Finding 2023-001 Activities Allowed or Unallowed
Identification of the federal program:
Federal Grantor: United States Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA)
Assistance Listing No.: 93.498, COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution (PRF)
Period of Availability: 01/01/2020–12/31/2022 (Period 4) and 01/01/2020–06/30/2023 (Period 5)
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
The American Rescue Plan Act requires that the Recipients of Provider Relief Fund payments must agree to the Terms and Conditions specific to the distribution in which they received a payment or reimbursement, such as: Funding cannot be used where another source has reimbursed or is obligated to reimburse those expenses or losses.
Condition:
Management performed a duplication of benefits analysis to ensure expenses to be used to substantiate PRF funding received were not reimbursed or obligated to be reimbursed by another source. The methodology included the development of estimated cost reimbursement rates by location that was applied to the PRF expenditures.
During our allowable costs testing of expenditures, we noted errors in the duplication of benefits analysis and/or misapplication of the estimated cost reimbursement rates, which resulted in a net overstatement of expenses totaling $2,078,408.
In addition, we noted instances where employees’ hours reported on the timecards for substantiation of funding for the federal program were not consistently evidenced as reviewed and approved.
Cause:
Duplication of Benefits Analysis – The internal controls over management’s duplication of benefits analysis and application of the estimated cost reimbursement rates were ineffective.
Timecards – Timecards were processed without manager approval.
Effect or potential effect:
Duplication of Benefits Analysis – Mercy Health overstated expenses and is not in compliance with the terms and conditions of the federal award.
Timecards – Mercy Health may incur unallowable expenses or not be compliant with the terms and conditions of the federal program.
Questioned costs:
$2,078,408 – Assistance Listing No. 93.498 (COVID-19).
Context:
Duplication of Benefits Analysis – For four of five sampled facilities, management did not calculate overtime and contract labor expenses using the correct estimated cost reimbursement rates or did not calculate the duplication of benefits analysis accurately resulting in a net overstatement of reported expenditures of $2,078,408.
Timecards – For three (totaling $765) of 40 (totaling $16,939) (4.5%) overtime and contract labor transactions tested, Mercy Health or contracted employees’ timecards did not have evidence of review and approval by the Mercy Health or contracted employees’ manager. Total overtime and contract labor costs were $9,811,805 under Assistance Listing No. 93.498 for the year ended June 30, 2023.
Total federal expenditures for Assistance Listing No. 93.498 totaled $104,538,125 for the year ended June 30, 2023, of which $10,154,731 were expenditures.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Duplication of Benefits Analysis – Management should design and implement effective internal controls over the review and approval of the duplication of benefits analysis and ensure the correct estimated cost reimbursement rates are being applied to the expenditures.
Timecards – Mercy Health should reinforce the importance of adhering to its internal controls over the review and approval of timecards.
Views of Responsible Officials:
Management agrees to the finding and has developed a corrective action plan. While we overstated the expenses submitted totaling $2.1 million, this was an oversight during our review process. There are additional expenditures available in excess of funding received; therefore, we believe we have incurred either lost revenues or expenditures in excess of funding received.
Mercy Health’s Finance team will continue to stress the importance of timecard approval to leadership.
Finding 2023-002 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA)
Assistance Listing No.: 93.498, COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution (PRF)
Period of Availability: 01/01/2020–12/31/2022 (Period 4) and 01/01/2020–06/30/2023 (Period 5)
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
The terms and conditions of the award require the recipient to submit reports as the secretary of HHS determines are needed to ensure compliance with the conditions that are imposed on the payment, and such reports shall be in such form, with such content, as specified by the secretary of HHS in future program instructions directed to all recipients.
Condition:
For one of the sampled PRF reports (Mercy Hospital South Period 5 PRF Report), the amount reported for net patient service revenue (NPSR) for calendar year 2023 quarter 2 (CY2023 Q2) was incorrect for one reporting tax identification number (TIN).
Cause:
Management’s review of the NPSR for CY2023 Q2 in Mercy Hospital South’s Period 5 PRF Report was not sufficiently precise to detect the error.
Effect or potential effect:
NPSR was incorrectly reported for CY2023 Q2 for one reporting TIN.
Questioned costs:
None.
Context:
We tested seven of 38 Periods 4 and 5 PRF Reports submitted to HRSA. For one of the seven reports tested, we noted the NPSR amount reported was incorrect by $6,749,388. For CY2023 Q2, Mercy Hospital South Period 5 reported NPSR of $135,729,608 while the correct amount that should have been reported is $128,980,220. However, since the incorrectly reported NPSR amount did not result in any lost revenues reported for this quarter (lost revenues reported for CY2023 Q2 were $0), this error did not result in a questioned cost.
Total federal expenditures for Assistance Listing 93.498 totaled $104,538,125 for the year ended June 30, 2023, of which $94,383,394 were lost revenues.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should ensure internal controls over the review of PRF Reports are enhanced to include sufficient precision to allow for accurate reporting.
Views of Responsible Officials:
Management agrees to the finding and has developed a corrective action plan. One cost report adjustment for the current year was inaccurately labeled as a prior year adjustment. This was an isolated oversight by our revenue analysis team.
Finding 2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantors:
State of Missouri, State Emergency Management Agency
Arkansas Division of Emergency Management
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers and Award Periods:
Project# 185883 P/W# 529 01/20/2020–09/14/2020
Project# 699963 P/W# 624 01/01/2022–07/01/2022
Project# 699667 P/W# 233 01/01/2022–07/01/2022
Project# 699670 P/W# 211 01/01/2022–07/01/2022
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
As described in Title 2 Code of Federal Regulations (C.F.R.) § 200.333, financial records, supporting documents, statistical records and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three (3) years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.
In addition, 2 CFR Section 200.403 of the Uniform Guidance states the following regarding the factors affecting the allowability of costs:
“Except where otherwise authorized by statue, costs must meet the following general criteria in order to be allowable under Federal awards:
(g) Be adequately documented.”
Condition:
Adequate documentation was not retained to support the average unit cost applied to COVID-19 personal protective equipment (PPE) inventory usage charged to the FEMA program as Force Account Material (FAM) costs.
