Cleveland Area Hospital Trust Authority A component unit of the … · 2020-07-29 · eidebailly.com Management’s Discussion and Analysis and Financial Statements December 31, 2019

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Management’s Discussion and Analysis

and Financial Statements

December 31, 2019 and 2018

Cleveland Area Hospital Trust Authority

A component unit of the City of

Cleveland, Oklahoma

Cleveland Area Hospital Trust Authority Table of Contents


Independent Auditor’s Report ............................................................................................................................. 1

Management’s Discussion and Analysis ............................................................................................................... 3

Financial Statements

Statements of Net Position .............................................................................................................................11

Statements of Revenues, Expenses and Changes in Net Position.....................................................................13

Statements of Cash Flows ...............................................................................................................................14

Notes to Financial Statements ........................................................................................................................16

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 ...........................................................................................................................................................38

Schedule of Findings and Responses ...............................................................................................................40

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Independent Auditor’s Report

Board of Trustees


Cleveland, Oklahoma

Report on the Financial Statements

We have audited the accompanying financial statements of Cleveland Area Hospital Trust Authority

(Authority), a component unit of the City of Cleveland, Oklahoma, which comprise the statements of net

position as of December 31, 2019 and 2018, and the related statements of revenues, expenses, and

changes in net position and statements of cash flows for the years then ended, and the related notes to

the financial statements, which collectively comprise the Authority’s basic 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.

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.

2

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the

financial position of Cleveland Area Hospital Trust Authority, a component unit of the City of Cleveland,

Oklahoma, as of December 31, 2019 and 2018, and the results of its operations, changes in net position,

and cash flows for the years then ended in accordance with accounting principles generally accepted in

the United States of America.

Emphasis of Matter Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Authority will continue as

a going concern. As discussed in Note 14 to the financial statements, the Authority has suffered recurring

loss from operations and has a net deficit. These conditions raise substantial doubt about its ability to

continue as a going concern. Management’s plans in regard to these matters are also described in Note

14. The financial statements do not include any adjustments that might result from the outcome of this

uncertainty. Our opinion is not modified with respect to that matter.

Correction of Errors

As discussed in Note 13 to the financial statements, errors resulting in an understatement of capital

assets, understatement of estimated third party payor settlement lability, understatement of long-term

debt, overstatement of net patient service revenue, understatement of depreciation expense,

overstatement of other expenses, understatement of interest expense, overstatement of net position,

understatement of cash flows used for operating activities, and understatement of cash flows used for

capital and related financing activities were discovered by management of the Authority during the

current year. Accordingly, the 2018 financial statements have been restated for the error corrections.

Our opinion is not modified with respect to that matter.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s

discussion and analysis on pages 3 through 10 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.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated July 21, 2020

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, and grant agreements and other

matters. The purpose of that report is solely 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

effectiveness of the Authority’s 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.

Oklahoma City, Oklahoma

July 21, 2020

3

Cleveland Area Hospital Trust Authority Management’s Discussion and Analysis

Introduction

The discussion and analysis of the financial performance for Cleveland Area Hospital Trust Authority (Authority)

provides an overview of the Authority’s financial activities and balances as of and for the fiscal years ended

December 31, 2019, 2018 and 2017. The intent of this discussion and analysis is to provide further information

on the Authority’s performance as a whole; readers should also review the basic financial statements and the

notes thereto to enhance their understanding of the Authority’s financial status.

Financial Highlights

• Total Operating Revenue increased in 2019 by $1.5M or 11% and increased in 2018 by $0.7M or 6%.

• Total assets increased in 2019 by $2.1M or 32% and decreased in 2018 by $0.9M or 12%.

o In 2019, accounts receivable increased $0.6M, driven by a 26% increase in census and

implementation of a new Electronic Medical Record (EMR) system (short-term increases in

patient receivables are expected with system conversions).

• Total liabilities increased in 2019 by $2.9M or 46% and decreased in 2019 by $0.8M or 12%.

o In 2019, $0.5M of this increase was related to EMR implementation costs.

• The Authority reported an operating loss of $1M in 2019 and $0.3M in 2018.

Using This Annual Report

The Authority’s financial statements consist of three statements – Statement of Net Position, 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 including resources held by the Authority

but restricted for specific purposes by contributors, grantors, or enabling legislation. The Authority is accounted

for as a business-type activity and presents its financial statements using the economic resources measurement

focus and the accrual basis of accounting.

The Statement of Net Position and Statement of Revenues, Expenses and Changes in Net Position

One of the most important questions asked about the Authority’s finances is, “Is the Authority as a whole better

or worse off because of the year’s activities?” The Statements of Net Position and the Statements of Revenues,

Expenses, and Changes in Net Position reports information about the Authority resources and its activities in a

way that helps answer this question. These Statements include all restricted and unrestricted assets and all

liabilities using the accrual basis of accounting. All the current year’s revenues and expenses are taken into

account regardless of when cash is received or paid.

These two statements report the Authority’s net position and changes in them. You can think of the Authority’s

net position – the difference between assets and liabilities – as one way to measure the Authority’s financial

health, or financial position. Over time, increases in the Authority’s net position are one indicator of whether its

financial health is improving or deteriorating. The reader will need to consider other nonfinancial factors, such

as changes in the Authority’s patient base and measures of the quality of services it provides the community, as

well as local economic factors to assess the overall health of the Authority.

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The Statement of Cash Flows

The final required statement is the statement of cash flows. The statement reports cash receipts, cash

payments, and net changes in cash resulting from operations, investing and financing activities. It provides

answers to such questions as where did cash come from, what was cash used for and what was the change in

cash balance during the reporting period.

The Authority’s Net Position

The Authority’s net position is the difference between its assets and liabilities reported in the statement of net

position. The Authority’s net position decreased by $0.8M or 228% in 2019 and $0.1M or 18% in 2018 as shown

below in Table 1.

Table 1: Assets, Liabilities and Net Position 2019 2018 2017

AssetsCurrent assets 3,055,196$ 2,151,068$ 2,693,620$ Noncurrent investments - 847 847 Capital assets, net of accumulated depreciation 5,827,392 4,585,545 4,943,341 Other noncurrent assets - - 14,192

Total assets 8,882,588$ 6,737,460$ 7,652,000$

LiabilitiesCurrent liabilities 4,182,001$ 2,631,886$ 5,540,471$ Noncurrent liabilities 5,144,144 3,759,405 1,688,823

Total liabilities 9,326,145 6,391,291 7,229,294

Net Position (Deficit)Net investment in capital assets 1,935,094 1,956,688 2,065,519 Unrestricted (2,378,651) (1,610,519) (1,642,813)

Total net position (deficit) (443,557) 346,169 422,706

Total liabilities and net position (deficit) 8,882,588$ 6,737,460$ 7,652,000$

A significant component of the change in the Authority’s assets, liabilities, and net position is the change in cash,

patient receivables, capital assets, long-term debt, accounts payable, and accrued expenses. Cash and cash

equivalents increased $0.2M or 45% in 2019 and decreased $0.2M or 29% in 2018. Patient receivables increased

$0.6M or 46% in 2019 and increased $0.3M or 23% in 2018. Capital assets increased $1.2M or 27% in 2019 and

decreased $0.4M or 7% in 2018. Long-term debt increased $1.2M or 30% in 2019 and decreased $0.4M or 9% in

2018. Accounts payable increased $0.4M or 80% in 2019 and decreased $0.2M or 22% in 2018. Accrued

expenses increased $0.5M or 66% in 2019 and increased $0.3M or 44% in 2018.

