HEALTH CARE SERVICES FOUNDATION AND SUBSIDIARY JUNE BATON ROUGE. LOUISIANA

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1 pt</ HEALTH CARE SERVICES FOUNDATION AND SUBSIDIARY JUNE BATON ROUGE. LOUISIANA Under provisions of state law, this report,s a pud c document. A copy of the report has been submitted to the entity and other appropnate public offic,a's_ The report is available for public inspection at the Baton Rouge office ofthe Legislative Auditor ar^d where appropriate, at the office of the pansh clerk of court. Release Date_ Wz/b

2 CONTENTS Audited Financial Statements: Independent Auditor's Report Page 1 Consolidating Statement of Financial Position 2 Consolidating Statement of Activities 3 Consolidating Statement of Cash Flows 4 5 Notes to Financial Statements 613

3 Hannis T. Bourgeois, LLP Certified Public Accountants 2322 Tremont Drive Baton Rouge, LA Del Orleans Avenue, Suite C Denliam Springs, LA Phone: Fax: Board of Directors Health Care Services Foundation and Subsidiary Baton Rouge, Louisiana March Independent Auditor's Report We have audited the accompanying Consolidating Statement of Financial Position of Health Care Services Foundation and Subsidiary as of June , and the related Consolidating Statements of Activities, and Cash Flows for the year ended June These financial statements are the responsibility ofthe Organizations' management. Our responsibility is to express an opinion on these fmancial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fmancial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, based on our audit, the accompanying fmancial statements referred to above present fairly, in all material respects, the fmancial position of Health Care Services Foundation and Subsidiary as of June and the changes in net assets and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Respectfully submitted.

4 HEALTH CARE SERVICES FOUNDATION AND SUBSIDIARY CONSOLIDATrNG STATEMENT OF FINANCIAL POSITION AS OF JUNE 30, 2008 ASSETS Health Care Services Foundation Bogalusa Community Medical Center Eliminations Consolidated Totals Current Assets: Cash Current Portion of Capital Lease Receivable, Net Other Receivables, Net Prepaid Expenses Total Current Assets $ 587,484 7, ,029 $ 3,298,197 1,338,387 8,662 24,531 4,669,777 $ (7,545) (7,545) $ 3,885,681 1,338,387 8,662 24,531 5,257,261 Restricted Cash 10,558,055 10,558,055 Property, Plant and Equipment, Net 3,123,109 3,123,109 Deferred Bond Issuance Cost, Net 49, , ,619 Capital Lease Receivable, Net 19,319,654 19,319,654 Total Assets $3,767,410 $ 35,163,833 S (7,545) $ 38,923,698 LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable Construction Payable Estimated ThirdParty Payables Other Current Liabilities Current Portion of Bonds Payable $ 1,301 48, ,000 $ 3,153,463 3,210, , ,126 $ (7,545) $ 3,147,219 3,210, , , ,000 Total Current Liabilities LongTerm Liabilities: LongTerm Construction Payable LongTerm Bonds Payable, Including Unamortized Bond Premium of $0 and $601,297, respectively Total Liabilities Net Assets: Unrestricted Temporarily Restricted 279,868 1,625,000 1,904,868 1,856,500 6,042 7,332,202 4,710,784 18,101,297 30,144,283 5,019,550 (7,545) (7,545) 7,604,525 4,710,784 19,726,297 32,041,606 6,876,050 6,042 Total Net Assets 1,862,542 5,019,550 _ 6,882,092 Total Liabilities and Net Assets $3,767,410 $ 35,163,833 $ (7,545) $ 38,923,698 The accompanying notes are an integral part of this statement. 2