In addition, for 12 of 40 non-FAM costs (including purchased equipment, purchased supplies, and rental equipment) charged to the program, we noted adequate documentation was not retained to evidence review and approval of the expenditure for allowability.
Cause:
Management did not have sufficiently designed internal controls in place over the review and approval of average unit costs applied to FAM usage charged to the FEMA program.
In addition, for 11 non-FAM (purchased equipment) transactions from fiscal year 2020 charged to the FEMA program, expenditure approvals were maintained in a legacy general ledger system and upon migration to the current general ledger system, the approval trail was not retained. For one other non-FAM (purchased equipment) transaction from fiscal year 2022 charged to the FEMA program, the required level of approvals of the purchase-card transaction was not retained.
Effect or potential effect:
For FAM costs, Mercy Health is not in compliance with the general criteria of maintaining adequate documentation that supports the average unit costs used in the calculation and determination of the costs charged to the federal program.
For non-FAM costs, Mercy Health may not be compliant with the allowability of costs requirements of the FEMA program.
Questioned costs:
$45 – Assistance Listing No. 97.036 (COVID-19).
Context:
We sampled 40 FAM costs (totaling $2,826 in federal expenditures) and agreed the PPE inventory item’s usage to supporting requisition documentation. In addition, we obtained the external vendor invoice for the purchase of the PPE inventory item immediately prior to the usage of the PPE inventory item. However, for all 40 sampled FAM costs, we could not verify the average unit cost that is used in determining the amount charged to the FEMA program. The net overstatement of the costs based on the average unit cost for these 40 sampled FAM costs in comparison to the external vendor invoices was $45.
In addition, we sampled 40 non-FAM costs (totaling $218,110 in federal expenditures) and noted that 12 purchased equipment transactions (totaling $182,048 in federal expenditures) did not have support retained to evidence review and approval of the expenditure for allowability.
FAM costs and non-FAM costs represent 71% and 29%, respectively, of total federal expenditures for the FEMA program of $3,383,897 for the year ended June 30, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Management should design and implement effective internal controls over the review and approval of all costs charged to the FEMA program.
Views of Responsible Officials:
Mercy Health has a system to calculate average cost of inventory items. We rely on this system, but it was not tested as part of compliance.
In addition, Mercy Health has a robust capital approval process (for all equipment) and financial approval thresholds. All COVID purchases were logged in the capital system (VFA) and approvals were documented. During this time, we changed approval systems from VFA to Strata. We will ensure all capital is reviewed and approved in Strata going forward.
Finding 2023-004 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantor: State of Missouri, State Emergency Management Agency
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers: Project# 699963 P/W# 624; Project# 185883 P/W# 529; and Project# 150136 P/W# 171
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
Instructions from State of Missouri, State Emergency Management Agency states “In accordance with Public Assistance Program policy, applicants, on quarterly basis, must submit a report identifying the status of each of their open/incomplete projects in each disaster for which they are applicant”.
Condition:
Timeliness and submission of the quarterly reports required by the State of Missouri could not be verified.
Cause:
Management did not retain the supporting documentation to evidence the submission of the quarterly reports.
Effect or potential effect:
Mercy Health potentially did not file the required reports with the State of Missouri on a timely basis and was not in compliance with the program reporting requirements.
Questioned costs:
None.
Context:
Mercy Health had a total of eight quarterly report submissions for the year ended June 30, 2023. We tested five of the eight quarterly reports and management did not retain supporting documentation of timely submission for any of the reports. The total federal expenditures for the program in fiscal year 2023 related to the FEMA grants was $3,383,897.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should implement internal controls over the retention of supporting evidence of timely submission of the reports.
Views of Responsible Officials:
The state of Missouri requires all quarterly reports be mailed. While we did send in our quarterly reports to the state of Missouri as required, we do not have proof of submissions as we did not send by certified mail. All future quarterly reporting will be documented with an email to our state SEMA representative when we send out quarterly reports so there is documentation for our records.
Finding 2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantors:
State of Missouri, State Emergency Management Agency
Arkansas Division of Emergency Management
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers and Award Periods:
Project# 185883 P/W# 529 01/20/2020–09/14/2020
Project# 699963 P/W# 624 01/01/2022–07/01/2022
Project# 699667 P/W# 233 01/01/2022–07/01/2022
Project# 699670 P/W# 211 01/01/2022–07/01/2022
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
As described in Title 2 Code of Federal Regulations (C.F.R.) § 200.333, financial records, supporting documents, statistical records and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three (3) years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.
In addition, 2 CFR Section 200.403 of the Uniform Guidance states the following regarding the factors affecting the allowability of costs:
“Except where otherwise authorized by statue, costs must meet the following general criteria in order to be allowable under Federal awards:
(g) Be adequately documented.”
Condition:
Adequate documentation was not retained to support the average unit cost applied to COVID-19 personal protective equipment (PPE) inventory usage charged to the FEMA program as Force Account Material (FAM) costs.
In addition, for 12 of 40 non-FAM costs (including purchased equipment, purchased supplies, and rental equipment) charged to the program, we noted adequate documentation was not retained to evidence review and approval of the expenditure for allowability.
Cause:
Management did not have sufficiently designed internal controls in place over the review and approval of average unit costs applied to FAM usage charged to the FEMA program.
In addition, for 11 non-FAM (purchased equipment) transactions from fiscal year 2020 charged to the FEMA program, expenditure approvals were maintained in a legacy general ledger system and upon migration to the current general ledger system, the approval trail was not retained. For one other non-FAM (purchased equipment) transaction from fiscal year 2022 charged to the FEMA program, the required level of approvals of the purchase-card transaction was not retained.
Effect or potential effect:
For FAM costs, Mercy Health is not in compliance with the general criteria of maintaining adequate documentation that supports the average unit costs used in the calculation and determination of the costs charged to the federal program.
For non-FAM costs, Mercy Health may not be compliant with the allowability of costs requirements of the FEMA program.
Questioned costs:
$45 – Assistance Listing No. 97.036 (COVID-19).
Context:
We sampled 40 FAM costs (totaling $2,826 in federal expenditures) and agreed the PPE inventory item’s usage to supporting requisition documentation. In addition, we obtained the external vendor invoice for the purchase of the PPE inventory item immediately prior to the usage of the PPE inventory item. However, for all 40 sampled FAM costs, we could not verify the average unit cost that is used in determining the amount charged to the FEMA program. The net overstatement of the costs based on the average unit cost for these 40 sampled FAM costs in comparison to the external vendor invoices was $45.
