THE SYLACAUGA HEALTH CARE AUTHORITY REPORTS REQUIRED UNDER THE GAO S GOVERNMENT AUDITING STANDARDS AND THE SINGLE AUDIT ACT

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1 THE SYLACAUGA HEALTH CARE AUTHORITY REPORTS REQUIRED UNDER THE GAO S GOVERNMENT AUDITING STANDARDS AND THE SINGLE AUDIT ACT for the year ended July 31, 2017

2 C O N T E N T S Pages Independent Auditor s 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 1-2 Independent Auditor s Report on Compliance for each Major Federal Program; Report on Internal Control over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 3-5 Schedule of Expenditures of Federal Awards 6 Schedule of Findings and Questioned Costs 7-9 Corrective Action Plan 10 Summary Schedule of Prior Audit Findings 11-12

3 Member: THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S 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 Board of Directors The Sylacauga Health Care Authority Sylacauga, Alabama We 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 The Sylacauga Health Care Authority (Authority), which comprise the balance sheet as of July 31, 2017, and the related statements of revenues, expenses, and changes in net position, and cash flows for the year then ended and the related notes to the financial statements, and have issued our report thereon dated October 20, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness ofthe Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority's internal control. 1 P.O. Box Gllllonville Road Albany, GA Tel. (229) Fax(229) Five Concourse Parkway Suite 1250 Atlanta, GA Tel. (404) Fax (229)

4 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 Authority'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. Our 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify a deficiency in internal control, described in the accompanying schedule of findings and questioned costs, that we consider to be a significant deficiency ( ). Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free of material misstatement, we 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 our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Authority's Response to Findings The Authority's response to findings identified in our audit is described in the accompanying corrective action plan. The Authority's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority'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 Authority's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. ~eo:_,t-~"-1' Atlanta Georgia October 20,

5 Member: THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL A WARDS REQUIRED BY THE UNIFORM GUIDANCE Board of Directors The Sylacauga Health Care Authority Sylacauga, Alabama Report on Compliance for Each Major Federal Program We have audited The Sylacauga Health Care Authority's (Authority) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each ofthe Authority's major federal programs for the year ended July 31,2017. The Authority'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 federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the Authority's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our 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 requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). 3 P.O. Box Gillionvllle Road Albany, GA Tel. (229) Fax (229) Five Concourse Parkway Suite 1250 Atlanta, GA Tel. (404) Fax (229)

6 Those standards and the Uniform Guidance require that we 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 the Authority s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Authority s compliance. Opinion on Each Major Federal Program In our opinion, the Authority 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 July 31, Other Matter The results of our auditing procedures disclosed an instance of noncompliance which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item Our opinion on each major federal program is not modified with respect to this matter. The Authority s response to the noncompliance finding identified in our audit is described in the accompanying corrective action plan. The Authority s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control over Compliance Management of the Authority is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Authority 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, we do not express an opinion on the effectiveness of the Authority 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 4

7 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. Our 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified a certain deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item , that we consider to be a significant deficiency. The Authority's response to the internal control over compliance finding identified in our audit is described in the accompanying corrective action plan. The Authority's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our 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. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the Authority as of and for the year ended July 31, 2017, and have issued our report thereon dated October 20, 201 7, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance, 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 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 our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. ~~~.dr' Atlanta, Georgia April 24,

8 THE SYLACAUGA HEALTH CARE AUTHORITY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS for the year ended July 31, 2017 Grantor Agency Program Title CFDA Number Project or Grant Number Federal Expenditures U.S. Department of Housing and Urban Development: Federal Housing Mortgage Administration Insurance Hospitals $ 48,960,898 Notes to Schedule: 1. The Authority follows the full accrual basis of accounting in preparing this schedule. This method is consistent with the preparation of the Authority s financial statements. The information in this schedule is presented in accordance with requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Expenditures are recognized following the cost principles in OMB Circular A-122, Cost Principles for Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of the Authority, it is not intended to and does not present the financial position, change in net position, or cash flows of the Authority. 2. The Authority did not have any non-cash awards during the fiscal year. 3. Federal expenditures under loan programs include any new loans made during the year and loans outstanding at the beginning of the year for which there are continuing compliance requirements. There were no new loans made for the year ended July 31, The balance of the Mortgage Insurance Hospitals loan outstanding at July 31, 2017 is $47,676, There were no awards passed through to subrecipients. 5. The Authority has not elected to use the 10% de minimis indirect cost rate. 6