5


Table 2: Operating Results and Changes in Net Position

2019 2018 2017

Operating RevenuesNet patient service revenue 14,467,065$ 12,843,584$ 12,067,110$ Other operating revenue 189,445 330,846 357,434

Total operating revenue 14,656,510 13,174,430 12,424,544

Operating ExpensesSalaries, wages, and employee benefits 10,641,394 9,183,526 8,158,889 Supplies and other 4,363,420 3,882,109 3,599,216 Depreciation and amortization 618,016 415,063 271,265

Total operating expenses 15,622,830 13,480,698 12,029,370

Operating Income (Loss) (966,320) (306,268) 395,174

Nonoperating Revenues (Expenses)City appropriations 543,578 569,899 459,319 Grants and contributions 11,635 9,431 10,162 Investment income 3,210 1,922 2,879 Interest expense (381,829) (351,521) (308,118) Gain on forgiveness of debt - - 214,490

Nonoperating revenues, net 176,594 229,731 378,732

Revenues in Excess of (Less Than) Expenses andChange in Net Position (789,726) (76,537) 773,906

Net Position (Deficit), Beginning of Year 346,169 422,706 (351,200)

Net Position (Deficit), End of Year (443,557)$ 346,169$ 422,706$

Operating Results

The first component of the overall change in the Authority’s net position is its operating results. Generally, the

operating income or loss is the difference between net patient service and other operating revenues and the

expenses incurred to perform those services. The Authority had an operating loss of $1.0M in 2019.

• Net patient service revenue increased $1.6M or 13% in 2019 due to an increase of 26% in the average

daily census for the hospital, and an increase of 24% in patient visits in the Clinic. Net patient service

revenue increased $0.8M or 6% in 2018, due to an increase of 5% in the average daily census for the

hospital, and an increase of 51% in patient visits in the Clinic.

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• Salaries, wages, and employee benefits increased $1.5M or 16% in 2019 due to increased provider time

in the clinic, the addition of 24/7 respiratory therapy in the hospital, additional FTE in Access, Dietary

and Radiology to support patient volume, and a 13% increase in the cost of employee benefits primarily

driven by increased health insurance cost. Salaries, wages, and employee benefits increased $1.0M or

13% in 2018.

Nonoperating Revenues and Expenses

Nonoperating revenues and expenses consist primarily of city appropriations and interest expense. City

appropriations decreased $26K or 5% in 2019 and increased $0.1M or 24% in 2018. Interest expense increased

$30K or 9% in 2019 and increased $43K or 14% in 2018.

The Authority’s Cash Flows

The Authority’s overall liquidity increased during the year with an increase to cash and cash equivalents of

$0.2M or 45% in 2019 and decreased $0.2M or 29% in 2018. Cash flows from operating activities increased by

$0.6M or 1,115% during 2019 and decreased by $0.5M or 90% during 2018. This was due primarily to the

increase in receipts from and on behalf of patients during 2019. Cash used for capital and capital related

financing activities increased by $0.3M or 60% in 2019 and decreased by $32K or 6% during 2018. Cash from

noncapital financing activities increased by $72K or 29% in 2019 and decreased by $0.1M or 21% during 2018.

Cash from investing activities increased by $1K or 67% in 2019 and decreased by $1K or 33% in 2018.

Capital Assets

At the end of 2019, the Authority had $5.8M invested in capital assets, net of accumulated depreciation, as

detailed in Note 4 to the financial statements. In 2019, the Authority purchased new capital assets costing

$1.8M. New equipment acquired in 2019 included 3D Mammography, Electronic Medical Records (EMR) system,

Boiler/Chiller, Vitals machines, Lab equipment, and a new emergency department EKG. At the end of 2018, the

Authority had $4.6M invested in capital assets, net of accumulated depreciation. In 2018, the Authority

purchased new capital assets costing $0.1M.

Debt

The Authority had $6.4M in notes payable, capital leases and Medicare extended repayments at the end of 2019

and $4.5M at the end of 2018, as detailed in Note 6 to the financial statements. The Authority incurred $2.8M

for capital leases and Medicare extended repayments during the year ending December 31, 2019. The Authority

incurred $0.5M for Medicare extended repayments for the year ending December 31, 2018.

7


Going Concern

Management’s response is in compliance with the Governmental Accounting Standards Board Codification

Section 2250: Additional Financial Reporting Considerations, which requires that when there are conditions or

events that raise substantial doubt about the Authority’s ability to continue as a going concern, for a reasonable

period of time, management must disclose:

• Conditions or events that raised substantial doubt

• Management’s evaluation of the significance of those conditions or events

• Management’s plans that alleviate substantial doubt

‘Reasonable period of time’ is defined as one year beyond the financial statement date.

Conditions or Events that raised substantial doubt

• The expenses in excess of revenues of $0.8M in 2019 resulting in a net deficit of ($0.4M)

• COVID-19 pandemic in 2020

Managements Evaluation of the significance of those events

The expenses in excess of revenues of $0.8M in 2019 resulting in a net deficit of ($0.4M) – In June of 2018,

management recommended, and the Board approved, an EMR conversion. Limitations on the previous EMR

created significant risk for the Authority, with regard to both the Medicare Cost Report and the financial

statements. As a result, taking on the financial burden of an EMR conversion was considered necessary for the

long-term health of the Authority. The new EMR Go-Live occurred June 2019. The duplication of software

expenses for 6 months and the new EMR consulting/travel expenses during the conversion process contributed

an unfavorable expense of $0.5M to 2019. The expense burden incurred in 2019 for the system conversion is

not an ongoing issue.

COVID-19 pandemic in 2020 – The uncertainty of the impact of the COVID-19 pandemic has also contributed the

Authority’s ability to continue as a going concern. Patient volumes in all areas of the organization declined

materially during March through May of 2020. As of June 2020, patient volumes have returned to pre-COVID-19

levels.

Overall – A material favorable change in organization management occurred in early 2015, and both the clinical

and financial performance of the Authority has been on a consistent upward trend for 4 years. Average year-

over-year revenue growth from 2015 through 2019 is 7.8%.

8


Notes on Revenue Trend Table, Net Revenue Graph, Net Income Graph

• The Authority has improved Net Equity $0.9M over the past 5 years.

• Improvement has been organic, without any infusion of capital to support the growth of the

organization.

• The Authority has purchased $1M in new medical equipment (CT, 3D Mammography, Digital X-Ray) over

the past 3 years, enabling quality of care to move forward a decade.

• Monthly patient volume in the Clinic has increased over 100% from 2017 to 2020.

• The average daily census has increased 100% from 2015 to 2020.

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total Operating Revenue 9.5 M 11.1 M 12.8 M 12.4 M 12.0 M 13.3 M 10.8 M 11.5 M 12.4 M 13.2 M 14.7 M

Total Operating Expense 11.3 M 11.9 M 13.6 M 12.1 M 12.7 M 15.2 M 11.8 M 11.1 M 12.0 M 13.5 M 15.6 M

Revenues in Excess of (Less than) Expenses (1.3 M) (0.4 M) (0.7 M) 0.3 M (0.4 M) (1.4 M) (0.8 M) 1.0 M 0.8 M (0.1 M) (0.8 M)

and Change in Net Position

Net Position, end of year 2.1 M 1.6 M 1.0 M 1.3 M 0.9 M (0.5 M) (1.3 M) (0.3 M) 0.4 M 0.3 M (0.4 M)

2009-2014 decrease (3.4 M)

2016-2019 increase 0.9 M

9.0 M

10.0 M

11.0 M

12.0 M

13.0 M

14.0 M

15.0 M

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total Operating Revenue

Total Operating Revenue Linear (Total Operating Revenue)

(2.0 M)

(1.0 M)

-

1.0 M

2.0 M

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenue in Excess of (Less than) Expenses and Change in Net Position

Revenues in Excess of (Less than) Expenses Linear (Revenues in Excess of (Less than) Expenses)

9


Management’s Plans that Alleviate Substantial Doubt

The current Board of Trustees, the management team, and the staff have successfully executed a significant

cultural and financial turnaround, over the past five years. The documented Strategic Vision of the Authority

includes:

• Preserve organizational culture and stability

• Expand primary care clinics

• Cultivate partnerships with larger health systems

• Increase financial sustainability

• Develop workforce with training and recruiting

• Pursue facility expansion and replacement

• Expand services

The Authority has achieved progress and success in all of the seven elements of the Strategic Vision, and is in

focused pursuit of expanding services, the construction of a surgery facility, the construction of Primary Care

Rural Health Clinics in surrounding communities, and the long-term pursuit of new construction for the core

hospital facility.

Initiatives Scheduled for Fiscal Year 2020

• Strategic review of payer contracts and patient receivables turnover, to increase payer yields and

current cash flow.