5 HEALTH CARE SERVICES FOUNDATION AND SUBSIDIARY CONSOLIDATING STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2008 Revenues from Operations: Management and Implementation Fees Contributions Interest Income on Capital Lease Other Revenue, Primarily Rental Income Realized Gain (Loss) on Investments Net Loss on Capital Lease Net Assets Released from Restrictions Health Care Services Foundation Unrestricted $ 90,000 7, , ,164 Health Care Services Foundation Temporarily Restricted $ 341 (275,164) Health Care Services Foundation Total $ 90,000 7, ,964 1,072,186 (274,823) 797,363 Operating Expenses: Bank and Bond Fees Bad Debts Depreciation and Amortization Insurance Expense Interest Expense Janitorial Landscaping Legal and Professional Maintenance Contracts Repairs and Maintenance Supplies and Other Utilides InKind Donations 30, ,245 62,754 89,472 4, ,000 17,220 52,507 8, , ,482 _ 30, ,245 62,754 89,472 4, ,000 17,220 52,507 8, , ,482 1,131,135 _ 1,131,135 Change in Net Assets (58,949) (274,823) (333,772) Net Assets Beginning of Year Net AssetsEnd of Year 1,915, ,865 $ 1,856,500 J S 6,042 = = 2,196,314 $ 1,862,542 The accompanying notes are an integral part of this statement. 3

6 Bogalusa Community Medical Center Consolidated Unrestricted Eliminations Totals $ 464,507 $ (90,000) $ 7, ,507 1,177,087 _ 1,877,051 (156) (156) (493,162) (493,162) 1,148,276 (90,000) 1,855,639 27, ,168 95, , , ,064 9,515 (90,000) 30,737 27, A13 95, ,672 89,472 4, ,450 17, ,571 17, , ,482 1,150,206 (90,000) 2,191,341 (1,930) (335,702) 5,021,480 ~_ 7,217,794 $ 5,019,550 $ $ 6,882,092

7 HEALTH CARE SERVICES FOUNDATION AND SUBSIDIARY CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008 Cash Flows From Operating Activities: Change in Net Assets: Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation and Amortization Net Loss on Capital Lease Agreement Realized (Gain) Loss on Investments Changes in Current Assets and Liabilities: (Increase) Decrease in Lease Receivables (Increase) Decrease in Other Receivables (Increase) Decrease in Deferred Bond Issuance Cost (Increase) Decrease in Other Assets (Increase) Decrease in Prepaid Expense Increase (Decrease) in Accounts Payable Increase (Decrease) in Accrued Expenses Increase (Decrease) in Unearned Income Net Cash Provided by (Used in) Operating Activities Health Care Bogalusa Services Community Consolidated Foundation Medical Center Eliminations Totals $ (333,772) 132,245 65,966 ' 216,116 (111,951) 25,270 (6,126) $ (1,930) $ 154, , ,612 4,487,710 (613,567) 499 1,670,414 (32,431) (464,507) 5,732,055 7,545 (7,545) $ (335,702) 287, , ,612 4,561,221 (613,567) 216, ,550,918 (7,161) (464,507) 5,725,929 Cash Flows From Investing Activities: Purchases of Capital Assets (Increase) Decrease in Restricted Cash Proceeds from Sale of Investments (3,800) (8,079,426) (10,558,055) 18,194 (8,083,226) (10,558,055) 18,194 Net Cash Provided by (Used in) Investing Activities (3,800) (18,619,287) (18,623,087) (CONTINUED) 4

8 Cash Flows from Financing Activities: Net Repayment under Line of Credit Proceeds from the Issuance of Long Term Debt Proceeds from Repayment of Capital Lease Repayment of Long Term Debt Payment of Related Party Payable Net Cash Provided by (Used in) Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents Health Care Bogalusa Services Community Consolidated Foundation Medical Center Eliminations Totals (225,000) (1,720,278) 18,115, ,213 (2,470,927) 293,990 (225,000) 14,435,526 (1,720,278) 18,115, ,213 (2,695,927) 293,990 14,210,526 (234,926) 1,548,294 1,313,368 Cash and Cash Equivalents Beginning of Year Cash and Cash Equivalents End of Year 822,410 1,749,903 $ 587,484 $ 3,298,197 $ 2,572,313 $ 3,885,681 Supplemental Disclosure of Cash Flow Information: Cash Payments for Interest $ 74,652 $ 353,918 $ 428,570 Supplemental Disclosure of NonCash Financing Activities; Capital Lease Agreement: Receivable on Equipment Sold through Capital Lease Unearned Income on Capital Lease Equipment Sold Under Capital Lease Construction Payable Net Loss on Capital Lease Agreement 32,236,737 $ (11,825,990) (12,982,524) (7,921,385) $ (493,162) $ $ 32,236,737 (11,825,990) (12,982,524) (7,921,385) $ (493,162) The accompanying notes are an integral part of this statement. 5

