Borrego Community Health Foundation

Transcription

1 Audited Financial Statements Borrego Community Health Foundation For The Years Ended June 30, 2017 and 2016

2 Table of Contents Independent Auditor s Report 1 FINANCIAL STATEMENTS Balance Sheets 3 Statements of Operations and Changes in Net Assets 4 Statements of Cash Flows 5 Notes to the Financial Statements 6 SINGLE AUDIT Schedule of Expenditures of Federal Awards 14 Notes to the Schedule of Expenditures of Federal Awards 15 Page 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 16 Independent Auditor s Report on Compliance For Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 18 Schedule of Findings and Questioned Costs 20

3 CHWLLP Healthcare Audit, Tax & Consulting Services 7797 N. First Street #15, Fresno, California Phone: Independent Auditor s Report Board of Directors Borrego Community Health Foundation Borrego Springs, California Report on the Financial Statements We have audited the accompanying financial statements of Borrego Community Health Foundation. (the Organization ), which comprise the balance sheets as of June 30, 2017 and 2016 and the related statements of operations and changes in net assets, 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 of material misstatement. 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, 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. 1

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Borrego Community Health Foundation as of June 30, 2017 and 2016 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Supplementary Information 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, 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 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 information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 30, 2017 on our consideration of the Organization s internal control over financial reporting and on our tests 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 our 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 the Organization s internal control over financial reporting and compliance. CHW, LLP Fresno, California November 30,

5 Balance Sheets June 30, 2017 and Assets Current assets: Cash and cash equivalents $ 4,266,731 $ 4,483,240 Patient accounts receivable, net of allowance for doubtful accounts of $5,000,910 and $3,101,230, respectively 24,401,959 15,563,100 Grants, contracts and other receivables 516, ,045 Inventories 1,263, ,489 Prepaid expenses and other current assets 486, ,098 Total current assets 30,935,573 22,023,972 Deferred compensation 867, ,781 Property and equipment, net 12,884,088 13,733,313 Medical managed care contracts, net 941,223 1,496,797 Deposits 327, ,191 Total assets $ 45,955,644 $ 38,107,054 Liabilities and Net Assets Liabilities: Current liabilities: Capital lease obligation, current portion $ 67,414 $ 119,120 Long-term debt, current portion 562, ,660 Accounts payable and other accrued expenses 9,505,857 6,379,042 Accrued payroll and related liabilities 7,303,213 7,938,704 Estimated third-party payor settlements 1,204,706 2,785,489 Line of credit 2,000,000 - Deferred revenue 76,594 1,563,125 Total current liabilities 20,719,851 19,486,140 Deferred compensation 867, ,781 Deferred rent 1,646,833 1,225,874 Estimated third-party payor settlements - 998,279 Capital lease obligation 4,559 71,973 Long-term debt 754,445 1,181,349 Total liabilities 23,993,300 23,485,396 Net assets: Unrestricted 21,962,344 14,621,658 Total net assets 21,962,344 14,621,658 Total liabilities and net assets $ 45,955,644 $ 38,107,054 See accompanying Notes to the Financial Statements 3

6 Statements of Operations and Changes in Net Assets For the years ended June 30, 2017 and Change in Unrestricted Net Assets: Revenues, gains and other support: Patient and third party revenue, net $ 157,829,650 $ 101,942,744 Capitation revenue 9,279,133 7,522,291 Grant and contract revenue 5,952,225 5,784,588 Contributions 89,861 16,277 Other 582, ,223 Total unrestricted revenue, gains and other support 173,733, ,120,123 Expenses: Salaries 71,548,181 59,850,691 Benefits 24,530,296 17,876,092 Professional fees 50,542,009 23,547,303 Medical supplies and drugs 5,796,475 4,564,175 Travel 799, ,258 Communications 1,450,325 1,128,683 Facilities 9,584,375 8,207,929 Interest 109, ,545 Depreciation and amortization 2,031,179 2,035,749 Total expenses 166,392, ,170,425 Excess (deficit) of revenues over expenses 7,340,686 (2,050,302) Gain on write-off of non-collectible support - 119,316 Change in unrestricted net assets 7,340,686 (1,930,986) Net Assets Beginning of year 14,621,658 16,552,644 End of year $ 21,962,344 $ 14,621,658 See accompanying Notes to the Financial Statements 4