• Debt refinancing to improve cash flow and support feasibility study for construction of surgery facility.

• Filing of 2020 interim Medicare cost report, as 2020 volume, payer mix and expenses as of May YTD are

showing a balance of $0.9M due from Medicare.

• Submission of a second USDA grant request to secure additional capital.

• Continued focus becoming a Regional Healthcare Center, allied with larger health systems.

Conclusion

We must point to the rapid turnaround of both the financial stability and the culture of the Authority. The

Authority continues to improve. From Management’s perspective, the plans noted above will alleviate the

substantial doubt. This confidence is supported by:

1) Positive trajectory of financial statements from 2015 to 2019.

2) Measurable improvements from 2015 include favorable increases in Revenue, a favorable increase in

net position, a favorable decrease in accounts payable, and favorable increases in patient volumes.

3) Stability and commitment of management team over the past five years.

4) Material, significant investments and improvements implemented in 2016-2020. Full replacement of IT

and Phone infrastructure in 2017. Replacement of 100% of computer workstations and laptops in 2017.

64-slice CT, digital X-Ray in 2018. 3D Mammography and EMR in 2019. Portable digital X-Ray in the first

half of 2020.

5) 2018 – successful recruiting of 2 full-time physicians and 1 physician assistant in the Clinic.

6) 2019 – successful recruiting of a medical director for the Emergency Department.

10


7) Paycheck Protection Program funding received, which offsets the negative impact of impaired patient

volume during March through May of 2020, in parallel with the COVID-19 pandemic.

8) CARES Act Stimulus funding received, which offsets the negative impact of impaired patient volume

during March through May of 2020, in parallel with the COVID-19 pandemic.

Contacting the Authority’s Financial Management

This financial report is designed to provide our patients, suppliers, taxpayers, and creditors with a general

overview of the Authority’s finances and to show the Authority’s accountability for the money it receives. If you

have questions about this report or need additional financial information, contact Cleveland Area Hospital Trust

Authority, 1401 W Pawnee St, Cleveland, OK 74020.

See Notes to Financial Statements 11

Cleveland Area Hospital Trust Authority Statements of Net Position


2019 2018

RestatedAssets

Current AssetsCash and cash equivalents 713,985$ 492,503$ Receivables

Patient, net of estimated uncollectibles of approximately $5,773,000 in 2019 and $3,860,000 in 2018 2,054,656 1,408,552

City appropriations 96,086 96,276Other 842 -

Supplies 172,020 129,674 Prepaid expenses 17,607 24,063

Total current assets 3,055,196 2,151,068

Other long-term investments - 847

Capital Assets Capital assets not being depreciated 79,717 79,717 Capital assets being depreciated, net 5,747,675 4,505,828

Total capital assets 5,827,392 4,585,545

Total assets 8,882,588$ 6,737,460$


Cleveland Area Hospital Trust Authority Statements of Net Position


2019 2018

RestatedLiabilities and Net Position (Deficit)

Current LiabilitiesCurrent maturities of long-term debt 696,884$ 585,231$ Current maturities of extended repayment schedule 598,885 123,257 Accounts payable

Trade 1,024,114 570,492 Estimated third-party payor settlements 482,970 521,127

Accrued expenses 1,379,148 831,779

Total current liabilities 4,182,001 2,631,886

Noncurrent liabilitiesLong-term debt, less current maturities 4,469,928 3,400,649 Extended repayment schedule, less current maturities 674,216 358,756

Total noncurrent liabilities 5,144,144 3,759,405

Total liabilities 9,326,145 6,391,291

Net Position (Deficit)Net investment in capital assets 1,935,094 1,956,688 Unrestricted (2,378,651) (1,610,519)

Total net position (deficit) (443,557) 346,169

Total liabilities and net position (deficit) 8,882,588$ 6,737,460$


Cleveland Area Hospital Trust Authority Statements of Revenues, Expenses and Changes in Net Position

Years Ended December 31, 2019 and 2018

2019 2018

RestatedOperating Revenues

Net patient service revenue (net of provision for bad debts of $2,978,100 in 2019 and $3,095,518 in 2018) 14,467,065$ 12,843,584$

Other revenue 189,445 330,846

Total operating revenues 14,656,510 13,174,430

Operating ExpensesSalaries, wages and employee benefits 10,641,394 9,183,526Other 4,363,420 3,882,109Depreciation and amortization 618,016 415,063

Total operating expenses 15,622,830 13,480,698

Operating Loss (966,320) (306,268)

Nonoperating Revenues (Expenses)City appropriations 543,578 569,899Grants and contributions 11,635 9,431Investment income 3,210 1,922Interest expense (381,829) (351,521)

Net nonoperating revenues 176,594 229,731

Expenses in Excess of Revenues andChange in Net Position (789,726) (76,537)

Net Position, Beginning of Year 346,169 422,706

Net Position (Deficit), End of Year (443,557)$ 346,169$


Cleveland Area Hospital Trust Authority Statements of Cash Flows


2019 2018

RestatedOperating Activities

Receipts from and on behalf of patients 14,573,892$ 12,688,889$ Payments to suppliers and contractors (3,953,132) (4,046,403) Payments to and on behalf employees (10,094,025) (8,928,593) Other receipts and payments, net 189,450 345,038

Net Cash from Operating Activities 716,185 58,931

Noncapital Financing ActivitiesInterest paid on long-term debt (126,486) (188,882) Principal paid on long-term debt (106,892) (90,835) Noncapital grants and contributions 11,635 9,431 City appropriations received 543,768 519,657

Net Cash from Noncapital Financing Activities 322,025 249,371

Capital and Related Financing ActivitiesInterest paid on long-term debt (247,899) (171,709) Principal paid on long-term debt (566,223) (315,272) Purchases of capital assets (127,315) (25,267) Proceeds from the issuance of long-term debt 121,499 -

Net Cash used for Capital and Related Financing Activities (819,938) (512,248)

Investing ActivitiesInvestment income received 3,210 1,922

Net Change in Cash and Cash Equivalents 221,482 (202,024)

Cash and Cash Equivalents, Beginning of Year 492,503 694,527

Cash and Cash Equivalents, End of Year 713,985$ 492,503$


Cleveland Area Hospital Trust Authority Statements of Cash Flows


2019 2018

RestatedReconciliation of Operating Loss to Net Cash

from Operating ActivitiesOperating loss (966,320)$ (306,268)$ Adjustments to reconcile operating loss to net cash

from operating activitiesDepreciation and amortization 618,016 415,063 Provision for bad debts 2,978,100 3,095,518

Changes in assets and liabilitiesPatient receivables (3,624,204) (3,359,091) Estimated third-party payor settlements (38,157) 1,192,202 Other receivables 5 - Supplies (42,346) (16,394) Prepaid expenses 6,456 (338) Other assets - 14,192 Extended repayment schedule 791,088 (1,083,324) Accounts payable 453,622 (156,632) Accrued expenses 539,925 264,003

Net cash from operating activities 716,185$ 58,931$

Supplemental Disclosure of Noncash Activities

Capital assets financed through capital lease arrangement 1,732,548$ 32,000$

16

Cleveland Area Hospital Trust Authority Notes to Financial Statements


Note 1 - Organization and Significant Accounting Policies

The financial statements of the Cleveland Area Hospital Trust Authority (Authority) have been prepared in

accordance with generally accepted accounting principles in the United States of America. The Governmental

Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental

accounting and financial reporting principles. The significant accounting and reporting policies and practices

used by the Authority are described below.

Reporting Entity

The Authority was created under a trust indenture dated November 22, 1976, as a public trust under provisions

of Title 60 of the Oklahoma Statutes for the benefit of the citizens of Cleveland, Oklahoma. The Authority is

organized as a political subdivision of the state of Oklahoma and has been recognized by the Internal Revenue

Service as exempt from federal income taxes under Internal Revenue Code Section 501(a). The Authority is a

component unit of the City of Cleveland, Oklahoma (the City), and the Cleveland City Council appoints the board

members of the Authority.

