facilities Loans and Grants Continuing Compliance Requirement Finding 2024‐001 – Failure to Meet Required Loan Covenants Criteria: The USDA loan agreements require the Home to maintain a debt service coverage ratio of 1.25x and 65 days of unrestricted cash on hand, as of December 31, 2024. Condition: At December 31, 2024, the Home did not meet either covenant. The Home has 36 days of unrestricted cash on hand as of December 31, 2024. The debt service coverage ratio was 0.32x as of December 31, 2024. Cause: Due to increased expenses of the Home and negative operating cash flows, as well as certain cash balances which are restricted to use, management was unable to meet the loan covenants. Effect: As a continuing compliance requirement, violation of a loan covenant could place the loan in default status, which could jeopardize future funding from the lender. Questioned Costs: There were no questioned costs. Context: The Home received multiple USDA loans which have ongoing continuing compliance requirements, including maintaining debt covenants. Repeat Finding: This is a repeat finding. Recommendation: We recommend management track cash flows monthly to ensure a minimum of 65 days cash on hand at the end of each six-month reporting period (every June 30th and December 31st). We further recommend expenses be managed in a way that will allow the Home to meet its debt service requirements. Views of Responsible Officials and Planned Corrective Action: Management agrees with the above finding and has implemented a plan to reduce expenses and increase cash flows going forward. Specifically, we have outlined the following steps that we are taking as an organization to get back on track:  Cash flow is monitored weekly and forecasted on a rolling 8-week basis.  Existing vendor contracts were reviewed and changes made to reduce expenses moving forward into the 2025 fiscal year. Contracts are continually evaluated for potential cost savings.  We implemented a robust and detailed budget development process to continue cost-cutting measures into 2025 and beyond. Directors are accountable to their budget guidelines to ensure expenses are appropriately managed.  The 36-unit Independent Living expansion project remains a high priority. The model home construction is nearing completion, and new homes are expected to commence construction in 2025. The sale and occupancy of these units are expected to generate substantial future cash flows for the organization.  We continue to prioritize aggressive staff recruitment to eliminate agency staffing needs. While the organization has already seen a steady decline in contract staff utilization, it is our goal to fully eliminate agency staffing in 2025.  An administrative restructuring completed in 2024 allowed the organization to reduce its leadership by 2 positions. Additionally, a review of staffing ratios identified areas of excess staffing, to which the organization responded by utilizing fewer contract staff. The organization is committed to further reducing labor costs appropriately, primarily in supervisory staff through attrition moving forward.  Management enacted a progressive plan to increase census in each of its business lines to increase revenue, utilizing focused marketing efforts and referral partnerships.

CFDA #10.766 USDA Community Facilities Loans and Grants Continuing Compliance Requirement Finding 2023‐001 – Failure to Meet Required Loan Covenants Criteria: The USDA loan agreements require the Home to maintain a debt service coverage ratio of 1.25x and 65 days of unrestricted cash on hand, as of December 31, 2023. Condition: At December 31, 2023, the Home did not meet either covenant. The Home has 41 days of unrestricted cash on hand as of December 31, 2023. The debt service coverage ratio was -.40x as of December 31, 2023. Cause: Due to increased expenses of the Home and negative operating cash flows, as well as certain cash balances which are restricted to use, management was unable to meet the loan covenants. Effect: As a continuing compliance requirement, violation of a loan covenant could place the loan in default status, which could jeopardize future funding from the lender. Questioned Costs: There were no questioned costs. Context: The Home received multiple USDA loans which have ongoing continuing compliance requirements, including maintaining debt covenants. Repeat Finding: This is a repeat finding. While the Home did meet the debt service coverage requirement in 2022, the Home did not meet the days cash on hand requirement in 2022. Recommendation: We recommend management track cash flows monthly to ensure a minimum of 65 days cash on hand at the end of each six-month reporting period (every June 30th and December 31st). We further recommend expenses be managed in a way that will allow the Home to meet its debt service requirements. Views of Responsible Officials and Planned Corrective Action: Management agrees with the above finding and has implemented a plan to reduce expenses and increase cash flows going forward. Specifically, we have outlined the following steps that we are taking as an organization to get back on track: o Outsourcing of finance function to an outside CPA firm with focus on cleaning up resident billings and enhanced collection efforts of the Home’s outstanding patient receivables. o Outsourcing of dining services at both locations, which is expected to save the Home approximately $100,000 annually. o Workforce reduction in management and ancillary level staff.Establishment of a committee to focus primarily on recruitment of in-house staff, in order to fill open positions and thereby seek to minimize reliance on higher cost contracted/agency staff. o Review of all contracts and monthly expenses to identify further opportunities to reduce expenses. o With the completion of the stormwater infrastructure project in early 2024, the Home is also planning a 36-unit independent living expansion, which is expected to increase cash flows in the future.

