Report 2018-102 All Recommendation Responses

Report 2018-102: Tulare Local Healthcare District: Past Poor Decisions Contributed to the Closure of the Medical Center, and Licensing Issues May Delay Its Reopening (Release Date: October 2018)

Recommendation #1 To: Tulare Local Healthcare District

To ensure that the district can demonstrate that its decisions for selecting contractors are justified and are in the best interest of the district's residents, by April 2019 the district should establish formal procedures designed to ensure that it follows a rigorous and appropriate evaluation and contract awarding process.

Annual Follow-Up Agency Response From February 2023

1) Multiple contractors (as available, dependent on specialization) will be requested to bid on any proposed project higher in value than the current minimum threshold to be completed on behalf of TLHCD. Every effort will be made to solicit a minimum of three bids from eligible contractors. Bids will be reviewed by staff and clarification on any ambiguities will be requested from the bidders. Within current TLHCD guidelines, limited value bids (as determined by the CEO contract) may be approved at the CEO level. Bids exceeding CEO authority will be submitted to the board for review, and approval/rejection, as determined by a majority board vote.

Project bids requiring a General Contractor (also exceeding the current minimum threshold) will be published in newspapers serving (and printed within) the appropriate market area (generally South Central Valley California). Bidding that does not meet said minimum threshold may also be considered for publication depending on the project's nature.

All contractors engaged by TLHCD will undergo an evaluation of prior work history and general financial stability.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2021

Progress has been delayed due to COVID-19 but the District continues to work on creating new procedures to provide details and documentation for a thorough evaluation process to award contracts.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2020

The District will be creating new procedures to provide details and documentation for a thorough evaluation process to award contracts.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

Written policy approved by the Tulare Local Healthcare District Board on 24 April 2019.

California State Auditor's Assessment of 1-Year Status: No Action Taken

The district's policy does not address establishing formal procedures designed to ensure that it follows a rigorous and appropriate evaluation and contracting awarding process. Specifically, the procedures do not discuss its process for evaluating proposals and for awarding the contract to the most appropriate proposal.

6-Month Agency Response

We were delayed in bringing on new staff to implement the appropriate recommendations, but Board members are working to amend our policies and hope to approve them at our next regular board meeting on April 24.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District concurs with the recommendation and will update its policies by April 2019 as recommended.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #2 To: Tulare Local Healthcare District

To ensure that the district pays only reasonable and appropriate contract administrative costs, before the district signs any future management contract, it should prepare estimates of the costs for all proposed contract terms related to compensation.

Annual Follow-Up Agency Response From February 2023

2) Contract disbursements not requiring Construction Management participation will be reviewed as compared to original bids by TLHCD staff (CEO and Project Manager) and Owner's Representative before disbursement and after inspection of completed work. A minimum of at least two signatures/approvals of TLHCD representatives will be required prior to the disbursement of funds. As applicable, IOR and/or AOR signatures/approvals will also be required.

Under a scenario in which TLHCD engages a Construction Management firm, bids will be solicited and reviewed in a manner similar to that noted in response 1 above. Board approval will be required at this level to engage a Construction Management firm, and the board (or designee committee) will participate in the selection process of such a firm. In addition to CEO and/or Project Manager approvals for disbursement, approval by an Owner's Representative or Independent Qualified Inspector will also be required. As applicable, IOR and/or AOR signatures/approvals will also be required.

In order to address projects of increasing complexity in the future, TLHCD retains the option to purchase or otherwise engage necessary project tracking software to accurately assess one or more of the following: percentage of completion as compared to budget; reconciliation with original bid submission; application, and outcome of change orders; retention of contractor's profits (as agreed under contract); and accuracy of scheduling. Some or all disbursements may be curtailed or delayed if agreed-upon terms are not met or changes are not approved.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2021

Progress has been delayed due to COVID-19 but the District is beginning to develop new policies and creating new and/or augmenting existing procedures to provide details and documentation for a thorough evaluation process to award future management contracts.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2020

The District is beginning to develop new policies and creating new and/or augmenting existing procedures to provide details and documentation for a thorough evaluation process to award future management contracts.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

Written policy approved by the Tulare Local Healthcare District Board on 24 April 2019.

California State Auditor's Assessment of 1-Year Status: No Action Taken

The district's policy does not address our recommendation that it prepare estimates of the costs for all proposed contract terms related to compensation.