In addition, we sampled 40 non-FAM costs (totaling $218,110 in federal expenditures) and noted that 12 purchased equipment transactions (totaling $182,048 in federal expenditures) did not have support retained to evidence review and approval of the expenditure for allowability.
FAM costs and non-FAM costs represent 71% and 29%, respectively, of total federal expenditures for the FEMA program of $3,383,897 for the year ended June 30, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Management should design and implement effective internal controls over the review and approval of all costs charged to the FEMA program.
Views of Responsible Officials:
Mercy Health has a system to calculate average cost of inventory items. We rely on this system, but it was not tested as part of compliance.
In addition, Mercy Health has a robust capital approval process (for all equipment) and financial approval thresholds. All COVID purchases were logged in the capital system (VFA) and approvals were documented. During this time, we changed approval systems from VFA to Strata. We will ensure all capital is reviewed and approved in Strata going forward.
Finding 2023-004 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantor: State of Missouri, State Emergency Management Agency
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers: Project# 699963 P/W# 624; Project# 185883 P/W# 529; and Project# 150136 P/W# 171
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
Instructions from State of Missouri, State Emergency Management Agency states “In accordance with Public Assistance Program policy, applicants, on quarterly basis, must submit a report identifying the status of each of their open/incomplete projects in each disaster for which they are applicant”.
Condition:
Timeliness and submission of the quarterly reports required by the State of Missouri could not be verified.
Cause:
Management did not retain the supporting documentation to evidence the submission of the quarterly reports.
Effect or potential effect:
Mercy Health potentially did not file the required reports with the State of Missouri on a timely basis and was not in compliance with the program reporting requirements.
Questioned costs:
None.
Context:
Mercy Health had a total of eight quarterly report submissions for the year ended June 30, 2023. We tested five of the eight quarterly reports and management did not retain supporting documentation of timely submission for any of the reports. The total federal expenditures for the program in fiscal year 2023 related to the FEMA grants was $3,383,897.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should implement internal controls over the retention of supporting evidence of timely submission of the reports.
Views of Responsible Officials:
The state of Missouri requires all quarterly reports be mailed. While we did send in our quarterly reports to the state of Missouri as required, we do not have proof of submissions as we did not send by certified mail. All future quarterly reporting will be documented with an email to our state SEMA representative when we send out quarterly reports so there is documentation for our records.
Finding 2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantors:
State of Missouri, State Emergency Management Agency
Arkansas Division of Emergency Management
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers and Award Periods:
Project# 185883 P/W# 529 01/20/2020–09/14/2020
Project# 699963 P/W# 624 01/01/2022–07/01/2022
Project# 699667 P/W# 233 01/01/2022–07/01/2022
Project# 699670 P/W# 211 01/01/2022–07/01/2022
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
As described in Title 2 Code of Federal Regulations (C.F.R.) § 200.333, financial records, supporting documents, statistical records and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three (3) years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.
In addition, 2 CFR Section 200.403 of the Uniform Guidance states the following regarding the factors affecting the allowability of costs:
“Except where otherwise authorized by statue, costs must meet the following general criteria in order to be allowable under Federal awards:
(g) Be adequately documented.”
Condition:
Adequate documentation was not retained to support the average unit cost applied to COVID-19 personal protective equipment (PPE) inventory usage charged to the FEMA program as Force Account Material (FAM) costs.
In addition, for 12 of 40 non-FAM costs (including purchased equipment, purchased supplies, and rental equipment) charged to the program, we noted adequate documentation was not retained to evidence review and approval of the expenditure for allowability.
Cause:
Management did not have sufficiently designed internal controls in place over the review and approval of average unit costs applied to FAM usage charged to the FEMA program.
In addition, for 11 non-FAM (purchased equipment) transactions from fiscal year 2020 charged to the FEMA program, expenditure approvals were maintained in a legacy general ledger system and upon migration to the current general ledger system, the approval trail was not retained. For one other non-FAM (purchased equipment) transaction from fiscal year 2022 charged to the FEMA program, the required level of approvals of the purchase-card transaction was not retained.
Effect or potential effect:
For FAM costs, Mercy Health is not in compliance with the general criteria of maintaining adequate documentation that supports the average unit costs used in the calculation and determination of the costs charged to the federal program.
For non-FAM costs, Mercy Health may not be compliant with the allowability of costs requirements of the FEMA program.
Questioned costs:
$45 – Assistance Listing No. 97.036 (COVID-19).
Context:
We sampled 40 FAM costs (totaling $2,826 in federal expenditures) and agreed the PPE inventory item’s usage to supporting requisition documentation. In addition, we obtained the external vendor invoice for the purchase of the PPE inventory item immediately prior to the usage of the PPE inventory item. However, for all 40 sampled FAM costs, we could not verify the average unit cost that is used in determining the amount charged to the FEMA program. The net overstatement of the costs based on the average unit cost for these 40 sampled FAM costs in comparison to the external vendor invoices was $45.
In addition, we sampled 40 non-FAM costs (totaling $218,110 in federal expenditures) and noted that 12 purchased equipment transactions (totaling $182,048 in federal expenditures) did not have support retained to evidence review and approval of the expenditure for allowability.
FAM costs and non-FAM costs represent 71% and 29%, respectively, of total federal expenditures for the FEMA program of $3,383,897 for the year ended June 30, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Management should design and implement effective internal controls over the review and approval of all costs charged to the FEMA program.
Views of Responsible Officials:
Mercy Health has a system to calculate average cost of inventory items. We rely on this system, but it was not tested as part of compliance.
In addition, Mercy Health has a robust capital approval process (for all equipment) and financial approval thresholds. All COVID purchases were logged in the capital system (VFA) and approvals were documented. During this time, we changed approval systems from VFA to Strata. We will ensure all capital is reviewed and approved in Strata going forward.