CFDA #10.766 USDA Community Facilities Loans and Grants Continuing Compliance Requirement Finding 2022-001 ? Failure to Meet Required Loan Covenants riteria: The USDA loan agreements require the Home to maintain a debt service coverage ratio of 1.25x and 65 days of unrestricted cash on hand, as of December 31, 2022. Condition: At December 31, 2022, the Home did not meet the days cash on hand requirement. The Home has 52 days of unrestricted cash on hand as of December 31, 2022. Cause: Due to increased expenses of the Home and a decrease in cash flows, as well as certain cash balances which are restricted to use, management was unable to meet the loan covenant. Effect: As a continuing compliance requirement, violation of a loan covenant could place the loan in default status, which could jeopardize future funding from the lender. Questioned Costs: There were no questioned costs. Context: The Home received multiple USDA loans which have ongoing continuing compliance requirements, including maintaining debt covenants. Repeat Finding: This is a repeat finding. The Home did not meet the days cash on hand requirement in 2021. Recommendation: We recommend management track cash flows monthly to ensure a minimum of 65 days cash on hand at the end of each six-month reporting period (every June 30th and December 31st). Views of Responsible Officials and Planned Corrective Action: Management agrees with the above finding and has implemented a three-phase plan to reduce overhead and managerial costs while maintaining a Skilled Nursing Census in the mid to high 80s.

CFDA #10.760 USDA Water and Waste Disposal Procurement, Suspension & Debarment Finding 2022-002 ? Noncompliance with Federal Code of Regulations 2 CFR 200.318 Criteria: 2 CFR 200.318 requires the non-federal entity to maintain written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award and administration of contracts. No employee, officer, or agent may participate in the selection, award, or administration of a contract supported by a Federal award if he or she has a real or apparent conflict of interest. The officers, employees and agents of the non-Federal entity may neither solicit nor accept gratuities, favors, or anything of monetary value from contractors or parties to subcontracts. The standards of conduct must provide for disciplinary actions to be applied for violations of such standards by officers, employees, or agents of the non-Federal entity. Condition: The employee code of conduct does not specifically address Federal contracts. Cause: Management was unaware of the specific requirements noted in 2 CFR 200.318. Effect: Employees involved in the selection, award, or administration of Federal awards could have a conflict of interest with contractors, subcontractors, and/or vendors. Questioned Costs: There were no questioned costs. Context: There were no findings regarding apparent conflicts of interest between employees and Federal award contractors, subcontractors, or vendors. Repeat Finding: This is not a repeat finding, as this is a new federal award for 2022. Recommendation: We recommend management amend the code of conduct policy for both employees and board members to include specific language noted in 2 CFR 200.318. Views of Responsible Officials and Planned Corrective Action: Management agrees with the above finding and will amend the Employee and Board Codes of Conduct to address Federal Contracts.

CFDA #10.760 USDA Water and Waste Disposal Procurement, Suspension & Debarment Finding 2022-003 ? Noncompliance with Federal Code of Regulations 2 CFR 200.214 Criteria: 2 CFR 200.214 requires the non-federal entity to maintain written documentation verifying that all vendors working on federal contracts have not been suspended or debarred. Condition: The procurement package for one of two vendors selected for testing did not have documentation showing where management verified the vendor?s eligibility to work on federal contracts. Cause: Management was unaware of the specific requirements noted in 2 CFR 200.214. Effect: A vendor could have been utilized on the federally-funded project when they were not allowed to work on a federal contract. Questioned Costs: There were no questioned costs. Context: The auditor verified through sam.gov that the vendor had not been suspended or debarred. Repeat Finding: This is not a repeat finding, as this is a new federal award for 2022. Recommendation: We recommend management amend the procurement policy to include specific procedures to ensure vendors/contractors on Federal projects have not been suspended or debarred. This verification should be performed on every contractor/vendor, and said verification should be documented in writing as part of the contract procurement package. Views of Responsible Officials and Planned Corrective Action: Management agrees with the above finding and will amend the Procurement Policy to include a vetting process to avoid a selection of a contractor /vendor that has been suspended or debarred from working on Federal Contracts.

