Audit 310237

EMPLOYMENT DEVELOPMENT DEPARTMENT Reference Number: 2022-001 Type of Finding: Material Weakness and Material Instance of Noncompliance Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart F - Audit Requirements. §200.510 Financial statements (2 CFR 200.510): (b) Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502 Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: (3) Provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. Condition The State of California (State) has a decentralized financial reporting process, which requires State agencies and departments to provide specific financial information to the Department of Finance (Finance) in order to annually compile the Schedule of Expenditures of Federal Awards (Schedule). In its effort to more efficiently and accurately prepare the Schedule in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Finance developed the Single Audit Expenditures Reporting Database (Database). Finance developed the Database to include all of the relevant data fields necessary to compile and produce the Schedule. Finance also created a Single Audit Database User Manual, which provides specific guidance to users for accessing and navigating through the database. Due to the unprecedented impacts from the COVID-19 pandemic, the Employment Development Department (EDD) was unable to timely report to Finance through the Database with accurate and reliable federal cash basis expenditures for its largest federal award program that it administers, the Unemployment Insurance (ALN 17.225) program. The delay resulted in Finance being unable to compile and produce a complete and final approved Schedule until December 2023. Although an initial estimated expenditure amount was reported by EDD of $27.0 billion, the final amount reported in the Schedule was $23.3 billion. Cause Given the substantial increase in claimants seeking assistance under the Unemployment Insurance program resulting from the COVID-19 pandemic, EDD was overwhelmed with the administration of the Unemployment Insurance program. Effect The difficulties that EDD encountered from the COVID-19 pandemic, resulted in the late reporting and submission of final federal cash basis expenditures to Finance. The untimely submission continued to limit and constrain Finance from compiling and producing a final complete and accurate Schedule. Questioned Costs Questioned costs were not determinable. Recommendation EDD should continue to evaluate existing processes and controls related to its ability to properly report, and timely submit complete and accurate federal award cash basis expenditures to the Database, which affords Finance the ability to timely compile and produce a final Schedule pursuant to the Uniform Guidance. Views of Responsible Officials and Corrective Action Plan EDD agrees with this finding. The deferred transition to FI$Cal and the difficulties experienced thereafter have continued to cause EDD to be late with submitting year-end financials and its ability to submit timely the cash basis expenditures into the Single Audit Expenditures Reporting Database (Database). In addition, the onset of the COVID-19 pandemic created additional issues which ultimately impacted the EDD’s ability to submit timely year-end financials. However, the EDD continues to make progress to gain ground in the department’s efforts to follow the State’s deadlines for submitting year-end financials and entering the cash basis expenditures into the Database. During fiscal year 2022-23, the EDD completed a restructuring within the accounting area which realigned workload amongst the units and provided additional resources in critical areas. These changes will have a lasting effect and help the department to be better positioned going forward in processing the accounting workload and ultimately be able to catch up and submit year-end financials and enter the cash basis expenditures into the Database by the State’s deadlines. In addition, the EDD took lessons learned from the financial audits from the prior two fiscal years to update processes and procedures and applied that knowledge going forward. Also, staff continue to participate in various trainings offered by the Department of Finance and the Department of FI$Cal. In addition, staff work with the control agencies when issues arise that would impact our accounting functions.

EMPLOYMENT DEVELOPMENT DEPARTMENT Reference Number: 2022-001 Type of Finding: Material Weakness and Material Instance of Noncompliance Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart F - Audit Requirements. §200.510 Financial statements (2 CFR 200.510): (b) Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502 Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: (3) Provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. Condition The State of California (State) has a decentralized financial reporting process, which requires State agencies and departments to provide specific financial information to the Department of Finance (Finance) in order to annually compile the Schedule of Expenditures of Federal Awards (Schedule). In its effort to more efficiently and accurately prepare the Schedule in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Finance developed the Single Audit Expenditures Reporting Database (Database). Finance developed the Database to include all of the relevant data fields necessary to compile and produce the Schedule. Finance also created a Single Audit Database User Manual, which provides specific guidance to users for accessing and navigating through the database. Due to the unprecedented impacts from the COVID-19 pandemic, the Employment Development Department (EDD) was unable to timely report to Finance through the Database with accurate and reliable federal cash basis expenditures for its largest federal award program that it administers, the Unemployment Insurance (ALN 17.225) program. The delay resulted in Finance being unable to compile and produce a complete and final approved Schedule until December 2023. Although an initial estimated expenditure amount was reported by EDD of $27.0 billion, the final amount reported in the Schedule was $23.3 billion. Cause Given the substantial increase in claimants seeking assistance under the Unemployment Insurance program resulting from the COVID-19 pandemic, EDD was overwhelmed with the administration of the Unemployment Insurance program. Effect The difficulties that EDD encountered from the COVID-19 pandemic, resulted in the late reporting and submission of final federal cash basis expenditures to Finance. The untimely submission continued to limit and constrain Finance from compiling and producing a final complete and accurate Schedule. Questioned Costs Questioned costs were not determinable. Recommendation EDD should continue to evaluate existing processes and controls related to its ability to properly report, and timely submit complete and accurate federal award cash basis expenditures to the Database, which affords Finance the ability to timely compile and produce a final Schedule pursuant to the Uniform Guidance. Views of Responsible Officials and Corrective Action Plan EDD agrees with this finding. The deferred transition to FI$Cal and the difficulties experienced thereafter have continued to cause EDD to be late with submitting year-end financials and its ability to submit timely the cash basis expenditures into the Single Audit Expenditures Reporting Database (Database). In addition, the onset of the COVID-19 pandemic created additional issues which ultimately impacted the EDD’s ability to submit timely year-end financials. However, the EDD continues to make progress to gain ground in the department’s efforts to follow the State’s deadlines for submitting year-end financials and entering the cash basis expenditures into the Database. During fiscal year 2022-23, the EDD completed a restructuring within the accounting area which realigned workload amongst the units and provided additional resources in critical areas. These changes will have a lasting effect and help the department to be better positioned going forward in processing the accounting workload and ultimately be able to catch up and submit year-end financials and enter the cash basis expenditures into the Database by the State’s deadlines. In addition, the EDD took lessons learned from the financial audits from the prior two fiscal years to update processes and procedures and applied that knowledge going forward. Also, staff continue to participate in various trainings offered by the Department of Finance and the Department of FI$Cal. In addition, staff work with the control agencies when issues arise that would impact our accounting functions.

DDEPARTMENT OF PUBLIC HEALTH Reference Number: 2022-002 Type of Finding: Material Weakness and Instance of Noncompliance Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart F - Audit Requirements. §200.510 Financial statements (2 CFR 200.510): (b) Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502 Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: (3) Provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. (4) Include the total amount provided to subrecipients from each Federal program. Condition The State of California (State) has a decentralized financial reporting process, which requires State agencies and departments to provide specific financial information to the Department of Finance (Finance) in order to annually compile the Schedule of Expenditures of Federal Awards (Schedule). In its effort to more efficiently and accurately prepare the Schedule in accordance with the requirements of 2 CFR 200.510, Finance developed the Single Audit Expenditures Reporting Database (Database) to include all relevant data fields necessary to compile and produce the Schedule. Finance also created a Single Audit Database User Manual, which provides specific guidance to users for accessing and navigating through the database. Departments are given access to the centralized Database by Finance in order to upload and report federal award information for all federal award programs which they administer.   The California Department of Public Health (Public Health) understated federal expenditures and overstated amounts passed through to subrecipients for the Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) program (ALN No. 93.323). The error, which was subsequently corrected, is indicative of a lack of sufficient controls for ensuring the Schedule’s completeness and accuracy prior to submission to Finance. Cause Public Health was a subrecipient of federal funds provided by their bona fide agent, Heluna Health, during the fiscal year ended June 30, 2022. Initially, the ELC program funds were not identified and recognized as federal expenditures until January 2023. During its compilation of federal award expenditures for reporting in Finance’s Database, Public Health did not properly analyze and capture all relevant financial transactions related to the ELC program. Effect Federal expenditures originally reported in the Schedule by Public Health for the ELC program were understated by $154,155,192 and the amounts passed through to subrecipients were overstated by $516,650,718. Questioned Costs No questioned costs were identified. Recommendation Public Health should establish a more thorough internal review and communication process between ELC program administration and accounting personnel to ensure information submitted to Finance for compilation of the Schedule is complete and accurate. Views of Responsible Officials and Corrective Action Plan Public Health’s Accounting Office will generate the FI$Cal Year End Close report (KK_12 expenditure) and collaborate with the ELC program to ensure that all expenditures captured are complete and accurate, ensuring timely reporting of the SEFA data for FY 2023-24 and beyond. Please note that the ELC program has been reported in the FY 2022-23 SEFA. Additionally, we will update the procedures to document the SEFA reporting for the ELC program. Estimated Implementation Date: September 2024 Contact: Jennifer Chan, Accounting Administrator II Federal Reporting Unit, Financial Management Division California Department of Public Health