9 HEALTH CARE SERVICES FOUNDATION AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 Note 1 Summary of Significant Accounting Policies Organization Health Care Services Foundation, ('the Foundation') is a nonprofit organization, incorporated in the State of Louisiana that provides support and appropriate services to the Health Care Services Division of the Louisiana State University Agricultural and Mechanical College ('the Division') which includes purchasing, leasing, owning, operating, managing and selling property and services to maximize healthcare capabilities in Louisiana. Bogalusa Community Medical Center ('BCMC') is a nonprofit, nonstock corporation, incorporated in the State of Louisiana. On April 25, 2002, the Foundation became the sole member ofthe BCMC. Prior to September 27, 2007 BCMC leased the hospital's facilities to the Louisiana State University Health Care Service Division (LSUHCSD). Effective September 27, 2007 the facilities were sold to the LSUHCSD as part ofa capital lease transaction. See details of this transaction in Note 6. The Foundation and BCMC are referred to collectively as the "Organizations." Operations The Organizations define operations as all program and supporting service activities undertaken to promote and support the Division and all the hospitals, health care facilities, departments, and divisions comprising it. Revenues that result from these activities, and their related expenses, are reported as operations. Gains, losses and other revenue that results from ancillary activities, such as investing liquid assets and disposing of fixed or other assets, are reported as nonoperating. Reporting Entitv Health Care Services Foundation and its whollyowned subsidiary are considered to be a component unit of LSUHCSD. LSUHCSD is a component unit of the LSU System, which is a component unit ofthe State of Louisiana. The accompanying financial statements present information only on the activities and funds maintained by the Foundation and do not present information on LSUHCSD, the general govemmental services provided by that governmental unit or the other governmental units that comprise the financial reporting entity for the State of Louisiana. Principles of Consolidation The financial statements include the accounts of the Health Care Services Foundation and the Bogalusa Community Medical Center and have been consolidated in accordance with Statement of Position 943, Reporting of Related Entities by NotforProfit Organizations. All significant intercompany accounts and transactions have been eliminated in these financial statements.

10 Basis of Accounting The Organizafions prepare their financial statements on the accrual basis of accounting. Accordingly, revenues are recognized when earned and expenses are recognized when incurred. Basis of Presentation Financial statement presentation follows the recommendafion of the Financial Accounfing Standards Board on its Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements ofnotforprofit Organizations, Under SFAS No. 117, the Organizations are required to report information regarding their financial position and activities according to three classes of net assets; unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets, as applicable. Cash and Cash Equivalents The Organizations consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents, unless held for reinvestment as part of the investment portfolio, pledged to secure loan agreements or otherwise encumbered. Net Assets The Organizations classify assets into three categories: unrestricted, temporarily restricted and permanently restricted. All net assets are considered to be available for unrestricted use unless specifically restricted by the donor or by law. Temporarily restricted net assets include contribufions with temporary, donorimposed time or purpose restrictions. Temporarily restricted net assets become unrestricted and are reported in the statement of activities as net assets released from restricfions when the time restrictions expire or the contribufions are used for the restricted purpose. Permanently restricted net assets include contributions with donorimposed restrictions requiring resources to be maintained in perpetuity, but permitting use of all or part of the investment income earned on the contributions. Lease Receivable Lease receivables are reported at net realizable value, after deduction of allowances for estimated uncollectible accounts. The allowance for uncollecfible accounts is based on aging of current outstanding amounts. Investments Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statement of financial position. Unrealized gains and losses are included in revenues. Prepaid Expenses and Deferred Charges Prepaid expenses are amortized over the estimated period of future benefit, generally on a straightline basis. Deferred financing costs are amortized over the term ofthe related debt on the interest method.