CFDA #10.766 Community Facilities Loans and GrantsContinuing Compliance RequirementFinding 2021-001 ? Failure to Meet Required Loan Covenant for Days Cash on Hand Criteria:The loan agreements with the USDA require the Home to maintain a debt servicecoverage ratio of 1.25x and 65 days of unrestricted cash on hand.Condition: At December 31, 2021, the Home met the requirement for the debt service coverageratio, but only had 55 days of unrestricted cash on hand.Cause: Due to increased expenses of the Home and an increase in receivables, as well as certain cash balances which are restricted to use, management was unable to meet the loan covenant.Effect: As a continuing compliance requirement, violation of a loan covenant could place the loan in default status, which could accelerate the required loan repayment and/or jeopardize future funding from the lender.Questioned Costs: There were no questioned costs.Context: The Home received multiple USDA loans which have ongoing continuing compliancerequirements, including maintaining debt covenants.Repeat Finding: This is not a repeat finding.Recommendation: We recommend management track cash flows monthly to ensure a minimum of 65 days cash on hand at the end of each six-month reporting period (every June 30th and December 31st).

Finding 2019-001 Community Facilities Loans and Grants ? CFDA #10.766 Grant #24-022-56469372; Grant Period ? Federal Fiscal Year 2019 Criteria: As a non-state recipient of federal funding under the requirements of the Uniform Guidance, and in accordance with 2 CFR 200.327, a USDA borrower is required to provide certain quarterly financial reports relating to the borrower?s community facilities project. Per the grant agreement, these reports are due beginning in the first quarter immediately following loan closing. Condition: Based upon audit testing performed, the first quarterly report was due for the fourth quarter of 2019 in January 2020. The reports were not submitted to the USDA as of January 31, 2020. Cause: As a result of staff turnover at Fahrney-Keedy, as well as staff turnover at the local USDA office, Fahrney-Keedy management was not aware of the reporting requirements applicable to non-state entities under the federal requirement. Effect: Failure to comply with the procurement requirements applicable to federal awards could result in denied project financing under the loan or denial of future applications for federal funding. Questioned Costs: There were no questioned costs. Context: Fahrney-Keedy received a USDA loan in 2015 in which certain reporting requirements were waived. During the construction period under current USDA funding, the reporting was not required because a third party lender advanced the funds. Management incorrectly believed the Home was exempt from this reporting requirement. Repeat Finding: As the loans had not closed until 2019, this is not a repeat finding. Recommendation: We recommend that management ensure quarterly financial reports are prepared and provided to USDA within 30 days of each quarter-end to remain in compliance with the grant award. Views of Responsible Officials and Planned Corrective Action: Management is in agreement with the above finding and has taken action to correct. The action taken was a conversation between Fahrney-Keedy?s CFO and Kendra Harmon of the local USDA office in February 2020. Kendra asked the CFO to complete the fourth quarter 2019 quarterly report and submit by March 25, 2020. The report was submitted via email on March 24, 2020. Additionally, the report for the first quarter of 2020 was emailed to Kendra on April 24, 2020, which was within the 30 day deadline from the end of the quarter. Going forward, the CFO will submit all future quarterly reports prior to the end of the month following quarter-end.

Finding 2019-002 Community Facilities Loans and Grants ? CFDA #10.766 Grant #24-022-56469372; Grant Period ? Federal Fiscal Year 2019 Criteria: In accordance with the Home?s USDA loan agreements, the borrower must establish appropriate accounts, either as bookkeeping accounts or separate bank accounts, for all USDA loan transactions. Specific accounts to be maintained include a general USDA account, USDA construction account, and USDA reserve account. Condition: Based upon the audit testing performed, the Home did not establish a general USDA account or a USDA construction account. A reserve account exists, but it was set up for a previously-existing USDA loan. Cause: As a result of staff turnover at Fahrney-Keedy, as well as changes made to the 2019 Compliance Supplement, management was unaware of this requirement. Effect: Failure to comply with the procurement requirements applicable to federal awards could result in denied project financing under the loan or denial of future applications for federal funding. Questioned Costs: There were no questioned costs. Repeat Finding: This is not a repeat finding. Context: As loan proceeds have already been substantially paid out for construction, the future need for a USDA construction account no longer exists. However, per loan requirements outlined in the loan agreements, the Home does need to establish a USDA general account. Recommendation: We recommend that management create separate cash accounts as required by USDA. These accounts may either be bookkeeping (general ledger) accounts or separate bank accounts. Views of Responsible Officials and Planned Corrective Action: Management is in agreement with the above finding and recommendation and will take action to correct. Management will establish a USDA general account as a bookkeeping (general ledger) account. There are no plans to open an additional bank account.

