04 AUG -2 A~ II:22 O UTPATIENT M EDICA L C ENTERS,INC. A U DITED FINA NCIA L STATEM ENTS. JA N UA RY 31,2004 and 2003

Transcription

1 04 AUG -2 A~ II:22 O UTPATIENT M EDICA L C ENTERS,INC. A U DITED FINA NCIA L STATEM ENTS JA N UA RY 31,2004 and 2003

2 F O UTPATIENT M EDICAL CENTERS,INC January 31,2004 and 2003 TABLE O F CO NTENTS EXHIBIT PAGE(S ) IndependentAuditor's Report Statem entoffinancialposition Statem entofactivities Statem entofcash Flow s Schedule offunctionalexpenses Notes to the FinancialStatem ents SUPPLEM ENTARY INFO RMATIO N SCHEDULE ndependentauditor's Report on AdditionalInform ation Com bining Schedule ofsupportand Revenues Schedule ofexpenses by Activity Schedule ofbudget,costincurred and Q uestioned Cost Schedule ofexpenditures offederalawards Notes to Schedule ofexpenditures offederalaw ards Report on Com pliance and on InternalControl OverFinancialReporting Based on an Auditof FinancialStatements Performed in Accordance w ith G overnm entauditstandards Report on Com pliance with Requirem ents Applicable to Each MajorProgram and InternalControlOver Com pliance in Accordance w ith O M B CircularA-133 Sum m ary ofschedule ofprioryearfindings Schedule offindings and Q uestioned Costs A B-D E

3 BANKS,FINLEY, W H ITE & CO. CERTIFIED PUBLIC ACCOUNTANTS NDEPENDENT AUDITO R'S REPO RT To the Board ofdirectors of O utpatientm edicalcenters,inc. Natchitoches,Louisiana W e have audited the accompanying statements offinancialposition ofoutpatientmedicalcenters,inc.(a nonprofitorganization)as ofjanuary 31,2004 and 2003,and the related statements ofactivities and cash flows forthe years then ended.these financialstatem ents are the responsibility ofthe organization's m anagem ent.o ur responsibility is to express an opinion on these financialstatem ents based on our audits. W e conducted ouraudits in accordance w ith auditing standards genera ly accepted in the United States of Am erica and the standards applicable to financialaudits contained in Governm entauditing Standards, issued by the Com ptro lergeneralofthe United States.Those standards require thatwe plan and perform the audit to obtain reasonable assurance aboutw hether the financialstatem ents are free of m aterial m isstatem ent. An audit includes exam ining, on a test basis, evidence supporting the am ounts and disclosures in the financialstatem ents.an auditalso includes assessing the accounting principles used and significant estim ates m ade by m anagem ent,as we las evaluating the overa lfinancialstatem ent presentation.w e believe thatouraudits provide a reasonable basis forouropinion. In our opinion,the financialstatem ents referred to above present fairly, in alm aterialrespects,the financialposition ofoutpatientmedicalcenters,inc.,as ofjanuary 31,2004 and 2003,and the changes in its netassets and its cash flows forthe years then ended in conformity with accounting principles genera ly accepted in the United States ofam erica. In accordance w ith Govern m entauditing Standards,we have also issued ourreportdated M ay 21,2004, on our consideration of the organization's internalcontrolover financialreporting and our tests of its com pliance with certain provisions oflaws,regulations,contracts and grants.thatreport is an integra lpart of an audit perform ed in accordance with Governm ent Auditing Standards and should be read in conjunctionwith this report inconsidering the resultsofouraudit. O ur audits were perform ed forthe purpose ofform ing an opinion on the basic financialstatem ents of O utpatient M edical Centers, Inc.,taken as a w hole.the accom panying schedule of expenditures of federalawards is presented forpurposes ofadditionalanalysis as required by U.S.Ofi ce ofm anagem ent and BudgetCircularA-133,Audits of States,LocalGovern m ents,and Non-ProfitOrganizations,and is not a required partofthe basic financialstatements.such information has been subjected to the auditing procedures applied in the auditofthe basic financialstatem ents and,in ouropinion,is fairly stated,in a l m aterialrespects,in relation to the basic financialstatem ents taken as a w hole. M ay 21, WEST AMITE STREET.SUITE 503 ~JACKSON,MS (601)

4 EXHIBIT O UTPATIENT M EDICAL CENTERS,INC Statem entoffinancialposition January 31,2004 and C urrentassets: Cash Patientcare receivables,less a lowance of $276,797 fordoubtfulaccounts G rants and contracts receivable Prepaid expenses TotalCurrentAssets $ 253,741 $ 205, ,875 45,492 8, , ,080 21,146 2, ,316 Fixed Assets: Land Building and im provem ents Furniture and equipm ent Vehicles Less:Accum ulated depreciation NetFixed Assets O THER ASSETS Deposits TO TAL ASSETS 110,000 1,599,816 1,151,787 40,065 2,901,668 ( ) 1,024, ,000 1,599,816 1,037,105 34,109 2,781,030 {1,784,872) 996,158 The accom panying notes are an integralpartofthese financialstatem ents 2