7 Statements of Cash Flows For the years ended June 30, 2017 and Cash flows from operating activities: Change in net assets $ 7,340,686 $ (1,930,986) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 2,031,179 2,035,749 Changes in operating assets and liabilities: Patient accounts receivable (8,838,859) (4,702,081) Grants and contracts receivables 453,316 (521,891) Estimated third-party payor settlements (2,579,062) 3,962,875 Inventories (674,205) (349,063) Prepaid expenses and other current assets (68,362) (213,108) Accounts payable and other accrued expenses 3,126,815 2,362,200 Accrued payroll and related liabilities (635,491) 2,908,272 Deferred revenue (1,486,531) 1,433,893 Deferred rent 420, ,233 Net cash provided by (used in) operating activities (909,555) 5,822,093 Cash flows from investing activities: Acquisition of property and equipment (626,380) (1,476,772) Net cash used in investing activities (626,380) (1,476,772) Cash flows from financing activities: Change in line-of-credit 2,000,000 - Payment of debt (705,166) (760,637) Proceeds from debt borrowings 139, ,645 Payments of capital lease obligations (119,114) (166,147) Net change in deposits 4,043 (58,773) Net cash provided by (used in) financing activities 1,319,426 (844,912) Net increase (decrease) in cash and cash equivalents (216,509) 3,500,409 Cash at beginning of year: 4,483, ,831 Cash at end of year: $ 4,266,731 $ 4,483,240 Supplemental disclosure of cash flows information Cash paid during the year for interest $ 109,776 $ 140,545 Property and equipment acquired under capital leases $ - $ 50,774 See accompanying Notes to the Financial Statements 5

8 Notes to the Financial Statements For the years ended June 30, 2017 and 2016 Note 1: Summary of Significant Accounting Policies Nature of Operations: Borrego Community Health Foundation (the Organization ), primarily generates revenues by providing medical, dental and related healthcare services in San Diego and Riverside Counties, in California. Basis of Accounting: The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Net assets, revenues, and expenses are classified on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows: Unrestricted net assets: Net assets are those currently available for use and are not subject to donorimposed stipulations. Temporarily restricted net assets: Net assets subject to donor-imposed stipulations that may or will be met, either by actions of the Organization and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of operations as net assets released from restrictions. Donor-restricted contributions whose restrictions expire during the same fiscal year are recognized as unrestricted revenue. There were no temporarily restricted net assets as of June 30, Permanently restricted net assets: Net assets subject to donor-imposed stipulations that they be maintained permanently by the Organization. There were no permanently restricted net assets as of June 30, 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. Cash and Cash Equivalents: The Organization considers all liquid investments, other than those limited as to use, with original maturities of three months or less to be cash and cash equivalents. At June 30, 2017 and 2016, $500,000 and $500,000, respectively was insured and $3,766,731 and $3,983,240 was not insured. Patient Accounts Receivable: The Organization reports patient accounts receivable for services rendered at net realizable amounts from third-party payers, patients and others. The Organization provides an allowance for doubtful accounts based upon a review of outstanding receivables, historical collection information and existing economic conditions. As a service to the patient, the Organization bills third-party payers directly and bills the patient when the patient s liability is determined. Patient accounts receivable are due in full when billed. Inventory: The Organization states supply inventories at the lower of cost, determined using the first-in, first-out method, or market. 6

9 Notes to the Financial Statements For the years ended June 30, 2017 and 2016 Note 1: Summary of Significant Accounting Policies (Continued) Property and Equipment: Property and equipment are depreciated on a straight-line basis over the estimated useful life of each asset. The lives of the assets range from 5 years to 30 years. Leasehold improvements are depreciated over the shorter of the lease term or their respective useful lives. The Organization capitalizes asset purchases over $5,000. Donations of property and equipment are reported at fair value as an increase in unrestricted net assets unless use of the assets is restricted by the donor. Monetary gifts that must be used to acquire property and equipment are reported as restricted support. The expiration of such restrictions is reported as an increase in unrestricted net assets when the donated asset is placed in service. Medical Managed Care Contracts: The Organization occasionally acquires the assets of medical practices. As a part of these acquisitions, the Organization records an intangible asset for the medical managed care contracts acquired. These intangible assets are amortized over their useful lives ranging from 5 to 8 years. Net Patient Service Revenue: The Organization has agreements with third-party payers that provide for payments to the Organization at amounts different from its established rates. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered and include estimated retroactive revenue adjustments. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered and such estimated amounts are revised in future periods as adjustments become known. Contributions: Unconditional promises to give cash and other assets are accrued at estimated fair value at the date each promise is received. Gifts received with donor stipulations are reported as either temporarily or permanently restricted support. Excess (Deficiency) of Revenues Over Expenses: The statement of operations includes excess (deficiency) of revenues over expenses. Changes in unrestricted net assets which are excluded from excess (deficiency) of revenues over expenses, consistent with industry practice, include unrealized gains and losses on investments other than trading securities, permanent transfers to and from affiliates for other than goods and services and contributions of longlived assets (including assets acquired using contributions which by donor restriction were to be used for the purpose of acquiring such assets). Income Taxes: The Organization has been recognized as exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and California Revenue and Taxation code Sec 23701d. However, the Organization is subject to federal income tax on any unrelated business taxable income. As of June 30, 2017 and 2016, the Organization had no unrelated taxable income. The Organization s returns are subject to examination by federal and state taxing authorities generally for three years after they are filed. 7