The Authority operates Cleveland Area Hospital Holdings, Inc. (Hospital). The Hospital is a 14-bed critical access

hospital (CAH) located in Cleveland, Oklahoma. The Authority board members appoint the board members of

the Hospital. The Hospital primarily earns revenue by providing inpatient, outpatient, and emergency care

services to patients in Cleveland, Oklahoma, and the surrounding area.

Blended Component Unit

The Hospital is an Oklahoma non-profit corporation and has been recognized by the Internal Revenue Service

as exempt from federal income taxes under Internal Revenue Code Section 501(c)(3). The Hospital is included

as a blended component unit of the Authority. The financial statements include the financial activity of the

Authority and the Hospital, collectively referred to as the Authority.

Measurement Focus and Basis of Accounting

Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the

financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the

measurement focus applied.

The accompanying financial statements have been prepared on the accrual basis of accounting in conformity

with accounting principles generally accepted in the United States of America. Revenues are recognized when

earned, and expenses are recorded when the liability is incurred.

17



Basis of Presentation

The statement of net position displays the Authority’s assets and liabilities with the difference reported as net

position. Net position is reported in the following components:

Net investment in capital assets consists of net capital assets reduced by the outstanding balances of

any related debt obligations attributable to the acquisition, construction or improvement of those

assets.

Restricted net position:

Expendable – Expendable net position results when constraints placed on net position are either

externally imposed or imposed through enabling legislation. The Authority does not have

expendable restricted net position as of December 31, 2019 and 2018.

Nonexpendable – Nonexpendable net position is subject to externally imposed stipulations

which require them to be maintained permanently by the Authority. The Authority does not

have nonexpendable restricted net position as of December 31, 2019 and 2018.

Unrestricted net position consists of net position not meeting the definition of the preceding categories.

Unrestricted net position often has constraints on resources imposed by management which can be

removed or modified.

When an expense is incurred that can be paid using either restricted or unrestricted resources (net position), the

Authority’s policy is to first apply the expense toward the most restrictive resources and then toward

unrestricted resources.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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. Estimates also affect the

reported amounts of revenues and expenses during the reporting period. Actual results could differ from those

estimates.

As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in

the near term. The net patient service revenue for the years ended December 31, 2019 and 2018 increased

approximately $21,000 and $271,000 as a result of increased payments compared to originally estimated

amounts.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with an original maturity of three months or less.

18



Patient Receivables

Patient receivables are uncollateralized customer and third-party payor obligations. Patient receivables,

excluding amounts due from third-party payors, are turned over to a collection agency if the receivables remain

unpaid after the Authority’s collections procedures. The Authority does not charge interest on the unpaid

patient receivables. Payments of patient receivables are allocated to the specific claims identified on the

remittance advice or, if unspecified, are applied to the earliest unpaid claim.

The carrying amount of patient receivables is reduced by a valuation allowance that reflects management’s

estimate of amounts that will not be collected from patients and third-party payors. Management reviews

patient receivables by payor class and applies percentages to determine estimated amounts that will not be

collected from third parties under contractual agreements and amounts that will not be collected from patients

due to bad debts. Management considers historical write off and recovery information in determining the

estimated bad debt provision.

City Appropriations

Effective January 27, 1978, the citizens of the City approved a 1% sales tax with no expiration date to provide

unrestricted appropriations to the Authority. The Authority received approximately 4% of its financial support

from city appropriations related to sales taxes during the years ended December 31, 2019 and 2018. These

funds were used to support operations and make payments on long-term debt.

Supplies

Supplies are stated at lower of cost (first-in, first-out) or market and are expensed when used.

Investment Income

Interest, dividends, gains and losses, both realized and unrealized, on investments and deposits are included in

nonoperating revenues when earned.

Capital Assets

Capital asset acquisitions in excess of $5,000 are capitalized and recorded at cost. Depreciation is provided over

the estimated useful life of each depreciable asset and is computed using the straight-line method. 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. Amortization is included in depreciation and amortization in

the financial statements. The estimated useful lives of capital assets are as follows:

Land improvements 5-40 yearsBuildings and improvements 5-40 yearsEquipment 3-20 years

19



Gifts of long-lived assets such as land, buildings, or equipment are reported as additions to unrestricted net

position, and are excluded from expenses in excess of revenues. Gifts of long-lived assets with explicit

restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to

acquire long-lived assets are reported as restricted net position.

Compensated Absences

The Authority's employees earn paid time-off days at varying rates depending on years of service. Employees

may accumulate paid time-off up to a specified maximum. Employees are paid for accumulated paid time-off

upon termination. The liability for compensated absences is included with accrued expenses in the

accompanying financial statements.

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 and expenses of the Authority result from

exchange transactions associated with providing health care services - the Authority’s principal activity, and the

costs of providing those services, including depreciation and excluding interest cost. All other revenues and

expenses are reported as nonoperating.

Net Patient Service Revenue

The Authority has agreements with third-party payors that provide for payments to the Authority at amounts

different from its established rates. Payment arrangements include prospectively determined rates, reimbursed

costs, discounted charges, and per diem payments. Net patient service revenue is reported at the estimated net

realizable amounts from patients, third-party payors, and others for services rendered, including estimated

retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are

accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as

final settlements are determined.

Charity Care

The Authority provides health care services to patients who meet certain criteria under its charity care policy

without charge or at amounts less than established rates. Since the Authority does not pursue collection of

these amounts, they are not reported as patient service revenue. The estimated cost of providing these services

was $1,000 and $20,000 for the years ended December 31, 2019 and 2018, calculated by multiplying the ratio of

cost to gross charges for the Authority by the gross uncompensated charges associated with providing charity

care to its patients.

20



Grants and Contributions

The Authority may receive grants as well as contributions from individuals and private organizations. 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 expenses in excess of revenues.

Note 2 - Net Patient Service Revenue

The Authority has agreements with third-party payors that provide for payments to the Authority at amounts

different from its established rates. A summary of the payment arrangements with major third-party payors

follows:

Medicare: The Authority is licensed as a Critical Access Hospital (CAH). The Authority is reimbursed for most

acute care services under a cost reimbursement methodology with final settlement determined after submission

of annual cost reports by the Authority and are subject to audits thereof by the Medicare Administrative

Contractor (MAC). The Authority’s Medicare cost reports have been audited by the MAC through the year ended

December 31, 2016. Clinical services are paid on a cost basis or fixed fee schedule.

Medicaid: The Authority is reimbursed for services rendered to patients covered by the state Medicaid program

on a prospective per discharge or fee schedule method with no retroactive adjustments. These payment rates

vary according to a patient classification system that is based on clinical, diagnostic and other factors.

The Authority has also entered into payment agreements with certain commercial insurance carriers and other

organizations. The basis for payment to the Authority under these agreements includes prospectively

determined rates per discharge, discounts from established charges, and prospectively determined daily rates.

Concentration of gross revenues by major payor accounted for the following percentages of the Authority’s

patient service revenues for the years ended December 31, 2019 and 2018:

2019 2018

Medicare 44% 47%Medicaid 18% 19%Blue Cross and other commercial payors 31% 26%Self pay and other 7% 8%

100% 100%

21



Laws and regulations governing the Medicare, Medicaid, and other programs are extremely complex and subject

to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a

material amount in the near term. The net patient service revenue increased approximately $172,000 for the

year ended December 31, 2018 due to removal of allowances previously estimated that are no longer necessary

as a result of final cost report settlements, adjustments to previously estimated settlements and cost report

periods that are no longer likely subject to audits, reviews, and investigations.

Note 3 - Deposits

The carrying amounts of deposits consisted of cash deposits in banks as of December 31, 2019 and 2018.

Deposits – Custodial Credit Risk

Custodial credit risk is the risk that in the event of a bank or investment company failure, the Authority’s

deposits may not be returned to it. State statute requires that any deposits in excess of federal depository or

other insured amounts be collateralized by U.S. Government securities in the name of the Authority. Statutes

also require that the market value of the collateral be at least 100% of the excess deposits. The Authority’s

deposit policy does not further restrict bank deposits or limit investment deposits.

The Authority’s deposits in banks at December 31, 2019 and 2018 were entirely covered by federal depository

insurance or by collateral held by the Authority’s custodial bank in the Authority’s name.