5 O UTPATIENT M EDICAL CENTERS,INC Statem entoffinancialposition January 31,2004 and 2003 EXHIBIT I (Continued) A ND CurrentLiabilities Accounts payable O therpayro ldeductions payable Salaries payable Accrued annualleave Refundable advance Accrued interestpayable Notes payable,currentportion Capitalleases payable,currentportion TotalC urrentliabilities: $ 40,385 10,105 31,671 80, ,899 71, ,232 Long-Term Liabilities Notes payable Capitallease payable Less: currentportion TotalLong-Term Liabilities TotalLiabilities 261,271 27,899 (57,642) 231, , ,359 (102,gg2) 307,327 NetAssets: Unrestdcted Undesignated (operating) Fixed assets TotalNetAssets (413,085) ( ) 1,332,060 1,182, , ,345 TOTAL LIABILITIES AND NET ASSETS The accom panying notes are an integralpartofthese financialstatem ents 3

6 O UTPATIENT M EDICAL CENTERS, INC. Statem entofactivities Forthe YearEnded January 31, 2004 and 2003 EXHIBIT SUPPORT AND REVENUES (Note 2) RR Fixed Assets Suppo~: G rants and contracts TotalSupport $ 2,113,615 2,113,615 Revenue: Health care services, netofcharity, bad debts and contractualadjustments of$865,638 1, 249,321 Interestincom e 522 Otherincom e 7, 652 TotalRevenue 1, 257,495 $ 2,113,615 2,113,615 $1,.784,704 1,784,704 1,249,321 1,135, ,652 9,414 1', 257,495 1,144, 860 TOTAL SUPPORT AND REVENUES EXPENSES Program Serv ices Health care services Com m unity serv ices Tota lprogra m Serv ices 1,596, ,399 1,725,129 1,596,730.!28,399 1,725,129 1,414, ,042 1,551,771 Supporting Services M anagem entand general TotalSupporting Services 1,384,345!,384, , ,006 TOTAL EXPENSES 3,109,474 Change in netassets 261,636 (112,006) NetAssets,Beginning ofyear Priorperiod adjustment NetAssets,as restated (431,085) (413,085) 1,182,430 1,182, ,345 18, ,345 Otherchanges in netassets Principalreduction in note payable Principalreduction in capitalleases Acquisition offixed assets (48,688) (72,461) (140,487) (261,636) 48,688 72, , ,636 NET ASSETS, END O F YEAR The accom panying notes are an integralpart ofthese financialstatem ents

7 O UTPATIENT M EDICAL C ENTERS,INC. Statem entofcash Flows Forthe YearEnded January 31,2004 and 2003 EX HIBIT CASH FLOW S USED FO R O PERATING ACTIVITIES Changes in NetAssets Adjustments to reconcile changesin assets to netcash provided by operating activities: Depreciation expense Priorperiod adjustment $ 149,630 $ 76, , , Decrease (increase)in: Patientcare receivables G rants and contracts receivable Accounts receivable Prepaid expenses Increase (decrease)in: Accounts payable Accrued salaries payable O therpayro ldeductions payable Accrued interestpayable Costreportsettlem entpayable Refundable advance Accrued annualleave NET CASH PROVIDED BY (USED IN)OPERATING ACTIVITIES CASH FLOW S FRO M INVESTING ACTIVITIES Acquisition offixed assets NET CASH FROM INVESTING ACTIVITIES (47,491) (17,317) (332) (5,959) 5,000 3,557 12,764 88,471 (8,133) 310,196 (140,487) (140,487) (68,747) (42,487) 1,998 (9,033) (10,138) 283,142 (36,762) 347,572 CASH FLOW S FRO M FINANCING ACTIVITIES Pdncipalreduction in notes and leases payabie Increase in capitallease obligation (121,149) (177,535) NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES NET INCREASE (DECREASE)IN CASH CASH,BEG INNING O F YEAR CASH.END O F YEAR Cash paid during the yearfor: Interestexpense The accom panying notes are an integralpart ofthese financialstatem ents.

8 EXHIBIT IV OUTPATIENT M EDICAL CENTERS,INC Schedule offunctionalexpenses Forthe YearEnded January 31,2004 Health Care Services Comm unity Service s -W IC Total Program Serv ice s M anagem ent and General Total Expenses Personnel $ 929,512 Fdnge benefits 90,575 Travel 16,061 Supplies 51,734 Equipm entrental 765 Contractual 465,618 Equipm entexpense 7,440 Legaland accounting Dues and subscriptions Utilities Repairs and m aintenance Insurance Staf recruitm ent Security Continuing education Com m unications Licenses and fees Janitorial Space cost Interest Bank and finance charges Board expenses Property taxes Other Totalexpenses before depreciation 1,793 6,942 19,940 2, ~ ,272 8,593 7,200 3, , , , , ,784 99,168 23,261 55,033 1, ,313 7,440 1,793 7,392 19,940 3,142 1, , , , ,196 76,632 63,673 21, ,708 19,009 16,204 21,946 60,753 65,417 18,999 11, , ,432 12,895 30,183 41,969 7,830 2,947 10,981 5,522 $ 1,466, ,364 99, ,706 23, ,021 26,449 16,204 23,739 60,753 72,809 18,999 31, , , ,895 36,883 41, ,947 10,981 8, Depreciation TotalExpenses The accom panying notes are an integralpartofthese financialstatem ents