11 Property and Equipment Property and equipment acquisitions are recorded at cost if purchased, or at fair value at the date of the gift, if donated. Depreciation is provided over the estimated useful life of each class of depreciable asset and is computed using the straightline method. Assets under capital lease obligafions are recorded at the lower ofthe net present value ofthe minimum lease payments or the fair value ofthe leased asset, and are amortized on the straightline method over the shorter period of the lease term or the esfimated useful life of the asset. Such amortizafion is included in depreciation and amortizafion in the fmancial statements. Interest cost incurred on borrowed funds during the period of construcfion of capital assets is capitalized as a component of the cost of acquiring those assets. The class lives ofthe assets are as follows: Buildings Equipment Furniture and Fixtures 40 years 5 years 7 years Cost of Borrowing Interest cost incurred on borrowed funds during the period of construction of capital assets is capitalized as a component of the cost of acquiring those assets if material. Costs incurred in connection with the obtaining of financing are deferred and are amortized over the period the obligation is outstanding on the interest method. Costs and premium or discounts incurred in connection with the issuance of bonds or indentures are amortized over the life ofthe obligation on the straight line method, and the unamortized amount is included in the balance ofthe outstanding debt. Contributions Unconditional promises to give cash or other assets to the Organizations are recorded at fair value on the date the promise is received. Conditional promises to give are recorded at fair value at the date the promise becomes uncondifional. Gifts of cash and other assets are presented as temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated asset. When a donor restriction expires, that is, when a sfipulated time restricfion ends or purpose restriction is accomplished, temporarily restricted assets are reclassified to unrestricted net assets and reported in the statement of activities and changes in net assets as net assets released from restrictions. Contributions whose restrictions are met in the same reporting period are reported as unrestricted support. Gifts of longlived assets such as land, buildings, and equipment are reported as unrestricted support, unless explicit donor stipulations specify how the donated assets must be used. Gifts of longlived assets with explicit donor restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire longlived assets are reported as restricted support. Estimates The preparation of financial statements in conformity with accounfing principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. The most sensitive estimates included in these financial statements relate to contractual discounts under thirdparty arrangements and the allowance for uncollectible accounts.

12 Federal Income Taxes The Organizafions are exempt from federal income taxes under Section 501(a) ofthe Intemal Revenue Code as an organization described in Section 501(c)(3). There were no unrelated business activities for the year ended June 30, Accordingly, no tax expense was incurred during the year ended June 30, 2008, Reclassifications Certain reclassifications have been made to the prior year's financial statements in order to conform to current reporting practices. The reclassifications have no effect on the change in net assets as previously reported. Note 2 Restricted Cash Certain proceeds ofthe Series 2007A and 2007B Bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the statement of posifion because they are maintained in a separate bank account and their use is limited by applicable bond covenants. The assets included in restricted cash include; 2007A Bond Project Fund, 2007A Bond Debt Service Fund, 2007B Special Sinking Fund, 2007B Project Fund and Capitalized Interest Fund. Note 3 Related Parties Health Care Services Foundation is affiliated with the Health Care Services Division of the Louisiana State University Agricultural and Mechanical College which includes the building property and general liability insurance of HCSF with their office of Risk Management policy for the land, building and equipment rented to Health Care Services Division of the Louisiana State University Agricultural and Mechanical College. Health Care Services Foundation is the sole member of Bogalusa Community Medical Center. The Foundation provides management and administrative services to the BCMC. Administrative fees paid for the year ended June 30, 2008 totaled $90,000. As such, administrative fees for the fiscal year ended June 30, 2008 totaled $90,000 and is eliminated in these financial statements. In addition, the BCMC is affiliated with the Health Care Services Division ofthe Louisiana State University Health Sciences Center through a recapitalization agreement. Prior to September 27, 2007 the Division leased from BCMC all net rentable space in its hospital. For the year ended June 30, 2008, rental income received from LSUHCSD totaled $1,020,939. In addition amounts owed to LSUHCSD at June 30, 2008 amounted to $849,126 for excess rents charged. See Note 6 for discussion of Capital Lease transaction. Note 4 Concentration of Credit Risk The Organizations maintain cash accounts with commercial banks which are insured by the Federal Deposit Insurance Corporation up to the maximum amount allowed. Periodically, cash may exceed the federally insured amount. Note 5 Property, Plant and Equipment A summary of property, plant and equipment for the Foundation at June 30, 2008 is set forth below:

13 Land $ 370,000 Building and Improvements 2,999,455 Furniture 100,950 Equipment 182,512 3,652,917 Less Accumulated Depreciation and Amortization (529,808) $3,123,109 Depreciation expense for the year ended June 30, 2008 amounted to $132,245. Note 6 Leases Foundation The Foundation entered into an agreement to lease space, land and equipment to Louisiana State University Health Care Sciences Division (LSUHCSD) to be used as a medical office and clinic facility. The rent commencement date was June 1, 2004 and will continue until May 31, Base rent is $53,323 per month, based on monthly estimated operating costs plus estimated debt service. The operating costs component of base rent shall be reconciled annually and the debt service component of base rent shall be reconciled quarterly. Rent income for the year ended June 30, 2008 was $672,351. The carrying values ofthe property and equipment leased by the Foundation are as follows: BCMC Building and Improvements $ 2,999,455 Furniture 100,950 Equipment 182,512 Total Leased Property 3,282,917 Less: Accumulated Depreciation (529,808) Land Net Leased Property $ 3,123,109 The BCMC has entered into multiple noncancelable leases with third parties for the lease of various property and equipment. These leases are as follows: Effective September 1, 2007, a capital lease agreement was entered into to lease space, land, and equipment to Louisiana State University Health Care Sciences Division ("LSUHCSD") to be used as a hospital, and has a term of 32 years. The monthly lease amount consists of two base components: (1) debt service in accordance with Series 2007 A Bonds, and (2) $158,065 (Series 2007B Payment). Also included in the minimum lease payment receivable are various capital improvements acquired after the inception of the lease. In accordance with the lease agreement, monthly estimated operating costs will be reimbursed. These operating costs are not included in the minimum lease receivable.

14 The components ofthe investment in the sales type lease at June 30, 2008 is as follows: Minimum Lease Payment Receivable $ 32,019,524 Less: Unearned Revenue (11, ) Net Investment in Sales Type Lease $ 20,658,041 Unearned revenue is amortized to lease revenue by the interest method using a constant periodic rate over the lease term. The following is a schedule, by year, of the estimated total minimum lease payments receivable under the sale type lease as of June 30, 2008: 2009 $ 2,000, , , , ,296 Thereafter 26, Total Minimum Lease Payments Receivable $ 32,019,524 Lease agreements have been entered into with various third parties on a month to month basis to lease space, property, and equipment. The monthly rental of these various leases totaled $65,183. Note 7 Bond Payable Foundation During 2003, the Foundation issued Equipment and Capital Facilities Pooled Loan Program Revenue Bonds Series 2003B in the amount of $2,500,000 dated October 1, The bond was issued to finance the renovation of a health care facility. The bond was issued through the Louisiana Public Facilities Authority. The trust indenture established the maturity of this bond to be July 1, Hancock Bank of Louisiana serves as the Trustee and is the Mortgagee, The bonds are secured by an irrevocable direct pay letter of credit issued by Capital One in the amount of$l,855,000. Under the terms ofthe Trust Indenture for the bonds, the Foundation is requested to fund a sinking fund account at the bank. The account is to be funded monthly for 1/12 ofthe principal amount to be paid at the next due date of the bond payment. The provisions of the bond contain certain covenants that the Foundation must comply with or maintain throughout the term ofthe bonds. At June 30, 2008, the outstanding indebtedness consisted ofthe following: Bond Indenture Payable Series Maturity Interest Rate 06/30/ B 7/01/14 The rate at June 30,2008 was 2.66% and adjusts weekly. $1,855,000 11