22



Note 4 - Capital Assets

Capital asset additions, retirements, transfers and balances for the year ended December 31, 2019 are as

follows:

Balance Balance

December 31, Transfers and December 31,

2018 Additions Retirements 2019

Capital assets not being

depreciated

Land 79,717$ -$ -$ 79,717$

Capital assets being depreciated

Land improvements 159,155$ -$ -$ 159,155$

Building and improvements 5,996,539 - - 5,996,539

Equipment 2,346,341 1,859,863 (18,440) 4,187,764

Total capital assets

being depreciated 8,502,035 1,859,863$ (18,440)$ 10,343,458

Less accumulated depreciation for

Land improvements (140,039) (5,595)$ -$ (145,634)

Building and improvements (2,487,461) (159,062) - (2,646,523)

Equipment (1,368,707) (453,359) 18,440 (1,803,626)

Total accumulated

depreciation (3,996,207) (618,016)$ 18,440$ (4,595,783)

Net capital assets

being depreciated 4,505,828$ 5,747,675$

Capital assets, net 4,585,545$ 5,827,392$

23



Capital assets additions, retirements, transfers and balances for the year ended December 31, 2018 are as

follows:

Balance Balance

December 31, Transfers and December 31,

2017 Additions Retirements 2018

Capital assets not being

depreciated

Land 79,717$ -$ -$ 79,717$

Capital assets being depreciated

Land improvements 159,155$ -$ -$ 159,155$

Building and improvements 5,996,539 - - 5,996,539

Equipment 2,289,074 57,267 - 2,346,341

Total capital assets

being depreciated 8,444,768 57,267$ -$ 8,502,035

Less accumulated depreciation for

Land improvements (136,007) (4,032)$ -$ (140,039)

Building and improvements (2,338,140) (149,321) - (2,487,461)

Equipment (1,106,997) (261,710) - (1,368,707)

Total accumulated

depreciation (3,581,144) (415,063)$ -$ (3,996,207)

Net capital assets

being depreciated 4,863,624$ 4,505,828$

Capital assets, net 4,943,341$ 4,585,545$

Note 5 - Lease Obligations

The Authority leases certain equipment under noncancelable long-term lease agreements. Certain leases have

been recorded as capitalized leases and others as operating leases. Total lease expense for the years ended

December 31, 2019 and 2018, for all operating leases is approximately $583,000 and $367,000. The capitalized

leased assets consist of:

2019 2018

Major movable equipment 2,905,511$ 1,172,963$ Less accumulated amortization (included as depreciation

on the accompanying financial statements) (792,774) (366,117)

2,112,737$ 806,846$

24



Minimum future lease payments for capital and operating leases are as follows:

Capital OperatingLeases Leases

475,414$ 338,108$ 447,908 332,940 415,421 325,546 410,293 315,852 307,017 315,852

2025-2028 602,825 1,105,482

Total minimum lease payments 2,658,877 2,733,780$

Less interest (579,798)

Present value of minimum lease payments - Note 6 2,079,079$

2024

Year Ending December 31,

2020202120222023

Note 6 - Long-Term Debt

A schedule of changes in the Authority’s long-term debt for the year ended December 31, 2019 is as

follows:

Balance Balance

December 31, December 31, Due Within

2018 Additions Payments 2019 One Year

Long-Term Debt

Note payable to bank (A) 1,657,119$ -$ (78,914)$ 1,578,205$ 72,793$

Note payable to bank (B) 1,194,238 - (34,324) 1,159,914 39,554

Note payable to bank (C) - 121,499 (12,326) 109,173 22,643

Note payable to vendor (D) 32,365 - (14,125) 18,240 11,310

Note payable to vendor (E) 174,411 - (24,187) 150,224 150,224

Note payable to Central

Oklahoma Economic

Development District, Inc. 130,420 - (58,443) 71,977 61,436

Capital Leases 797,327 1,732,548 (450,796) 2,079,079 338,924

Total long-term debt 3,985,880 1,854,047 (673,115) 5,166,812 696,884

Extended repayment schedule 482,013 975,595 (184,507) 1,273,101 598,885

Total 4,467,893$ 2,829,642$ (857,622)$ 6,439,913$ 1,295,769$

25



A schedule of changes in the Authority’s long-term debt for the year ended December 31, 2018 is as

follows:

Balance Balance

December 31, December 31, Due Within

2017 Additions Payments 2018 One Year

Long-Term Debt

Note payable to bank (A) 1,725,617$ -$ (68,498)$ 1,657,119$ 68,224$

Note payable to bank (B) 1,229,172 - (34,934) 1,194,238 36,887

Note payable to vendor (D) 42,120 - (9,755) 32,365 10,254

Note payable to vendor (E) 187,516 - (13,105) 174,411 174,411

Note payable to Central

Oklahoma Economic

Development District, Inc. 186,022 - (55,602) 130,420 58,446

Capital Leases 989,539 32,000 (224,212) 797,327 237,009

Total long-term debt 4,359,986 32,000 (406,106) 3,985,880 585,231

Extended repayment schedule 1,565,337 482,013 (1,565,337) 482,013 123,257

Total 5,925,323$ 514,013$ (1,971,443)$ 4,467,893$ 708,488$

Note Payable to Bank (A)

The first note payable to the bank is due December 2028, with monthly payments of $14,494, including

interest at 6.5%. The note is secured by a mortgage on the medical office building owned by the Authority

and an assignment of all rents related to the medical office building. The note was used for capital

acquisition. This note payable includes a balloon payment of $742,375 due in December 2028.

Note Payable to Bank (B)

The second note payable to the bank was entered into in April 2012 in the amount of $1,500,000 and is due

April 2032, with monthly payments of $9,943, including interest at the Farmer Mac 3-Month Cost of Funds Index

Net Yield plus 3.5% (6.8% at December 31, 2019). The note was used for operations. The note is secured by

certain real property and an assignment of one quarter of the Authority's city appropriation revenue.

The second note agreement requires the Authority to maintain compliance with certain loan covenant ratios,

which were not met as of December 31, 2019. The Authority obtained a letter from the lender waiving the

noncompliance with loan covenants for the year ended December 31, 2019.

Note Payable to Bank (C)

The third note payable to the bank is due March 2024, with monthly payments of $2,317, including interest

at 5.43%. The note was used for capital acquisition. The note is secured by certain capital assets.

Note Payable to Vendor (D)

The first note payable to vendor was entered into in November 2016 in the amount of $51,400 and is due

December 2021, with monthly payments of $970, including interest at 5%. The note was used for operations.

The note is unsecured.

26



Note Payable to Vendor (E)

The second note payable to vendor was entered into in May 2013 and required monthly payments of

$1,199, including interest at 6%. The note payable included a balloon payment due November 2014. The

note was used for capital acquisition. The note is secured by certain real property. The Authority did not make

the required payments therefore the note is in default and the full amount is shown as current. As of December

31, 2019, no notification of default has been received by the Authority.

Note Payable to Central Oklahoma Economic Development District, Inc.

The Authority has a note payable with the Central Oklahoma Economic Development District, Inc. The note is

due February 2021, with monthly payments of $5,303, including interest at 5% payable monthly. The note was

used for operations. The note is secured by an assignment of half of the Authority's city appropriation revenue.

The note requires the Authority to perform certain administrative functions, such as provision of financial

statements, notification of litigation, and other items. Certain of these functions were not performed in

accordance with the timelines in the agreement and could constitute an event of default. As of December 31,

2019, no notification of default has been received by the Authority.

Extended Repayment Schedule

The Authority was approved for several Extended Repayment Schedule (ERS) for their cost report for the years

ended December 31, 2019 and 2018. The ERS requires the Authority to make monthly payments from $3,071 to

$21,607, including interest rates at 10.13% to 10.38% with varying maturity dates from June 2021 through

September 2022. The ERS is unsecured, however CMS can withhold any future cost report settlement amounts

to be applied against outstanding balances.

Capital Leases

Capital lease obligations, at varying rates of imputed interest from 2.5% to 12%, collateralized by leased

equipment, with varying maturity dates from February 2020 through June 2028.