Reference Number: 2022-003 Category of Finding: Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 10.557 Federal Program Title: Special Supplemental Nutrition Program for Women, Infants, and Children COVID-19 Special Supplemental Nutrition Program for Women, Infants, and Children Federal Award Numbers and Years: 202019W100647; 2020 202020W100347, 2020 202020W100647, 2020 202120W600347, 2021 202120W600647, 2021 202121W100347, 2021 202121W100647, 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 7 – Agriculture. Subtitle B - Regulations of the Department of Agriculture. Chapter II – Food and Nutrition Service, Department of Agriculture. Subchapter A – Child Nutrition Programs. Part 246 - Special Supplemental Nutrition Program for Women, Infants and Children, §246.7 - Certification of participants: (c) Eligibility criteria and basic certification procedures. (1) To qualify for the Program, infants, children, and pregnant, postpartum, and breastfeeding women must: (i) Reside within the jurisdiction of the State (except for Indian State agencies). Indian State agencies may establish a similar requirement. All State agencies may determine a service area for any local agency, and may require that an applicant reside within the service area. However, the State agency may not use length of residency as an eligibility requirement. (ii) Meet the income criteria specified in paragraph (d) of this section. (iii) Meet the nutritional risk criteria specified in paragraph (e) of this section. (2) (i) At certification, the State or local agency must require each applicant to present proof of residency (i.e., location or address where the applicant routinely lives or spends the night) and proof of identity. The State or local agency must also check the identity of participants, or in the case of infants or children, the identity of the parent or guardian, or proxies when issuing food, cash-value vouchers or food instruments. The State agency may authorize the certification of applicants when no proof of residency or identity exists (such as when an applicant or an applicant's parent is a victim of theft, loss, or disaster; a homeless individual; or a migrant farmworker). In these cases, the State or local agency must require the applicant to confirm in writing his/her residency or identity. Further, an individual residing in a remote Indian or Native village or an individual served by an Indian tribal organization and residing on a reservation or pueblo may establish proof of residency by providing the State agency their mailing address and the name of the remote Indian or Native village. (e) Nutritional risk. To be certified as eligible for the Program, applicants who meet the Program's eligibility standards specified in paragraph (c) of this section must be determined to be at nutritional risk. … Nutritional risk data shall be documented in the participant's file and shall be used to assess an applicant's nutritional status and risk; tailor the food package to address nutritional needs; design appropriate nutrition education, including breastfeeding promotion and support; and make referrals to health and social services for follow-up, as necessary and appropriate. (1) Determination of nutritional risk. (ii) Timing of nutritional risk data. (A) Weight and height or length. Weight and height or length shall be measured not more than 60 days prior to certification for program participation. (B) Hematological test for anemia. (1) For pregnant, breastfeeding, and postpartum women, and child applicants, the hematological test for anemia shall be performed or obtained from referral sources at the time of certification or within 90 days of the date of certification. The hematological test for anemia may be deferred for up to 90 days from the time of certification for applicants who have at least one qualifying nutritional risk factor present at the time of certification. If no qualifying risk factor is identified, a hematological test for anemia must be performed or obtained from referral sources (with the exception of presumptively eligible pregnant women). (2) Infants nine months of age and older (who have not already had a hematological test performed, between six and nine months of age, by a competent professional authority or obtained from referral sources), shall between nine and twelve months of age have a hematological test performed or obtained from referral sources. Such a test may be performed more than 90 days after the date of certification. (3) For pregnant women, the hematological test for anemia shall be performed during their pregnancy. For persons certified as postpartum or breastfeeding women, the hematological test for anemia shall be performed after the termination of their pregnancy. For breastfeeding women who are 6-12 months postpartum, no additional blood test is necessary if a test was performed after the termination of their pregnancy. The participant or parent/guardian shall be informed of the test results when there is a finding of anemia, and notations reflecting the outcome of the tests shall be made in the participant's file. Nutrition education, food package tailoring, and referral services shall be provided to the participant or parent/guardian, as necessary and appropriate. Condition During the fiscal year ended June 30, 2020, the Special Supplemental Food Program for Women, Infants and Children (WIC) nutrition program implemented phase 1 of a new management information system known as the Women, Infants, and Children Web Information System Exchange (WIC-WISE) in a two-phased approach to replace the WIC Management Information Systems (WIC-MIS). WIC-WISE is programmed such that updates to eligibility information overwrites existing data. As a result, key data and documentation to support the initial participant eligibility is removed during the recertification process. The California Department of Public Health, WIC Division requested a correction to WIC-WISE to retain eligibility history in the “Cert History Report” when subsequent eligibility information is inputted. The correction had not been implemented and the system defect still existed during the fiscal year ended June 30, 2022. Identification as a Repeat Finding Finding 2021-003 was reported in the immediate prior year. Cause The phase 1 implementation of WIC-WISE did not include system functionality to retain historical eligibility documentation when subsequent information was entered during the participant recertification process. Effect The system limitation of WIC-WISE does not allow for the retention of proper documentation of eligibility information. Accordingly, there is an increased risk for the occurrence of benefits being provided to ineligible individuals, which may not be prevented or detected in a timely manner. Questioned Costs Questioned costs were not determinable. Context Total food vouchers disbursed to program participants during the fiscal year ended June 30, 2022, totaled $566,045,030. Recommendation WIC-WISE system updates should be promptly implemented and tested to ensure that participant data and eligibility documentation is appropriately retained within the system. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-003 Category of Finding: Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 10.557 Federal Program Title: Special Supplemental Nutrition Program for Women, Infants, and Children COVID-19 Special Supplemental Nutrition Program for Women, Infants, and Children Federal Award Numbers and Years: 202019W100647; 2020 202020W100347, 2020 202020W100647, 2020 202120W600347, 2021 202120W600647, 2021 202121W100347, 2021 202121W100647, 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 7 – Agriculture. Subtitle B - Regulations of the Department of Agriculture. Chapter II – Food and Nutrition Service, Department of Agriculture. Subchapter A – Child Nutrition Programs. Part 246 - Special Supplemental Nutrition Program for Women, Infants and Children, §246.7 - Certification of participants: (c) Eligibility criteria and basic certification procedures. (1) To qualify for the Program, infants, children, and pregnant, postpartum, and breastfeeding women must: (i) Reside within the jurisdiction of the State (except for Indian State agencies). Indian State agencies may establish a similar requirement. All State agencies may determine a service area for any local agency, and may require that an applicant reside within the service area. However, the State agency may not use length of residency as an eligibility requirement. (ii) Meet the income criteria specified in paragraph (d) of this section. (iii) Meet the nutritional risk criteria specified in paragraph (e) of this section. (2) (i) At certification, the State or local agency must require each applicant to present proof of residency (i.e., location or address where the applicant routinely lives or spends the night) and proof of identity. The State or local agency must also check the identity of participants, or in the case of infants or children, the identity of the parent or guardian, or proxies when issuing food, cash-value vouchers or food instruments. The State agency may authorize the certification of applicants when no proof of residency or identity exists (such as when an applicant or an applicant's parent is a victim of theft, loss, or disaster; a homeless individual; or a migrant farmworker). In these cases, the State or local agency must require the applicant to confirm in writing his/her residency or identity. Further, an individual residing in a remote Indian or Native village or an individual served by an Indian tribal organization and residing on a reservation or pueblo may establish proof of residency by providing the State agency their mailing address and the name of the remote Indian or Native village. (e) Nutritional risk. To be certified as eligible for the Program, applicants who meet the Program's eligibility standards specified in paragraph (c) of this section must be determined to be at nutritional risk. … Nutritional risk data shall be documented in the participant's file and shall be used to assess an applicant's nutritional status and risk; tailor the food package to address nutritional needs; design appropriate nutrition education, including breastfeeding promotion and support; and make referrals to health and social services for follow-up, as necessary and appropriate. (1) Determination of nutritional risk. (ii) Timing of nutritional risk data. (A) Weight and height or length. Weight and height or length shall be measured not more than 60 days prior to certification for program participation. (B) Hematological test for anemia. (1) For pregnant, breastfeeding, and postpartum women, and child applicants, the hematological test for anemia shall be performed or obtained from referral sources at the time of certification or within 90 days of the date of certification. The hematological test for anemia may be deferred for up to 90 days from the time of certification for applicants who have at least one qualifying nutritional risk factor present at the time of certification. If no qualifying risk factor is identified, a hematological test for anemia must be performed or obtained from referral sources (with the exception of presumptively eligible pregnant women). (2) Infants nine months of age and older (who have not already had a hematological test performed, between six and nine months of age, by a competent professional authority or obtained from referral sources), shall between nine and twelve months of age have a hematological test performed or obtained from referral sources. Such a test may be performed more than 90 days after the date of certification. (3) For pregnant women, the hematological test for anemia shall be performed during their pregnancy. For persons certified as postpartum or breastfeeding women, the hematological test for anemia shall be performed after the termination of their pregnancy. For breastfeeding women who are 6-12 months postpartum, no additional blood test is necessary if a test was performed after the termination of their pregnancy. The participant or parent/guardian shall be informed of the test results when there is a finding of anemia, and notations reflecting the outcome of the tests shall be made in the participant's file. Nutrition education, food package tailoring, and referral services shall be provided to the participant or parent/guardian, as necessary and appropriate. Condition During the fiscal year ended June 30, 2020, the Special Supplemental Food Program for Women, Infants and Children (WIC) nutrition program implemented phase 1 of a new management information system known as the Women, Infants, and Children Web Information System Exchange (WIC-WISE) in a two-phased approach to replace the WIC Management Information Systems (WIC-MIS). WIC-WISE is programmed such that updates to eligibility information overwrites existing data. As a result, key data and documentation to support the initial participant eligibility is removed during the recertification process. The California Department of Public Health, WIC Division requested a correction to WIC-WISE to retain eligibility history in the “Cert History Report” when subsequent eligibility information is inputted. The correction had not been implemented and the system defect still existed during the fiscal year ended June 30, 2022. Identification as a Repeat Finding Finding 2021-003 was reported in the immediate prior year. Cause The phase 1 implementation of WIC-WISE did not include system functionality to retain historical eligibility documentation when subsequent information was entered during the participant recertification process. Effect The system limitation of WIC-WISE does not allow for the retention of proper documentation of eligibility information. Accordingly, there is an increased risk for the occurrence of benefits being provided to ineligible individuals, which may not be prevented or detected in a timely manner. Questioned Costs Questioned costs were not determinable. Context Total food vouchers disbursed to program participants during the fiscal year ended June 30, 2022, totaled $566,045,030. Recommendation WIC-WISE system updates should be promptly implemented and tested to ensure that participant data and eligibility documentation is appropriately retained within the system. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-004 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 20 - Employees’ Benefits, Chapter V, Employment and Training Administration, Department of Labor, Part 625 - Disaster Unemployment Assistance, §625.14 Overpayments; disqualification for fraud: (h) Provisions in the procedures of each State with respect to detection and prevention of fraudulent overpayments of DUA shall be, as a minimum, commensurate with the procedures adopted by the State with respect to regular compensation and consistent with the Secretary's “Standard for Fraud and Overpayment Detection,” Employment Security Manual, part V, sections 7510 et seq. (Appendix C of this part). (i) Any individual who, with respect to a major disaster, makes or causes another to make a false statement or misrepresentation of a material fact, knowing it to be false, or knowingly fails or causes another to fail to disclose a material fact, in order to obtain for the individual or any other person a payment of DUA to which the individual or any other person is not entitled, shall be disqualified as follows: (1) If the false statement, misrepresentation, or nondisclosure pertains to an initial application for DUA – i. The individual making the false statement, misrepresentation, or nondisclosure shall be disqualified from the receipt of any DUA with respect to that major disaster; and   ii. If the false statement, misrepresentation, or nondisclosure was made on behalf of another individual, and was known to such other individual to be a false statement, misrepresentation, or nondisclosure, such other individual shall be disqualified from the receipt of any DUA with respect to that major disaster; and (2) If the false statement, misrepresentation, or nondisclosure pertains to a week for which application for a payment of DUA is made – i. The individual making the false statement, misrepresentation, or nondisclosure shall be disqualified from the receipt of DUA for that week and the first two compensable weeks in the Disaster Assistance Period that immediately follow that week, with respect to which the individual is otherwise entitled to a payment of DUA; and ii. If the false statement, misrepresentation, or nondisclosure was made on behalf of another individual, and was known to such other individual to be a false statement, misrepresentation, or nondisclosure, such other individual shall be disqualified from the receipt of DUA for that week and the first two compensable weeks in the Disaster Assistance Period that immediately follow that week, with respect to which the individual is otherwise entitled to a payment of DUA. Title 15 - Commerce and Trade, Chapter 116, Coronavirus Economic (CARES Act) Subchapter II - Unemployment Insurance Provisions, §9023 Emergency Increase in Unemployment Compensation Benefits (f) Fraud and Overpayments: (1) In General – If an individual knowingly has made, or caused to be made by another, a false statement or representation of a material fact, or knowingly has failed, or caused another to fail, to disclose a material fact, and as a result of such false statement or representation or of such nondisclosure such individual has received an amount of Federal Pandemic Unemployment Compensation or Mixed Earner Unemployment Compensation to which such individual was not entitled, such individual— 1. shall be ineligible for further Federal Pandemic Unemployment Compensation Mixed Earner Unemployment Compensation in accordance with the provisions of the applicable State unemployment compensation law relating to fraud in connection with a claim for unemployment compensation Condition During the fiscal year ended June 30, 2022, EDD continued its administration of the Pandemic Unemployment Assistance (PUA) program, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19 relief in unemployment compensation. Under the CARES Act, the PUA program was to be administered in accordance with the Disaster Unemployment Assistance (DUA) program under section 625 of Title 20, Code of Federal Regulations. Claimants eligible for PUA benefits were paid additional benefits under the Federal Pandemic Unemployment Compensation program (FPUC). In EDD’s administration of the PUA and FPUC programs, $3,559,865,590 in benefit payments were estimated to be ineligible payments and have not been reported in the schedule of expenditures of federal awards. The estimate was made by the Unemployment Insurance Branch and was based on data parameters to identify claimants that received benefits that matched ineligible criteria for identity fraud or eligibility fraud for misrepresented information.   Out of 138 PUA benefit payments tested, there were 27 benefit payments to claimants determined to be ineligible whose identity or employment was not sufficiently verified. Identification as a Repeat Finding Finding 2021-004 was reported in the immediate prior year. Cause Existing internal controls did not prevent, or detect and correct, instances of potential fraud for benefit payments for the following reasons. • There was a significant increase in unemployment claims that overwhelmed EDD’s existing fraud detection process. • There were insufficient controls in place to prevent or detect fraud associated with benefit payments related to incarceration, identity, and multiple claims from the same address. Effect EDD did not have adequate oversight controls to ensure that benefit payments were not being made to fraudulent claimants. Accordingly, benefit payments were made to fraudulent claimants who were not eligible. Questioned Costs Likely questioned costs were estimated to be $3,559,865,590 for fiscal year 2021-22. Known questioned costs were $417,860. Context Benefits paid to claimants under the COVID-19 Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $15,246,314,741. The sample was not a statistically valid sample. Recommendation EDD should continue to strengthen controls, such as database identification cross-matches, ID.me verification, partnerships with law enforcement and Thompson Reuters, as well as system enhancements to mitigate the potential of further employment benefit fraud. Such improvements in internal controls should improve EDD’s ability to timely prevent and detect unemployment benefit fraud. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-004 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 20 - Employees’ Benefits, Chapter V, Employment and Training Administration, Department of Labor, Part 625 - Disaster Unemployment Assistance, §625.14 Overpayments; disqualification for fraud: (h) Provisions in the procedures of each State with respect to detection and prevention of fraudulent overpayments of DUA shall be, as a minimum, commensurate with the procedures adopted by the State with respect to regular compensation and consistent with the Secretary's “Standard for Fraud and Overpayment Detection,” Employment Security Manual, part V, sections 7510 et seq. (Appendix C of this part). (i) Any individual who, with respect to a major disaster, makes or causes another to make a false statement or misrepresentation of a material fact, knowing it to be false, or knowingly fails or causes another to fail to disclose a material fact, in order to obtain for the individual or any other person a payment of DUA to which the individual or any other person is not entitled, shall be disqualified as follows: (1) If the false statement, misrepresentation, or nondisclosure pertains to an initial application for DUA – i. The individual making the false statement, misrepresentation, or nondisclosure shall be disqualified from the receipt of any DUA with respect to that major disaster; and   ii. If the false statement, misrepresentation, or nondisclosure was made on behalf of another individual, and was known to such other individual to be a false statement, misrepresentation, or nondisclosure, such other individual shall be disqualified from the receipt of any DUA with respect to that major disaster; and (2) If the false statement, misrepresentation, or nondisclosure pertains to a week for which application for a payment of DUA is made – i. The individual making the false statement, misrepresentation, or nondisclosure shall be disqualified from the receipt of DUA for that week and the first two compensable weeks in the Disaster Assistance Period that immediately follow that week, with respect to which the individual is otherwise entitled to a payment of DUA; and ii. If the false statement, misrepresentation, or nondisclosure was made on behalf of another individual, and was known to such other individual to be a false statement, misrepresentation, or nondisclosure, such other individual shall be disqualified from the receipt of DUA for that week and the first two compensable weeks in the Disaster Assistance Period that immediately follow that week, with respect to which the individual is otherwise entitled to a payment of DUA. Title 15 - Commerce and Trade, Chapter 116, Coronavirus Economic (CARES Act) Subchapter II - Unemployment Insurance Provisions, §9023 Emergency Increase in Unemployment Compensation Benefits (f) Fraud and Overpayments: (1) In General – If an individual knowingly has made, or caused to be made by another, a false statement or representation of a material fact, or knowingly has failed, or caused another to fail, to disclose a material fact, and as a result of such false statement or representation or of such nondisclosure such individual has received an amount of Federal Pandemic Unemployment Compensation or Mixed Earner Unemployment Compensation to which such individual was not entitled, such individual— 1. shall be ineligible for further Federal Pandemic Unemployment Compensation Mixed Earner Unemployment Compensation in accordance with the provisions of the applicable State unemployment compensation law relating to fraud in connection with a claim for unemployment compensation Condition During the fiscal year ended June 30, 2022, EDD continued its administration of the Pandemic Unemployment Assistance (PUA) program, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19 relief in unemployment compensation. Under the CARES Act, the PUA program was to be administered in accordance with the Disaster Unemployment Assistance (DUA) program under section 625 of Title 20, Code of Federal Regulations. Claimants eligible for PUA benefits were paid additional benefits under the Federal Pandemic Unemployment Compensation program (FPUC). In EDD’s administration of the PUA and FPUC programs, $3,559,865,590 in benefit payments were estimated to be ineligible payments and have not been reported in the schedule of expenditures of federal awards. The estimate was made by the Unemployment Insurance Branch and was based on data parameters to identify claimants that received benefits that matched ineligible criteria for identity fraud or eligibility fraud for misrepresented information.   Out of 138 PUA benefit payments tested, there were 27 benefit payments to claimants determined to be ineligible whose identity or employment was not sufficiently verified. Identification as a Repeat Finding Finding 2021-004 was reported in the immediate prior year. Cause Existing internal controls did not prevent, or detect and correct, instances of potential fraud for benefit payments for the following reasons. • There was a significant increase in unemployment claims that overwhelmed EDD’s existing fraud detection process. • There were insufficient controls in place to prevent or detect fraud associated with benefit payments related to incarceration, identity, and multiple claims from the same address. Effect EDD did not have adequate oversight controls to ensure that benefit payments were not being made to fraudulent claimants. Accordingly, benefit payments were made to fraudulent claimants who were not eligible. Questioned Costs Likely questioned costs were estimated to be $3,559,865,590 for fiscal year 2021-22. Known questioned costs were $417,860. Context Benefits paid to claimants under the COVID-19 Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $15,246,314,741. The sample was not a statistically valid sample. Recommendation EDD should continue to strengthen controls, such as database identification cross-matches, ID.me verification, partnerships with law enforcement and Thompson Reuters, as well as system enhancements to mitigate the potential of further employment benefit fraud. Such improvements in internal controls should improve EDD’s ability to timely prevent and detect unemployment benefit fraud. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-005 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 20 - Employees’ Benefits, Chapter V, Employment and Training Administration, Department of Labor, Part 625 - Disaster Unemployment Assistance, §625.6 Weekly amount; jurisdictions; reductions Eligibility and Disqualifications, (b) If the weekly amount computed under paragraph (a) of this section is less than 50 percent of the average weekly payment of regular compensation in the State, as provided quarterly by the Department, or, if the individual has insufficient wages from employment or insufficient or no net income from self-employment (which includes individuals falling within paragraphs (a)(3) and (b)(3) of § 625.5) in the applicable base period to compute a weekly amount under paragraph (a) of this section, the individual shall be determined entitled to a weekly amount equal to 50 percent of the average weekly payment of regular compensation in the State. (e) The State agency shall immediately determine, upon the filing of an initial application for DUA, a weekly amount under the provisions of paragraphs (a) through (d) of this section, as the case may be, based on the individual's statement of employment or self-employment preceding the individual's unemployment that was a direct result of the major disaster, and wages earned or paid for such employment or self-employment. An immediate determination of a weekly amount shall also be made where, in conjunction with the filing of an initial application for DUA, the individual submits documentation substantiating employment or self-employment and wages earned or paid for such employment or self-employment, or, in the absence of documentation, where any State agency records of employment or self-employment and wages earned or paid for such employment or self-employment, justify the determination of a weekly amount. An immediate determination shall also be made based   on the individual's statement or in conjunction with the submittal of documentation in those cases where the individual was to commence employment or self-employment on or after the date the major disaster began but was prevented from doing so as a direct result of the disaster. (1) In the case of a weekly amount determined in accordance with paragraph (e) of this section, based only on the individual's statement of earnings, the individual shall furnish documentation to substantiate the employment or self-employment or wages earned from or paid for such employment or self-employment or documentation to support that the individual was to commence employment or self-employment on or after the date the major disaster began. In either case, documentation shall be submitted within 21 calendar days of the filing of the initial application for DUA. (3) For purposes of a computation of a weekly amount under paragraph (a) of this section, if an individual submits documentation to substantiate employment or self-employment in accordance with paragraph (e)(1), but not documentation of wages earned or paid during the base period set forth in paragraph (a)(2) of this section, including those cases where the individual has not filed a tax return for the most recent tax year that has ended, the State agency shall immediately redetermine the weekly amount of DUA payable to the individual in accordance with paragraph (b) of this section. Condition During the fiscal year ended June 30, 2020, EDD implemented the Pandemic Unemployment Assistance (PUA) program, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19 relief in unemployment compensation. Under the CARES Act, the PUA program was to be administered in accordance with the Disaster Unemployment Assistance (DUA) program under section 625 of Title 20, Code of Federal Regulations. The amount of PUA payable to an unemployed or unemployed self-employed individual for a week of total unemployment shall be the weekly amount of compensation the individual would have been paid as regular compensation, as computed under the provisions of the applicable State law for a week of total unemployment. The weekly amount determination is calculated using the wages reported by the claimant. Upon receipt of a PUA claim, EDD would verify wages reported to ensure accurate weekly benefit amounts under PUA. Out of 138 PUA benefit payments tested, there were 67 claimants with verification issues (either wages, self-employment, or both). Identification as a Repeat Finding Finding 2021-005 was reported in the immediate prior year. Cause EDD did not perform timely wage and employment verifications of the claimants due to the significant increase in claims resulting from the COVID-19 pandemic. Effect EDD did not have adequate oversight controls to ensure that the claimant’s wages were timely and properly reviewed and approved. Accordingly, there was an increased risk for the occurrence of overpayment in benefits being provided to individuals, which was not timely prevented or detected. Questioned Costs Known questioned costs for the 67 claimants were $702,538.   Context Benefits paid to claimants under the COVID-19 Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $15,246,314,741. The sample was not a statisitcally valid sample. Recommendation EDD should ensure that proper verification procedures are in place to minimize the number of claimants with wage and/or employment verification issues. Effective and robust verification procedures should assist EDD in processing unemployment benefits only to eligible claimants. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-005 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 20 - Employees’ Benefits, Chapter V, Employment and Training Administration, Department of Labor, Part 625 - Disaster Unemployment Assistance, §625.6 Weekly amount; jurisdictions; reductions Eligibility and Disqualifications, (b) If the weekly amount computed under paragraph (a) of this section is less than 50 percent of the average weekly payment of regular compensation in the State, as provided quarterly by the Department, or, if the individual has insufficient wages from employment or insufficient or no net income from self-employment (which includes individuals falling within paragraphs (a)(3) and (b)(3) of § 625.5) in the applicable base period to compute a weekly amount under paragraph (a) of this section, the individual shall be determined entitled to a weekly amount equal to 50 percent of the average weekly payment of regular compensation in the State. (e) The State agency shall immediately determine, upon the filing of an initial application for DUA, a weekly amount under the provisions of paragraphs (a) through (d) of this section, as the case may be, based on the individual's statement of employment or self-employment preceding the individual's unemployment that was a direct result of the major disaster, and wages earned or paid for such employment or self-employment. An immediate determination of a weekly amount shall also be made where, in conjunction with the filing of an initial application for DUA, the individual submits documentation substantiating employment or self-employment and wages earned or paid for such employment or self-employment, or, in the absence of documentation, where any State agency records of employment or self-employment and wages earned or paid for such employment or self-employment, justify the determination of a weekly amount. An immediate determination shall also be made based   on the individual's statement or in conjunction with the submittal of documentation in those cases where the individual was to commence employment or self-employment on or after the date the major disaster began but was prevented from doing so as a direct result of the disaster. (1) In the case of a weekly amount determined in accordance with paragraph (e) of this section, based only on the individual's statement of earnings, the individual shall furnish documentation to substantiate the employment or self-employment or wages earned from or paid for such employment or self-employment or documentation to support that the individual was to commence employment or self-employment on or after the date the major disaster began. In either case, documentation shall be submitted within 21 calendar days of the filing of the initial application for DUA. (3) For purposes of a computation of a weekly amount under paragraph (a) of this section, if an individual submits documentation to substantiate employment or self-employment in accordance with paragraph (e)(1), but not documentation of wages earned or paid during the base period set forth in paragraph (a)(2) of this section, including those cases where the individual has not filed a tax return for the most recent tax year that has ended, the State agency shall immediately redetermine the weekly amount of DUA payable to the individual in accordance with paragraph (b) of this section. Condition During the fiscal year ended June 30, 2020, EDD implemented the Pandemic Unemployment Assistance (PUA) program, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19 relief in unemployment compensation. Under the CARES Act, the PUA program was to be administered in accordance with the Disaster Unemployment Assistance (DUA) program under section 625 of Title 20, Code of Federal Regulations. The amount of PUA payable to an unemployed or unemployed self-employed individual for a week of total unemployment shall be the weekly amount of compensation the individual would have been paid as regular compensation, as computed under the provisions of the applicable State law for a week of total unemployment. The weekly amount determination is calculated using the wages reported by the claimant. Upon receipt of a PUA claim, EDD would verify wages reported to ensure accurate weekly benefit amounts under PUA. Out of 138 PUA benefit payments tested, there were 67 claimants with verification issues (either wages, self-employment, or both). Identification as a Repeat Finding Finding 2021-005 was reported in the immediate prior year. Cause EDD did not perform timely wage and employment verifications of the claimants due to the significant increase in claims resulting from the COVID-19 pandemic. Effect EDD did not have adequate oversight controls to ensure that the claimant’s wages were timely and properly reviewed and approved. Accordingly, there was an increased risk for the occurrence of overpayment in benefits being provided to individuals, which was not timely prevented or detected. Questioned Costs Known questioned costs for the 67 claimants were $702,538.   Context Benefits paid to claimants under the COVID-19 Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $15,246,314,741. The sample was not a statisitcally valid sample. Recommendation EDD should ensure that proper verification procedures are in place to minimize the number of claimants with wage and/or employment verification issues. Effective and robust verification procedures should assist EDD in processing unemployment benefits only to eligible claimants. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-006 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: Unemployment Insurance COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 22 - Social Security, Division 1 - Employment Development Department, Subdivision 1 - Director of Employment Development, Division - 1 Unemployment and Disability Compensation, Part 1 - Unemployment Compensation, Chapter 5 Unemployment Compensation Benefits, Article 1 - Eligibility and Disqualifications §1256, §1257 and §1326 Eligibility and Disqualifications, §1256 California Code of Regulations: (a) An individual is disqualified for unemployment compensation benefits if the director finds that he or she left his or her most recent work voluntarily without good cause or that he or she has been discharged for misconduct connected with his or her most recent work. Eligibility and Disqualifications, §1257 California Code of Regulations: (a) An individual is also disqualified for unemployment compensation benefits if: He or she willfully, for the purpose of obtaining unemployment compensation benefits, either made a false statement or representation, including, but not limited to, using a false name, false social security number, or other false identification, with actual knowledge of the falsity thereof, or withheld a material fact in order to obtain any unemployment compensation benefits under this division.   