10 Notes to the Financial Statements For the years ended June 30, 2017 and 2016 Note 1: Summary of Significant Accounting Policies (Continued) Reclassification: Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. Subsequent Events: The Organization has evaluated all events and transactions that have occurred after June 30, 2017 and through November 30, 2017, the date of the financial statements and notes to financial statement were available to be issued. During this period no events or transactions occurred that would require adjustments of the financial statements or disclosure in the accompanying notes. Note 2: Net Patient Service Revenue The Organization is an approved Federally Qualified Health Center (FQHC) for both Medicare and Medi- Cal reimbursement purposes. The Organization has agreements with third-party payers that provide for payments to the Organization at amounts different from its established rates. These payment arrangements include: Medicare: Covered services rendered to Medicare program beneficiaries are paid based on a prospective payment system (PPS). Medicare payment under the FQHC PPS are 80% of the lesser of the center's actual charge or the applicable PPS rate (patient coinsurance will be 20% of the lesser of the center's actual charge or the applicable PPS rate). Accordingly, to the extent a center's charge is below the applicable PPS rate, Medicare FQHC reimbursement can be limited. Medi-Cal: Covered FQHC services rendered to Medi-Cal program beneficiaries are paid based on a prospectively determined reimbursement methodology. The Organization is reimbursed a prospectively determined encounter rate for covered services provided. The encounter rate is adjusted annually based on the annual change in the Medicare Economic Index and certain other factors. Certain rates are currently under audit by the State, which could result in changes to encounter rates and thus additional receivables from or liabilities to the state. The outcome of these audits is uncertain, and is not reflected in these financial statements. Approximately 86% and 86% of net patient service revenues are from participation in the Medicare and state-sponsored Medi-Cal programs for the year ended June 30, 2017 and 2016, respectively. Laws and regulations governing the Medicare and Medi-Cal programs are complex and subject to interpretation and change. As a result, it is reasonably possible that recorded estimates will change materially in the near term. The Organization has also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment to the Organization under these agreements includes prospectively determined rates per unit of service and discounts from established charges. 8

11 Notes to the Financial Statements For the years ended June 30, 2017 and 2016 Note 3: Grant Revenue The Organization is the recipient of a Community Health Center Cluster (CHC) 330 Grant from the U.S. Department of Health and Human Services. The general purpose of the grant is to provide expanded health care service delivery in Borrego Springs, California, and surrounding areas. Terms of the grant generally provide for funding of the Organization s operations based on an approved budget. Grant revenue is recognized as qualifying expenditures are incurred over the grant period. For the year ended June 30, 2017 and 2016, the Organization received $4,379,696 and $4,326,014, respectively, in Community Health Center grants from the Department of Health and Human Services, which represents 3% and 4% of the total revenue received. In addition to the CHC grant, the Organization receives additional financial support from other federal, state and private sources. Generally, such support requires compliance with terms and conditions specified in grant applications. Note 4: Concentrations Financial instruments potentially subjecting the Organization to concentrations of credit risk consist primarily of bank deposits in excess of FDIC limits. Management believes, however, that the risk of loss is minimal due to the high financial quality of the banks. The Organization grants credit without collateral to its patients, most of whom are area residents. A portion of these patients are insured under third-party payer agreements. The mix of receivables from patients and third-party payers is: Medicare 4% 6% Medi-Cal 78% 68% Other third-party payers 17% 25% Private pay patients 1% 1% 100% 100% Note 5: Property, Plant and Equipment Land, building and equipment at June 30, 2017 and 2016 was comprised of the following: Land $ 819,557 $ 819,557 Leasehold improvements 3,831,507 3,268,849 Buildings 9,074,694 9,060,913 Equipment 8,072,229 7,538,155 Construction in progress 45, ,727 Subtotal 21,843,581 21,217,201 Accumulated depreciation (8,959,493) (7,483,888) Total $ 12,884,088 $ 13,733,313 Depreciation expense as of June 30, 2017 and 2016 is $1,475,605 and $1,476,425, respectively. 9

