The Salem Memorial Hospital Board of Directors met Feb. 20 for a regular board meeting.
Jean Nyberg, of FORVIS, presented the 2023 annual audit report.
Nyberg has done the audit report for SMH for about 10 years. She shared a review of the audit, currently in draft form.
“As of the date we issued the report, we have concerns that you will not be able to cashflow operations for another 12 months. That is the same as last year. And part of the reason for that is you are out of compliance with your debt covenants. And so technically all of that debt is shown as current on your financial statements,” shared Nyberg.
The balance sheet was discussed with total cash decreasing about $3 million, year over year, related to sustained operating losses; $1,572,828 in 2023, compared to $4,514,841 in 2022.
“Bad debt allowance did go down. We have validated that number with cash collection, so that number is much higher than last year,” said Nyberg.
“You've had more volume, but also you are doing a little bit better job of collecting. We have validated that amount with cash collections. So, we don't have concerns even though that number is higher,” she said.
Liabilities were presented next. Nyberg shared total maturities of long-term debt increased to $2.229 million versus $252,000 in 2022.
“The entire bond is outstanding, which is a little over $2.1 million, is listed as current because you're out of compliance. Technically, the bank could call that debt. However, at this point, they're just charging you a higher rate of interest which is very common, when you're out of compliance,” said Nyberg.
Nyberg then referred to Doug Hoban.
“The original bond interest rate was 2.77. With the noncompliance, the requirement is to take it up 3 percent, that will be 5.77 percent, that equates to about $3,000,” said Hoban.
The non-compliance is related to ongoing losses so the debt covenant cannot be passed. The bond was taken out in 2020, this is the second year of noncompliance. The bond was related to capital improvement projects and the new MRI machine.
“Operations did get better over 2022. Operating loss did decrease - so you did better this year - $3.4 million versus $4.6,” said Nyberg.
Overall, year-end loss is $2.3 million. A preliminary report in December estimated a $2.5 million loss.
“I always think the statement of cash flows is very important, because this is really showing where all of your cash flow year over year. The top line, I think, is always the most important - net cash used in operating activities. That is essentially the cash you earn or use in your core business operations. We want that to be a positive number because you want to be able to cash flow from core operations. It is negative at $2.5 million. That’s an improvement but still negative,” shared Nyberg.
Leases entered into near the beginning of 2023 have increased, to the tune of around $700,000.
Nyberg continued her presentation on the audit.
“I think because of the lack of the accounting personnel throughout the year, there were still quite a few adjustments that were made and the books were continued to be that, that not everything. was reconciled. It was pretty messy,” she shared.
Identified deficiencies were presented in writing to the board.
The statement showed:
• FORVIS identified certain deficiencies in internal control that it considers to be material weaknesses and other deficiencies that are considered to be significant deficiencies.
• Material Weakness - Overall Financial Reporting. During the year ended June 30, 2023, monthly reconciliations were not prepared, including reconciliations for the operating cash account. In addition, some journal entries did not appear to have appropriate documentation to substantiate the entries that were recorded during the month end close process. Inventory processes were changed during the fiscal year, and as a result some inventory counts were not taken at year-end. We recommend management review the monthly reconciliation process, staffing and other changes that may be necessary within the finance department to help the organization prepare monthly financial statements that are accurate and within generally accepted accounting principles.
• Significant Deficiencies. Segregation of accounting duties is an essential element of effective internal controls, involving the separation of custody of assets from related recording and monitoring of transactions. To reduce the possibility of errors or fraud going undetected in the normal course of business, we encourage you to limit, to the extent possible, performance of incompatible duties. Segregation of duties issues with cash outflows involving accounts payable CRO and payroll accountant.
• Deficiencies. Several miscellaneous withheld accounts that need reconciled regularly. RHC controls involving segregation of duties from access to cash, posting and adjustments. Charges posted are not reconciled. Payroll segregation of duties issues with HR Manager, Payroll, and CFO. In addition, we orally communicated to management other deficiencies in internal control identified during our audit that are not considered material weaknesses or significant deficiencies.
“This organization has a limited amount of people, so they have conflicting duties. There's not enough people to spread around the duties and accounting and in the revenue cycle to mitigate all of the risks there that is not dissimilar to other organizations your size, but it's something that we want the board to be aware of,” she concluded.
“I do think some things have been worked on more timely, but I do have concerns, you're still not doing reconciliations on all balance sheet accounts every month. There’s still a lack of staff in accounting,” said Nyberg. “We are seeing improvement in the cash collections process.”
“I like to look at cash. It doesn't tell you the whole story, but it sure is a good indicator. A lot of times you can start to tell if there are issues in receivables if your cash is not consistent. Overall, it should be pretty consistent,” she said in closing.
Also at the meeting:
• 340B Pharmacy Revenue showed a loss of $6,236. A reconciliation was completed and adjusts for obsolete or expired inventory. The last reconciliation by the third party was estimated to be in 2021, shared Hoban.
• The certificate of deposits are gaining 5.35 percent from the new term beginning in November 2023. Three CDs totaling $400,000 are still set to mature in 2025, and are earning .7 percent interest compared to 5.35 percent on the current 12-month CDs.
Hoban shared, “the consideration of investing these again, with the penalty for early withdrawal, is on the radar.”
Days cash on hand totaled 26 at the end of January, down from the average of 34 in fiscal year 2023. However, it was around 30 the day of the Feb. 20 meeting.
• Chief nursing officer Ashley Owen reported that several classes are doing clinicals at the hospital and acute care nurses for nights are still needed.
• In the human resources report, four joined as new hires, and 19 left employment. The main numbers in the total of 19 include 11 PRN who were adjusted off the schedule.
Recruitment and avenues of recruitment were discussed, including the online job site, Indeed.
Edwards reported that as of that afternoon, a check for half of the state funding was received for about $438,213.77.
• In new business, Moser discussed a need for an updated long and short-term strategic plan.
“We don’t have to do some big plan with a contractor – we need to set goals,” he said. The last plan was completed in 2022. Discussions with departments and employees were mentioned, as well as other avenues to identify measurable goals going forward.
• inpatient census days were down for the month of January, med/surg days only totaled 96, down from 225 budgeted.
• outpatient registrations were down to 1,367 from 1,495 budgeted. Registrations averaged over 1,440 in the past two fiscal years.
• total assets for the current fiscal year are down $1.6 million
• the clinic brought in $344,171 in the month of January, up from the budgeted amount and the prior year; and ended with a net loss of $26,116.52.
• beginning cash in January totaled $212,210 which includes tax levy funds.