15 Interest expense for the year ended June 30, 2008 was $62,754. Bonds are required to be redeemed as follows: 2009 $ 230, , , , ,000 Thereafter $ 1,855,000 BCMC BCMC entered into a loan agreement with Health Care Community Development Corporation (HCCDC) on September 1, In this agreement, HCCDC loaned the proceeds ofthe Series 2007A Health Care Community Development Corporation Revenue Bonds and the Series 2007B Health Care Community Development Corporation Taxable Revenue Bonds with aggregate principle sums of $13,490,528 (which includes a bond premium of $615,528) and $4,625,000, respectively. These proceeds were to be used to finance the cost of (1) the renovation ofthe first floor for an acute care and obstetrics unit of the hospital, (2) the acquisition of a generator and power distribution system, (3) the renovation and expansion of the clinic to be known as Family Medicine Residency Clinic, (4) refinancing the line of credit used to purchase equipment for the hospital and make repairs to the roof, (5) refinancing an existing loan with the United States Department of Agriculture and (6) the funding ofthe Debt Service Reserve, capitalized interest and the payment of issuance cost. Within the loan agreement, BCMC agreed to assign certain rights under the Facilities Lease (including rent) and to make payments in the amount sufficient to make timely payment of principle and interest on these bonds. The 2007A Bond bears the following interest and maturities as set forth by the Trust Indenture: $ 2,490, % Term Bond due June 15, ,855, % Term Bond due June 15, ,530, %) Term Bond due June 15, 2038 $ 12,875,000 The 2007B Bond was issued in the aggregate principle amount of $4,625,000 and bears an interest rate of.2466% due on June 15, At June 30, 2008, longterm debt consisted ofthe following: Series 2007A $ 12,875,000 Series 2007B ,500,000 Less: Current Portion $ 17,500,000 For the year ended June 30, 2008, BCMC recorded interest expense of $353,

16 The future scheduled maturities of longterm debt are as follows: Years ended June 30, 2009 $ Thereafter $17,500,000 Under the terms ofthe Trust Indenture for the bonds, BCMC is required to maintain a Debt Service Reserve Fund for the Series 2007A. The Debt Service Reserve fund deposit should be an amount equal to the debt service fund requirement. The balance in the debt service reserve fund at June 30, 2008 equaled $980,349. The debt service fund balance is included in restricted cash on the statement of position. The Series 2007A Bond has a mandatory sinking fund requirement. Payments made to this sinking fund will begin on June 15, 2015 and continue through maturity of the bond. As of June 30, 2008, no payments have been made to the sinking fund. The 2007B bond requires an annual special sinking fund payment of $158,065 on June 1 each year. The payments are to be made until the funds in the Series 2007B Special Sinking Fund equal $4,625,000. The balance of this sinking fund as of June 30, 2008 was $158,065. The 2007B Special Sinking Fund balance is included in restricted cash on the statement of position. Note 8 Agency Transactions The Foundation entered into an agency agreement with LSUHCSD on April 5, Within this agreement, the Foundation was given the authority to purchase specified equipment on behalf of LSUHCSD. At June 30, 2008, the Foundation had received donated funds for which to purchase equipment in the amount of $2,225,522 and had transferred the equipment to the parties specified by LSUHCSD. Note 9 Net Assets Released from Restrictions Net assets were released from restricfions for incurring expenses, satisfying the restricted purpose. Restricted Accomplished: Mobile Eye Clinic $83,883 Automatic Doors and Covered Walk 3,800 Patient Education Units/Mobil Medical Units 187,481 Note 10 Restriction on Net Assets Temporarily restricted net assets are available for the following purposes: $275,164 Automatic Doors and Covered Walk $ 2,700 Employee Activities 342 Disease Management Program 3, $ 6,042