12 Notes to the Financial Statements For the years ended June 30, 2017 and 2016 Note 6: Commitments and Contingencies Malpractice Claims: The U.S. Department of Health and Human Services has deemed the Center and its practicing physicians covered under the Federal Tort Claims Act (FTCA) for damage for personal injury, including death, resulting from the performance of medical, surgical, dental and related functions. FTCA coverage is comparable to an occurrence policy without a monetary cap. Operating Leases: The Organization has operating leases expiring at various dates through Total expense in 2017 and 2016, for all operating leases and rental agreements was approximately $4,762,446 and $3,987,724, respectively. Future minimum lease payments under operating leases as of June 30, 2017 that have initial or remaining lease terms for the next five years include: $3,439,522 in 2018, $3,450,161 in 2019, $3,261,114 in 2020, $3,284,725 in 2021, and $2,793,544 in Grant Funding: Continuing program funding from federal and state sources is contingent upon availability of funds and project performance. The funds are awarded on a yearly basis upon receipt and approval of program applications. In addition, expenses made under federal and state grants are subject to review and audit by the grantor agencies. Contingencies: The Organization is party to legal proceedings and claims that arise during the ordinary course of business. In the opinion of management, there are no known claims or incidents that may result in the assertion of additional claims as of the date of this report, and therefore no adverse effect on the Organization's financial statements. The health care industry is subject to numerous laws and regulations of federal, state, and local governments. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time. These laws and regulations include, but are not limited to, accreditation, licensure, government health care program participation requirements, reimbursement for patient services, and Medicare and Medi-Cal fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by health care providers. Violations of these laws and regulations could result in exclusion from government health care program participation, together with the imposition of significant fines and penalties, as well as significant repayment for past reimbursement for patient services received. While the Organization is subject to similar regulatory reviews, there are no reviews currently underway, and management believes that the outcome of any potential regulatory review will not have a material adverse effect on the Organization's financial position. 10

13 Notes to the Financial Statements For the years ended June 30, 2017 and 2016 Note 7: Long-term Debt Long-term debt consists of the following at June 30, 2017 and 2016: The Organization financed the purchase of a physician practice through a note for $2,299,181. The seller was and continues to be an officer of the Organization. Note payable in monthly installments of $29,167, interest rate at 5.0%, matures February 15, $ 228,998 $ 558,535 City National Bank loan for $610,000 at 5.06% interest. The loan is payable in monthly installments of $11,534, which includes principal and interest. The note matured December 2016 and is secured with the Organization s assets. - 67,091 Auto loans at 0% to 9.4% interest payable in monthly installments. Loans expire at various times through , ,673 The Organization financed the build-out of leased property with a note of $799,493 to the owner of the property. The note is payable in monthly installments of $10,134, interest rate at 7.0%, matures March 1, , ,306 The Organization financed the purchase of a physician practice through a note of $500,000. The seller became an employee of the Organization. Notes payable in monthly installments of $9,438, interest rate of 5.0%, matures March 3, , ,404 Total long-term debt $ 1,316,512 $ 1,882,009 Less: current portion (562,067) (700,660) $ 754,445 $ 1,181,349 The Organization has a line-of-credit with a bank in the amount of $3,000,000. At June 30, 2017 and 2016 the Organization had an outstanding balance of $2,000,000 and $0, respectively. Future principal payments are as follows for the years ended June 30: Year Principal 2018 $ 562, , , , ,242 Thereafter 1,027 Total $ 1,316,512 11

14 Notes to the Financial Statements For the years ended June 30, 2017 and 2016 Note 8: Capital Leases The Organization leases equipment under capital leases expiring at various times through Depreciation of the equipment under capital leases is included in depreciation expense. The future minimum payments required under the leases with their present value as of June 30, 2017: 2018 $ 69, ,601 Subtotal 73,997 Less: amount representing interest (2,024) Present value of net minimum lease payments 71,973 Less: current maturities (67,414) Obligations under capital leases - net $ 4,559 Note 9: Functional Expenses The Organization provides health care services primarily to residents within its geographic area. Expenses related to providing these services are as follows: Health care and other services $ 137,347,136 $ 94,211,382 General and administrative 29,045,424 23,959,043 $ 166,392,560 $ 118,170,425 Note 10: Related Party Transaction During the year end June 30, 2016, the Organization purchased a parcel of land in Borrego Springs from a member of the Board of Directors to build additional administrative offices. The amount of the purchase was $400,000. Note 11: Estimated Third-Party Payor Settlements Medicare and Medi-Cal reimburse the Organization at a tentative rate with a final settlement determined after the audit of the annual cost report submitted by the Organization. Depending on the result of the audit, the Organization might be obligated to refund part of the reimbursement to Medicare and Medi-Cal or vice versa. The Organization has recorded an estimated liability from third-party payors at June 30, 2017 and 2016 of $1,204,706 and $3,783,768, respectively. Cost reports from 2008 through 2016 are open and currently under audit by Medi-Cal. 12