Scheduled debt service requirements for the Authority’s long-term debt are as follows:

Principal Interest Principal Interest

357,960$ 192,974$ 338,924$ 136,490$ 161,455 173,537 319,490 128,418 153,583 164,894 302,809 112,612 163,824 156,057 314,210 96,083 157,392 146,609 258,315 48,702

1,411,921 478,245 545,331 57,494 681,598 129,099 - -

Total 3,087,733$ 1,441,415$ 2,079,079$ 579,798$

2030 - 2032

Capital LeasesNotes PayableYears Ending December 31,

2020

2025 - 2029

2021202220232024

27



A schedule of repayments for the Authority’s ERS is as follows:

Principal Interest

598,885$ 102,606$ 458,335 42,472 215,881 9,210

Total 1,273,101$ 154,288$

Years Ending December 31,

202020212022

Note 7 - Rental Income

The Authority leases office space to other healthcare professionals. Total rental income for the years ended

December 31, 2019 and 2018, for all rental leases was $130,490 and $139,800. Future minimum rentals at

December 31, 2019, are as follows:

Amount

150,040$ 150,040

50,013

350,093$

202020212022

Year Ending December 31,

Note 8 - Pension Plan

The Authority has a defined contribution pension plan which covers substantially all employees. Pension

expense is recorded for the amount of the Authority’s required contributions, determined in accordance with

the terms of the plan. The plan is administered by the Authority's Board of Trustees. The plan provides

retirement and death benefits to plan members and their beneficiaries. Total pension plan expense for the years

ended December 31, 2019, 2018, and 2017, was approximately $118,000, $111,000, and $90,000.

28



Note 9 - Concentrations of Credit Risk

The Authority grants credit without collateral to its patients, most of whom are area residents and are insured

under third-party payer agreements. The mix of receivables from third-party payors and patients at December

31, 2019 and 2018 was as follows:

2019 2018

Medicare 24% 26%Medicaid 9% 9%Commercial insurance 31% 36%Patients 36% 29%

100% 100%

Note 10 - Contingencies

Risk Management

The Authority is exposed to various risks of loss from torts; theft of, damage, of assets; business interruptions;

errors and omissions; employee injuries and illnesses; natural disasters; and employee health, dental, and

accident benefits. Commercial insurance coverage is purchased for claims arising from such matters other than

employee health claims. Settled claims have not exceeded this commercial coverage in any of the three

preceding years.

Malpractice Insurance

The Authority has malpractice insurance coverage to provide protection for professional liability losses on a

claims-made basis subject to a limit of $1 million per claim and an annual aggregate limit of $3 million.

Should the claims-made policy not be renewed or replaced with equivalent insurance, claims based on

occurrences during its term, but reported subsequently, would be uninsured.

Litigations, Claims, and Disputes

The Authority is subject to the usual contingencies in the normal course of operations relating to the

performance of its tasks under its various programs. In the opinion of management, the ultimate settlement of

any litigation, claims, and disputes in process will not be material to the financial position, operations, or cash

flows of the Authority.

The health care industry is subject to numerous laws and regulations of federal, state, and local governments.

Compliance with these laws and regulations, specifically those relating to the Medicare and Medicaid programs,

can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted

at this time. Federal government activity has increased with respect to investigations and allegations concerning

possible violations by health care providers of regulations, which could result in the imposition of significant

fines and penalties, as well as significant repayments of previously billed and collected revenues from patient

services.

29



Note 11 - Supplemental Hospital Offset Payment Program

On January 17, 2012, the Centers for Medicare and Medicaid Services (CMS) approved the State of Oklahoma's

Supplemental Hospital Offset Payment Program (SHOPP). The SHOPP is retroactive back to July 1, 2011 and is

currently scheduled to expire on December 31, 2020. The SHOPP is designed to assess certain Oklahoma

hospitals a supplemental hospital offset fee which will be placed in pools after receiving federal matching funds.

The total fees and matching funds will then be allocated to hospitals as directed by legislation. Critical access

hospitals are excluded from paying the supplemental hospital offset fee but are still eligible to receive SHOPP

funds. During 2019 and 2018, the Authority received approximately $677,000 and $1,027,000 in SHOPP funds.

The estimated annual amount to be received by the Authority over the term of the SHOPP is not expected to

change materially from the amount received in 2019. Revenue from the SHOPP is recorded in net patient service

revenue on the accompanying statements of revenues, expenses and changes in net position.

Note 12 - Condensed Combining Information

The following summarizes combining information for the Authority and Hospital, which has been presented as a

blended component unit, as of and for the year ended December 31, 2019.

Statement of net position as of December 31, 2019:

Cleveland

Area Hospital ClevelandTrust Area Hospital

Authority Holdings, Inc. Eliminations Total

AssetsCurrent Assets 409,233$ 2,659,939$ (13,976)$ 3,055,196$ Capital assets, net 3,402,620 2,424,772 - 5,827,392

Total assets 3,811,853$ 5,084,711$ (13,976)$ 8,882,588$

Liabilities and net position

LiabilitiesCurrent liabilities 307,949$ 3,888,028$ (13,976)$ 4,182,001$ Long-term debt, less current maturities 2,719,231 2,424,913 - 5,144,144

Total liabilities 3,027,180 6,312,941 (13,976) 9,326,145

Net Position (Deficit)Net investment in capital assets 1,565,018 370,076 - 1,935,094 Unrestricted (780,345) (1,598,306) - (2,378,651)

Total net position (deficit) 784,673 (1,228,230) - (443,557)

Total liabilities and net position (deficit) 3,811,853$ 5,084,711$ (13,976)$ 8,882,588$

30



Operating results and changes in net position for the year ended December 31, 2019:

Cleveland



Operating revenuesNet patient service revenue -$ 14,467,065$ -$ 14,467,065$ Other income 215,204 58,117 (83,876) 189,445

Total revenue 215,204 14,525,182 (83,876) 14,656,510

Operating expensesDepreciation and amortization 140,232 477,784 - 618,016 Other operating expenses 49,506 15,039,184 (83,876) 15,004,814

Total operating expenses 189,738 15,516,968 (83,876) 15,622,830

Operating income (loss) 25,466 (991,786) - (966,320)

Nonoperating revenues (expenses) 334,239 (157,645) - 176,594

Change in Net Position 359,705 (1,149,431) - (789,726)

Transfers (413,305) 413,305 - -

Net Position, Beginning of Year 838,273 (492,104) - 346,169

Net Position (Deficit), End of Year 784,673$ (1,228,230)$ -$ (443,557)$

Cash flows for the year ended December 31, 2019:

Cleveland



Net Cash from (used for) Operating Activities (288,922)$ 1,005,107$ -$ 716,185$

Net Cash from (used for) Noncapital FinancingActivities 412,033 (90,008) - 322,025

Net Cash used for Capital and Related Financing Activities (120,715) (699,223) - (819,938)

Net Cash from Investing Activities 1,020 2,190 - 3,210

Net Change in Cash and Cash Equivalents 3,416 218,066 - 221,482

Cash and Cash Equivalents, Beginning of Year 287,582 204,921 - 492,503

Cash and Cash Equivalents, End of Year 290,998$ 422,987$ -$ 713,985$

31



The following summarizes combining information for the Authority and Hospital, which has been presented as a

blended component unit, as of and for the year ended December 31, 2018.