6-Month Agency Response

We were delayed in bringing on new staff to implement the appropriate recommendations, but Board members are working to amend our policies and hope to approve them at our next regular board meeting on April 24.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District concurs with the recommendation and will update its policies to conform.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #3 To: Tulare Local Healthcare District

To ensure that it complies with state law, by April 2019 the district should update its policy related to conflicts of interest to include procedures requiring the district to obtain and maintain copies of all designated individuals' statements of economic interests at the medical center.

1-Year Agency Response

Written policy approved by the Tulare Local Healthcare District Board on 24 April 2019.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

We were delayed in bringing on new staff to implement the appropriate recommendations, but Board members are working to amend our policies and hope to approve them at our next regular board meeting on April 24.

Statements of economic interests currently are being obtained and maintained by the district.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District concurs with the recommendation and will update its policies to conform.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #4 To: Tulare Local Healthcare District

To ensure that the district recovers funds inappropriately used to pay for work outside the district, it should immediately take steps to seek reimbursement from HCCA for payments the district made to HCCA for time the former CFO and other employees spent working at Inyo.

6-Month Agency Response

The district did not submit a response.

California State Auditor's Assessment of 6-Month Status: Resolved

In its 60-day response, submitted in December 2018, the district indicated it had settled competing claims with HCCA, and that reimbursement from HCCA for work performed unrelated to the district was part of that settlement. However, the district's 60-day response was incomplete. In August 2019 the district provided us its settlement agreement with HCCA. Our analysis of that settlement agreement found that, rather than obtaining reimbursement from HCCA for inappropriate payments as we recommended, the district instead agreed, as part of its settlement, to release HCCA from any and all claims the district had on it, effectively cutting off the district's ability to seek reimbursement from HCCA.

60-Day Agency Response

The District settled competing claims with HCCA. Reimbursement from HCCA for work performed unrelated to the District was part of that settlement. It is our understanding the criminal investigation by the Tulare County District Attorney's office may include this issue.

California State Auditor's Assessment of 60-Day Status: Pending

The district did not provide documentation to substantiate its response of fully implemented. We will reassess the district's response after it provides us with documentation of the settlement between it and HCCA.

Recommendation #5 To: Tulare Local Healthcare District

To ensure that the district is able to reopen by mid-October 2018, it should continue to address requirements to reinstate its license and should arrange for Public Health to verify compliance with licensing operational requirements as soon as it has completed addressing the requirements to reopen.

60-Day Agency Response

These items were addressed at the time of the state audit and prior to issuance of the state audit report. They are completed and the hospital is open and operating.

California State Auditor's Assessment of 60-Day Status: Resolved

The district reopened the medical center on September 15, 2018, subsequent to the issuance of our report on September 9, 2018.

Recommendation #6 To: Tulare Local Healthcare District

To ensure that the district budgets for all costs necessary to reopen, it should immediately include in its budget the costs to pay pre-petition debt for vendors with whom it must reestablish relationships before it can resume operations.

Annual Follow-Up Agency Response From October 2020

On September 30, 2017, the District filed a bankruptcy petition in federal court under Chapter 9 of the U.S. Bankruptcy Code. Through the bankruptcy process a plan for adjustment of debts (the "Plan") was confirmed by the Bankruptcy Court and overwhelmingly approved by required creditors of the District. The Plan took effect on October 17, 2019.

California State Auditor's Assessment of Annual Follow-Up Status: Resolved

The district has provided us its approved plan to address pre-petition debt. This resolves our concern related to this recommendation.

1-Year Agency Response

The district did not submit a one-year response for this recommendation.

California State Auditor's Assessment of 1-Year Status: Pending

The district, in its 60-day and 6-month responses, states that these items were addressed prior to the issuance of the State Auditor's report, that the items are largely completed, and that budget estimates always have included costs to resolve bankruptcy debt issues with vendors needed to continue hospital operations. It further states that the actual amounts of pre-petition debt will not be established until late 2019. As the district has not yet established the amount of pre-petition debt it must address, we assess the status of the district's response as pending.

6-Month Agency Response

The 60 day response remains valid, though the completion date was extended by 2 months.

California State Auditor's Assessment of 6-Month Status: Pending

The district reopened the medical center on October 15, 2018, subsequent to the issuance of our audit report on September 9, 2018. As the district states in its 60-Day response, the actual amounts of pre-petition debt are not yet established and expected to take until late 2019. Therefore, we have assessed the response as pending.

