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.

1-Year Agency Response

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

  • Completion Date: May 2019
  • Response Date: May 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.

  • Auditee did not address all aspects of the recommendation

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.

  • Estimated Completion Date: April 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: April 2019
  • Response Date: December 2018

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.

1-Year Agency Response

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

  • Completion Date: May 2019
  • Response Date: May 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.

  • Auditee did not substantiate its claim of full implementation
  • Auditee did not address all aspects of the recommendation

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.

  • Estimated Completion Date: April 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: October 2019
  • Response Date: December 2018

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.

  • Completion Date: May 2019
  • Response Date: May 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.

  • Estimated Completion Date: April 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: October 2019
  • Response Date: December 2018

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.

  • Completion Date: December 2018
  • Response Date: September 2019

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.

  • Completion Date: December 2018
  • Response Date: December 2018

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.

  • Auditee did not substantiate its claim of full implementation

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.

  • Completion Date: October 2018
  • Response Date: December 2018

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.

6-Month Agency Response

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

  • Estimated Completion Date: December 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: October 2019
  • Response Date: December 2018

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.

  • Completion Date: October 2018
  • Response Date: December 2018

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.

1-Year Agency Response

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

  • Completion Date: May 2019
  • Response Date: May 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.

  • Auditee did not address all aspects of the recommendation

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.

  • Estimated Completion Date: April 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: when new bonds issued
  • Response Date: December 2018

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.

  • Completion Date: May 2019
  • Response Date: May 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.

  • Estimated Completion Date: April 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: when new bonds issued
  • Response Date: December 2018

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.

  • Completion Date: May 2019
  • Response Date: May 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.

  • Estimated Completion Date: April 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: when new bonds issued
  • Response Date: December 2018

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.

  • Completion Date: May 2019
  • Response Date: May 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.

  • Estimated Completion Date: April 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: when new bonds issued
  • Response Date: December 2018

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.

  • Completion Date: May 2019
  • Response Date: May 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.

  • Estimated Completion Date: April 2019
  • Response Date: April 2019

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.

  • Estimated Completion Date: April 2019
  • Response Date: December 2018

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


All Recommendations in 2018-102

Agency responses received are posted verbatim.