Tri-City Healthcare District

Finding 2024-002 – Reporting – Significant Deficiency in Internal Control Over Compliance and Instance of Noncompliance Federal Program: Mortgage Insurance for Hospitals (Assistance Listing #14.128) Federal Agency: U.S. Department of Housing and Urban Development Award Year: 2024 Criteria – In accordance with the Regulatory Agreement, Section 13 (a) under the Mortgage Insurance for Hospitals Program, the Borrower is required to file with U.S. Department of Housing and Urban Development (HUD) and lender, annual audited financial statements in accordance with Program Obligations, which include ensuring the annual audited financial statements are submitted within 120 days following the close of the Borrower’s fiscal year. If the audited financial statements are not available, the Borrower is required to submit Board-certified annual financial statements in lieu of the annual audited financial statements. Condition – During our testing of the reporting compliance requirements of the Mortgage Insurance for Hospitals Program, we noted that the annual audited financial statements for the fiscal year ended June 30, 2023, which were filed during the fiscal year ending June 30, 2024, were submitted to HUD and the lender on December 18, 2023, which was 171 days after the close of the Borrower’s fiscal year ended June 30, 2023. There were no Board-certified financial statements submitted in lieu of the annual audited financial statements. Cause – The annual audited financial statements were not available to be submitted within 120 days of the close of the fiscal year ended June 30, 2023 due to the District’s decision to delay issuance of the annual financial statements. Effect or potential effect – As the District made the decision to delay the issuance of the annual audited financial statements pending receipt of loan proceeds of $33.2 million from the California Distressed Hospital Loan Program, they were not available for issuance within 120 days of the District’s fiscal year ended June 30, 2023. Questioned costs – None to be reported. Context – Due to escalating costs and declining reimbursement during the fiscal year ended June 30, 2023, the District had a working capital deficiency and increased operating losses which lead to doubt about the District’s ability to continue as a going concern. As the District was expecting additional funding and anticipated improved operations that may have prevented a going concern issue to be disclosed in the annual audited financial statements, the District made the decision to delay the issuance of the annual audited financial statements until the additional funding was received, which was in December 2023. Identification as a repeat finding, if applicable: This is not a repeat finding. Recommendation – We recommend that Tri-City Healthcare District implement review controls to ensure timely submission of required reports in accordance with the terms and conditions of the Mortgage Insurance Program. Views of responsible officials – The District agrees with the findings and management has implemented a corrective action plan to ensure the required reports are filed timely. Starting January 2024, all financial reports were filed on time.

Finding 2024-002: Reporting – Significant Deficiency in Internal Control Over Compliance and Instance of Noncompliance Corrective Action Planned: The District agrees with the findings and management has implemented a corrective action plan to ensure the required reports are filed timely. Starting January 2024, all financial reports were filed on time. Person Responsible for Corrective Action: Anh Nguyen, Controller Anticipated Completion Date: June 30, 2025

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