60-Day Agency Response

These items were addressed at the time of the state audit and prior to issuance of the state audit report. The hospital is open. The items largely are completed, though negotiations with some vendors continue.

Budget estimates always have included, and will continue to include, costs to resolve bankruptcy debt issues with vendors needed to continue hospital operations. However, the actual amounts of pre-petition debt will not be established until formal approval of a bankruptcy plan by the Bankruptcy Court. The District expects that process to take until late 2019.

California State Auditor's Assessment of 60-Day Status: Pending

The district reopened the medical center on October 15, 2018, subsequent to the issuance of our audit report on September 9, 2018. As the district states in its response, the actual amounts of pre-petition debt are not yet established and expected to take until late 2019. Therefore, we have assessed the response as pending.

Recommendation #7 To: Tulare Local Healthcare District

To ensure that the district is able to obtain the supplies and purchased services necessary to reopen the medical center, the district should continue its efforts toward reestablishing relationships with vendors so that it can reopen the medical center by mid-October 2018.

60-Day Agency Response

These items were addressed at the time of the state audit and prior to issuance of the state audit report. They are completed and the hospital is open and operating.

California State Auditor's Assessment of 60-Day Status: Resolved

Although the district does not indicate how it reestablished relationships with vendors, we note that the medical center reopened on October 15, 2018, subsequent to the issuance of our audit report on October, 9, 2018.

Recommendation #8 To: Tulare Local Healthcare District

To ensure that it uses bond proceeds for allowable purposes and improves its consistency and accountability in processing payments from bond proceeds, by April 2019 the district should formalize and document policies and procedures for verifying that it uses bond proceeds for allowable purposes and for approving expenditures paid from general obligation bond proceeds.

Annual Follow-Up Agency Response From February 2023

8) Bond proceeds are to be accounted for separately and, as indicated, tracked independently. Legal counsel will be engaged regarding any concerns identified with the potential utilization of funds. Any future receipt of General Obligation Bond funds will be treated in a manner similar to that identified in the last paragraph of response 2 above. In addition, the board has formed a separate committee (currently recognized as the "Tower Construction Committee") to provide guidance and direction to the board on any construction projects. Meetings of the Tower Construction Committee are held at least quarterly.

Board members, committee members, and the general public currently have access to all legally available TLHCD records, either at scheduled meetings, by use of www.tularelocalhealthcaredistrict.org, or through a Freedom of Information Act request.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2021

Progress has been delayed due to COVID-19 but the District will be creating new procedures to include specific reporting and/or documentation requirements to facilitate and record monitoring and comparison of expenditures and progress against measures of performance and timelines.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2020

The District will be creating new procedures to include specific reporting and/or documentation requirements to facilitate and record monitoring and comparison of expenditures and progress against measures of performance and timelines.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

Written policy approved by the Tulare Local Healthcare District Board on 24 April 2019.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

Although the district implemented a policy requiring the CEO and CFO to submit a report to the Board for approval of expenditures, the District does not provide any procedures or guidance as to the contents of that report or the specificity of the information it should contain. It also does not establish procedures to address how the district plans on verifying that bond proceeds are used for allowable purposes.

6-Month Agency Response

We were delayed in bringing on new staff to implement the appropriate recommendations, but Board members are working to amend our policies and hope to approve them at our next regular board meeting on April 24.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District no longer has bond funds. Establishing a policy by April 2019 in anticipation that the District will seek bond financing at some indeterminate time in the future would require the District to anticipate the requirements of unknown bondholders at an unknown time in the future.

The District concurs with the substance of the recommendation and will update its policies in accordance with the recommendation prior to the receipt of any future bond funds.

California State Auditor's Assessment of 60-Day Status: No Action Taken

We do not agree with the district's statement that establishing a policy by April 2019 requires the district to anticipate requirements that are unknown. The district can and should formalize and document policies and procedures for verifying that it uses bond proceeds for allowable purposes and for approving expenditures. The specific allowable purposes can be defined at the time of bond issue but would be evaluated in the already established policies and procedures. Lacking such policies and procedures, the district risks that it could again spend bond funds inappropriately, similar to those we identified in our audit report.