17 HEALTH CARE SERVICES FOUNDATION AGREED UPON PROCEDURES JUNE 30, 2008

18 Hannis T. Bourgeois, LLP Certified Public Accountants 2322 Tremom Drive Baton Rouge, LA Del Orleans Avenue, Suite C Denham Springs, LA Phone: Fax: January 21, 2009 INDEPENDENT ACCOUNTANT'S REPORT ON APPLYING AGREEDUPON PROCEDURES Board of Directors Health Care Services Foundation Baton Rouge, Louisiana We have performed the procedures enumerated below, which were specified by the Board of Supervisors solely to assist you with respect to the compliance requirements with the LSU Affiliation Agreement and addendum thereto of Health Care Services Foundafion and its wholly owned subsidiary Bogalusa Community Medical Center for the year ended June Management is responsible for compliance with this agreement. This engagement to apply agreedupon procedures was performed in accordance with attestafion standards established by the American Institute of Certified Public Accountants. The sufficiency ofthe procedures is solely the responsibility ofthe specified users ofthe report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. Our procedures and findings are as follows: Procedures Verified that the Foundation maintains a written policy regarding the handling and resolution of audit findings, audit exceptions, and any misuse of funds and that a copy of that policy was provided to the University. Verified that the Foundation's governing board established and implemented policies goveming all disbursements for administrative and operating expenses and evaluated whether or not the policies provide for sound and prudent business practices, the payment or reimbursement of ordinary, necessary and reasonable business expenses, and the avoidance of conflicts of interests. On a sample of items, test whether or not supplemental compensation or benefit, as defined by paragraph A.2 or the Addendum, was paid directly to a University employee without an exception approved by the President ofthe LSU System (President). No exceptions were noted in the sample of transactions selected for testing of this procedure.

19 On a sample of items, test whether or not payments made to or on behalf of University employees for travel, moving, relocation, entertainment, educational benefits, and other reimbursements were approved by the employee's dean, vicechancellor, or other equivalent administrative official. No exceptions were noted in the sample of transactions selected for testing of this procedure. On a sample of items, test whether or not payments for moving and relocation expenses of University employees covered by PM 69 were approved by the President. No exceptions were noted in the sample of transactions selected for testing of this procedure. On a sample of items, test whether or not there were payments made for expenses that are solely for the private benefit of a University employee (or the family or spouse of a University employee or other nonemployee who is on University business) except for payments for which prohibition does not apply as indicated in paragraph B.l ofthe Addendum. No exceptions were noted in the sample of transactions selected for testing of this procedure. On a sample of items, test whether or not fines, forfeitures or penalties of University employees were paid. No exceptions were noted in the sample of transactions selected for testing of this procedure. On a sample of items, test whether or not gifts represented to be personally from a University employee were not made by the Foundation, nor has any University employee been reimbursed for the purchase of such gift. No exceptions were noted in the sample of transactions selected for testing of this procedure. On a sample of items, test whether or not political contributions which are prohibited by applicable Intemal Revenue Service Regulations or state law have been made or reimbursed. No exceptions were noted in the sample of transactions selected for testing of this procedure. On a sample of items, test whether or not payments were made for any expense or reimbursement which would create, under all circtimstances, a reasonable conclusion on behalf of the Foundation that the benefit to the individual University employee outweighs the benefit to the University. To determine if adequate procedures are in place to address doubtful situations in accordance with paragraph B.5 ofthe Addendum. No exceptions were noted in the sample of transactions selected for testing of this procedure. On a sample of items, test whether or not payments were made for any expense of reimbursement which would create, under all circumstances, a reasonable conclusion on behalf of the Foundation that the amount is extravagant or lavish beyond the appropriate University purpose. To determine if adequate procedures are in place to address doubtftil situations in accordance with paragraph B.6 of the Addendum. No exceptions were noted in the sample of transactions selected for testing of this procedure. On a sample of items, test whether or notfiandswere disbursed in connection with contracts (or other agreements) between the Foundation and a University employee unless an exception has been approved by the President. No exceptions were noted in the sample of transactions selected for testmg of this procedure. On a sample of items, test whether or not other payments to or on behalf of University employees, i.e. payments not specifically addressed above, were made in accordance with specific approval of the President or written joint amendment or clarification to the Addendum. No exceptions were noted

20 in the sample of transactions selected for testing of this procedure. We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the specified elements. Accordingly, we do not express such an opinion. Had we perfomied additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the use of the Health Care Services Foundation and Bogalusa Community Medical Center, the LSU System, and the Board of Supervisors, and should not be used by anyone other than these specified parties. Respectftilly submitted,