9 THE SYLACAUGA HEALTH CARE AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS for the year ended July 31, 2017 Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: unmodified Internal control over financial reporting: Material weakness(es) identified? yes x no Significant deficiencies identified that are not considered to be material weakness(es)? x yes 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 deficiencies identified that are not considered to be material weakness(es)? x yes none reported Type of auditor s report issued on compliance for major programs: unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? x yes no Identification of major programs: CFDA Number FHA Project Number Name of Federal Program Mortgage Insurance Hospitals Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee? yes x no 7

10 THE SYLACAUGA HEALTH CARE AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS, for the year ended July 31, 2017 Section II Financial Statement Findings Significant Deficiency Condition: Criteria: Effect: Cause: Recommendation: Views of Responsible Officials and Planned Corrective Action: Reconciliations for the operating cash account were not accurately completed and fully reviewed in a timely manner for a portion of To ensure that cash accounts are accurately stated, monthly cash reconciliations should be completed and reviewed in a timely manner. Because the noted reconciliations were not accurately completed before year-end close, certain payments that had been made through ACH transfers, online, and by phone were not identified and posted in the appropriate period. These unrecorded payments resulted in cash and accounts payable balances being overstated. Because of staff turnover and position vacancies during the year, there were instances where the operating cash account was not reconciled accurately. We recommend the Authority review the procedures and controls related to cash to ensure they are being carried out effectively. See corrective action plan. 8

11 THE SYLACAUGA HEALTH CARE AUTHORITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS, for the year ended July 31, 2017 Section III Federal Award Findings and Questioned Costs Other Matter/Significant Deficiency Federal Program Identification: Condition: Criteria: Effect: Cause: Recommendation: Views of Responsible Officials and Planned Corrective Action: U.S. Department of Housing and Urban Development (HUD), Federal Housing Administration, CFDA , Grant Number: The Authority entered into two capital leases without obtaining prior approval from HUD or meeting a minimum debt service coverage ratio. The Regulatory Agreement for the Mortgage Insurance Hospital loan requires that approval be obtained from HUD prior to incurring additional indebtedness, unless certain criteria are met. These criteria include a minimum debt service coverage ratio. The Authority was not in compliance with the specified requirement of the Regulatory Agreement. The Authority faced an immediate, unanticipated capital need which was not addressed in the capital planning process. We recommend that the Authority review the procedures and controls related to the approval of debt transactions to ensure the requirements of the Regulatory Agreement are met. See corrective action plan. 9

12 Financial Statement Findings THE SYLACAUGA HEALTH CARE AUTHORITY CORRECTIVE ACTION PLAN for the year ended July 31, 2017 Corrective Action: The incident referenced to for this finding was staffing related, both in terms of vacancies in two key finance positions as well as a competency issue. Key vacancies have been filled with qualified staff. All cash account reconciliations will be completed monthly, reviewed and approved via signature by the Controller. In addition, the Chief Financial Officer will review cash account reconciliations quarterly and attest to accuracy. Date of Completion: December 31, 2018 Contact Person: Mr. Roland Thacker, CFO Coosa Valley Medical Center Federal Award Findings and Questioned Costs Corrective Action: The Chief Financial Officer will notify HUD when a capital lease is being considered, provide supporting documentation, and request the appropriate approval. Date of Completion: April 30, 2018 Contact Person: Mr. Roland Thacker, CFO Coosa Valley Medical Center 10

13 Section II Financial Statement Findings Material Weakness THE SYLACAUGA HEALTH CARE AUTHORITY SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS for the year ended July 31, 2017 Condition: Criteria: Effect: Cause: Recommendation: Status: Credit balances in patient accounts receivable for the Hospital, Hospice, and Nursing Home were not accurately stated. Internal controls should be in place to ensure that credit balances are consistently reviewed in order to identify and resolve posting errors or issues with billing and collections. Inaccurate credit balances may affect the valuation of patient accounts receivable. Procedures were not in place to review and address credit balances in patient accounts receivable. The Authority should implement procedures to review credit balances on a consistent basis and resolve posting errors or issues with billings and collections in a timely manner. Resolved. 11