Statement of net position as of December 31, 2018:

Cleveland



AssetsCurrent Assets 409,072$ 1,755,969$ (13,973)$ 2,151,068$ Noncurrent assets 847 - - 847 Capital assets, net 3,542,851 1,042,694 - 4,585,545

Total assets 3,952,770$ 2,798,663$ (13,973)$ 6,737,460$

Liabilities and net position

LiabilitiesCurrent liabilities 346,142$ 2,299,717$ (13,973)$ 2,631,886$ Long-term debt, less current maturities 2,768,355 991,050 - 3,759,405

Total liabilities 3,114,497 3,290,767 (13,973) 6,391,291

Net Position (Deficit)Net investment in capital assets 1,711,321 245,367 - 1,956,688 Unrestricted (873,048) (737,471) - (1,610,519)

Total net position (deficit) 838,273 (492,104) - 346,169

Total liabilities and net position (deficit) 3,952,770$ 2,798,663$ (13,973)$ 6,737,460$

32



Operating results and changes in net position for the year ended December 31, 2018:

Cleveland



Operating revenuesNet patient service revenue -$ 12,843,584$ -$ 12,843,584$ Other income 223,640 191,050 (83,844) 330,846

Total revenue 223,640 13,034,634 (83,844) 13,174,430

Operating expensesDepreciation and amortization 144,063 271,000 - 415,063 Other operating expenses 12,666 13,136,813 (83,844) 13,065,635

Total operating expenses 156,729 13,407,813 (83,844) 13,480,698

Operating income (loss) 66,911 (373,179) - (306,268)

Nonoperating revenues (expenses) 370,380 (140,649) - 229,731

Change in Net Position 437,291 (513,828) - (76,537)

Transfers (474,618) 474,618 - -

Net Position (Deficit), Beginning of Year 875,600 (452,894) - 422,706

Net Position, End of Year 838,273$ (492,104)$ -$ 346,169$

Cash flows for the year ended December 31, 2018:

Cleveland



Net Cash from (used for) Operating Activities (227,669)$ 286,600$ -$ 58,931$

Net Cash from (used for) Noncapital FinancingActivities 390,308 (140,937) - 249,371

Net Cash used for Capital and Related Financing Activities (206,639) (305,609) - (512,248)

Net Cash from Investing Activities 1,106 816 - 1,922

Net Change in Cash and Cash Equivalents (42,894) (159,130) - (202,024)

Cash and Cash Equivalents, Beginning of Year 330,476 364,051 - 694,527

Cash and Cash Equivalents, End of Year 287,582$ 204,921$ -$ 492,503$

33



Note 13 - Correction of Errors

The financial statements were restated for the year ended December 31, 2018 to correct errors. The financial

statements incorrectly excluded a long-term debt agreement and associated capital asset. This resulted in an

understatement of capital assets, understatement of long-term debt, overstatement of net position,

overstatement of other expenses, understatement of depreciation expense, understatement of interest

expense, understatement of cash flows used for operating activities, and understatement of cash flows used for

capital and related financing activities. In addition, there were errors in the filed cost report for the year ending

December 31, 2018. This resulted in an understatement of estimated third-party payor settlements liability and

overstatement of net patient service revenue.

The following is a summary of the effects of the restatement in the Authority’s statement of net position:

As Previously As

Reported Correction of RestatedDecember 31, 2018 Error December 31, 2018

Assets

Current AssetsCash and cash equivalents 492,503$ -$ 492,503$ Receivables

Patient 1,408,552 - 1,408,552 City appropriations 96,276 - 96,276 Estimated third-party payor settlements 105,556 (105,556) -

Supplies 129,674 - 129,674 Prepaid expenses 24,063 - 24,063

Total current assets 2,256,624 (105,556) 2,151,068

Other long-term investments 847 - 847

Capital Assets Capital assets not being depreciated 79,717 - 79,717 Capital assets being depreciated, net 4,351,161 154,667 4,505,828

Total capital assets 4,430,878 154,667 4,585,545

Total assets 6,688,349$ 49,111$ 6,737,460$

34



As Previously As


Liabilities and Net Position

Current LiabilitiesCurrent maturities of long-term debt 410,820$ 174,411$ 585,231$ Current maturities of extended

repayment schedule 123,257 - 123,257 Accounts payable

Trade 570,492 - 570,492 Estimated third-party payor settlements - 521,127 521,127

Accrued expenses 831,779 - 831,779

Total current liabilities 1,936,348 695,538 2,631,886

Total Noncurrent Liabilities 3,759,405 - 3,759,405

Total liabilities 5,695,753 695,538 6,391,291

Net PositionNet investment in capital assets 1,976,432 (19,744) 1,956,688 Unrestricted (983,836) (626,683) (1,610,519)

Total net position 992,596 (646,427) 346,169

Total liabilities and net position 6,688,349$ 49,111$ 6,737,460$

35



The following is a summary of the effects of the restatement in the Authority’s statement of revenues, expenses

and changes in net position:

As Previously As


Operating RevenuesNet patient service revenue 13,470,267$ (626,683)$ 12,843,584$ Other revenue 330,846 - 330,846

Total operating revenues 13,801,113 (626,683) 13,174,430

Operating ExpensesSalaries, wages and employee benefits 9,183,526 - 9,183,526 Other 3,906,109 (24,000) 3,882,109 Depreciation and amortization 407,063 8,000 415,063

Total operating expenses 13,496,698 (16,000) 13,480,698

Operating Income (Loss) 304,415 (610,683) (306,268)

Nonoperating Revenues (Expenses)City appropriations 569,899 - 569,899 Grants and contributions 9,431 - 9,431 Investment income 1,922 - 1,922 Interest expense (340,627) (10,894) (351,521)

Net nonoperating revenues 240,625 (10,894) 229,731

Revenues in Excess of (Less Than) Expenses andChange in Net Position 545,040 (621,577) (76,537)

Net Position, Beginning of Year 447,556 (24,850) 422,706

Net Position, End of Year 992,596$ (646,427)$ 346,169$

36



The following is a summary of the effects of the restatement in the Authority’s statement of cash flows:

As Previously As


Operating ActivitiesReceipts from and on behalf of patients 12,688,889$ -$ 12,688,889$ Payments to suppliers and contractors (4,070,403) 24,000 (4,046,403) Payments to and on behalf employees (8,928,593) - (8,928,593) Other receipts and payments, net 345,038 - 345,038

Net Cash from Operating Activities 34,931 24,000 58,931

Net Cash from Noncapital Financing Activities 249,371 - 249,371

Capital and Related Financing ActivitiesInterest paid on long-term debt (160,815) (10,894) (171,709) Principal paid on long-term debt (302,166) (13,106) (315,272) Purchases of capital assets (25,267) - (25,267)

Net Cash used for Financing Activities (488,248) (24,000) (512,248)

Net Cash from Investing Activities 1,922 - 1,922

Net Change in Cash and Cash Equivalents (202,024) - (202,024)

Cash and Cash Equivalents, Beginning of Year 694,527 - 694,527

Cash and Cash Equivalents, End of Year 492,503$ -$ 492,503$

Reconciliation of Operating Income to Net Cash

from Operating ActivitiesOperating income (loss) 304,415$ (610,683)$ (306,268)$ Adjustments to reconcile operating income (loss)

to net cash from operating activitiesDepreciation and amortization 407,063 8,000 415,063 Provision for bad debts 3,095,518 - 3,095,518

Changes in assets and liabilitiesPatient receivables (3,359,091) - (3,359,091) Estimated third-party payor settlements 565,519 626,683 1,192,202 Supplies (16,394) - (16,394) Prepaid expenses (338) - (338) Other assets 14,192 - 14,192 Extended repayment schedule (1,083,324) - (1,083,324)

Accounts payable (156,632) - (156,632) Accrued expenses 264,003 - 264,003

Net cash from operating activities 34,931$ 24,000$ 58,931$

37



Note 14 - Going Concern

The Authority has incurred operating losses during the years ended December 31, 2019 and 2018. For the year

ended December 31, 2019 the Authority had expenses in excess of revenues of $789,726 which resulted in a net

deficit of $443,557. In addition, the Authority did not meet the covenants required by debt agreements as

described in Note 6 for the year ended December 31, 2019. Subsequent to year end, the Authority has been

negatively impacted by the effects of the world-wide coronavirus pandemic. The Authority is closely monitoring

its operations, liquidity, and capital resources and is actively working to minimize the current and future impact

of this unprecedented situation.

Management established a plan to mitigate the effects of the loss. The Authority has hired additional providers

and evaluated service lines to increase patient service revenues. In response to the coronavirus pandemic, the

Authority signed a payment protection program note payable (see Note 15). The effect of these changes cannot

be evaluated due to the impact of the coronavirus pandemic. Substantial doubt about the Authority’s ability to

continue as a going concern within one year after the date of the financial statements remains. The financial

statements do not include any adjustments that might be necessary should the Authority be unable to continue

as a going concern.

Note 15 - Subsequent Events

The Authority has evaluated subsequent events through July 21, 2020 the date which the financial statements

were available to be issued.