9 O UTPATIENT M EDICAL CENTERS,INC Notes to the FinancialStatem ents January 31,2004 NOTE 1-ABO UT THE O RGANIZATIO N Outpatient MedicalCenters,Inc.(OPMC),a non-profitcorporation,was incorporated in the State of Louisiana as ofdecem ber1997.the prim ary purpose ofthe Corporation is to provide outpatienthealth care in a m edica ly underserved area to patients w ho otherw ise would have lim ited access to health care. The Corporation is supported through a grantfrom Public Health Service,a com ponent ofthe U.S. Departm entofhealth and Hum an Serv ices. The fiscalyearofo PM C is February 1to January 31 NOTE 2 -SUM M ARY O F SIG NIFICANT ACCO UNTING PO LICIES Basis ofaccounting -The financialstatem ents ofo utpatientm edicalcenters,inc., are presented on the accrualbasis ofaccounting. B C D Basis of Presentation - Financialstatem ent presentation fo lows the recom m endations ofthe FinancialAccounting Standards Board in its StatementofFinancialAccounting Standards (SFAS) No. 117, Financial Statem ents of Not-for-Profit O rganizations. Under SFAS No. 117, the organization is required to report inform ation regarding its financial position and activities according to three classes ofnetassets:unrestricted netassets,tem porarily restricted netassets, and perm anently restricted netassets. - For purposes ofthe statem entof cash flows,cash equivalents include tim e deposits,certificates ofdeposit,and a lhighly liquid debtinstrum ents w ith original m aturities ofthree m onths orless thatare notrestricted forspecific purposes. Donated Property and Equipm ent-donations ofproperty and equipm entare recorded as support attheirestim ated fairvalue atthe date ofdonation.such donations are reported as unrestricted support unless the donorhas restricted the donated assetto a specific purpose.assets donated with explicitrestrictions regarding theiruse and contributions ofcash thatm ustbe used to acquire property and equipm entare reported as restricted support.absentdonorstipulations regarding how long those donated assets m ustbe m aintained,the Organization reports expirations ofdonor restrictions when the donated oracquired assets are placed in service as instructed by the donor. The O rganization reclassifies tem porarily restricted netassets to unrestricted netassets atthat tim e. Donated Serv ices - Donated services are recognized as contributions in accordance with SFAS No.116,Accounting forcontributions Received and Contributions Made,ifthe services (a)create orenhance nonfinancialassets or(b)require specialized skils,are performed by people with those skils,and would otherw ise be purchased by the Center. F Exoense A location - The cost of providing various program s and other activities have been sum m arized on a functionalbasis in the Statem entofactivities and in the Statem entoffunctional Expenses.Accordingly,certain costs have been alocated am ong the program s and supporting services benefited.

10 O UTPATIENT M EDICAL CENTERS,INC Notes to the FinancialStatem ents January 31,2004 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G H Fund Accountinq - The accounts of the O rganization are m aintained in accordance w ith the principles of fund accounting. Under fund accounting, resources for vadous purposes are classified foraccounting and reporting purposes into funds established according to theirnature and purpose.separate accounts are m aintained foreach fund;however,in the accom panying financial statem ents, funds that have sim ilar characteristics have been com bined into fund groups. Property and Equipm ent - Property and equipm ent are carried at cost or,if donated,at the approxim ate fairvalue atthe date ofdonation.acquisitions in excess of$500 are capitalized. Property,furn iture,equipm entand buildings are depreciated overtheirusefuliives ranging from 5 to 40 years. Restricted and Unrestricted Revenue and Support - Support thatis restricted by the donor is reported as an increase in unrestricted netassets ifthe restriction expires in the reporting period in w hich the support is recognized.a lotherdonor-restricted support is reported as an increase in tem porarily orperm anently restricted netassets,depending on the nature ofthe restriction.w hen a restriction expires (thatis,when a stipulated time restriction ends orpurpose restriction is accomplished),temporarily restricted netassets are reclassified to unrestricted netassets and reported in the Statem entofactivities as netassets released from restrictions.federalgrant awards are classified as refundable advances untilexpended forthe purposes ofthe grants since they are conditionalprom ises to give. Em ployees'annualleave - O PM C charges annualleave earned by em ployees which has not been used by them atthe end ofa period to the period thatthe leave is earned. K. L. Estim ates - The preparation of financial statem ents in conform ity w ith genera ly accepted accounting principles requires m anagem ent to m ake estim ates and assum ptions that affect certain reported am ounts and disclosures.accordingly,actualresults could difer from those estim ates. PatientService Fees -Revenue forservices rendered to patients are recorded atstandard rates established by the Organization. The diference betw een standard rates and the am ounts co lected from third-party payors and patients qualifying as Poverty Patients is charged as an adjustmentto gross revenues. NO TE 3 -FINANCIAL INSTRUM ENTS The fo low ing m ethods and assum ptions were used by the Centerin estim ating its fairvalue disclosures forfinancialinstrum ents: approxim ate fairvalues beca the carrying am ounts reported in the statem entoffinancialposition use ofthe shortm aturities ofthose instrum ents.