14 THE SYLACAUGA HEALTH CARE AUTHORITY SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS, for the year ended July 31, 2017 Section III Federal Award Findings and Questioned Costs Other Matter Federal Program Identification: Condition: Criteria: Effect: Cause: Recommendation: Status: U.S. Department of Housing and Urban Development (HUD), Federal Housing Administration, CFDA , Grant Number: The Single Audit reporting package for the year ended July 31, 2015 was submitted more than nine months after the end of the audit period. The Regulatory Agreement for the Mortgage Insurance Hospital loan requires that an audit be conducted in accordance with the Uniform Guidance. The Uniform Guidance requires that the Single Audit reporting package be submitted the earlier of 30 days after the reports are received from the auditors or nine months after the end of the audit period. The Authority was not in compliance with the specified requirement of the Regulatory Agreement. Though the Single Audit reporting package submission was initiated before the deadline, the auditee did not complete the Auditee Certification prior to the deadline; therefore, the submission was not completed timely. We recommend the Authority implement procedures to ensure all reports are submitted timely. Resolved. 12

15 THE SYLACAUGA HEALTH CARE AUTHORITY FINANCIAL STATEMENTS for the years ended July 31, 2017 and 2016

16 C O N T E N T S Independent Auditor s Report 1-3 Pages Management s Discussion and Analysis 4-6 Financial Statements: Balance Sheets 7-8 Statements of Revenues, Expenses and Changes in Net Position 9 Statements of Cash Flows Notes to Financial Statements Independent Auditor s 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 Schedule of Findings and Responses 39

17 Member: THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS Board of Directors The Sylacauga Health Care Authority Sylacauga, Alabama Report on the Financial Statements INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of The Sylacauga Health Care Authority (Authority), which comprise the balance sheets as of July 31, 2017 and 2016, the related statements of revenues, expenses and changes in net position, and cash flows for the years 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 financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 1 P.O. Box Glllionvllle Road Albany, GA Tel. (229) Fax (229) Five Concourse Parkway Suite 1250 Atlanta, GA Tel. (404) Fax (229)

18 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 Authority 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 Authority's internal control. Accordingly, we 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Sylacauga Health Care Authority as of July 31, 2017 and 2016, and the results of its operations and changes in net position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 18, management has outlined its plan to improve the financial position of the Authority during Our opinion is not modified with respect to that matter. Other Matter Accounting principles generally accepted in the United States of America require that Management s Discussion and Analysis on pages 4 through 6 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 2

19 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 20, 201 7, on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the 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 the Authority's internal control over financial reporting and compliance. ~<;L-~ILL~ Atlanta, Georgia October 20,

20 COOSA VALLEY MEDICAL CENTER Management's Discussion and Analysis For The Year Ending July 31,2017 The following discussion and analysis of The Sylacauga Health Care Authority (Authority), dba Coosa Valley Medical Center's (Hospital) financial performance provides an overview ofthe Authority's financial activities during the fiscal years ended July 31, 2017 and To realize optimal benefit from this information, we encourage that it be read in conjunction with the Authority's financial statements and accompanying notes. Financial Highlights Total net position declined in FY However, net cash provided by operating activities and operating performance did improve. Operating income improved to income of$915,386 compared to the FY 2016loss of$459,645. The increase in cash from operations was $4,575,130 compared to $4,352,627 in FY After consideration of non-operating activity, expenses exceeding revenue resulted in a loss of $1,176,965 compared to a loss of$2,426,591 in FY This represents an improvement of $1,249,626 or 51.5%. Net patient service revenue increased $602,814 or 1.0% in FY 2017 compared to FY Total operating expenses less depreciation declined $303,410 or 0.5%. Other operating revenue increased $496,059 or 38.6%. Total operating revenues increased $1,098,873 or 1.8%. Interest expense declined from $2,229,672 in FY 2017 to $2,175,276 in FY The decline in interest expense realized in FY 2017 is $54,396 or 2.4%. Using This Annual Report The Authority's financial statements consist of three statements- a balance sheet; a statement of revenues, expenses and changes in net position; and statement of cash flows. These financial statements and related notes provide information about the activities of the Authority. 4

