Community Memorial Health SystemNon-Profit

FINDING 2024-001 – Significant deficiency in internal controls over compliance and noncompliance over submission of required reports Federal Award: Assistance Listing Number: 14.128 Mortgage Insurance Program Criteria: The Hospital Regulatory Agreement requires the following to be filed with HUD and Lender: (i) Annual audited financial statements from a certified public accountant or other person acceptable to HUD in accordance with program obligations. (ii) Board-certified annual financial statements within 120 days following the close of the borrower’s fiscal year if the annual audited financial statements have not yet been provided to HUD and Lender, or anytime at HUD’s and Lender’s request. (iii) Monthly unaudited financial statements 40 days following the end of the month, in accordance with program obligations, until final endorsement has occurred, or at HUD’s request. (iv) Quarterly unaudited financial statements and utilization statistics within 40 days following the end of each quarter of the borrower’s fiscal year, in accordance with program obligations. Condition/Context: During our testing of the reporting requirement, we tested four quarterly reports and one annual report (100% of the population). We observed that although board approval was received prior to the due date, the annual board-certified financial statements were submitted five days (three business days) after the deadline required by the Hospital Regulatory Agreement. Cause: Management did not have effective internal controls in place to ensure the report was submitted in accordance with the Hospital Regulatory Agreement. Effect: Because there were not effective internal controls in place, the annual board-certified report was submitted past the date required by the Hospital Regulatory Agreement. Questioned Costs: Not applicable. Repeating Finding: Not applicable. Recommendation: We recommend that management implement internal controls to ensure that the required reports are submitted by the deadlines agreed to in the Hospital Regulatory Agreement. View of responsible officials and planned corrective actions: Although the circumstances were unique due to implementation of a new electronic health record system, additional personnel will be involved to ensure redundancy, completion, and compliance with the annual reporting requirement.

Finding 2021-001: Internal control deficiency and noncompliance over submission of required reports. Identification of the federal program: Assistance Listing Number 14.128: ? Mortgage Insurance Hospitals ? U.S. Department of Housing and Urban Development ? Federal award identification number ? Not Applicable ? Federal award year ? May 1, 2021 to June 1, 2046 ? Federal Housing Administration project number ? 122-22265 Criteria or specific requirement (including statutory, regulatory or other citation): Title 2, Subtitle A Chapter II Part 200 Subpart D 200.303 Internal controls, states: ?The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in ?Standards for Internal Control in the Federal Government? issued by the Comptroller General of the United States or the ?Internal Control Integrated Framework?, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).? The Hospital Regulatory Agreement requires the following to be filed with HUD and Lender: (i) Annual audited financial statements from a certified public accountant or other person acceptable to HUD in accordance with program obligations. (ii) Board-certified annual financial statements within 120 days following the close of the borrower?s fiscal year if the annual audited financial statements have not yet been provided to HUD and Lender, or anytime at HUD?s and Lender?s request. (iii) Monthly unaudited financial statements 40 days following the end of the month, in accordance with program obligations, until final endorsement has occurred, or at HUD?s request. (iv) Quarterly unaudited financial statements and utilization statistics within 40 days following the end of each quarter of the borrower?s fiscal year, in accordance with program obligations. Condition: During our testing over reporting, we observed management did not have effective internal controls in place to ensure the required reports were submitted and therefore, reports were not submitted by the required deadlines in accordance with the Hospital Regulatory Agreement. Cause: Management did not have effective internal controls in place to ensure reports were submitted by the required deadlines in accordance with the Hospital Regulatory Agreement. Effect or potential effect The required reports were not submitted by the deadlines outlined in the Hospital Regulatory Agreement. Questioned costs: None Context: We evaluated 100% of the population (3 quarterly and 1 annual reports) and observed management did not have effective internal controls in place to ensure the required reports were submitted by the required deadlines (2 quarterly reports were submitted after the required deadline of 40 days following the end of the quarter and 1 annual report was submitted after the required deadline of 120 days following the end of the fiscal year) in accordance with the Hospital Regulatory Agreement. Management did submit the required reports subsequent to the deadlines. Identification as a repeat finding, if applicable: No. Recommendation: We recommend management develop and implement effective internal controls to ensure required reports are submitted by the deadlines outlined in the Hospital Regulatory Agreement. Views of responsible officials: Community Memorial Health System Management always communicated with our HUD representative in advance of the pending reporting deadlines. Particularly at year end, Management always employs a longer closing cycle. Management issues a preliminary financial year end financial statement in January and prepares a final version in mid-February that is used as the basis for the annual audit. The second close in February historically has allowed more time for complete recording of pertinent invoices to reduce the need for Management?s estimates. This practice has allowed Management to successfully complete its annual audit without adjustments in prior years. Management?s practice is not to have any differences in the year end financials distributed to external parties (i.e., Bondholders) and the audited financials. The HUD December 2021 Quarterly Report was due on February 9 and would have been based on financials from the first close with which Management was not accustomed. Management also does not have the resources to do two consolidations as part of its year end procedures. Although Management met with HUD personnel and informed them of this timing, extensions were not granted. Based on this first year of experience, Management will implement procedures to ensure timely filing of quarterly and year end reports. The Fourth Quarter report will be based on the close in January. The final consolidated report, that is the basis for the audit, will be presented to and certified by the Board of Trustees by April 30 (120 days after year end). The annual audited financial statements will be completed in May as been done in the past and sent to HUD.