MCKENZIE COUNTY HEALTHCARE SYSTEMS, INC. AND SUBSIDIARY

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 1 TIN #770637498 Department of Homeland Security Federal Assistance Listing #97.036 COVID 19: Disaster Grants – Public Assistance (Presidentially Declared Disasters)(FEMA) Preparation of 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 Health System does not have an internal control system designed to provide for a complete and accurate 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 Health System meets a specified threshold of federal expenditures. Effect: There is a reasonable possibility that the Health System 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: While we recognize that this condition is not unusual for an organization with limited staffing, we recommend management be aware of the financial reporting requirements relating to the Health System’s Schedule of Expenditures of Federal Awards and internal controls that impact financial reporting. Views of Responsible Officials: Management agrees with the finding.

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 1 TIN #770637498 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. The Health System reported expenses based on specifically identified COVID related expenses. Condition: The Health System failed to provide an expense listing that supported the expenses included within the HHS Special Report – Period 1 (Report). In addition, the Health System’s lost revenue report did not reconcile to the Report and there was no evidence of review by someone other than the preparer. Cause: Internal controls in place did not ensure that all federal awards were supported and tracked appropriately. Effect: The lack of adequate policies governing review of the terms and conditions of the program, and lack of review over Report preparation and submission increases the risk that employees participating in the federal award administration may not be able to detect and correct noncompliance in a timely manner. The Health System submitted the Report without an accurate schedule to support the amount of expenses claimed. Questioned Costs: None reported. Context: Sampling was not used. Repeat Finding from Prior Years: No Recommendation: We recommend that the Health System enhance internal control policies to ensure all amounts reported and submitted to the federal agency are adequately documented and supported We also recommend that the Health System enhance internal control policies to ensure that the required reports are properly reviewed prior to submission to ensure all key line items are necessary, correct, meet the requirements of the federal program, and are properly recorded in the reports required to be submitted to the federal agency. Views of Responsible Officials: Management agrees with the finding.

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