21 Management s Discussion and Analysis For The Year Ending July 31, 2017 The Balance Sheet The balance sheet reports information about the Authority s resources. This statement includes all assets and liabilities. Assets are classified as restricted and unrestricted assets as well as separated between current and long term. Likewise, liabilities are also divided between current and long term. Cash balances, both short-term and long-term, are a significant indicator in determining the financial health of an organization. Cash and cash equivalents increased $723,437 in FY 2017 when compared to FY Long-term invested cash declined $700,013. The patient accounts receivable balance represents expected cash for services that have been provided to patients. The accounts receivable balance at FYE 2017 declined $1,024,723 or 9.3% from FYE The key indicator Gross Days Revenue in AR increased from 44 in FY 2016 to 45 in FY Long-term debt declined $979,589 or 2.0% due to payment of annual debt service. The Statement of Revenues, Expenses and Changes in Net Position Like the balance sheet, the statement of revenues, expenses, and changes in net position reports information about the Authority s resources. However, it offers a more complete understanding of the operational activities of the organization. This statement reveals the supporting detail relative to the change in total net position. Over time, increases or decreases in the total net position are one indication of whether financial health of the organization is improving or deteriorating. Acute Care inpatient activity measured by patient days declined less than 1.0% in FY Inpatient admissions declined by 6.9% from FY Hospital Obstetric volumes declined 12.6% when compared to the prior year. Hospital Outpatient activity increased 1.0% in the current year. Emergency Room visits declined 4.4% from FY 2016, and the Surgery service line also experienced a decline in caseload in FY 2017 of 10.0%. Post-Acute Care services increased by 1.9% from the prior year. Physician practices reported a decline in billable encounters of 2.8% in FY Hospice program patient days and referrals were up 15.7% and 61.8%, respectively, in FY Operating performance improved in FY 2017 when compared to FY Before nonoperating expenses and revenues, income generated from operations was $915,386 in FY 2017 compared to an operating loss of $459,645 in FY Excluding depreciation, operating performance improved by $1.40 M or 86.1% in FY 2017 when compared to FY Net operating revenues increased $1,098,873 or 1.8% while operating expenses, less depreciation, declined $303,410 or 0.5%. Other operating revenue increased in FY 2017 by $496,059 or 38.6% compared to FY The increase is primarily due to the addition of a new specialty lab service. 5

22 Management s Discussion and Analysis For The Year Ending July 31, 2017 The Statement of Revenues, Expenses and Changes in Net Position, The loss associated with nonoperating activity (excess of nonoperating expenses over revenue) increased $125,405 or 6.4%. The increase is due primarily to lower reported investment income. Interest expense declined by $54,396 or 2.4% in FY 2017 in comparison to FY The Authority reported excess expenses over revenues of $1,176,965 compared $2,426,591 in FY This represents improvement of $1,249,626 or 51.5%. The Statement of Cash Flows The statement of cash flows captures both the annual operating results and the accompanying changes in the balance sheet. The focus is on how changes in the balance sheet and income affect cash and cash equivalents. The statement distinguishes the impact to cash from operating, investing and financing activities. Cash provided by operating activities in FY 2017 is $4,575,130. This compares favorably to the increase in cash generated from operations in FY 2016 of $4,352,627. Cash used in capital and related financing activities equals $3,936,171 compared to $4,952,433 in FY The majority or 89.8% of cash used in financing activities in the current year was for debt service. Expenditures for capital related improvements are $401,479. There are no significant transactions to report related to cash inflows or outflows related to investing activities. Financial Position The operating activities resulting in the financial performance of FY 2017 indicated overall improvement in operating performance despite an operating loss. Management recognizes that the total net deficit position of the organization is not viable long-term. Several initiatives are underway to improve financial performance from operations, with a focus on enhancing revenue and maximizing cash collections; reducing costs through revision of contract terms and/or developing new relationships; examining and reengineering processes to drive efficiencies; understanding financial contribution of various service lines; and identifying business development opportunities to meet community needs and restore financial stability and sustainability of the organization. As a health care organization, Management is equally committed to delivering and sustaining reliable and optimal quality patient care for the patients and community served. Management, with the Board s review and approval, is updating its Business Plan delivered to the Department of Housing and Urban Development (holder of organization s most significant debt) in FY 2017 that included several initiatives to improve financial performance. Several of those initiatives are responsible for the improvement in performance in FY 2017 compared to FY Contacting the Authority s Financial Management This financial report is designed to provide a general overview of the Authority s finances. If you have questions about this report or need additional financial information, please contact the Chief Financial Officer s office at 315 W. Hickory Street, Sylacauga, AL

