HPM FOUNDATION, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORT MARCH 31, 2016

Transcription

1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORT MARCH 31, 2016

2 TABLE OF CONTENTS Independent Auditors Report Pages Financial Statements: Statement of Financial Position...4 Statement of Activities Statement of Cash-Flows...7 Notes to the Financial Statement Supplemental information Schedule of Expenditures of Federal Awards...15 Note of schedule...16 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance Schedule of Finding and Questioned Costs Schedule of Finding and Questioned Costs for Prior Year Audit...24

3 Members: American Institute of Certified Public Accountants (AICPA) Puerto Rico Society of Certified Public Accountants CPA AGUSTÍN RODRÍGUEZ NIEVES CERTIFIED PUBLIC ACCOUNTANT INDEPENDENT AUDITORS REPORT Board of Directors HPM Foundation, Inc. San Juan, Puerto Rico Report on the Financial Statements I have audited the accompanying financial statements of HPM Foundation, Inc., which comprise the statement of financial position as of March 31, 2016, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. P.O. Box 391 PMB 11, Toa Alta, P.R Phone (787)

4 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, I express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HPM Foundation, Inc. as of March 31, 2016, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information My audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying the schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In my opinion, the information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. CPA AGUSTÍN RODRÍGUEZ NIEVES CERTIFIED PUBLIC ACCOUNTANT 2

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, I have also issued my report dated November 29, 2016 on my consideration of HPM Foundation, Inc. s internal control over financial reporting and on my test of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of my testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering HPM Foundation, Inc. s internal control over financial reporting and compliance. Toa Alta, Puerto Rico CPA Agustín Rodríguez Nieves November 29, 2016 Expires December 1, 2016 The stamp was affixed to the original of this report. CPA AGUSTÍN RODRÍGUEZ NIEVES CERTIFIED PUBLIC ACCOUNTANT 3

6 STATEMENT OF FINANCIAL POSITION MARCH 31, 2016 CURRENT ASSETS: Cash and cash equivalents $ 191,282 Accounts receivable 5,836,352 Inventories 44,745 Total Current Assets 6,072,379 Property and Equipment - Net of $4,034,065 Accumulated Depreciation 17,701,094 Investment in HMO 506,209 TOTAL ASSETS $ 24,279,682 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Account payable $ 726,869 Accrued liabilities 245,472 Current portion of LTD 448,389 Due to Municipality of San Juan 1,457,540 Total Current Liabilities 2,878,270 Long-term Debt-net 1,277,975 Total Liabilities 4,156,245 NET ASSETS: Unrestricted 20,123,437 Total Net Assets 20,123,437 TOTAL LIABILITIES AND NET ASSETS $ 24,279,682 The accompanying notes are an integral part of these financial statements. 4

7 STATEMENT OF ACTIVITIES Unrestricted SUPPORT AND REVENUE: Grants $ 3,887,892 Capitation 9,635,646 Program Income 5,505,088 Total Support 19,028,626 REVENUE: Interest Income 1,150 Total Revenue 1,150 Total Support and Revenue 19,029,776 EXPENSES: Salaries and Wages 4,109,930 Payroll Taxes 790,560 Medicine 381,314 Supplies 157,573 Travel 78,949 Professional Services 1,030,326 Legal Services 370,848 Utilities Expenses 404,037 Insurance 135,387 Depreciation Expenses 821,681 Repairs and Maintenance 89,545 Training 46,625 Promotion 25,969 The accompanying notes are an integral part of these financial statements. 5

8 STATEMENT OF ACTIVITIES (CONTINUED) Rent 119,297 Bank charges 16,035 Referral expenses 8,354,703 Employees activities 18,411 Uniform 19,292 Interest expenses 117,242 Miscellaneous 237,134 Total Expenses 17,327,857 Change in net assets 1,701,919 Net assets at beginning of year 18,421,518 Net assets at end of year $ 20,123,437 The accompanying notes are an integral part of these financial statements. 6

9 STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ 1,701,919 Adjustment to reconcile change in net assets to net cash provided from operating activities: Depreciation and amortization 821,681 Changes in assets and liabilities: Decrease (increase) in assets: Accounts receivable (169,403) Inventories 32,774 Prepaid expenses 41,364 Increase (decrease) in liabilities Account Payable (1,878,170) Accrued payroll taxes (55,903) Total adjustments (1,207,657) Net cash provided by operating activities 494,262 CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to property and equipment (869) Net cash used by investing activities (869) CASH FLOWS USED IN FINANCING ACTIVITIES: Payment of note payable (350,165) Net cash used by financing activities (350,165) NET INCREASE IN CASH 143,228 CASH AT BEGINNING OF YEAR 48,054 CASH AT END OF YEAR $ 191,282 SUPPLEMTAL CASH FLOW DISCLOSURE HPM paid $115,513 of interest during the year. The accompanying notes are an integral part of these financial statements. 7