Recommendation #9 To: Tulare Local Healthcare District

To ensure that it maintains adequate oversight of expenditures from any future bond proceeds, by April 2019 the district should establish a formal policy to include, as part of the charter for any future bond oversight committee, a requirement that the committee review bond expenditures quarterly at a minimum. The policy should also require the committee to report the results of its reviews to the board quarterly.

1-Year Agency Response

Written policy approved by the Tulare Local Healthcare District Board on 24 April 2019.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

We were delayed in bringing on new staff to implement the appropriate recommendations, but Board members are working to amend our policies and hope to approve them at our next regular board meeting on April 24.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District concurs with the recommendation. However, even assuming the District seeks future bond funding, establishing a policy by April 2019 would require the District to anticipate the requirements of unknown bondholders at an indeterminate time in the future. The District will update its policies in accordance with the recommendation prior to the receipt of any future bond funds.

California State Auditor's Assessment of 60-Day Status: No Action Taken

We do not agree with the district's statement that establishing a policy by April 2019 requires the district to anticipate requirements that are unknown. The district can and should formalize a requirement that the committee review bond expenditures quarterly, and that the committee report the results of its reviews to the board quarterly. The district's policy should be the district's minimum in terms of monitoring future bond expenditures—any specific requirements of any future bondholders should be performed in addition to the district's minimum requirements.

Recommendation #10 To: Tulare Local Healthcare District

To ensure that any future bond oversight committee meets specified reporting requirements, by April 2019 the district should establish a written process to periodically monitor committee compliance with reporting requirements.

1-Year Agency Response

Written policy approved by the Tulare Local Healthcare District Board on 24 April 2019.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

We were delayed in bringing on new staff to implement the appropriate recommendations, but Board members are working to amend our policies and hope to approve them at our next regular board meeting on April 24.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District concurs with the recommendation. However, even assuming the District seeks future bond funding, establishing a policy by April 2019 in anticipation that the District will seek bond financing at some indeterminate time in the future would require the District to anticipate the requirements of unknown bondholders at an unknown time in the future. The District concurs with the substance of the recommendation and will update its policies in accordance with the recommendation prior to the receipt of any future bond funds.

California State Auditor's Assessment of 60-Day Status: No Action Taken

We do not agree with the district's statement that establishing a policy by April 2019 requires the district to anticipate requirements that are unknown. The district can and should establish a written process to periodically monitor committee compliance with reporting requirements. Without a written process to periodically monitor committee compliance with reporting requirements, the district can not ensure future bond oversight committees are held accountable.

Recommendation #11 To: Tulare Local Healthcare District

To increase the effectiveness of its monitoring to ensure that bond proceeds are used only for the purposes that the voters intended, by April 2019 the district should establish and follow a written process to document the steps it will take to address findings and recommendations identified in any future external audits of the bond proceeds.

1-Year Agency Response

Written policy approved by the Tulare Local Healthcare District Board on 24 April 2019.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

We were delayed in bringing on new staff to implement the appropriate recommendations, but Board members are working to amend our policies and hope to approve them at our next regular board meeting on April 24.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District concurs with the recommendation. However, even assuming the District seeks future bond funding, establishing a policy by April 2019 in anticipation that the District will seek bond financing at some indeterminate time in the future would require the District to anticipate the requirements of unknown bondholders at an unknown time in the future. The District concurs with the substance of the recommendation and will update its policies in accordance with the recommendation prior to the receipt of any future bond funds.

California State Auditor's Assessment of 60-Day Status: No Action Taken

We do not agree with the district's statement that establishing a policy by April 2019 requires the district to anticipate requirements that are unknown. The district can and should establish and follow a written process to document the steps it will take to address findings and recommendations identified in any future audit of the bond process. The district's policy should be the district's minimum in terms of monitoring future bond expenditures—any specific requirements of any future bondholders should be performed in addition to the district's minimum requirements.

Recommendation #12 To: Tulare Local Healthcare District

To ensure that it can demonstrate that invoices it pays are for contracted services, by April 2019 the district should update its contract management policy to include a requirement to retain a copy of all contracts similar to the State's requirement of seven years.

1-Year Agency Response

Written policy approved by the Tulare Local Healthcare District Board on 24 April 2019.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

We were delayed in bringing on new staff to implement the appropriate recommendations, but Board members are working to amend our policies and hope to approve them at our next regular board meeting on April 24.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The District concurs with the recommendation and will update our policies by April 2019 as recommended.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2018-102

Agency responses received are posted verbatim.