LOS ANGELES -- Fitch Ratings placed Kern County, Calif.’s A-plus rated pension obligation bonds and the AA-minus rated implied general obligation bonds on negative watch Monday after a preliminary report revealed accounting problems at the county hospital.
The county has $512.5 million in outstanding debt of which $369.3 million is pension obligation debt.
A preliminary audit of the Kern Medical Center’s finances revealed that approximately $36 million in accounts receivables were overstated, which could result in a repayment to the state of $27 million, according to the Fitch report.
The hospital also anticipates a $16 million shortfall in this fiscal year. A final audit report on hospital finances going back to 2005 is anticipated to be completed in 90 days.
The county’s board of supervisors fired the hospital’s chief executive officer, Paul Hensler, Sept. 9 shortly after it learned from the hospital’s recently appointed chief financial officer of the hospital’s financial situation. Sandra Martin has been the hospital’s CFO for nearly two months.
The 222-bed acute care teaching hospital, owned by the county and affiliated with University of California, Los Angeles and the University of California, Irvine, is located in Bakersfield.
Fitch placed the county’s bonds on negative watch because of the uncertainty surrounding the hospital’s financial picture.
Fitch analysts said Kern County will experience increased budgetary pressure in the near term with the potential for increased liquidity constraints and a decrease in financial reserves.
“Fitch expects that some level of county support will be needed to correct the financial issues at KMC,” analysts said in the report. “Such support could result in increased loans and transfers, which may decrease county reserves and liquidity resources.”
Hospital officials hired the Concord, Calif.-based hospital financial consulting firm, Toyon Associates, in July to review the hospital finance’s, over financial report continuity concerns resulting from turnover in the hospital’s chief financial officer position.
Turnover in the CFO position, and a period of time during which there was no one in the position, created concerns about whether financial documents had been prepared correctly, said Nancy Lawson, Kern County’s assistant county administrative officer for budget and finance.
“It was mostly a case of lack of oversight,” Lawson said. “The staff didn’t have the training on some specific reports for the hospital.”
The hospital has a new CFO with extensive hospital background now, who is creating an in-depth training program for the financial staff on producing the reports, she said.
The county provides short-term loans to the hospital to maintain steady cash-flow for the hospital while it waits for reimbursements from the state.
The funding provided to the hospital by the county comes from an enterprise fund that normally would not have an impact on the county’s general fund, Lawson said.
The impact on the general fund is that the county provides the hospital with cash advances, she said.
The hospital provides indigent care, and if the hospital is not able to provide those services the county has to fill the gap, Lawson said.
The estimated $27 million isn’t a “hard” number, but just an estimate derived based on how other county hospitals receive money, she said. Of that amount, the county would have to provide $9.6 million.
Kern County passed a $2.6 billion fiscal 2013-14 budget on Aug. 27. The auditor came out with the preliminary report on Sept. 9 with the findings that resulted in Fitch putting the county on negative watch.
Kern County officials don’t anticipate that the changes will result in any impact to hospital services or a county budget deficit.
The county financial staff will report on what changes the county might have to make to its own budget in a report to the board of supervisors on Sept. 24.