10 NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION HPM Foundation, Inc. (formerly know as Junta del Centro de Salud Comunal Dr. José S. Belaval, Inc., hereafter referred as HPM or Foundation ) is a nonprofit organization incorporated under the laws of the Commonwealth of Puerto Rico on July 24, 1987, and operating under Section 330 of the Public Health Service Act, whose purpose is to provide primary ambulatory, supplemental, and environmental health services to the medically undeserved residents in the Santurce Ward of the Municipality of San Juan and the municipal island of Culebra. HPM is participating in the Governmental Health Reform with a Capitated Managed Care Contract. This capitated contract includes receiving the capitation for the users subscribed at the center. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Financial Statement Presentation HPM is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. b. Contributions HPM record Contributions received as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. c. Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 8

11 NOTES TO FINANCIAL STATEMENTS (CONTINED) d. Fund Accounting The programs of the corporation are organized based on funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for a separate set of self-balancing accounts that comprise its assets, liabilities, net assets, revenues and expenditures. Resources are allocated to and accounted for individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Programs are grouped in the financial statements of this report, of the following order: Federal Fund This fund is used to account for all federal resources and expenditures of Section 330. Program Income Fund This fund is used to account for the purchase of drug and medicine supplies used in the corporation. Capitation (Health Reform) This fund is used to account the capitation received for the users subscribed at the center. e. Income Taxes HPM is a nonprofit organization that is exempt from taxes under Section 501 (c) (3) of the Internal Revenue Code. f. Cash and Cash Equivalents For purposes of the statements of cash flows, the HPM considers all highly liquid investments available for current use with an initially maturity of three months or less to be cash equivalents. g. Inventories Inventories are valued at the lower cost or market except for pharmacy inventory. Inventory valuation method used for pharmacy drugs and medicines by the organization is at an average wholesale price, provided by health insurance carriers. Cost is determined on the first-in, first-out method. Market is determined at net realizable value. 9

12 NOTES TO FINANCIAL STATEMENTS (CONTINUED) h. Property and Equipment Property and equipment are recorded at cost. Maintenance and repair are charged to expenses as incurred; major renewals and betterments are capitalized. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets. i. IBNR (Incurred but not reported) In prepaid health contracts, medical expenses including drugs and medicines are recognized as they occur and not as they reported to the Health Maintenance Organizations (HMOs). Because of this basis recognition, unpaid benefits are reported as incurred but not reported by the HMOs. On the other hand, reported benefits are those incurred and paid by the HMOs. The incurred but not reported claims are those benefits that have been provided but have not been yet paid. Unpaid claims are estimated base on historic data, trends and other statistical information. j. Long-lived assets In according with ASC Property, Plant, and Equipment Impairment or Disposal of Long Lived Assets, the HPM records impairment losses on long-lived assets used in operations when indicators of impairment are presented. Based on current estimates, management does not believe impairment of the operating property is present. 3. CONCENTRATIONS OF CREDIT RISK HPM maintains their cash accounts in four financial institutions. The balance, at time, may exceed federally insured limits. At March 31, 2016, HPM had not cash on deposit exceeding the insured limited. However, the organization placed is cash account in a commercial bank in U.S. which has strong credit ratings. 4. HEALTH REFORM As described in Note 1, HPM. is participating in the Governmental Health Reform since July 1, As part of the agreement, the Foundation receives capitation revenue for the services it renders directly to the users subscribed to the center. In the case of those users that are referred to specialists outside of the centers, the specialists bill the cost of the services to First Medical. 10

13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. ACCOUNT RECEIVABLE At March 31, 2016, the accounts receivable of the HPM consist of the following: Medicare $ 4,584,108 Grant award 880,875 Third party payers 65,192 PR Department of Health (Administration of Culebra's Health Center) 334,465 Others 7,712 $ 5,836, PROPERTY AND EQUIPMENT As of March 31, 2016, property and equipment were as follows: Description Amount Land $ 2,684,807 Buildings 15,009,222 Medical, office and other equipment 1,499,057 Leased facilities improvements 2,407,853 Vehicles 134,220 21,735,159 Less: Accumulated depreciation ( 4,034,065) $ 17,701,094 11