11 O UTPATIENT M EDICAL CENTERS,INC Notes to the FinancialStatem ents January 31,2004 NOTE 3 -FINANCIAL INSTRUMENTS (Continued) The estim ated fairvalues ofthe Center's financialinstrum ents,none ofwhich are held fortrading purposes,are as fo lows: Financialassets: Cash and cash equivalents Financialliabilities: Long-term notes payable O bligation undercapitallease Carry ing Am ount $ 253,741 Carry ing Am ount $ 261, FairValue $ 253,741 FairValue $ 261, NOTE 4 -CO NCENTRATIO NS O F CREDIT RISK ARISING FRO M DEPO SITS IN EXCESS O F INSURED LIM ITS The Organization maintains its cash balancesin three (3)financialinstitutionslocated in Louisiana.The balances are insured by the FederalDepositInsurance Corporation up to $100,000.AtJanuary 31,2004, the O rganization's uninsured cash balances total$113,435. NOTE 5 -PATIENT RECEIVABLES The am ountofnetpatientcare receivable atjanuary 31,2004 was $420,875.Managem entfeels thatthe actualco lectability ofthe accounts receivable from patients w ilbe realized in the am ountas shown in the statem entoffinancialposition. NOTE 6 -FIXED ASSETS The fo low ing is a sum m ary schedule offixed assets and related accum ulated depreciation ca ried in the generalproperty fund. Land Buildings and Im pro vem ents Furniture and Equipm ent Vehicles TotalProperty and Equipm ent $ 110,000 1,599,816 1,151,787 40, Less: Accum ulated Depreciation NetProperty and Equipm ent NOTE 7 -CO RPO RATE INCO M E TAXES The Organization isexemptfrom corporate Federalincome taxes undersection501(c)(3)ofthe Internal Revenue Code and from Louisiana incom e taxes.therefore,no provision has been m ade forfederalor Louisiana corporate incom e taxes in the accom panying financialstatem ents.

12 O UTPATIENT M EDICAL CENTERS,INC Notes ~ the FinancialSta tem ents January 31,2004 NOTE 8 -RETIREM ENT PLAN The Centerhas a Section 401(k)plan foraleligible employees. To be eligible,an employee mustbe em ployed with the Corporation foratleastone yearand m ustbe atleasteighteen years ofage. Forthe year ended January 31, 2004,the plan was properly funded. Retirem ent expense recognized was $36,672 forthe yearended January 31,2004. NOTE 9 -CO M M ITM ENTS AND CO NTING ENCIES AnnualLeave The costofem ployee's unused annualleave atjanuary 31,2004 in the amountof$72,787 is included in the financialstatem ents.see Note 2.J.above. NOTE 10 -SUM M ARY O F FUNDING AND SUPPO RT O utpatientm edicalcenter's operations are funded through restricted grants from HHS.Othergrants and contracts are received from state and localgovernm entagencies.the grants and contracts forthe current period are show n below. Source G rantnum ber Period Am ount U.S.Departm entofhealth and Human Services 1H80CS /31/04 $ 1,902,164 U.S.Departm entofhealth and Human Services 1P06HA /31/03 $ 94,840 Louisiana State Departm ent ofhealth (W lc Grant) N/A $ 116,611 NOTE 11-ACCO UNTS RECEIVABLE,G RANTS AND CO NTRACTS G rants and contra cts receivable atjanuary 31,2004 are due from the fo low ing State oflouisiana DepartmentofHealth (W lc Program) State oflouisiana Dept.ofHealth and Hospitals (Com munity Care) Totals $ 38,463 7,029 $ 45,492 NOTE 12 -CAPITAL LEASE PAYABLE OutpatientMedicalCenter,Inc.,leases a certain modularspace facility and ofice equipmentundercapital leases expiring in The assets and liabilities undercapitallease are recorded atthe lowerofthe presentvalue ofthe m inim um lease paym ents orthe fairvalue ofthe asset. The assets are included in the PlantFund and depreciated overtheirestim ated usefullives.