Finding 2023-004 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantor: State of Missouri, State Emergency Management Agency
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers: Project# 699963 P/W# 624; Project# 185883 P/W# 529; and Project# 150136 P/W# 171
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
Instructions from State of Missouri, State Emergency Management Agency states “In accordance with Public Assistance Program policy, applicants, on quarterly basis, must submit a report identifying the status of each of their open/incomplete projects in each disaster for which they are applicant”.
Condition:
Timeliness and submission of the quarterly reports required by the State of Missouri could not be verified.
Cause:
Management did not retain the supporting documentation to evidence the submission of the quarterly reports.
Effect or potential effect:
Mercy Health potentially did not file the required reports with the State of Missouri on a timely basis and was not in compliance with the program reporting requirements.
Questioned costs:
None.
Context:
Mercy Health had a total of eight quarterly report submissions for the year ended June 30, 2023. We tested five of the eight quarterly reports and management did not retain supporting documentation of timely submission for any of the reports. The total federal expenditures for the program in fiscal year 2023 related to the FEMA grants was $3,383,897.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should implement internal controls over the retention of supporting evidence of timely submission of the reports.
Views of Responsible Officials:
The state of Missouri requires all quarterly reports be mailed. While we did send in our quarterly reports to the state of Missouri as required, we do not have proof of submissions as we did not send by certified mail. All future quarterly reporting will be documented with an email to our state SEMA representative when we send out quarterly reports so there is documentation for our records.
Finding 2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantors:
State of Missouri, State Emergency Management Agency
Arkansas Division of Emergency Management
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers and Award Periods:
Project# 185883 P/W# 529 01/20/2020–09/14/2020
Project# 699963 P/W# 624 01/01/2022–07/01/2022
Project# 699667 P/W# 233 01/01/2022–07/01/2022
Project# 699670 P/W# 211 01/01/2022–07/01/2022
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
As described in Title 2 Code of Federal Regulations (C.F.R.) § 200.333, financial records, supporting documents, statistical records and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three (3) years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.
In addition, 2 CFR Section 200.403 of the Uniform Guidance states the following regarding the factors affecting the allowability of costs:
“Except where otherwise authorized by statue, costs must meet the following general criteria in order to be allowable under Federal awards:
(g) Be adequately documented.”
Condition:
Adequate documentation was not retained to support the average unit cost applied to COVID-19 personal protective equipment (PPE) inventory usage charged to the FEMA program as Force Account Material (FAM) costs.
In addition, for 12 of 40 non-FAM costs (including purchased equipment, purchased supplies, and rental equipment) charged to the program, we noted adequate documentation was not retained to evidence review and approval of the expenditure for allowability.
Cause:
Management did not have sufficiently designed internal controls in place over the review and approval of average unit costs applied to FAM usage charged to the FEMA program.
In addition, for 11 non-FAM (purchased equipment) transactions from fiscal year 2020 charged to the FEMA program, expenditure approvals were maintained in a legacy general ledger system and upon migration to the current general ledger system, the approval trail was not retained. For one other non-FAM (purchased equipment) transaction from fiscal year 2022 charged to the FEMA program, the required level of approvals of the purchase-card transaction was not retained.
Effect or potential effect:
For FAM costs, Mercy Health is not in compliance with the general criteria of maintaining adequate documentation that supports the average unit costs used in the calculation and determination of the costs charged to the federal program.
For non-FAM costs, Mercy Health may not be compliant with the allowability of costs requirements of the FEMA program.
Questioned costs:
$45 – Assistance Listing No. 97.036 (COVID-19).
Context:
We sampled 40 FAM costs (totaling $2,826 in federal expenditures) and agreed the PPE inventory item’s usage to supporting requisition documentation. In addition, we obtained the external vendor invoice for the purchase of the PPE inventory item immediately prior to the usage of the PPE inventory item. However, for all 40 sampled FAM costs, we could not verify the average unit cost that is used in determining the amount charged to the FEMA program. The net overstatement of the costs based on the average unit cost for these 40 sampled FAM costs in comparison to the external vendor invoices was $45.
In addition, we sampled 40 non-FAM costs (totaling $218,110 in federal expenditures) and noted that 12 purchased equipment transactions (totaling $182,048 in federal expenditures) did not have support retained to evidence review and approval of the expenditure for allowability.
FAM costs and non-FAM costs represent 71% and 29%, respectively, of total federal expenditures for the FEMA program of $3,383,897 for the year ended June 30, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Management should design and implement effective internal controls over the review and approval of all costs charged to the FEMA program.
Views of Responsible Officials:
Mercy Health has a system to calculate average cost of inventory items. We rely on this system, but it was not tested as part of compliance.
In addition, Mercy Health has a robust capital approval process (for all equipment) and financial approval thresholds. All COVID purchases were logged in the capital system (VFA) and approvals were documented. During this time, we changed approval systems from VFA to Strata. We will ensure all capital is reviewed and approved in Strata going forward.
Finding 2023-004 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantor: State of Missouri, State Emergency Management Agency
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers: Project# 699963 P/W# 624; Project# 185883 P/W# 529; and Project# 150136 P/W# 171
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
Instructions from State of Missouri, State Emergency Management Agency states “In accordance with Public Assistance Program policy, applicants, on quarterly basis, must submit a report identifying the status of each of their open/incomplete projects in each disaster for which they are applicant”.
Condition:
Timeliness and submission of the quarterly reports required by the State of Missouri could not be verified.
Cause:
Management did not retain the supporting documentation to evidence the submission of the quarterly reports.
Effect or potential effect:
Mercy Health potentially did not file the required reports with the State of Missouri on a timely basis and was not in compliance with the program reporting requirements.
Questioned costs:
None.
Context:
Mercy Health had a total of eight quarterly report submissions for the year ended June 30, 2023. We tested five of the eight quarterly reports and management did not retain supporting documentation of timely submission for any of the reports. The total federal expenditures for the program in fiscal year 2023 related to the FEMA grants was $3,383,897.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should implement internal controls over the retention of supporting evidence of timely submission of the reports.
Views of Responsible Officials:
The state of Missouri requires all quarterly reports be mailed. While we did send in our quarterly reports to the state of Missouri as required, we do not have proof of submissions as we did not send by certified mail. All future quarterly reporting will be documented with an email to our state SEMA representative when we send out quarterly reports so there is documentation for our records.