14 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. INVENTORIES Inventories are comprised of the following: Description Amount Drugs and medicines $ 33,062 Medical and surgical supplies 11,683 $ 44, MUNICIPALITY OF SAN JUAN On July 1, 2000, the Municipality of San Juan entered in a cooperative agreement with the HPM for the administration and operation of its medical facilities at Barrio Obrero in Santurce. Under this agreement, HPM is required to reimburse the Municipality of San Juan for expenses incurred in the administration, operation and maintenance of such premises paid directly by Municipality. This agreement was due on June 30, As of March 31, 2016, amounts due to Municipality of San Juan according with the contract due on June 30, 2002, consist of the following: Description Amount Salaries and fringe benefits of municipal employees $ 1,348,374 Professional and contractual services 1,548,460 Repair and maintenance services 231,361 Rental and equipment 116,271 Drugs, medicines and medical supplies 181,193 3,425,659 Less: Payments (1,968,119) $ 1,457, INSURANCE Insurance expense includes premiums on vehicle insurance, special commercial coverage and officers and directors. 12

15 10. PENSION PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) HPM has a profit sharing plan covering the corporation employees. The plan eligibility requirements establish the employees with one year (1,000 hours) of service are eligible to participate. The employer contributions are discretionary and are made to a designated trustee. Benefits are vested 100 % after 3 year of employment. Pension plan expense for the fiscal period ending March 31, 2016 amounted to $ FAIR VALUES OF FINANCIAL INSTRUMENTS The HPM s financial instruments, none of which is held for trading purposes, include cash and note payable. The HPM estimates that the fair value of all financial instruments at March 31, 2016, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying statement of financial position. The HPM using available market in information and appropriate valuation methodologies has determined the estimated fair value amounts. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the HPM could realize in a current market exchange. 12. COMMITMENTS The HPM rents facilities to give services to the users. The agreement provides for minimum annual lease payment of third party of $118,500 until expiration in December 13, Effective January the facilities are renting month by month. Rental expense for all rents facilities for the year ended March 31, 2016 amounted to $41, CONTINGENCIES Projects supported by federal and state grants are subject to additional audits by the grantor agencies in order to determine if expenditures comply with conditions of such grants. It is the management s opinion that no additional material unrecorded liabilities will arise from audits previously performed or to be performed. HPM is part of various legal actions. The effects from these legal actions are recorded to the financial statements of the Foundation, taken as a whole, as per management and legal advisor. 14. SUBSEQUENT EVENTS Management has evaluated subsequent events through November 29, 2016, the date the financial statements were available to be issued. No material subsequent events have occurred since March 31, 2016 that required recognition or disclosure in the current period financial statements. 13

16 15. INVESTMENT ON HMO NOTES TO FINANCIAL STATEMENTS In 2008 HPM and Concilio de Salud Integral de Loiza, Inc. joined in a venture through Feldesman, Tucker and Leiffer with the purpose of developing an Health Maintenance Organization (HMO) composed all nineteen (19) Section 330 health centers. The proposal was taken to the Secretary of ASES, the agency that directed the health insurance plan for the medically indigent. The former director, Minerva Rivera asked us to take it to the candidate to the governorship. The centers will benefit from this idea since the HMO will do the back-office work and the HMO will do all paperwork of administration. This way, centers will concentrate in an optimum quality health services. Besides, the funds of the grant will be optimized since the payments of Medicaid will help the centers with the expenses of the Centers and will help providing funds for the direct service. This will make the centers auto sufficient and provide for the enrichment of the services given to patients. 16. NOTE PAYABLE HPM has $600,000 line of credit at March 31, 2015 with Oriental Bank that the unpaid balance is converting to loan payable during The monthly payment is $11,530, including interest at 5.75%. The loan is secured by commercial property and equipment. Effective September 4, 2013, the unpaid balance of $1,892,169 of credit line is converting to loan payable Oriental Bank of Puerto Rico with monthly payment of $30,729, including interest at 5.75%. HPM entered in 2012 into a note payable to Oriental Bank of Puerto Rico. The note is payable in monthly installments of $734 including interest at 5.75%. The maturities are as follow: Year Amount 2017 $ 448, , ,313 1,726,364 Less current portion (448,389) $ 1,277,975 14

17 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Federal Grantor/Pass- Through Grantor/program Title Federal CFDA Number Pass-Though Grantor Number Grant Received Expenditures U.S Department of Health and Human Services Direct Award: Health Center Cluster H80 CS $3,887,892 $3,887,892 Total U.S. Department of HHS $3,887,892 $3,887,892 15

18 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS NOTE 1- GENERAL The accompanying Schedule of Expenditures of Federal Awards presents the activities of all federal awards programs of HPM Foundation; Inc. reporting entity is defined in Note 1. All federal awards received directly from federal agencies, as well as federal awards passed through other governmental agencies, are included in the schedule. The information in the schedule is presented in accordance with the requirement by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. NOTE 2- BASIS OF ACCOUNTING The accompanying schedule of expenditures of federal awards is presented using the accrual basis of accounting, which is described in Note 2 of the financial statements. NOTE 3- RELATIONSHIP TO FINANCIAL STATEMENTS Revenues and expenses of the Federal Awards programs are included in the HPM s financial statements. The reconciliation between the expenses in the financial statements and expenditures in the Schedule of Expenditures of Federal Awards is as follows: Expenses in the financial statements $ 17,307,857 Plus: Capital expenditures 869 Less: Non-federal Expenses (13,420,834) Total Federal Expenditures $ 3,887,892 16