23 THE SYLACAUGA HEALTH CARE AUTHORITY BALANCE SHEETS as of July 31, 2017 and ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current assets: Cash and cash equivalents $ 978,421 $ 254,981 Designated by board for retirement plan 308, ,189 Patient accounts receivable, net of estimated uncollectibles of approximately $6,260,000 in 2017 and $5,009,000 in ,937,899 10,962,622 Estimated third-party payor settlements 1,054,372 1,322,675 Supplies 1,629,409 1,595,302 Current portion of physician notes receivable 217, ,265 Other current assets 980,756 1,159,783 Total current assets 15,106,030 15,863,817 Noncurrent cash and investments: Held by trustee for capital improvements - 20,802 Held by trustee for insurance 361, ,133 Held by trustee for loan reserve 1,928,846 1,267,528 Restricted for specific activities 47,833 47,833 Marketable securities 1,406,728 2,106,741 Total noncurrent cash and investments 3,744,604 3,785,037 Capital assets: Land 1,328,230 1,328,230 Depreciable capital assets, net of accumulated depreciation 27,391,613 28,581,677 Total capital assets, net of accumulated depreciation 28,719,843 29,909,907 Other assets: Physician notes receivable, net of current portion 247, ,724 Long-term investments 268, ,775 Total other assets 516, ,499 Total assets 48,087,167 50,122,260 Deferred outflows of resources 2,665,136 2,813,199 Total assets and deferred outflows of resources $ 50,752,303 $ 52,935,459 7

24 LIABILITIES AND NET POSITION Current liabilities: Current maturities of long-term debt $ 1,603,369 $ 1,461,892 Accounts payable 5,648,862 6,200,211 Accrued expenses 1,348, ,977 Estimated third-party payor settlements 344, ,720 Total current liabilities 8,945,675 8,830,800 Long-term debt, excluding current maturities 46,712,459 47,833,525 Total liabilities 55,658,134 56,664,325 Net position: Net investment in capital assets ( 9,425,425) ( 9,002,803) Restricted: Restricted for insurance 361, ,133 Restricted for loan reserve 1,928,846 1,267,528 Expendable for specific activities 47,833 47,833 Unrestricted 2,181,718 3,616,443 Total net position ( 4,905,831) ( 3,728,866) Total liabilities and net position $ 50,752,303 $ 52,935,459 See accompanying notes to financial statements. 8

25 THE SYLACAUGA HEALTH CARE AUTHORITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION for the years ended July 31, 2017 and Operating revenues: Net patient service revenue (net of provision for bad debts of approximately $16,136,000 in 2017 and $14,108,000 in 2016) $ 61,772,099 $ 61,169,285 Other revenue 1,782,803 1,286,744 Total operating revenues 63,554,902 62,456,029 Operating expenses: Salaries and wages 22,484,991 21,723,965 Employee benefits 4,933,282 5,349,779 Supplies and drugs 14,803,276 14,699,738 Purchased services 9,727,542 9,841,703 Physician services 1,312,013 1,367,540 Repairs and maintenance 1,278,162 1,381,967 Rents and leases 1,090,690 1,067,505 Utilities and communication 1,754,824 1,683,709 Insurance 960,220 1,190,395 Other operating expenses 2,179,563 2,521,672 Depreciation 2,114,953 2,087,701 Total operating expenses 62,639,516 62,915,674 Operating income (loss) 915,386 ( 459,645) Nonoperating revenues (expenses): Investment income and other 42, ,226 Noncapital grants and donations 40,332 31,500 Interest expense ( 2,175,276) ( 2,229,672) Total nonoperating expenses ( 2,092,351) ( 1,966,946) Excess expenses ( 1,176,965) ( 2,426,591) Net position, beginning of year ( 3,728,866) ( 1,302,275) Net position, end of year $( 4,905,831) $( 3,728,866) See accompanying notes to financial statements. 9