Finding 2023-001 Activities Allowed or Unallowed
Identification of the federal program:
Federal Grantor: United States Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA)
Assistance Listing No.: 93.498, COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution (PRF)
Period of Availability: 01/01/2020–12/31/2022 (Period 4) and 01/01/2020–06/30/2023 (Period 5)
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
The American Rescue Plan Act requires that the Recipients of Provider Relief Fund payments must agree to the Terms and Conditions specific to the distribution in which they received a payment or reimbursement, such as: Funding cannot be used where another source has reimbursed or is obligated to reimburse those expenses or losses.
Condition:
Management performed a duplication of benefits analysis to ensure expenses to be used to substantiate PRF funding received were not reimbursed or obligated to be reimbursed by another source. The methodology included the development of estimated cost reimbursement rates by location that was applied to the PRF expenditures.
During our allowable costs testing of expenditures, we noted errors in the duplication of benefits analysis and/or misapplication of the estimated cost reimbursement rates, which resulted in a net overstatement of expenses totaling $2,078,408.
In addition, we noted instances where employees’ hours reported on the timecards for substantiation of funding for the federal program were not consistently evidenced as reviewed and approved.
Cause:
Duplication of Benefits Analysis – The internal controls over management’s duplication of benefits analysis and application of the estimated cost reimbursement rates were ineffective.
Timecards – Timecards were processed without manager approval.
Effect or potential effect:
Duplication of Benefits Analysis – Mercy Health overstated expenses and is not in compliance with the terms and conditions of the federal award.
Timecards – Mercy Health may incur unallowable expenses or not be compliant with the terms and conditions of the federal program.
Questioned costs:
$2,078,408 – Assistance Listing No. 93.498 (COVID-19).
Context:
Duplication of Benefits Analysis – For four of five sampled facilities, management did not calculate overtime and contract labor expenses using the correct estimated cost reimbursement rates or did not calculate the duplication of benefits analysis accurately resulting in a net overstatement of reported expenditures of $2,078,408.
Timecards – For three (totaling $765) of 40 (totaling $16,939) (4.5%) overtime and contract labor transactions tested, Mercy Health or contracted employees’ timecards did not have evidence of review and approval by the Mercy Health or contracted employees’ manager. Total overtime and contract labor costs were $9,811,805 under Assistance Listing No. 93.498 for the year ended June 30, 2023.
Total federal expenditures for Assistance Listing No. 93.498 totaled $104,538,125 for the year ended June 30, 2023, of which $10,154,731 were expenditures.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Duplication of Benefits Analysis – Management should design and implement effective internal controls over the review and approval of the duplication of benefits analysis and ensure the correct estimated cost reimbursement rates are being applied to the expenditures.
Timecards – Mercy Health should reinforce the importance of adhering to its internal controls over the review and approval of timecards.
Views of Responsible Officials:
Management agrees to the finding and has developed a corrective action plan. While we overstated the expenses submitted totaling $2.1 million, this was an oversight during our review process. There are additional expenditures available in excess of funding received; therefore, we believe we have incurred either lost revenues or expenditures in excess of funding received.
Mercy Health’s Finance team will continue to stress the importance of timecard approval to leadership.
Finding 2023-002 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA)
Assistance Listing No.: 93.498, COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution (PRF)
Period of Availability: 01/01/2020–12/31/2022 (Period 4) and 01/01/2020–06/30/2023 (Period 5)
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
The terms and conditions of the award require the recipient to submit reports as the secretary of HHS determines are needed to ensure compliance with the conditions that are imposed on the payment, and such reports shall be in such form, with such content, as specified by the secretary of HHS in future program instructions directed to all recipients.
Condition:
For one of the sampled PRF reports (Mercy Hospital South Period 5 PRF Report), the amount reported for net patient service revenue (NPSR) for calendar year 2023 quarter 2 (CY2023 Q2) was incorrect for one reporting tax identification number (TIN).
Cause:
Management’s review of the NPSR for CY2023 Q2 in Mercy Hospital South’s Period 5 PRF Report was not sufficiently precise to detect the error.
Effect or potential effect:
NPSR was incorrectly reported for CY2023 Q2 for one reporting TIN.
Questioned costs:
None.
Context:
We tested seven of 38 Periods 4 and 5 PRF Reports submitted to HRSA. For one of the seven reports tested, we noted the NPSR amount reported was incorrect by $6,749,388. For CY2023 Q2, Mercy Hospital South Period 5 reported NPSR of $135,729,608 while the correct amount that should have been reported is $128,980,220. However, since the incorrectly reported NPSR amount did not result in any lost revenues reported for this quarter (lost revenues reported for CY2023 Q2 were $0), this error did not result in a questioned cost.
Total federal expenditures for Assistance Listing 93.498 totaled $104,538,125 for the year ended June 30, 2023, of which $94,383,394 were lost revenues.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should ensure internal controls over the review of PRF Reports are enhanced to include sufficient precision to allow for accurate reporting.
Views of Responsible Officials:
Management agrees to the finding and has developed a corrective action plan. One cost report adjustment for the current year was inaccurately labeled as a prior year adjustment. This was an isolated oversight by our revenue analysis team.
Finding 2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantors:
State of Missouri, State Emergency Management Agency
Arkansas Division of Emergency Management
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers and Award Periods:
Project# 185883 P/W# 529 01/20/2020–09/14/2020
Project# 699963 P/W# 624 01/01/2022–07/01/2022
Project# 699667 P/W# 233 01/01/2022–07/01/2022
Project# 699670 P/W# 211 01/01/2022–07/01/2022
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
As described in Title 2 Code of Federal Regulations (C.F.R.) § 200.333, financial records, supporting documents, statistical records and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three (3) years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.
In addition, 2 CFR Section 200.403 of the Uniform Guidance states the following regarding the factors affecting the allowability of costs:
“Except where otherwise authorized by statue, costs must meet the following general criteria in order to be allowable under Federal awards:
(g) Be adequately documented.”
Condition:
Adequate documentation was not retained to support the average unit cost applied to COVID-19 personal protective equipment (PPE) inventory usage charged to the FEMA program as Force Account Material (FAM) costs.
In addition, for 12 of 40 non-FAM costs (including purchased equipment, purchased supplies, and rental equipment) charged to the program, we noted adequate documentation was not retained to evidence review and approval of the expenditure for allowability.