13 O UTPATIENT M EDICAL CENTERS,INC No~ s to the FinancialStatem en~ January 31,2004 NOTE 12 -CAPITAL LEASE PAYABLE (Continued)) Future m inim um lease paym ents undercapitalleases as ofjanuary 31,2004 are as fo lows YearEndinq June 2005 Totalfuture lease paym ents Less:am ountrepresenting interest Am ount $ 30,006 30,006 {2,107) Netm inim um lease paym ents NO TE 13 -LO NG-TERM NO TES PAYABLE M ortgage notes payable consistofthe fo lowing atjanuary 31,2004 A. Note payable to Exchange Bank & Trust;intereststated at8.5% ; due in monthly instalments of$4,614 which includes principaland interest;m atures Decem ber,2010;secured by realestate M aturities oflong-term debtare as fo lows: Thereafter Totals 79,110 $ NOTE 14 -LITIGATIO N OutpatientMedicalCenters,Inc.maintains generalliability,property,fidelity,managed ca re pro fessional liability,directors and oficers and otherinsurance coverage in amounts the Company believes to be adequate.the Com pany re quire s contra cting health care providers to m aintain m alpractice insurance coverage in am ounts custom ary in the industry. In the ordinary cours e of its business,o utpatient M edicalcenters,inc.is a party to claim s and legal actions by enro less,providers and others. Afterconsulting with legalcounsel,the Com pany is ofthe opinion thatany liability thatmay ultimately be incurred as a resultofthese claim s,legalactions,audits or investigations wilnothave a m aterialadverse efecton the financialposition orresults ofoperations of O utpatientm edicalcenters,inc.

14 O UTPATIENT M EDICAL CENTERS,INC Notes to the FinancialStatem ents January 31,2004 NOTE 15 -REFUNDABLE ADVANCES The Centerrecords grantawards accounted foras exchange transactions as refundable advances until related services are perform ed,at which tim e they are recognized as revenue. The activity in the refundable advance accountis reported as fo lows: Refundable advances,beginning ofyear Grantawards received (HHS -Health CenterCluster) G rantexpenditures Refu ndable advances,end ofyear $ 283,142 1,990,635 ( ) $ NOTE 16 -PRIO R PERIO D ADJUSTM ENT Netassets atthe beginning offiscalyear2004 have beenadjusted forwrite-ofsofprioryearaccounts payable. The correction has no effecton the results ofthe currentyear's activities;how ever,the effect increases un restricted netassets by $18,000.

15 BANKS,FINLEY, W HITE & CO. CERTIFIED PUBLIC ACCOUNTANTS NDEPENDENT AUDITO R'S REPO RT O N ADDITIO NAL INFO RMATIO N To the Board ofdirectors of O utpatientm edicalcenters,inc. Natchitoches.Louisiana O urreporton ourauditofthe basic financialstatem ents ofo utpatientm edicalcenters,inc.forthe year ended January 31,2004 appears on page 1. W e conducted our audit in accordance w ith auditing standards genera ly accepted in the United States ofam erica forthe purpose ofform ing an opinion on the basic financialstatem ents taken as a whole. The accom pany schedules,included as supplem entary inform ation in the table ofcontents is presented forpurposes ofadditionalanalysis and is nota required partofthe basic financialstatements.such information has been subjected to the auditing procedures applied in the auditofthe basic financialstatem ents and,in our opinion,is fairly sta ted in a lm ata dal respects in relation to the basic financialstatem ents taken as a w hole. M ay 21, W EST AMITE STREET ~SUITE 503 ~JACKSON,MS 39201~(601)

16 O UTPATIENT M EDICAL CENTERS,INC. Com bining Schedule ofsupportand Revenues Forthe YearEnded January 31,2004 SC HEDULE A SUPPO RT AND REVENUES HHS Section 330 Funds HIV W lc Program Tota Support: G rants and contracts TotalSupport Revenue: Health care services,netof charity,bad debts and adjustments of$545,747 Interestincom e O therincom e TotalRevenue TOTAL SUPPO RT AND REVENUES $1,902,164 94, ,611 1,902,164 94, ,611 1,249, ,652 1,257,495 $2,113,615 2,113,615 1,249, ,652!.2.57,495 15

17 SCHEDULE B O UTPATIENT M EDICAL CENTERS,INC. Schedule ofhealth Care Services Expenses Forthe YearEnded January 31,2004 Personnel Fringe benefits Travel Supplies Equipm entrental Contractual Equipm entexpense Dues and subscriptions Repairs and m aintenance Sta ffrecruitm ent Continuing education Com m unications License and fees Bank and finance charges Other TotalExpenses HHS Section ,104 89,702 14,080 48, ,118 1,378 1,793 5,328 19,940 2, HIV G rant 11,408 $ 929, ,575 1,981 16,061 3,026 51, , ,618 6,062 7,440 1,793 1,614 6,942 19,940 2,

18 SC HEDULE C O UTPATIENT M EDICAL CENTERS,INC. Schedule ofcom m unity Services Expenses Forthe YearEnded January 31,2004 EXPENSES Personnel Fringe benefits Travel Supplies Equipm entrental Contractual Repairs and m aintenance Continuing education Com m unications Space cost Bank and finance charges W IC ,593 7,200 3, , , , TotalExpenses 17