15 SINGLE AUDIT REPORTS 13

16 Schedule of Expenditures of Federal Awards For the year ended June 30, 2017 Federal CFDA Pass-Through Federal Grant / Program Title Number Identification Expenditures U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, PUBLIC HEALTH SERVICES: Direct Programs: Community Health Center Cluster, Section * N/A $ 4,379,696 ACA PCMH Anza N/A 138,401 Subtotal 4,518,097 Passed Through: San Bernardino County Ryan White Part A N/A 11,865 UCSD NIH Tes Research N/A 5,770 Total federal financial assistance $ 4,535,732 * Denotes major program See accompanying Notes to the Schedule of Expenditures of Federal Awards 14

17 Notes to Schedule of Expenditures of Federal Awards For the year ended June 30, 2017 Note A: Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (the Schedule ) summarizes the expenditures of Borrego Community Health Foundation (the Organization ) under programs of the federal government for the year ended June 30, The information in this Schedule is presented in accordance with the 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). Because the Schedule presents only a selected portion of the operations of the Organization, it is not intended to, and does not, present the financial position, changes in net assets, or cash flows for the Center. Note B: Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. The Organization elected not to use the de minimis cost rate because it has a negotiated indirect cost rate in place. 15

18 CHWLLP Healthcare Audit, Tax & Consulting Services 7797 N. First Street #15, Fresno, California Phone: 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 Borrego Community Health Foundation Borrego Springs, California We have audited, 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, the financial statements of Borrego Community Health Foundation (the Organization ), which comprise the balance sheets as of June 30, 2017 and 2016 and the related statements of operations and changes in net assets, and cash flows for the years then ended, and the related notes to the financial statements, and have issued our report thereon dated November 30, Internal Control Over Financial Reporting In planning and performing our audit, we considered Borrego Community Health Foundation 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 of Organization s internal control. Accordingly, we do not express an opinion on the effectiveness of Organization s internal control. 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 Organization 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 16

19 Compliance and Other Matters As part of obtaining reasonable assurance about whether Borrego Community Health Foundation financial statements are free from 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. 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 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. CHW, LLP Fresno, California November 30,

20 CHWLLP Healthcare Audit, Tax & Consulting Services 7797 N. First Street #15, Fresno, California Phone: Report on Compliance For Each Major Federal Program And Report on Internal Control Over Compliance Required by the Uniform Guidance Independent Auditor s Report Board of Directors Borrego Community Health Foundation Borrego Springs, California Report on Compliance for Each Major Federal Program We have audited Borrego Community Health Foundation (the Organization ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Organization s major federal programs for the year ended June 30, The Organization 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 Our responsibility is to express an opinion on compliance for each of the Organization 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). 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 Organization 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 Organization s compliance. 18

21 Opinion on Each Major Federal Program In our opinion, Borrego Community Health Foundation complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of Borrego Community Health Foundation 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 Organization 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 Organization 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. 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. We did not identify any deficiencies in internal control over compliance that we 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 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. CHW, LLP Fresno California November 30,

22 Schedule of Findings and Questioned Costs For the year ended June 30, 2017 I. Summary of Auditor s Results Financial Statements Type of auditor s report issued Internal Control over financial reporting: Material weakness identified? Significant deficiency(ies) identified that are not considered to be material weaknesses? Noncompliance material to financial statements noted? Federal Awards Internal control over major programs: Material weakness identified? Unmodified yes yes yes yes X no X None Reported X no X no Significant deficiency(ies) identified that are not considered to be material weaknesses? Type of auditor s report issued on compliance for major programs: Unmodified yes X None Reported Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? yes X no Major Programs CFDA Number Community Health Center Cluster, Section Dollar threshold used to distinguish Types A and B programs $ 750,000 Auditee qualified as low-risk auditee? X yes no 20

23 Schedule of Findings and Questioned Costs (continued) For the year ended June 30, 2017 II. Financial Statement Findings None Reported III. Federal Award Findings And Questioned Costs None Reported 21