Continued Claim for Unemployment Benefits - Filing and Contents, §1326-6 California Code of Regulations: (c) The claimant shall, to maintain his or her eligibility to file continued claims during a continuous period of unemployment, file continued claims at intervals of not more than two weeks, or such other interval as the department shall require, unless he or she shows good cause for his or her delay in filing his or her continued claim. Condition In EDD’s administration of the Unemployment Insurance program, $525,494,406 in benefit payments were estimated by EDD to be potentially ineligible payments and have not been reported in the schedule of expenditures of federal awards. The estimate was based on data parameters to identify claimants whom received benefits that matched ineligible criteria for identity or eligibility fraud due to misrepresented information. The Unemployment Insurance Branch of EDD reviews unemployment insurance claims of claimants for involuntary separation to ensure separations were for valid reasons under the Unemployment Insurance Code. Out of 88 unemployment insurance benefit payments tested, there were 6 claimants receiving benefits, whose reasons for involuntary separation indicated separation reasons due to voluntary quitting without good cause and 6 claimants receiving benefits that made false statements regarding wages. In addition to the Unemployment Insurance program, EDD continued its administration of the Pandemic Emergency Unemployment Compensation (PEUC) program for the fiscal year ended June 30, 2022. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19, the PEUC program eligibility was determined from individuals who have exhausted all rights to regular unemployment compensation (UC) under state or Federal law and have no rights to regular UC under any other state or Federal law. A claimant must have an eligible existing Unemployment Insurance program claim that has been exhausted prior to being eligible for PEUC. Out of 50 PEUC benefit payments tested, 1 claimant received benefits, whose reason for involuntary separation indicated separation reasons due to voluntary quitting without good cause, 1 claimant received benefits without completing weekly certifications, and 1 claimant was receiving full benefits while earning wages. Identification as a Repeat Finding Finding 2021-006 was reported in the immediate prior year. Cause EDD has acknowledged that the adjudication process for potential eligibility issues, which includes work separation, was inadequately or not timely performed due to the significant increase in claims resulting from the COVID-19 pandemic. Effect By EDD not performing timely and adequate review for potential eligibility issues, benefit payments were made to ineligible claimants.   Questioned Costs Known questioned costs for the 12 claimants identified for the unemployment compensation were $57,752 for Unemployment Insurance Program and $31,800 for the Federal Pandemic Unemployment Compensation program of the COVID-19 Unemployment Insurance. Known questioned costs for the 3 claimants identified were $9,386 for the PEUC program and $6,000 for the Federal Pandemic Unemployment Compensation (FPUC) program of the COVID-19 Unemployment Insurance. Context Benefits paid to claimants under the Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $7,720,873,424. Benefits to claimants under the PEUC and FPUC programs were $1,713,827,584 and $11,923,097,900, respectively. The sample was not a statistically valid sample. Recommendation EDD should enhance its adjudication process to support proper eligibility determinations and decrease improper payments to ineligible claimants. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-006 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: Unemployment Insurance COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 22 - Social Security, Division 1 - Employment Development Department, Subdivision 1 - Director of Employment Development, Division - 1 Unemployment and Disability Compensation, Part 1 - Unemployment Compensation, Chapter 5 Unemployment Compensation Benefits, Article 1 - Eligibility and Disqualifications §1256, §1257 and §1326 Eligibility and Disqualifications, §1256 California Code of Regulations: (a) An individual is disqualified for unemployment compensation benefits if the director finds that he or she left his or her most recent work voluntarily without good cause or that he or she has been discharged for misconduct connected with his or her most recent work. Eligibility and Disqualifications, §1257 California Code of Regulations: (a) An individual is also disqualified for unemployment compensation benefits if: He or she willfully, for the purpose of obtaining unemployment compensation benefits, either made a false statement or representation, including, but not limited to, using a false name, false social security number, or other false identification, with actual knowledge of the falsity thereof, or withheld a material fact in order to obtain any unemployment compensation benefits under this division.   Continued Claim for Unemployment Benefits - Filing and Contents, §1326-6 California Code of Regulations: (c) The claimant shall, to maintain his or her eligibility to file continued claims during a continuous period of unemployment, file continued claims at intervals of not more than two weeks, or such other interval as the department shall require, unless he or she shows good cause for his or her delay in filing his or her continued claim. Condition In EDD’s administration of the Unemployment Insurance program, $525,494,406 in benefit payments were estimated by EDD to be potentially ineligible payments and have not been reported in the schedule of expenditures of federal awards. The estimate was based on data parameters to identify claimants whom received benefits that matched ineligible criteria for identity or eligibility fraud due to misrepresented information. The Unemployment Insurance Branch of EDD reviews unemployment insurance claims of claimants for involuntary separation to ensure separations were for valid reasons under the Unemployment Insurance Code. Out of 88 unemployment insurance benefit payments tested, there were 6 claimants receiving benefits, whose reasons for involuntary separation indicated separation reasons due to voluntary quitting without good cause and 6 claimants receiving benefits that made false statements regarding wages. In addition to the Unemployment Insurance program, EDD continued its administration of the Pandemic Emergency Unemployment Compensation (PEUC) program for the fiscal year ended June 30, 2022. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19, the PEUC program eligibility was determined from individuals who have exhausted all rights to regular unemployment compensation (UC) under state or Federal law and have no rights to regular UC under any other state or Federal law. A claimant must have an eligible existing Unemployment Insurance program claim that has been exhausted prior to being eligible for PEUC. Out of 50 PEUC benefit payments tested, 1 claimant received benefits, whose reason for involuntary separation indicated separation reasons due to voluntary quitting without good cause, 1 claimant received benefits without completing weekly certifications, and 1 claimant was receiving full benefits while earning wages. Identification as a Repeat Finding Finding 2021-006 was reported in the immediate prior year. Cause EDD has acknowledged that the adjudication process for potential eligibility issues, which includes work separation, was inadequately or not timely performed due to the significant increase in claims resulting from the COVID-19 pandemic. Effect By EDD not performing timely and adequate review for potential eligibility issues, benefit payments were made to ineligible claimants.   Questioned Costs Known questioned costs for the 12 claimants identified for the unemployment compensation were $57,752 for Unemployment Insurance Program and $31,800 for the Federal Pandemic Unemployment Compensation program of the COVID-19 Unemployment Insurance. Known questioned costs for the 3 claimants identified were $9,386 for the PEUC program and $6,000 for the Federal Pandemic Unemployment Compensation (FPUC) program of the COVID-19 Unemployment Insurance. Context Benefits paid to claimants under the Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $7,720,873,424. Benefits to claimants under the PEUC and FPUC programs were $1,713,827,584 and $11,923,097,900, respectively. The sample was not a statistically valid sample. Recommendation EDD should enhance its adjudication process to support proper eligibility determinations and decrease improper payments to ineligible claimants. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-007 Category of Finding: Activities Allowed or Unallowed Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: Department of Finance (Finance) Assistance Listing Number: 21.027 Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds Federal Award Number and Years: N/A; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Sections 602(c)(1)(C) and 603(c)(1)(C) of the Social Security Act provide that State and Local Fiscal Recovery Funds (SLFRF) may be used “for the provision of government services to the extent of the reduction in revenue of such…government due to the COVID-19 public health emergency relative to the revenues collected in the most recent full fiscal year of the …government prior to the emergency”. The interim final rule adopted a definition based largely on the components reported under “General Revenue from Own Sources” in the Census Bureau’s Annual Survey of State and Local Government Finances. Under the interim final rule, general revenue included revenue collected by a recipient and generated from its underlying economy, and it would capture a range of different types of tax revenues, as well as other types of revenue that are available to support government services. Specifically, revenue under the interim final rule included money that is received from tax revenue, current charges, and miscellaneous general revenues and excluded refunds and other correcting transactions, proceeds from issuance of debt or the sale of investments, agency or private trust transactions, revenue from utilities, social insurance trust revenues, and intergovernmental transfers from the federal government, including transfers made pursuant to section 9901 of the ARPA. Condition Finance included contributions by State employees to 457(b) and 401(k) deferred compensation plans in the calculation of base year revenues. The contributions from State employees are deposited directly with the third-party deferred compensation plan administrator and do not result in revenue reported by the State in its basic financial statements. Furthermore, the employee contributions do not represent revenues available to the State for the provision of government services and should have been excluded from the calculation of general revenue for the base year and preceding fiscal years establishing the average annual growth rate of general revenues.  Identification as a Repeat Finding This was not a repeat finding from the immediate prior year. Cause The process established by Finance to review and determine the proper inclusion or exclusion of the State’s general ledger revenue accounts in its calculation of base year revenue and preceding fiscal year revenues did not consider whether certain general ledger revenue accounts were reported within the State’s basic financial statements. Additionally, the review controls over the revenue loss calculation did not detect the inclusion of specific general ledger revenue accounts which are included in revenues for budgetary purposes, but which are excluded for financial reporting purposes in the State’s basic financial statements. Effect By including the employee contributions as general revenues in the base revenue calculation, the amount of total revenue loss calculated as available to potentially fund general government services was overstated by $977,898,160. Questioned Costs No questioned costs were identified. Context The amount of revenue loss available to the State to fund general government services was initially calculated as $17,823,151,622. Subsequently, the State revised its calculation by removing contribution amounts by State employees to 457(b) and 401(k) deferred compensation plans, resulting in a revenue loss calculation of $16,845,253,462, a reduction of 5.5%. As of June 30, 2022, the State has reported $11,158,313,000 of total revenue loss utilized for the provision of government services. The amount of revenue loss funded expenditures reported for fiscal year 2022 was not impacted by the reduction. Recommendation Finance should include a reconciliation between general revenues identified for inclusion in the revenue loss calculation and the State’s basic financial statements, to ensure that all revenue recorded in the identified general ledger revenue accounts are in compliance with the definition of general revenues as established by the U.S. Treasury in the Final Rule. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-008 Category of Finding: Activities Allowed or Unallowed Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Health Care Services (Health Care Services) Assistance Listing Number: 93.767 Federal Program Title: Children’s Health Insurance Program Federal Award Numbers and Years: 2205CA5021; 2022 2105CA5021; 2021 Assistance Listing Number: 93.778 Federal Program Title: Medical Assistance Program Federal Award Numbers and Years: 2205CA5ADM; 2022 2205CA5MAP; 2022 2105CA5ADM; 2021 2105CA5MAP; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). California Welfare and Institutions Code - WIC, Division 9. Public Social Services, Part 3. Aid and Medical Assistance, Chapter 8.9. Transition of Community-Based Medi-Cal Mental Health: §14705: (c) With regard to county operated facilities, clinics, or programs for which claims are submitted to the department for Medi-Cal reimbursement for specialty mental health services to Medi-Cal eligible individuals, the county shall ensure that all requirements necessary for Medi-Cal reimbursement for these services are complied with, including, but not limited to, utilization review and the submission of yearend cost reports by December 31 following the close of the fiscal year.   §14713: (b) If the department determines that a mental health plan has failed to comply with the requirements of Chapter 7 (commencing with Section 14000), Chapter 8 (commencing with Section 14200), Chapter 8.8 (commencing with Section 14600), or this chapter, the department may impose sanctions and plans of correction pursuant to Section 14197.7. Condition Fifteen of 56 contractor counties of Short-Doyle funding were tested and 10 had not submitted their cost reports by the December 31 due date. Three of the 10 contractor counties had not submitted their cost reports for fiscal year 2020-21 (more than 12 months late) and 7 of the 10 contractor counties have subsequently submitted their cost reports for fiscal year 2020-21. Although the Mental Health Division of Health Care Services did take the required action of notifying the ten contractor counties in writing within 30 days of the noncompliance, it has not taken any additional action necessary to ensure contract and performance compliance. The cost reports are the basis for the allocation of payments made to contractor counties providing mental health services to eligible beneficiaries and serve to provide the Mental Health Division with fiscal oversight for contract and performance compliance. Identification as a Repeat Finding Finding 2021-008 was reported in the immediate prior year. Cause The Mental Health Division did not take additional action for significantly late annual cost reports because its monitoring and follow-up process does not go beyond emailing the delinquent subrecipients every 30 days. Effect Delays in reviewing cost reports do not comply with the objective of timely and effective contract monitoring. Inaccurate or untimely cost reports could result in under/over funding each contractor county and increases the risk of statewide noncompliance with contract requirements. Questioned Costs Questioned costs were not determinable. Context For the fiscal year ended June 30, 2022, disbursements of Short-Doyle funding from the Medical Assistance Program to the 10 noncompliant contractor counties totaled $1,521,017,226, the 15 tested contractor counties totaled $1,827,939,268, and all 56 contractor counties totaled $2,511,609,039. For the fiscal year ended June 30, 2022, disbursements of Short-Doyle funding from the Children’s Health Insurance Program to the 10 noncompliant contractor counties totaled $143,710,692, the 15 tested contractor counties totaled $165,488,866, and all 56 contractor counties totaled $218,883,485. The sample was not a statistically valid sample.   Recommendation Health Care Services should develop and follow policies and procedures to take additional action for significantly late annual cost reports. These policies and procedures should include imposing sanctions, including, but not limited to, fines, penalties, the withholding of payments, probationary or corrective actions, or any other actions deemed necessary to promptly ensure contract and performance compliance. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-008 Category of Finding: Activities Allowed or Unallowed Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Health Care Services (Health Care Services) Assistance Listing Number: 93.767 Federal Program Title: Children’s Health Insurance Program Federal Award Numbers and Years: 2205CA5021; 2022 2105CA5021; 2021 Assistance Listing Number: 93.778 Federal Program Title: Medical Assistance Program Federal Award Numbers and Years: 2205CA5ADM; 2022 2205CA5MAP; 2022 2105CA5ADM; 2021 2105CA5MAP; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). California Welfare and Institutions Code - WIC, Division 9. Public Social Services, Part 3. Aid and Medical Assistance, Chapter 8.9. Transition of Community-Based Medi-Cal Mental Health: §14705: (c) With regard to county operated facilities, clinics, or programs for which claims are submitted to the department for Medi-Cal reimbursement for specialty mental health services to Medi-Cal eligible individuals, the county shall ensure that all requirements necessary for Medi-Cal reimbursement for these services are complied with, including, but not limited to, utilization review and the submission of yearend cost reports by December 31 following the close of the fiscal year.   §14713: (b) If the department determines that a mental health plan has failed to comply with the requirements of Chapter 7 (commencing with Section 14000), Chapter 8 (commencing with Section 14200), Chapter 8.8 (commencing with Section 14600), or this chapter, the department may impose sanctions and plans of correction pursuant to Section 14197.7. Condition Fifteen of 56 contractor counties of Short-Doyle funding were tested and 10 had not submitted their cost reports by the December 31 due date. Three of the 10 contractor counties had not submitted their cost reports for fiscal year 2020-21 (more than 12 months late) and 7 of the 10 contractor counties have subsequently submitted their cost reports for fiscal year 2020-21. Although the Mental Health Division of Health Care Services did take the required action of notifying the ten contractor counties in writing within 30 days of the noncompliance, it has not taken any additional action necessary to ensure contract and performance compliance. The cost reports are the basis for the allocation of payments made to contractor counties providing mental health services to eligible beneficiaries and serve to provide the Mental Health Division with fiscal oversight for contract and performance compliance. Identification as a Repeat Finding Finding 2021-008 was reported in the immediate prior year. Cause The Mental Health Division did not take additional action for significantly late annual cost reports because its monitoring and follow-up process does not go beyond emailing the delinquent subrecipients every 30 days. Effect Delays in reviewing cost reports do not comply with the objective of timely and effective contract monitoring. Inaccurate or untimely cost reports could result in under/over funding each contractor county and increases the risk of statewide noncompliance with contract requirements. Questioned Costs Questioned costs were not determinable. Context For the fiscal year ended June 30, 2022, disbursements of Short-Doyle funding from the Medical Assistance Program to the 10 noncompliant contractor counties totaled $1,521,017,226, the 15 tested contractor counties totaled $1,827,939,268, and all 56 contractor counties totaled $2,511,609,039. For the fiscal year ended June 30, 2022, disbursements of Short-Doyle funding from the Children’s Health Insurance Program to the 10 noncompliant contractor counties totaled $143,710,692, the 15 tested contractor counties totaled $165,488,866, and all 56 contractor counties totaled $218,883,485. The sample was not a statistically valid sample.   Recommendation Health Care Services should develop and follow policies and procedures to take additional action for significantly late annual cost reports. These policies and procedures should include imposing sanctions, including, but not limited to, fines, penalties, the withholding of payments, probationary or corrective actions, or any other actions deemed necessary to promptly ensure contract and performance compliance. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-009 Category of Finding: Activities Allowed or Unallowed Type of Finding: Material Weakness State Administering Department: California Department of Health Care Services (Health Care Services) Assistance Listing Number: 93.959 Federal Program Title: Block Grants for Prevention and Treatment of Substance Abuse (SAPT) Federal Award Numbers and Years: 1B08TI083437-01; 2021 6B08TI083437-01M002; 2021 6B08TI083437-01M003; 2021 6B08TI083437-01M004; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Condition During our testing of 40 employee timesheets, 19 of the 40 employees did not prepare and submit timesheets as required by the Department of Health Care Services (Health Care Services) internal control procedures. Identification as a Repeat Finding This was not a repeat finding from the immediate prior year. Cause Health Care Services did not adhere to its documented controls due to the effects of COVID-19. The effects resulted in high staff turnover and increased demand on staff resources. Effect Nonadherence to the internal controls over the documentation of employee timesheets can result in the risk of noncompliance with established policies and procedures. Questioned Costs None. Context Expenditures related to payroll costs charged to the SAPT program for fiscal year 2021-22 totaled $11,606,958. Recommendation Health Care Services should adhere to its processes and controls in place to ensure all required employees submit a timesheet. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-010 Category of Finding: Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 93.917 Federal Program Title: HIV Care Formula Grants COVID-19 HIV Care Formula Grants Federal Award Numbers and Years: 5 X07HA12778-13-00; 2021 6 X07HA12778-13-01; 2021 6 X07HA12778-13-02; 2022 6 X07HA12778-13-03; 2022 6 X07HA12778-13-04; 2022 2 X07HA12778-14-00; 2022 6 X07HA12778-14-01; 2022 6 X07HA12778-14-02; 2022 6 X07HA12778-14-03; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 42 - The Public Health and Welfare. Chapter 6A - Public Health Service. Subchapter XXIV - HIV Health Care Services Program. Part B - Care Grant Program. Subpart I - General Grant Provisions. Section 300ff-26 - Provision of Treatments: (a) In general A State shall use a portion of the amounts provided under a grant awarded under section 300ff–21 of this title to establish a program under section 300ff–22(b)(3)(B) of this title to provide therapeutics to treat HIV/AIDS or prevent the serious deterioration of health arising from HIV/AIDS in eligible individuals, including measures for the prevention and treatment of opportunistic infections. (b) Eligible individual To be eligible to receive assistance from a State under this section an individual shall: (1) Have a medical diagnosis of HIV/AIDS; and (2) Be a low-income individual, as defined by the State.   California State AIDS Drug Assistance Program Guidelines January 2022: (1.1) AIDS Drug Assistance Program (ADAP) Eligibility Criteria: To be eligible for the ADAP program, a client must: • Have a positive HIV/AIDS diagnosis. • Be at least 18 years old. • Be a resident of California. • Have an annual Modified Adjusted Gross Income (MAGI) that does not exceed 500 percent Federal Poverty Level (FPL) based on household size and income. • Not be fully covered by Medi-Cal or any other third-party payers (an entity that reimburses and manages health care expenses such as private insurance or governmental agencies, employers, etc.). HRSA PCN 15-04 (Revised 1/11/2019): The RWHAP legislation requires that rebates collected on ADAP medication purchases be applied to the RWHAP Part B Program with a priority, but not a requirement, that the rebates be placed back into ADAP. Although ADAP rebates are neither program income nor refunds, they are subject to the same regulatory provision regarding expenditure. These rebates must be used for the statutorily permitted purposes under the RWHAP Part B Program, which are limited to core medical services including ADAP, support services, clinical quality management, and administrative expenses (including planning and evaluation) as part of a comprehensive system of care for low-income individuals living with HIV. Condition Our sample of 60 participants from a population of 25,749 participants who received benefits during the fiscal year identified 10 participants who did not submit all required documentation, including proof of HIV/AIDS diagnosis, proof of residency, and income documentation to verify their annual MAGI did not exceed 500 percent Federal Poverty Level based on household size and income. Identification as a Repeat Finding Finding 2021-011 was reported in the immediate prior year pertaining to not submitting all required documentation. Cause Procedures that required the collection of valid supporting documents were not followed. Existing internal controls did not prevent, or detect and correct, the occurrence of benefits being provided to potentially ineligible individuals. Effect Public Health did not have adequate oversight controls to ensure that the applicant’s eligibility was properly reviewed and approved. Accordingly, there is an increased risk for the occurrence of benefits being provided to ineligible individuals that may not be prevented or detected in a timely manner. Questioned Costs Questioned costs were not determinable because benefit costs were not tracked by individual participants.   