19 SCHEDULE D O UTPATIENT M EDICAL CENTERS,INC. Schedule ofm anagem entand GeneralExpenses Forthe YearEnded January 31,2004 HHS Section 33 Personnel Fringe benefits Travel Supplies Equipm entrental C ontractual Equipm entexpense Legaland accounting Dues and subscriptions Utilities Repairs and m aintenance Insura nce Staffrecruitm ent Security Continuing education Com m unications Janitorial Space cost Interest Bank and finance charges Board expenses Property taxes O ther 474, ,632 63,673 21, ,708 19,009 16,204 21,946 60,753 65,417 18,999 11, , ,432 12,895 30,183 41,069 7,830 2,947 10,981 5,522 TotalExpenses 18

20 SC HEDULE E O UTPATIENT M EDICAL CENTERS,INC. U.S.Departm entofhealth and Hum an Services Grant Health CenterClusterG rantnum ber1 H80 CS Schedule ofbudgeted,incurred and Q uestioned Costs Forthe YearEnded January 31,2004 BUDG ET CO ST NCURRED CO ST (OVER) UNDER BUDG ET CO ST Q UESTIO NED Personnel Fringe benefits Travel Equipm ent Supplies Contractual Other $ 2,099, , , , ,764 1,466, ,364 99, , , , , ,012 96,500 (99,893) (74,635) (48,990) (203,366) 59,587 Total Less:Non-FederalShare FederalShare ,742,690 1,468, ,744 $

21 O UTPATIENT M EDICAL CENTERS,INC Schedule ofexpenditures offederalawards Forthe YearEnded January 31,2004 FederalG rant/ Pass-Through G rantor Proqram Title Federal CFDA Num ber Pass-Through G rant Num ber Federal Expenditures Health Resource & Service Adm inistration Bureau ofprim ary Health Care DirectProgram s: Health Centers Cluster H80CS $ 1,902,164 Title IIIHIV Capacity Building G rants C 1P06HA ,840 TOTAL U.S.DEPARTM ENT O F HEALTH AND HUM AN SERVICES Pass Through Louisiana State Dept.ofHealth SpecialSupplem entfood Pro gram for W om en,infants and Children TOTAL FEDERAL AW ARDS 116,611 $

22 O UTPATIENT M EDICAL CENTERS,INC. Notes to Schedule ofexpenditures offederalaw ards Forthe YearEnded January 31,2004 BASIS O F PRESENTATIO N The accompanying Schedule of Expenditures of FederalAwards (the schedule) has been genera ly prepared on the accrualbasis ofaccounting.the purpose ofthe schedule is to present a sum m ary ofthose activities represented by O utpatientm edicalcenter,inc.,forthe yearended January 31,2004,which have been financed by the U.S.Government(federalawards).Forthe purpose of the schedule, federal awards include a l federal assistance and procurem ent relationships entered into directly between O utpatientm edicalcenters,inc.,inc.,itis notintended to and notdoes presenteitherthe financialposition orthe changes in netassets ofo utpatient M edicalcenters,inc.

23 H BANKS,FINLEY, WHITE&CO. CERTIFIED PUBLIC ACCOUNTANTS EPO RT N To the Board ofdirectors of O utpatientm edicalcenters,inc. Natchitoches.Louisiana W e have audited the financialstatements ofoutpatientmedicalcenters,inc.,(a non-profitorganization) as ofand forthe yearended January 31,2004,and have issued ourreportthereon dated M ay 21,2004. W e conducted ourauditin accordance with auditing standards genera ly accepted in the United States of Am erica and the standards applicable to financialaudits contained in Governm entauditing Standards, issued by the Com ptro lergeneralofthe United States. As part obtaining reasonable assurance about whether O utpatient M edical Centers, Inc.'s, financial statem ents are free ofm aterialm isstatem ent,we perform ed tests ofits com pliance with certain provisions of laws,regulations,contracts and grants,noncom pliance with which could have a directand m aterial efecton the determ ination offinancialstatem entam ounts.however,providing an opinion on com pliance with those provisions was notan objective ofourauditand,accordingly,we do notexpress such an opinion.the results ofourtests disclosed no instances ofnoncom pliance thatare required to be reported underg overnm enta uditing Standards. In planning and perform ing ouraudit,we considered O utpatientm edicalcenters,inc.'s,internalcontrol overfinancialreporting in orderto determ ine ourauditing procedures forthe purpose ofexpressing our opinion on the financialstatem ents and notto provide assurance on the internalcontroloverfinancial reporting. However,we noted certain m aters involving the intern alcontroland its operation thatwe considerto be reportable conditions under standards established by the Am erican Institute ofcertified Public Accountants. Reportable conditions involve m aters com ing to ouratention relating to significant deficiencies inthe design oroperationofthe internalcontrolthat,inourjudgement,could adversely afect the organization's ability to initiate,record,process,and report financialdata consistentwith the assertions ofm anagem entin the financialstatem ents. The reportable conditions are described in the accom panying schedule offindings and questioned costs as item WEST AMITE STREET ~SUITE 503 ~JACKSON,MS 39201~(601)