26 THE SYLACAUGA HEALTH CARE AUTHORITY STATEMENTS OF CASH FLOWS for the years ended July 31, 2017 and Cash flows from operating activities: Cash received from patients and payors $ 64,768,725 $ 62,922,642 Cash payments to vendors and other suppliers (33,283,636) (30,835,602) Cash payments to employees (26,814,323) (27,560,244) Cash payments to physicians ( 95,636) ( 174,169) Net cash provided by operating activities 4,575,130 4,352,627 Cash flows from capital and related financing activities: Proceeds from long-term debt - 88,580 Principal paid on long-term debt ( 1,502,999) ( 1,679,034) Purchase of property and equipment ( 401,479) ( 1,276,072) Interest paid on long-term debt ( 2,031,693) ( 2,085,907) Net cash used by capital and related financing activities ( 3,936,171) ( 4,952,433) Cash flows from investing activities: Investment income 42, ,226 Sale (purchase) of investments, net 700,013 ( 230,649) Net cash provided by investing activities 742, Cash flows from noncapital financing activities: Unrestricted contributions 40,332 31,500 Net increase (decrease) in cash and cash equivalents 1,421,897 ( 567,729) Cash and cash equivalents, beginning of year 2,202,466 2,770,195 Cash and cash equivalents, end of year $ 3,624,363 $ 2,202,466 10

27 THE SYLACAUGA HEALTH CARE AUTHORITY STATEMENTS OF CASH FLOWS, for the years ended July 31, 2017 and Reconciliation of cash and cash equivalents to the balance sheet: Cash and cash equivalents $ 978,421 $ 254,981 Designated by board for retirement plan 308, ,189 Held by trustee for capital improvements - 20,802 Held by trustee for insurance 361, ,133 Held by trustee for loan reserve 1,928,846 1,267,528 Restricted for specific activities 47,833 47,833 Total cash and cash equivalents $ 3,624,363 $ 2,202,466 Reconciliation of operating income (loss) to net cash flows from operating activities: Operating income (loss) $ 915,386 $( 459,645) Adjustments to reconcile operating income (loss) to net cash flows from operating activities: Depreciation 2,114,953 2,087,701 Provision for bad debt 16,135,501 14,108,417 Changes in: Patient accounts receivable (15,110,779) (13,472,894) Estimated third-party payor settlements 189,100 ( 168,910) Supplies ( 34,107) ( 103,136) Other current and noncurrent assets 307,995 1,089,091 Accounts payable ( 546,869) 1,758,503 Accrued expenses 603,950 ( 486,500) Net cash provided by operating activities $ 4,575,130 $ 4,352,627 Supplemental disclosures of cash flow information: The Authority entered into capital lease obligations of approximately $523,000 and $-0- for new equipment in 2017 and 2016, respectively. The Authority held investments at July 31, 2017 and 2016 with a fair value of approximately $1,407,000 and $2,107,000, respectively. The net change in fair value of these investments was a decrease of approximately $11,000 and increase of approximately $90,000 in 2017 and 2016, respectively. See accompanying notes to financial statements. 11

28 THE SYLACAUGA HEALTH CARE AUTHORITY NOTES TO FINANCIAL STATEMENTS July 31, 2017 and Summary of Significant Accounting Policies Organization The Sylacauga Health Care Authority (Authority) is a public corporation which owns and operates Coosa Valley Medical Center (Medical Center), an acute care hospital with 163 licensed beds including 15 geriatric psychiatric beds, a nursing facility with 85 licensed beds, an ambulatory care center, and a hospice agency. Currently, 101 of the licensed acute care hospital beds, 15 of the geriatric psychiatric beds and 85 of the skilled nursing facility beds are staffed and operated. A voting majority of the Authority Board is appointed by the City of Sylacauga; however, the Authority is not a component unit of the City. Use of Estimates The preparation of 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. Enterprise Fund Accounting The Authority uses enterprise fund accounting. Revenues and expenses are recognized on the accrual basis using the economic resources measurement focus. The Authority prepares its financial statements as a business-type activity in conformity with applicable pronouncements of the Governmental Accounting Standards Board (GASB). Cash and Cash Equivalents Cash and cash equivalents include investments in highly liquid debt instruments with an original maturity of three months or less. Allowance for Doubtful Accounts The Authority provides an allowance for doubtful accounts based on the evaluation of the overall collectability of the accounts receivable. As accounts are known to be uncollectible, the accounts are charged against the allowance. 12