19 Members: American Institute of Certified Public Accountants (AICPA) Puerto Rico Society of Certified Public Accountants CPA AGUSTÍN RODRÍGUEZ NIEVES CERTIFIED PUBLIC ACCOUNTANT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR S REPORT Board of Directors HPM Foundation, Inc. San Juan, Puerto Rico I have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of HPM Foundation, Inc. (a nonprofit organization), which comprise the statement of financial position as of March 31, 2016, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued my report thereon dated November 29, Internal Control over Financial Reporting In planning and performing my audit of the financial statements, I considered HPM Foundation, Inc.'s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing my opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of HPM Foundation, Inc. s internal control. Accordingly, I do not express an opinion on the effectiveness of HPM Foundation, Inc. s internal control. P.O. Box 391 PMB 11, Toa Alta, P.R Phone (787)

20 A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. My consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during my audit I did not identify any deficiencies in internal control that I consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether HPM Foundation, Inc.'s financial statements are free from material misstatement, I performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of my audit, and accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of my testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Toa Alta, Puerto Rico CPA Agustín Rodríguez Nieves November 29, 2016 Expires December 1, 2016 The stamp was affixed to the original of this report. CPA AGUSTÍN RODRÍGUEZ NIEVES CERTIFIED PUBLIC ACCOUNTANT 18

21 Members: American Institute of Certified Public Accountants (AICPA) Puerto Rico Society of Certified Public Accountants CPA AGUSTÍN RODRÍGUEZ NIEVES CERTIFIED PUBLIC ACCOUNTANT REPORT ON COMPLIANCEFOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNFORM GUIDANCE INDEPENDENT AUDITOR S REPORT Board of Directors HPM Foundation, Inc. San Juan, Puerto Rico Report on Compliance for Each Major Federal Program I have audited HPM Foundation, Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of HPM Foundation, Inc. s major federal programs for the year ended March 31, HPM Foundation, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility My responsibility is to express an opinion on compliance for each of HPM Foundation, Inc. s major federal programs based on my audit of the types of compliance requirements referred to above. I conducted my audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit 19 P.O. Box 391 PMB 11, Toa Alta, P.R Phone (787)

22 requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that I plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about HPM Foundation, Inc. s compliance with those requirements and performing such other procedures as I considered necessary in the circumstances. I believe that my audit provides a reasonable basis for my opinion on compliance for each major federal program. However, my audit does not provide a legal determination of HPM Foundation, Inc. s compliance. Opinion on Each Major Federal Program In my opinion, HPM Foundation, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended March 31, Report on Internal Control over Compliance Management of HPM Foundation, Inc. is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing my audit of compliance, I considered HPM Foundation, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, I do not express an opinion on the effectiveness of HPM Foundation, Inc. s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. CPA AGUSTÍN RODRÍGUEZ NIEVES CERTIFIED PUBLIC ACCOUNTANT 20

23 My consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. I did not identify any deficiencies in internal control over compliance that I consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of my testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Toa Alta, Puerto Rico CPA Agustín Rodríguez Nieves November 29, 2016 Expires December 1, 2016 The stamp was affixed to the original report. CPA AGUSTÍN RODRÍGUEZ NIEVES CERTIFIED PUBLIC ACCOUNTANT 21

24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I - SUMMARY OF AUDIT RESULTS Financial Statements Type of auditor s report issued: [unmodified] Internal control over financial reporting: Material weakness(es) identified? Yes x No Significant deficiency(ies) identified That are not considered to be Material of weakness(es)? Yes x None Reported Noncompliance material to financial Statements noted? Yes x No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes x No Significant deficiency(ies) identified That are not considered to be Material of weakness(es)? Yes x No Type of auditors report issued on compliance for major programs: [unmodified] Any audit findings disclosed that are required to be reported in accordance with 2 CFR section (d). Yes x No Identification of major programs: CFDA Number Name of Federal Program or Cluster Health Center Cluster Dollar threshold used to distinguish Between type A and Type B program: $ 750,000 22

25 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) SECTION I - SUMMARY OF AUDIT RESULTS (CONTINUED) Federal Awards Auditee qualified as low-risk auditee? x Yes No SECTION II FINANCIAL STATEMENT FINDINGS None SECTION III Federal Award Findings and Questioned Cost None 23

26 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR THE PRIOR YEAR AUDIT HPM Foundation has no finding in the prior year. 24