Context Pharmacy benefits management services are provided by a contractor who received administrative fees and reimbursements for prescription drug costs to program participants. Payments to the contractor totaled $108,210,356 for approximately 26,000 program participants for the fiscal year ended June 30, 2022. The sample was not a statistically valid sample. Recommendation The ADAP Branch should continue to monitor compliance with its policies to ensure enrollment workers and secondary reviews of ADAP applications follow the established guidelines and retain acceptable documentation to support eligibility determinations. Applications that have been granted an eligibility exception (i.e., Temporary Access Period, Medi-Cal Eligibility Exception Request, or Eligibility Exception Request) should be reviewed in a timely manner to ensure clients who do not provide the required documentation within the approved extension period are disenrolled in a timely manner. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-011 Category of Finding: Subrecipient Monitoring Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 93.323 Federal Program Title: Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Federal Award Number and Year: NU50CK000539; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. §200.303 Internal controls (2 CFR 200.303): 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). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. §200.332 Requirements for pass-through entities (2 CFR 200.332): All pass-through entities must: (b) Evaluate each subrecipient’s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this section, which may include consideration of such factors as: (1) The subrecipient’s prior experience with the same or similar subawards: (2) The results of previous audits including whether or not the subrecipient receives a Single Audit in accordance with Subpart F of this part, and the extent to which the same or similar subaward has been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and (4) The extent and results of Federal awarding agency monitoring (e.g., if the subrecipient also receives Federal awards directly from a Federal awarding agency). (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include:  (1) Reviewing financial and performance reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and written confirmation from the subrecipient, highlighting the status of actions planned or taken to address Single Audit findings related to the particular subaward. (3) Issuing a management decision for applicable audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by §200.521. (4) The pass-through entity is responsible for resolving audit findings specifically related to the subaward and not responsible for resolving cross-cutting findings. If a subrecipient has a current Single Audit report posted in the Federal Audit Clearinghouse and has not otherwise been excluded from receipt of Federal funding (e.g., has been debarred or suspended), the pass-through entity may rely on the subrecipient's cognizant audit agency or cognizant oversight agency to perform audit follow-up and make management decisions related to cross-cutting findings in accordance with section §200.513(a)(3)(vii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. (f) Verify that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient’s Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in §200.501. (g) Consider whether the results of the subrecipient’s audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the pass-through entity’s own records. Condition Public Health did not establish a formal risk assessment process over its subrecipients of federal awards to determine the frequency and extent of subrecipient monitoring to be performed. While Public Health received reimbursement invoices from subrecipients, there did not appear to be other financial or programmatic monitoring to verify subrecipents compliance with applicable requirements. In addition, Public Health did not obtain Single Audit reports from those subrecipients as required. Identification as a Repeat Finding Finding 2021-014 was reported in the immediate prior year. Cause Procedures to perform the required subrecipient monitoring were not established nor performed by Public Health. Effect By not properly evaluating the risk of noncompliance, Public Health may inadvertently award grant funds to subrecipients who lack the necessary mechanisms or understanding to adhere to federal statutes. This increases the likelihood of noncompliance arising during the performance of the grant-funded activities. Furthermore, failure to perform monitoring procedures or obtain Single Audit reports increases the risk for not properly identifying subrecipient program control weaknesses, noncompliance, and performing sufficient follow-up on any subrecipient corrective action. Questioned Costs No questioned costs were identified.   Context Disbursements to subrecipients for the ELC program totaled $301,107,041, or 31.0% of total reported program expenditures. Recommendation Public Health should establish and document formal procedures for conducting risk assessments of its subrecipients, including criteria for evaluating organizational capacity, financial stability, compliance history, and programmatic capabilities. Public Health should also develop and implement specific subrecipient monitoring procedures and establish a process for obtaining Single Audit reports from its subrecipients. Furthermore, a monitoring mechanism should be implemented to track compliance with the single audit mandate among subrecipients, including regular follow-ups and documentation of communication efforts. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-012 Category of Finding: Special Tests and Provisions – Provider Health and Safety Standards Type of Finding: Material Weakness State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 93.778 Federal Program Title: Medical Assistance Program Federal Award Numbers and Years: 2205CA5ADM; 2022 2205CA5MAP; 2022 2105CA5ADM; 2021 2105CA5MAP; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Condition There was no evidence of surveyor signature or supervisor review and approval on Form CMS-1539 for all 40 surveys of providers tested. Identification as a Repeat Finding This was not a repeat finding from the immediate prior year. Cause California Department of Public Health (Public Health) did not adhere to its documented controls due to staff members either no longer working with Public Health or being on extended leave. Effect Nonadherence to internal controls over the review and approval process of the Form CMS-1539 can result in the risk of statewide noncompliance as providers may not meet the prescribed health and safety standards. Further, the integrity of the surveys can be compromised because they are being conducted with no apparent oversight. Questioned Costs No questioned costs were identified. Context A total of 987 surveys were included in the population, which consisted of all surveys completed by Public Health for Hospitals, Intermediate Care Facility and Individuals with Intellectual Disabilities and Nursing Facilities during fiscal year 2021-22. Recommendation Public Health should update its processes and controls in place to ensure compliance with established procedures and performance of timely review and approval of the Form CMS-1539, including for situations when staff is on leave and/or has left the department. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

EMPLOYMENT DEVELOPMENT DEPARTMENT Reference Number: 2022-001 Type of Finding: Material Weakness and Material Instance of Noncompliance Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart F - Audit Requirements. §200.510 Financial statements (2 CFR 200.510): (b) Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502 Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: (3) Provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. Condition The State of California (State) has a decentralized financial reporting process, which requires State agencies and departments to provide specific financial information to the Department of Finance (Finance) in order to annually compile the Schedule of Expenditures of Federal Awards (Schedule). In its effort to more efficiently and accurately prepare the Schedule in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Finance developed the Single Audit Expenditures Reporting Database (Database). Finance developed the Database to include all of the relevant data fields necessary to compile and produce the Schedule. Finance also created a Single Audit Database User Manual, which provides specific guidance to users for accessing and navigating through the database. Due to the unprecedented impacts from the COVID-19 pandemic, the Employment Development Department (EDD) was unable to timely report to Finance through the Database with accurate and reliable federal cash basis expenditures for its largest federal award program that it administers, the Unemployment Insurance (ALN 17.225) program. The delay resulted in Finance being unable to compile and produce a complete and final approved Schedule until December 2023. Although an initial estimated expenditure amount was reported by EDD of $27.0 billion, the final amount reported in the Schedule was $23.3 billion. Cause Given the substantial increase in claimants seeking assistance under the Unemployment Insurance program resulting from the COVID-19 pandemic, EDD was overwhelmed with the administration of the Unemployment Insurance program. Effect The difficulties that EDD encountered from the COVID-19 pandemic, resulted in the late reporting and submission of final federal cash basis expenditures to Finance. The untimely submission continued to limit and constrain Finance from compiling and producing a final complete and accurate Schedule. Questioned Costs Questioned costs were not determinable. Recommendation EDD should continue to evaluate existing processes and controls related to its ability to properly report, and timely submit complete and accurate federal award cash basis expenditures to the Database, which affords Finance the ability to timely compile and produce a final Schedule pursuant to the Uniform Guidance. Views of Responsible Officials and Corrective Action Plan EDD agrees with this finding. The deferred transition to FI$Cal and the difficulties experienced thereafter have continued to cause EDD to be late with submitting year-end financials and its ability to submit timely the cash basis expenditures into the Single Audit Expenditures Reporting Database (Database). In addition, the onset of the COVID-19 pandemic created additional issues which ultimately impacted the EDD’s ability to submit timely year-end financials. However, the EDD continues to make progress to gain ground in the department’s efforts to follow the State’s deadlines for submitting year-end financials and entering the cash basis expenditures into the Database. During fiscal year 2022-23, the EDD completed a restructuring within the accounting area which realigned workload amongst the units and provided additional resources in critical areas. These changes will have a lasting effect and help the department to be better positioned going forward in processing the accounting workload and ultimately be able to catch up and submit year-end financials and enter the cash basis expenditures into the Database by the State’s deadlines. In addition, the EDD took lessons learned from the financial audits from the prior two fiscal years to update processes and procedures and applied that knowledge going forward. Also, staff continue to participate in various trainings offered by the Department of Finance and the Department of FI$Cal. In addition, staff work with the control agencies when issues arise that would impact our accounting functions.