24 A m aterialweakness is a reportable condition in which the design oroperation ofone or m ore ofthe intern alcontrolcom ponents does notreduce to a relatively low levelthe risk thatm isstatem ents caused by errororfraud in am ounts thatwould be m aterialin relation to the financialstatem ents being audited m ay occurand notbe detected within a tim ely period by em ployees in the norm alcourse ofperform ing their assigned functions. O urconsideration ofinternalcontrolwould notnecessarily disclose a lm atters in the intern alcontrolthatm ight be reportable conditions and,accordingly,would notnecessarily disclose a l reportable conditions thatare also considered to be m aterialweaknesses as defined above. How ever, none ofthe reportable conditions described above is believed to be a m aterialweakness. This report is intended solely forthe inform ation and use ofthe Board ofdirectors,m anagem ent,others within the organization and federalaw arding agencies and pass-through entities and is notintended to be and should notbe used by anyone otherthan these specified parties. 23

25 H BANKS,FINLEY, WHITE&CO. CERTIFIED PUBLIC ACCOUNTANTS P A A-1 N To the Board ofdirectors of O utpatientm edicalcenters,inc. Natchitoches.Louisiana Com pliance W e have audited the compliance ofoutpatientmedicalcenters,inc.,(a non-profitorganization)with the types ofcom pliance requirements described in the U.S.Ofice of Managementand Budget(OMB) CircularA-133 Compliance Supplementthatare applicable to each ofits majorfederalprogram forthe yearended January 31,2004.OutpatientMedicalCenters,Inc.'s,majorfederalprograms are identified in the sum m ary ofauditor's results section ofthe accom panying schedule offindings and questioned costs. Com pliance w ith the requirem ents of laws,regulations,contracts and grants applicable to each of its majorfederalprograms is the responsibility ofthe organization's management.ourresponsibility is to express an opinion on the organization's com pliance based on ouraudit. W e conducted ourauditofcom pliance in accordance with auditing standards genera ly accepted in the United States ofam erica;the standards applicable to financialaudits conta ined in G overnm entauditing Standards,Issued by the Com ptro lergeneralofthe United States;and O M B CircularA-133,Audits of States, LocalG overnm ents,and Non-Profit O rganizations.those standards and O M B CircularA-133 require thatwe plan and perform the auditto obtain reasonable assurance aboutwhethernoncom pliance w ith the types ofcom pliance requirem ents referred to above thatcould have a directand m aterialefect on a majorfederalprogram occurred.an auditincludes examining,on a testbasis,evidence aboutthe organization's com pliance with those requirem ents and perform ing such other procedures as we considered necessary in the circum stances.w e believe thatourauditprovides a reasonable basis forour opinion.o ur auditdoes not provide a legaldeterm ination of the organization's com pliance with those requirem ents. In ouropinion,o utpatientm edicalcenters,inc.,com plied,in a lm aterialrespects,w ith the requirem ents referred to above thatare applicable to each ofits majorfederalprograms forthe yearended January 31, The m anagem entof O utpatient M edicalcenters,inc.,is responsible for establishing and m ainta ining efective internalcontrolovercom pliance with requirem ents of laws,regulations,contracts and grants applicable to federalprogram s.in planning and perform ing ouraudit,we considered the organization's internalcontrolovercompliance with requirementsthatcould have a directandmaterialefecton a major federalprogram in orderto determ ine ourauditing procedures forthe purposes ofexpressing ouropinion on com pliance and to testend reporton internalcontrolovercom pliance in accordance with O M B Circular A WEST AMITE STREET ~SUITE 503 ~JACKSON,MS 39201~(601)

26 O urconsideration ofthe internalcontrolovercom pliance would notnecessarily disclose a lm aters in the internalcontrolthatm ightbe m aterialweaknesses.a m aterialweakness is a condition in which the design oroperation ofone orm ore ofthe internalcontrolcom ponents does notreduce to a relatively low levelthe risk thatnoncom pliance w ith applicable requirem ents oflaws,regulations,contra cts,and gra nts thatwould be materialin relation to a majorfederalprogram being audited may occurand notbe detected within a tim ely period by em ployees in the norm alcourse of perform ing theirassigned functions.w e noted no m a ters involving the intern alcontrolover com pliance and its operation thatwe considerto be m atedaj w eaknesses. This reportis intended solely forthe inform ation ofthe Board ofdirectors,m anagem ent,others w ithin the organization and federalawarding agencies and pass-thro ugh entities and is not intended to be and should notbe used by anyone otherthan these specified parties. M ay 21,

27 There were no prioryearfindings O UTPATIENT M EDICAL CENTERS,INC. Sum m ary Schedule ofpriorauditfindings YearEnded January 31,2004