Cause:
Management did not have sufficiently designed internal controls in place over the review and approval of average unit costs applied to FAM usage charged to the FEMA program.
In addition, for 11 non-FAM (purchased equipment) transactions from fiscal year 2020 charged to the FEMA program, expenditure approvals were maintained in a legacy general ledger system and upon migration to the current general ledger system, the approval trail was not retained. For one other non-FAM (purchased equipment) transaction from fiscal year 2022 charged to the FEMA program, the required level of approvals of the purchase-card transaction was not retained.
Effect or potential effect:
For FAM costs, Mercy Health is not in compliance with the general criteria of maintaining adequate documentation that supports the average unit costs used in the calculation and determination of the costs charged to the federal program.
For non-FAM costs, Mercy Health may not be compliant with the allowability of costs requirements of the FEMA program.
Questioned costs:
$45 – Assistance Listing No. 97.036 (COVID-19).
Context:
We sampled 40 FAM costs (totaling $2,826 in federal expenditures) and agreed the PPE inventory item’s usage to supporting requisition documentation. In addition, we obtained the external vendor invoice for the purchase of the PPE inventory item immediately prior to the usage of the PPE inventory item. However, for all 40 sampled FAM costs, we could not verify the average unit cost that is used in determining the amount charged to the FEMA program. The net overstatement of the costs based on the average unit cost for these 40 sampled FAM costs in comparison to the external vendor invoices was $45.
In addition, we sampled 40 non-FAM costs (totaling $218,110 in federal expenditures) and noted that 12 purchased equipment transactions (totaling $182,048 in federal expenditures) did not have support retained to evidence review and approval of the expenditure for allowability.
FAM costs and non-FAM costs represent 71% and 29%, respectively, of total federal expenditures for the FEMA program of $3,383,897 for the year ended June 30, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Management should design and implement effective internal controls over the review and approval of all costs charged to the FEMA program.
Views of Responsible Officials:
Mercy Health has a system to calculate average cost of inventory items. We rely on this system, but it was not tested as part of compliance.
In addition, Mercy Health has a robust capital approval process (for all equipment) and financial approval thresholds. All COVID purchases were logged in the capital system (VFA) and approvals were documented. During this time, we changed approval systems from VFA to Strata. We will ensure all capital is reviewed and approved in Strata going forward.
Finding 2023-004 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantor: State of Missouri, State Emergency Management Agency
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers: Project# 699963 P/W# 624; Project# 185883 P/W# 529; and Project# 150136 P/W# 171
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
Instructions from State of Missouri, State Emergency Management Agency states “In accordance with Public Assistance Program policy, applicants, on quarterly basis, must submit a report identifying the status of each of their open/incomplete projects in each disaster for which they are applicant”.
Condition:
Timeliness and submission of the quarterly reports required by the State of Missouri could not be verified.
Cause:
Management did not retain the supporting documentation to evidence the submission of the quarterly reports.
Effect or potential effect:
Mercy Health potentially did not file the required reports with the State of Missouri on a timely basis and was not in compliance with the program reporting requirements.
Questioned costs:
None.
Context:
Mercy Health had a total of eight quarterly report submissions for the year ended June 30, 2023. We tested five of the eight quarterly reports and management did not retain supporting documentation of timely submission for any of the reports. The total federal expenditures for the program in fiscal year 2023 related to the FEMA grants was $3,383,897.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should implement internal controls over the retention of supporting evidence of timely submission of the reports.
Views of Responsible Officials:
The state of Missouri requires all quarterly reports be mailed. While we did send in our quarterly reports to the state of Missouri as required, we do not have proof of submissions as we did not send by certified mail. All future quarterly reporting will be documented with an email to our state SEMA representative when we send out quarterly reports so there is documentation for our records.
Finding 2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantors:
State of Missouri, State Emergency Management Agency
Arkansas Division of Emergency Management
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers and Award Periods:
Project# 185883 P/W# 529 01/20/2020–09/14/2020
Project# 699963 P/W# 624 01/01/2022–07/01/2022
Project# 699667 P/W# 233 01/01/2022–07/01/2022
Project# 699670 P/W# 211 01/01/2022–07/01/2022
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
As described in Title 2 Code of Federal Regulations (C.F.R.) § 200.333, financial records, supporting documents, statistical records and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three (3) years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.
In addition, 2 CFR Section 200.403 of the Uniform Guidance states the following regarding the factors affecting the allowability of costs:
“Except where otherwise authorized by statue, costs must meet the following general criteria in order to be allowable under Federal awards:
(g) Be adequately documented.”
Condition:
Adequate documentation was not retained to support the average unit cost applied to COVID-19 personal protective equipment (PPE) inventory usage charged to the FEMA program as Force Account Material (FAM) costs.
In addition, for 12 of 40 non-FAM costs (including purchased equipment, purchased supplies, and rental equipment) charged to the program, we noted adequate documentation was not retained to evidence review and approval of the expenditure for allowability.
Cause:
Management did not have sufficiently designed internal controls in place over the review and approval of average unit costs applied to FAM usage charged to the FEMA program.
In addition, for 11 non-FAM (purchased equipment) transactions from fiscal year 2020 charged to the FEMA program, expenditure approvals were maintained in a legacy general ledger system and upon migration to the current general ledger system, the approval trail was not retained. For one other non-FAM (purchased equipment) transaction from fiscal year 2022 charged to the FEMA program, the required level of approvals of the purchase-card transaction was not retained.
Effect or potential effect:
For FAM costs, Mercy Health is not in compliance with the general criteria of maintaining adequate documentation that supports the average unit costs used in the calculation and determination of the costs charged to the federal program.
For non-FAM costs, Mercy Health may not be compliant with the allowability of costs requirements of the FEMA program.
Questioned costs:
$45 – Assistance Listing No. 97.036 (COVID-19).
Context:
We sampled 40 FAM costs (totaling $2,826 in federal expenditures) and agreed the PPE inventory item’s usage to supporting requisition documentation. In addition, we obtained the external vendor invoice for the purchase of the PPE inventory item immediately prior to the usage of the PPE inventory item. However, for all 40 sampled FAM costs, we could not verify the average unit cost that is used in determining the amount charged to the FEMA program. The net overstatement of the costs based on the average unit cost for these 40 sampled FAM costs in comparison to the external vendor invoices was $45.