29 THE SYLACAUGA HEALTH CARE AUTHORITY NOTES TO FINANCIAL STATEMENTS, July 31, 2017 and Summary of Significant Accounting Policies, Supplies Supplies are stated at the lower of cost or market value using the first-in, first-out method. Noncurrent Cash and Investments Noncurrent cash and investments include assets held by trustees for capital improvements, insurance, and loan reserve, assets restricted for specific activities, and marketable securities. Investments in Debt and Equity Securities Investments in debt and equity securities are reported at fair value except for short-term highly liquid investments that have a remaining maturity at the time they are purchased of one year or less. Interest, dividends, and gains and losses, both realized and unrealized, on investments in debt and equity securities are included in non-operating revenue when earned. Capital Assets The Authority s capital assets are reported at cost. Contributed capital assets are reported at their acquisition value at the time of donation. Depreciation is provided over the estimated useful life of each depreciable asset and is computed using the straight-line method. The estimated useful life is assigned using AHA Useful Lives Guidelines. Equipment under capital lease obligations is amortized on the straight-line method over the shorter period of the lease term or the estimated useful life of the equipment. Such amortization is included in depreciation in the financial statements. Depreciation on capital assets purchased from Baptist Health System is computed on the straight-line method, based on the remaining estimated useful lives of the assets as of August 1, 2004, the date the Authority purchased the assets. All capital assets purchased subsequent to August 1, 2004, other than land are depreciated using the straight-line method of depreciation using these asset lives: Land improvements Buildings and building improvements Equipment, computers and furniture 15 to 20 Years 20 to 40 Years 3 to 7 Years 13

30 THE SYLACAUGA HEALTH CARE AUTHORITY NOTES TO FINANCIAL STATEMENTS, July 31, 2017 and Summary of Significant Accounting Policies, Costs of Borrowing Interest cost on borrowed funds during the period of construction of capital assets is capitalized as a component of the cost of acquiring those assets. None of the Authority s interest cost was capitalized in 2017 or Financing Cost Costs incurred in connection with the issuance of long-term debt are expensed in the period incurred. Deferred Outflows of Resources Deferred outflows of resources consist of the unamortized portion of the loss on defeasance for the Series 2005-A Bonds of $2,665,136 at July 31, 2017 and $2,813,199 at July 31, See Note 10 for additional information. Estimated Self-Insurance Cost The provisions for estimated claims under self-insurance plans include estimates of the ultimate costs for both reported claims and claims incurred but not reported. Net Position Net position of the Authority is classified in three components. Net investment in capital assets consist of capital assets net of accumulated depreciation and reduced by the current balances of any outstanding borrowings used to finance the purchase or construction of those assets. Restricted net position are noncapital assets that must be used for a particular purpose as specified by parties external to the Authority, including amounts deposited with trustees, discussed in Note 10. Unrestricted net position is the amount of assets and liabilities that is not included in the determination of net investment in capital assets or restricted net position. 14

31 THE SYLACAUGA HEALTH CARE AUTHORITY NOTES TO FINANCIAL STATEMENTS, July 31, 2017 and Summary of Significant Accounting Policies, Operating Revenues and Expenses The Authority s statement of revenues, expenses and changes in net position distinguishes between operating and nonoperating revenues and expenses. Operating revenues result from exchange transactions associated with providing health care services the Authority s principal activity. Nonexchange revenues, including grants, and contributions received for purposes other than capital asset acquisition, are reported as nonoperating revenues. Operating expenses are all expenses incurred to provide health care services, other than financing costs. Grants and Contributions From time to time, the Authority receives grants and contributions. Revenues from grants and contributions (including contributions of capital assets) are recognized when all eligibility requirements, including time requirements are met. Grants and contributions may be restricted for either specific operating purposes or for capital purposes. Amounts that are unrestricted or that are restricted to a specific operating purpose are reported as nonoperating revenues. Amounts restricted to capital acquisitions are reported after nonoperating revenues and expenses. Compensated Absences The Authority s employees earn time off at varying rates depending on years of service. Earned time off accrues during, and is available for use after, six months of employment. Accrued time off is considered nonvested and is not payable upon termination or resignation. However, accrued time off earned prior to March 2014 is considered vested and is payable upon termination or resignation, provided the employee has given proper notice and has not been terminated for misconduct. Impairment of Long-Lived Assets The Authority evaluates on an ongoing basis the recoverability of its assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment loss to be recognized is the amount by which the carrying value of the long-lived asset exceeds the asset s fair value. In most instances, the fair value is determined by discounted estimated future cash flows using an appropriate interest rate. The Authority has not recorded any impairment charges in the accompanying statements of revenues, expenses and changes in net position for the years ended July 31, 2017 and