28 O UTPATIENT M EDICAL CENTERS,INC. Schedute offindings and Q uestioned Costs YearEnded January 31,2004 Type ofauditor's reportissued on the basic financialstatem ents. M aterialnoncom pliance relating to the basic financialstatem ents Internalcontroloverfinancialreporting a. M aterialweaknesses identified? b. Reportable conditions identified thatare notconsidered to be m aterial w eaknesses? Unqualified None None Yes FederalAw ards: Type ofauditor'sreport issued oncompliance formajorfederalprograms Intern alcontrolovermajorprograms: a. M aterialweaknesses identified? b. Reportable conditions identified thatare notconsidered to be m aterial w eaknesses? Any auditfindings reported as required by Section,510(a )ofcirculara-133? Federalprograms identified as majorprograms a. CFDA # Health CenterCluster Unqualified None None None 8 The dolarthreshold used to distinguish between type A and Type B pro grams:$300,000 9 Auditee did qualify as a low-risk auditee Bank Reconciliations During the audit,we noted thatbank reconciliations forsom e accounts did notreconcile to the general ledger. 27

29 Bank reconciliations were notbeing com pleted m onthly and in a tim ely m anner. Untim ely preparation of the reconciliations could delay correction oferrors and detection ofpossible m isstatem ents. Som e cash accounts were notreconciled OMB CircularA-110 A tachmente,paragraph 2 (c )states:"grantee financialmanagementsystem sha provide forefective controloverand accountability fora lfunds,property and otherassets.." The Center should fo low their internaladm inistrative controls and ensure that a lbank accounts are reconciled monthly to the generalledger.this wilhelp to ensure accura cy and tim eliness. NO NE 28

30 O utpatientm edicalcenters,inc. Prol'ldil(~Quaht),HcalrhcareTo.ql. SITE A I)D IkESSES ADMINISTRATIO N 368southo Banks, Finley,W hite & Co Natchitoches.LA A m ite St. Suite 503 O~]h, H ~,~ 31BSSZ0203 Jackson,M S ~640 Breazeale SprmgsSt. Natchitoches.I~ Otfic, I~x North 5th St~ et,sce.14 Leesvile,LA O#~,,' Fax Beech Street T~lulah.LA ~/~,~ I~x Re:Plan of Corrective A ction in Response to FY E 1/31/2004 A uditcondition To w hom itm ay concern W e acknow ledge receipt of your financial statem ent audit condition for the yea ended Jan uary 31,2004 stating that "reconciliations for som e accounts did not reconcile to the generalledger".o urresponse isasfollow s: Cause The basisof our problem w ascaused by instability in the accounting staf form uch of the fiscalyear.in A prilof 2003 the A ccounting M anager,the only accountan tin the finan ce departm ent, abruptly left the organ ization. O ur contractual CFO (currently providing service)wascaled in to complete the year-end financialsfor the Jan uary 31, 2003,the budget for the new fiscal year,jan uary 2004, and to produce finan cials (for the period oftime thatthe previous accoun ting man ager leading up to herdeparture)thathad notcompleted.thisperiod oftim ewasfrom Jan uary 2003 to A pril2003. Before financialinform ation could be produced know ledge pertaining to operating the existing accounting system an d processes had to be obtained,an d w as forth e m ostpartself-taught.h aving to produce num erous reports,m an age the 2003 audit and staff,an d achieve certain deadlinesto bring allinform ation up to date did not allow secondary review sto take place asth e CFO han dled allfunctions. Itw as also a m an date th athealth organizations becom e H IPA A com plian tby yearend 2003 an d a new com puter system w as installed during this period of staf shortage. Corrective A ction ~ Hired additional staf -The Executive Director in conjunction with the contractual CFO m oved quickly to hire a new accoun tant in July. This accountan thad a learning curve to overcom e,butw asquickly introduced to the necessary base processes of m aintaining financial data integrity; reconciling cash w as the firstprocessto be restored. A perm an entcfo w as 29

31 July 29,2004 Page 2 also hired to add depth to the organization. This CFO resigned before tw o m onths of w ork w as com pleted. The contractual CFO has retu rn ed to continue to provide training. A new accounts payable clerk, w ith an Accounting degree isbeing added to the financialstaff on A ugust2. ~ D eveloped new finan ce policiesand proceduresin D ecem ber Because ofthe accounting managersacquired experience (now oneyear),the pending addition of anotheraccounting degreed employee (to begin August2nd), an d the reem ergence of the contracting CFO,to provide guidan ce an d im plem ent policy, w e have already corrected the condition w ith regard to account reconciliation. O ur policies referred to above discusses th e bank account reconciliation process in intem alpolicy #407 in the "finan cialpolicy m an ual". Reconciliations occur m onth ly an d are currentas of thisresponse. Furtherm ore our new staf accoun tan t, starting A ugust 2,w ill add depth to th e Finance departm entan d position us for sustained com plian ce of policies and reporting data integrity.secondary review sw illalso occur m ore frequently to catch errors or om issions. Sincerely Interim CFO/Consultan t R ose M.Turner CEO Enclosure