The Authority entered into a lease agreement to lease infusion pumps. The Authority will pay $1,105 monthly

for five years.

On April 14, 2020, the Authority obtained $1,887,050 of loan proceeds through participation in the Paycheck

Protection Program. The loan proceeds are expected to be used to cover costs related to payroll and employee

benefits, rent and utilities. Funds borrowed under this program carry an interest rate of 1%, are due

within two years of inception and may be forgiven if certain conditions are met. Subject to any potential

forgiveness, monthly payments of $106,197, including interest, will be due starting November 14, 2020 until the

loan is paid in full.

During April 2020, the Authority received payments totaling $3,923,699 from the Department of Health and

Human Services (HHS) as part of the CARES Act Provider Relief Fund to support healthcare related expenses or

lost revenue attributable to COVID-19. These funds are subject to specific HHS terms and conditions.

During May 2020, the Authority received payments totaling $4,981,718 from CMS as part of the Accelerated and

Advance Payment Program. The Authority is to repay the funds starting 120 days after the date of receipt of the

funds and has up to one year to repay the balance.

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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

To the Board of Trustees


Cleveland, Oklahoma

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 Cleveland Area

Hospital Trust Authority (Authority) which comprise the statements of net position as of December 31,

2019, 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, which collectively comprise the

Authority’s basic financial statements, and have issued our report thereon dated July 21, 2020.

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 opinions on the financial statements,

but not for the purpose of expressing an opinion on the effectiveness of the Authority’s internal control.

Accordingly, we do not express an opinion on the effectiveness of the Authority’s internal control.

Our consideration of internal control over financial reporting was for the limited purpose described in

the preceding paragraph and was not designed to identify all deficiencies in internal control over

financial reporting that might be material weaknesses or significant deficiencies and therefore, material

weaknesses or significant deficiencies may exist that have not been identified. However, as described in

the accompanying Schedule of Findings and Responses, we identified certain deficiencies in internal

control that we consider to be material weaknesses and significant deficiencies.

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. We did identify certain deficiencies in internal control, described in the accompanying

Schedule of Findings and Responses that we consider to be material weaknesses: 2019-001 to 2019-003.

39

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. We consider the deficiency described in the accompanying Schedule of Findings and

Responses to be a significant deficiency: 2019-004.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Authority's 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 instances of noncompliance or other matters that are

required to be reported under Government Auditing Standards and are described in the accompanying

Schedule of Findings and Responses as items 2019-005 and 2019-006.

Authority’s Response to Findings

The Authority’s responses to the findings identified in our audit is described in the accompanying

Schedule of Findings and Responses. The Authority’s responses were 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.

Oklahoma City, Oklahoma

July 21, 2020

40

Cleveland Area Hospital Trust Authority Schedule of Findings and Responses

December 31, 2019

Material Weaknesses In Internal Control Over Financial Reporting:

2019-001 Preparation of Financial Statements

Criteria: A properly designed system of internal control over financial reporting includes the preparation of an

entity's financial statements and accompanying notes to the financial statements by internal personnel of the

entity. Management is responsible for establishing and maintaining internal control over financial reporting and

procedures related to the fair presentation of the financial statements in accordance with U.S. generally

accepted accounting principles (GAAP).

Condition: The Authority does not have an internal control system designed to provide for the preparation of the

financial statements, including the accompanying footnotes and statement of cash flows, as required by GAAP.

As auditors, we were requested to draft the financial statements and accompanying notes to the financial

statements. In addition, material misstatements to the financial statements, including a restatement of the prior

year financial statements due to a correction of an error, were identified.

Cause: Obtaining the expertise necessary to prepare the financial statements, including all necessary disclosures,

in accordance with GAAP can be considered costly and ineffective.

Effect: The effect of this condition is that year-end financial reporting is prepared by a party outside of the

Authority. The outside party does not have constant contact with the ongoing financial transactions that internal

staff have. Furthermore, it is possible that new standards may not be adopted and applied timely to interim

financial statements.

Auditor’s Recommendation: We recommend that management continue reviewing operating procedures in

order to obtain the maximum internal control over financial reporting possible under the circumstances to

enable staff to draft the financial statements internally.

Views of Responsible Officials: Management agrees with the finding. Subsequent to year end, the Authority

hired a chief financial officer to prepare financial statements.

2019-002 Estimated Third-Party Payor Settlements

Criteria: Accountings standards require an entity to estimate the amount due or receivable from Medicare in

order to fairly state the financial position monthly and as of year-end.

Condition: During the current year, the Authority did not record the financial effect of prior Medicare cost report

settlements in the current year. The Authority should record adjustments for current and prior year activities to

the estimated third-party payor settlement account.

Cause: The current year activity for prior Medicare cost report settlements were not properly recorded at year

end which resulted in a journal entry to the financial statements.

Effect: This resulted in an audit adjustment to properly state the current year settlement.

41


December 31, 2019

Auditor’s Recommendation: It is recommended the Authority implement a system that provides adequate

controls over estimating cost report settlements.

Views of Responsible Officials: Management agrees with the finding. Subsequent to year end, the Authority

hired a new chief financial officer and started using a cost report model to estimate current settlements.

2019-003 Unrecorded Long-Term Debt

Criteria: Accountings standards require an entity to record a capital asset and liability once the capital asset is

received and debt agreement is finalized.

Condition: Long-term debt and capital assets were understated. In addition, there was misclassifications of

expenses.

Cause: A note payable was not properly recorded when the Authority purchased capital assets.

Effect: Interim financial statements were not properly stated. The financial statements required material

adjustments, including a prior period restatement.

Auditor’s Recommendation: We recommend that management record notes payable and related assets when

agreements are finalized.

Views of Responsible Officials: Management agrees with the finding.

Significant Deficiency In Internal Control Over Financial Reporting:

2019-004 Calculation of Bad Debt and Contractual Allowances

Criteria: Accountings standards require an entity to report receivables at net realizable value. Determining net

realizable value requires management to estimate an allowance for contractual adjustments and doubtful

accounts. The allowance should be based on historical data and current reimbursement rates.

Condition: The allowance calculations were not properly estimated during the year.

Cause: Collections were not reviewed and considered in determining the potential impact on contractual

adjustments or bad debt estimates on older accounts.

Effect: Interim financial statements may not be properly stated. An audit adjustment was made to the allowance

accounts.

Auditor’s Recommendation: We recommend that management review historical collections when estimating

allowances. The allowance accounts should be reviewed each month as well for reasonableness in relation to

the accounts receivable and revenue.

Views of Responsible Officials: Management agrees with the finding.

42


December 31, 2019

Deficiency in Internal Control over Compliance

2019-005 Covenant Violations

Criteria: The Authority is required to meet annual covenants in relation to their outstanding long-term debt.

Condition: The Authority did not file the audit report within 90 days of year end, maintain asset to liability ratio

greater than 1.5:1, and maintain a debt to equity ratio of less than 6:1. The Authority received a waiver of these

covenants for the year ended December 31, 2019.

Cause: The Authority did not have adequate revenues to offset expenses. This resulted in a loss for the year and

a net deficit position at year end. In addition, the Authority incurred additional current liabilities related to

operating the Authority.

Effect: This resulted in the Authority being in violation of the debt agreement which is defined as an event of

default within the debt agreement.

Auditor’s Recommendation: It is recommended that the Authority evaluate opportunities to reduce operating

costs and increase revenues to restore compliance with covenants.

Views of Responsible Officials: We agree with the auditor’s recommendation.

2019-006 Debt Payments

Criteria: When entering into debt agreements, lenders and borrowers will agree on various terms such as

repayment of the loan amount. These terms should be met by both parties.

Condition: The Authority has not made the proper payments as required in the debt agreement.

Cause: The Authority does not have the funds available to make the required balloon payment.

Effect: This resulted in an event of default of the debt agreement and allows the lender to call the debt.

Auditor’s Recommendation: It is recommended that the Authority make the required debt payments or work

with the lender on new payment terms.

Views of Responsible Officials: We agree with the auditor’s recommendation.

Documents

Cleveland Area Hospital Trust Authority A component unit of the … · 2020-07-29 · eidebailly.com Management’s Discussion and Analysis and Financial Statements December 31, 2019