In addition, we sampled 40 non-FAM costs (totaling $218,110 in federal expenditures) and noted that 12 purchased equipment transactions (totaling $182,048 in federal expenditures) did not have support retained to evidence review and approval of the expenditure for allowability.
FAM costs and non-FAM costs represent 71% and 29%, respectively, of total federal expenditures for the FEMA program of $3,383,897 for the year ended June 30, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Management should design and implement effective internal controls over the review and approval of all costs charged to the FEMA program.
Views of Responsible Officials:
Mercy Health has a system to calculate average cost of inventory items. We rely on this system, but it was not tested as part of compliance.
In addition, Mercy Health has a robust capital approval process (for all equipment) and financial approval thresholds. All COVID purchases were logged in the capital system (VFA) and approvals were documented. During this time, we changed approval systems from VFA to Strata. We will ensure all capital is reviewed and approved in Strata going forward.
Finding 2023-004 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantor: State of Missouri, State Emergency Management Agency
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers: Project# 699963 P/W# 624; Project# 185883 P/W# 529; and Project# 150136 P/W# 171
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
Instructions from State of Missouri, State Emergency Management Agency states “In accordance with Public Assistance Program policy, applicants, on quarterly basis, must submit a report identifying the status of each of their open/incomplete projects in each disaster for which they are applicant”.
Condition:
Timeliness and submission of the quarterly reports required by the State of Missouri could not be verified.
Cause:
Management did not retain the supporting documentation to evidence the submission of the quarterly reports.
Effect or potential effect:
Mercy Health potentially did not file the required reports with the State of Missouri on a timely basis and was not in compliance with the program reporting requirements.
Questioned costs:
None.
Context:
Mercy Health had a total of eight quarterly report submissions for the year ended June 30, 2023. We tested five of the eight quarterly reports and management did not retain supporting documentation of timely submission for any of the reports. The total federal expenditures for the program in fiscal year 2023 related to the FEMA grants was $3,383,897.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should implement internal controls over the retention of supporting evidence of timely submission of the reports.
Views of Responsible Officials:
The state of Missouri requires all quarterly reports be mailed. While we did send in our quarterly reports to the state of Missouri as required, we do not have proof of submissions as we did not send by certified mail. All future quarterly reporting will be documented with an email to our state SEMA representative when we send out quarterly reports so there is documentation for our records.
Finding 2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantors:
State of Missouri, State Emergency Management Agency
Arkansas Division of Emergency Management
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers and Award Periods:
Project# 185883 P/W# 529 01/20/2020–09/14/2020
Project# 699963 P/W# 624 01/01/2022–07/01/2022
Project# 699667 P/W# 233 01/01/2022–07/01/2022
Project# 699670 P/W# 211 01/01/2022–07/01/2022
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
As described in Title 2 Code of Federal Regulations (C.F.R.) § 200.333, financial records, supporting documents, statistical records and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three (3) years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.
In addition, 2 CFR Section 200.403 of the Uniform Guidance states the following regarding the factors affecting the allowability of costs:
“Except where otherwise authorized by statue, costs must meet the following general criteria in order to be allowable under Federal awards:
(g) Be adequately documented.”
Condition:
Adequate documentation was not retained to support the average unit cost applied to COVID-19 personal protective equipment (PPE) inventory usage charged to the FEMA program as Force Account Material (FAM) costs.
In addition, for 12 of 40 non-FAM costs (including purchased equipment, purchased supplies, and rental equipment) charged to the program, we noted adequate documentation was not retained to evidence review and approval of the expenditure for allowability.
Cause:
Management did not have sufficiently designed internal controls in place over the review and approval of average unit costs applied to FAM usage charged to the FEMA program.
In addition, for 11 non-FAM (purchased equipment) transactions from fiscal year 2020 charged to the FEMA program, expenditure approvals were maintained in a legacy general ledger system and upon migration to the current general ledger system, the approval trail was not retained. For one other non-FAM (purchased equipment) transaction from fiscal year 2022 charged to the FEMA program, the required level of approvals of the purchase-card transaction was not retained.
Effect or potential effect:
For FAM costs, Mercy Health is not in compliance with the general criteria of maintaining adequate documentation that supports the average unit costs used in the calculation and determination of the costs charged to the federal program.
For non-FAM costs, Mercy Health may not be compliant with the allowability of costs requirements of the FEMA program.
Questioned costs:
$45 – Assistance Listing No. 97.036 (COVID-19).
Context:
We sampled 40 FAM costs (totaling $2,826 in federal expenditures) and agreed the PPE inventory item’s usage to supporting requisition documentation. In addition, we obtained the external vendor invoice for the purchase of the PPE inventory item immediately prior to the usage of the PPE inventory item. However, for all 40 sampled FAM costs, we could not verify the average unit cost that is used in determining the amount charged to the FEMA program. The net overstatement of the costs based on the average unit cost for these 40 sampled FAM costs in comparison to the external vendor invoices was $45.
In addition, we sampled 40 non-FAM costs (totaling $218,110 in federal expenditures) and noted that 12 purchased equipment transactions (totaling $182,048 in federal expenditures) did not have support retained to evidence review and approval of the expenditure for allowability.
FAM costs and non-FAM costs represent 71% and 29%, respectively, of total federal expenditures for the FEMA program of $3,383,897 for the year ended June 30, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Management should design and implement effective internal controls over the review and approval of all costs charged to the FEMA program.
Views of Responsible Officials:
Mercy Health has a system to calculate average cost of inventory items. We rely on this system, but it was not tested as part of compliance.
In addition, Mercy Health has a robust capital approval process (for all equipment) and financial approval thresholds. All COVID purchases were logged in the capital system (VFA) and approvals were documented. During this time, we changed approval systems from VFA to Strata. We will ensure all capital is reviewed and approved in Strata going forward.
Finding 2023-004 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantor: State of Missouri, State Emergency Management Agency
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers: Project# 699963 P/W# 624; Project# 185883 P/W# 529; and Project# 150136 P/W# 171
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
Instructions from State of Missouri, State Emergency Management Agency states “In accordance with Public Assistance Program policy, applicants, on quarterly basis, must submit a report identifying the status of each of their open/incomplete projects in each disaster for which they are applicant”.