Finding 2019-003 Community Facilities Loans and Grants ? CFDA #10.766 Grant #24-022-56469372; Grant Period ? Federal Fiscal Year 2019 Criteria: In accordance with the Home?s USDA loan agreements, the borrower must establish appropriate accounts, either as bookkeeping accounts or separate bank accounts, for all USDA loan transactions. Loan proceeds were required to be deposited into a USDA construction account and construction payments were required to be paid from the same account. Repayment of loan principal and interest is required to be made from a USDA general account. Additionally, revenues generated from facilities financed by the loans are to be set aside in the USDA general account. Because the borrower did not establish separate cash accounts as noted in Finding 2019-002, certain transactions involving USDA loans were made through a general operating account and not in the required USDA accounts. Condition: Based upon the audit testing performed, USDA loan proceeds were deposited into a general operating account that was not segregated as being a USDA construction account. Similarly, construction payments were made out of the same operating account. Interest payments made on the loans in 2019 were also paid out of a general operating account, not a segregated USDA general account. Lastly, revenues generated by the properties under the loan financing were not deposited into a segregated USDA account. Cause: As a result of staff turnover at Fahrney-Keedy, as well as changes made to the 2019 Compliance Supplement, management was unaware of this requirement. Effect: Failure to comply with the procurement requirements applicable to federal awards could result in denied project financing under the loan or denial of future applications for federal funding. Questioned Costs: There were no questioned costs. Repeat Finding: This is not a repeat finding. Context: As loan proceeds have already been substantially paid out for construction, the future need for a USDA construction account no longer exists and management is unable to rectify the construction account requirement. However, a USDA general account is required for the life of the loans and needs to be maintained under requirements outlined in the loan agreements. Recommendation: We recommend that Adult Day Care Center and Bowman Center revenues be deposited into the USDA general account, once established. We recommend that loan payments, including both principal and interest, as well as other allowable costs, be paid out of the USDA general account as required by the loan agreements. Views of Responsible Officials and Planned Corrective Action: Management is in agreement with the above finding and recommendation and will take action to correct. Management will establish a USDA general account as a bookkeeping (general ledger) account to reflect the revenues of the Adult Day Care and Bowman Center, as well as debt service payments.

Finding 2019-004 Community Facilities Loans and Grants ? CFDA #10.766 Grant #24-022-56469372; Grant Period ? Federal Fiscal Year 2019 Criteria: In accordance with the Home?s USDA loan agreements, the borrower must establish a USDA reserve account from remaining funds in the USDA general account, and shall set aside a certain amount of funds each month until a specific sum is maintained. Any disbursements from the reserve account must be made for approved purposes by an authorized individual. Condition: Based upon the audit testing performed, the Home did not make monthly deposits into the USDA reserve account for five months in 2019 after the loan closing date. Cause: As a result of staff turnover at Fahrney-Keedy, as well as changes made to the 2019 Compliance Supplement, management was unaware of this requirement. Effect: Failure to comply with the procurement requirements applicable to federal awards could result in denied project financing under the loan or denial of future applications for federal funding. Questioned Costs: There were no questioned costs. Repeat Finding: This is not a repeat finding. Context: A USDA reserve account was set up for a previous USDA loan and funds related to that loan were in this account. As a result, a new account does not need to be established. However, management did not fund the reserve account for any of the new USDA loans that closed in 2019. Recommendation: We recommend that management fund the reserve for the missed five months of 2019, plus additional months missed to-date. We further recommend that going forward, management fund the reserve account on a monthly basis as required by the loan agreements. Additionally, we recommend that any future disbursements from this account be made for an allowed use by an authorized individual. Views of Responsible Officials and Planned Corrective Action: Management is in agreement with the above recommendations and will take action to correct. Management will utilize the currently existing USDA reserve account (a general ledger account) to reflect reserve funds for five months of 2019 and each month going forward.

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