Condition:
Timeliness and submission of the quarterly reports required by the State of Missouri could not be verified.
Cause:
Management did not retain the supporting documentation to evidence the submission of the quarterly reports.
Effect or potential effect:
Mercy Health potentially did not file the required reports with the State of Missouri on a timely basis and was not in compliance with the program reporting requirements.
Questioned costs:
None.
Context:
Mercy Health had a total of eight quarterly report submissions for the year ended June 30, 2023. We tested five of the eight quarterly reports and management did not retain supporting documentation of timely submission for any of the reports. The total federal expenditures for the program in fiscal year 2023 related to the FEMA grants was $3,383,897.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should implement internal controls over the retention of supporting evidence of timely submission of the reports.
Views of Responsible Officials:
The state of Missouri requires all quarterly reports be mailed. While we did send in our quarterly reports to the state of Missouri as required, we do not have proof of submissions as we did not send by certified mail. All future quarterly reporting will be documented with an email to our state SEMA representative when we send out quarterly reports so there is documentation for our records.
Finding 2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantors:
State of Missouri, State Emergency Management Agency
Arkansas Division of Emergency Management
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers and Award Periods:
Project# 185883 P/W# 529 01/20/2020–09/14/2020
Project# 699963 P/W# 624 01/01/2022–07/01/2022
Project# 699667 P/W# 233 01/01/2022–07/01/2022
Project# 699670 P/W# 211 01/01/2022–07/01/2022
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
As described in Title 2 Code of Federal Regulations (C.F.R.) § 200.333, financial records, supporting documents, statistical records and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three (3) years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.
In addition, 2 CFR Section 200.403 of the Uniform Guidance states the following regarding the factors affecting the allowability of costs:
“Except where otherwise authorized by statue, costs must meet the following general criteria in order to be allowable under Federal awards:
(g) Be adequately documented.”
Condition:
Adequate documentation was not retained to support the average unit cost applied to COVID-19 personal protective equipment (PPE) inventory usage charged to the FEMA program as Force Account Material (FAM) costs.
In addition, for 12 of 40 non-FAM costs (including purchased equipment, purchased supplies, and rental equipment) charged to the program, we noted adequate documentation was not retained to evidence review and approval of the expenditure for allowability.
Cause:
Management did not have sufficiently designed internal controls in place over the review and approval of average unit costs applied to FAM usage charged to the FEMA program.
In addition, for 11 non-FAM (purchased equipment) transactions from fiscal year 2020 charged to the FEMA program, expenditure approvals were maintained in a legacy general ledger system and upon migration to the current general ledger system, the approval trail was not retained. For one other non-FAM (purchased equipment) transaction from fiscal year 2022 charged to the FEMA program, the required level of approvals of the purchase-card transaction was not retained.
Effect or potential effect:
For FAM costs, Mercy Health is not in compliance with the general criteria of maintaining adequate documentation that supports the average unit costs used in the calculation and determination of the costs charged to the federal program.
For non-FAM costs, Mercy Health may not be compliant with the allowability of costs requirements of the FEMA program.
Questioned costs:
$45 – Assistance Listing No. 97.036 (COVID-19).
Context:
We sampled 40 FAM costs (totaling $2,826 in federal expenditures) and agreed the PPE inventory item’s usage to supporting requisition documentation. In addition, we obtained the external vendor invoice for the purchase of the PPE inventory item immediately prior to the usage of the PPE inventory item. However, for all 40 sampled FAM costs, we could not verify the average unit cost that is used in determining the amount charged to the FEMA program. The net overstatement of the costs based on the average unit cost for these 40 sampled FAM costs in comparison to the external vendor invoices was $45.
In addition, we sampled 40 non-FAM costs (totaling $218,110 in federal expenditures) and noted that 12 purchased equipment transactions (totaling $182,048 in federal expenditures) did not have support retained to evidence review and approval of the expenditure for allowability.
FAM costs and non-FAM costs represent 71% and 29%, respectively, of total federal expenditures for the FEMA program of $3,383,897 for the year ended June 30, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Management should design and implement effective internal controls over the review and approval of all costs charged to the FEMA program.
Views of Responsible Officials:
Mercy Health has a system to calculate average cost of inventory items. We rely on this system, but it was not tested as part of compliance.
In addition, Mercy Health has a robust capital approval process (for all equipment) and financial approval thresholds. All COVID purchases were logged in the capital system (VFA) and approvals were documented. During this time, we changed approval systems from VFA to Strata. We will ensure all capital is reviewed and approved in Strata going forward.
Finding 2023-004 Reporting
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Pass-Through Grantor: State of Missouri, State Emergency Management Agency
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA)
Pass-Through Award Numbers: Project# 699963 P/W# 624; Project# 185883 P/W# 529; and Project# 150136 P/W# 171
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
Instructions from State of Missouri, State Emergency Management Agency states “In accordance with Public Assistance Program policy, applicants, on quarterly basis, must submit a report identifying the status of each of their open/incomplete projects in each disaster for which they are applicant”.
Condition:
Timeliness and submission of the quarterly reports required by the State of Missouri could not be verified.
Cause:
Management did not retain the supporting documentation to evidence the submission of the quarterly reports.
Effect or potential effect:
Mercy Health potentially did not file the required reports with the State of Missouri on a timely basis and was not in compliance with the program reporting requirements.
Questioned costs:
None.
Context:
Mercy Health had a total of eight quarterly report submissions for the year ended June 30, 2023. We tested five of the eight quarterly reports and management did not retain supporting documentation of timely submission for any of the reports. The total federal expenditures for the program in fiscal year 2023 related to the FEMA grants was $3,383,897.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Mercy Health should implement internal controls over the retention of supporting evidence of timely submission of the reports.
Views of Responsible Officials:
The state of Missouri requires all quarterly reports be mailed. While we did send in our quarterly reports to the state of Missouri as required, we do not have proof of submissions as we did not send by certified mail. All future quarterly reporting will be documented with an email to our state SEMA representative when we send out quarterly reports so there is documentation for our records.