EMPLOYMENT DEVELOPMENT DEPARTMENT Reference Number: 2022-001 Type of Finding: Material Weakness and Material Instance of Noncompliance Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart F - Audit Requirements. §200.510 Financial statements (2 CFR 200.510): (b) Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502 Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: (3) Provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. Condition The State of California (State) has a decentralized financial reporting process, which requires State agencies and departments to provide specific financial information to the Department of Finance (Finance) in order to annually compile the Schedule of Expenditures of Federal Awards (Schedule). In its effort to more efficiently and accurately prepare the Schedule in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Finance developed the Single Audit Expenditures Reporting Database (Database). Finance developed the Database to include all of the relevant data fields necessary to compile and produce the Schedule. Finance also created a Single Audit Database User Manual, which provides specific guidance to users for accessing and navigating through the database. Due to the unprecedented impacts from the COVID-19 pandemic, the Employment Development Department (EDD) was unable to timely report to Finance through the Database with accurate and reliable federal cash basis expenditures for its largest federal award program that it administers, the Unemployment Insurance (ALN 17.225) program. The delay resulted in Finance being unable to compile and produce a complete and final approved Schedule until December 2023. Although an initial estimated expenditure amount was reported by EDD of $27.0 billion, the final amount reported in the Schedule was $23.3 billion. Cause Given the substantial increase in claimants seeking assistance under the Unemployment Insurance program resulting from the COVID-19 pandemic, EDD was overwhelmed with the administration of the Unemployment Insurance program. Effect The difficulties that EDD encountered from the COVID-19 pandemic, resulted in the late reporting and submission of final federal cash basis expenditures to Finance. The untimely submission continued to limit and constrain Finance from compiling and producing a final complete and accurate Schedule. Questioned Costs Questioned costs were not determinable. Recommendation EDD should continue to evaluate existing processes and controls related to its ability to properly report, and timely submit complete and accurate federal award cash basis expenditures to the Database, which affords Finance the ability to timely compile and produce a final Schedule pursuant to the Uniform Guidance. Views of Responsible Officials and Corrective Action Plan EDD agrees with this finding. The deferred transition to FI$Cal and the difficulties experienced thereafter have continued to cause EDD to be late with submitting year-end financials and its ability to submit timely the cash basis expenditures into the Single Audit Expenditures Reporting Database (Database). In addition, the onset of the COVID-19 pandemic created additional issues which ultimately impacted the EDD’s ability to submit timely year-end financials. However, the EDD continues to make progress to gain ground in the department’s efforts to follow the State’s deadlines for submitting year-end financials and entering the cash basis expenditures into the Database. During fiscal year 2022-23, the EDD completed a restructuring within the accounting area which realigned workload amongst the units and provided additional resources in critical areas. These changes will have a lasting effect and help the department to be better positioned going forward in processing the accounting workload and ultimately be able to catch up and submit year-end financials and enter the cash basis expenditures into the Database by the State’s deadlines. In addition, the EDD took lessons learned from the financial audits from the prior two fiscal years to update processes and procedures and applied that knowledge going forward. Also, staff continue to participate in various trainings offered by the Department of Finance and the Department of FI$Cal. In addition, staff work with the control agencies when issues arise that would impact our accounting functions.

DDEPARTMENT OF PUBLIC HEALTH Reference Number: 2022-002 Type of Finding: Material Weakness and Instance of Noncompliance Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart F - Audit Requirements. §200.510 Financial statements (2 CFR 200.510): (b) Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502 Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: (3) Provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. (4) Include the total amount provided to subrecipients from each Federal program. Condition The State of California (State) has a decentralized financial reporting process, which requires State agencies and departments to provide specific financial information to the Department of Finance (Finance) in order to annually compile the Schedule of Expenditures of Federal Awards (Schedule). In its effort to more efficiently and accurately prepare the Schedule in accordance with the requirements of 2 CFR 200.510, Finance developed the Single Audit Expenditures Reporting Database (Database) to include all relevant data fields necessary to compile and produce the Schedule. Finance also created a Single Audit Database User Manual, which provides specific guidance to users for accessing and navigating through the database. Departments are given access to the centralized Database by Finance in order to upload and report federal award information for all federal award programs which they administer.   The California Department of Public Health (Public Health) understated federal expenditures and overstated amounts passed through to subrecipients for the Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) program (ALN No. 93.323). The error, which was subsequently corrected, is indicative of a lack of sufficient controls for ensuring the Schedule’s completeness and accuracy prior to submission to Finance. Cause Public Health was a subrecipient of federal funds provided by their bona fide agent, Heluna Health, during the fiscal year ended June 30, 2022. Initially, the ELC program funds were not identified and recognized as federal expenditures until January 2023. During its compilation of federal award expenditures for reporting in Finance’s Database, Public Health did not properly analyze and capture all relevant financial transactions related to the ELC program. Effect Federal expenditures originally reported in the Schedule by Public Health for the ELC program were understated by $154,155,192 and the amounts passed through to subrecipients were overstated by $516,650,718. Questioned Costs No questioned costs were identified. Recommendation Public Health should establish a more thorough internal review and communication process between ELC program administration and accounting personnel to ensure information submitted to Finance for compilation of the Schedule is complete and accurate. Views of Responsible Officials and Corrective Action Plan Public Health’s Accounting Office will generate the FI$Cal Year End Close report (KK_12 expenditure) and collaborate with the ELC program to ensure that all expenditures captured are complete and accurate, ensuring timely reporting of the SEFA data for FY 2023-24 and beyond. Please note that the ELC program has been reported in the FY 2022-23 SEFA. Additionally, we will update the procedures to document the SEFA reporting for the ELC program. Estimated Implementation Date: September 2024 Contact: Jennifer Chan, Accounting Administrator II Federal Reporting Unit, Financial Management Division California Department of Public Health

Reference Number: 2022-003 Category of Finding: Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 10.557 Federal Program Title: Special Supplemental Nutrition Program for Women, Infants, and Children COVID-19 Special Supplemental Nutrition Program for Women, Infants, and Children Federal Award Numbers and Years: 202019W100647; 2020 202020W100347, 2020 202020W100647, 2020 202120W600347, 2021 202120W600647, 2021 202121W100347, 2021 202121W100647, 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 7 – Agriculture. Subtitle B - Regulations of the Department of Agriculture. Chapter II – Food and Nutrition Service, Department of Agriculture. Subchapter A – Child Nutrition Programs. Part 246 - Special Supplemental Nutrition Program for Women, Infants and Children, §246.7 - Certification of participants: (c) Eligibility criteria and basic certification procedures. (1) To qualify for the Program, infants, children, and pregnant, postpartum, and breastfeeding women must: (i) Reside within the jurisdiction of the State (except for Indian State agencies). Indian State agencies may establish a similar requirement. All State agencies may determine a service area for any local agency, and may require that an applicant reside within the service area. However, the State agency may not use length of residency as an eligibility requirement. (ii) Meet the income criteria specified in paragraph (d) of this section. (iii) Meet the nutritional risk criteria specified in paragraph (e) of this section. (2) (i) At certification, the State or local agency must require each applicant to present proof of residency (i.e., location or address where the applicant routinely lives or spends the night) and proof of identity. The State or local agency must also check the identity of participants, or in the case of infants or children, the identity of the parent or guardian, or proxies when issuing food, cash-value vouchers or food instruments. The State agency may authorize the certification of applicants when no proof of residency or identity exists (such as when an applicant or an applicant's parent is a victim of theft, loss, or disaster; a homeless individual; or a migrant farmworker). In these cases, the State or local agency must require the applicant to confirm in writing his/her residency or identity. Further, an individual residing in a remote Indian or Native village or an individual served by an Indian tribal organization and residing on a reservation or pueblo may establish proof of residency by providing the State agency their mailing address and the name of the remote Indian or Native village. (e) Nutritional risk. To be certified as eligible for the Program, applicants who meet the Program's eligibility standards specified in paragraph (c) of this section must be determined to be at nutritional risk. … Nutritional risk data shall be documented in the participant's file and shall be used to assess an applicant's nutritional status and risk; tailor the food package to address nutritional needs; design appropriate nutrition education, including breastfeeding promotion and support; and make referrals to health and social services for follow-up, as necessary and appropriate. (1) Determination of nutritional risk. (ii) Timing of nutritional risk data. (A) Weight and height or length. Weight and height or length shall be measured not more than 60 days prior to certification for program participation. (B) Hematological test for anemia. (1) For pregnant, breastfeeding, and postpartum women, and child applicants, the hematological test for anemia shall be performed or obtained from referral sources at the time of certification or within 90 days of the date of certification. The hematological test for anemia may be deferred for up to 90 days from the time of certification for applicants who have at least one qualifying nutritional risk factor present at the time of certification. If no qualifying risk factor is identified, a hematological test for anemia must be performed or obtained from referral sources (with the exception of presumptively eligible pregnant women). (2) Infants nine months of age and older (who have not already had a hematological test performed, between six and nine months of age, by a competent professional authority or obtained from referral sources), shall between nine and twelve months of age have a hematological test performed or obtained from referral sources. Such a test may be performed more than 90 days after the date of certification. (3) For pregnant women, the hematological test for anemia shall be performed during their pregnancy. For persons certified as postpartum or breastfeeding women, the hematological test for anemia shall be performed after the termination of their pregnancy. For breastfeeding women who are 6-12 months postpartum, no additional blood test is necessary if a test was performed after the termination of their pregnancy. The participant or parent/guardian shall be informed of the test results when there is a finding of anemia, and notations reflecting the outcome of the tests shall be made in the participant's file. Nutrition education, food package tailoring, and referral services shall be provided to the participant or parent/guardian, as necessary and appropriate. Condition During the fiscal year ended June 30, 2020, the Special Supplemental Food Program for Women, Infants and Children (WIC) nutrition program implemented phase 1 of a new management information system known as the Women, Infants, and Children Web Information System Exchange (WIC-WISE) in a two-phased approach to replace the WIC Management Information Systems (WIC-MIS). WIC-WISE is programmed such that updates to eligibility information overwrites existing data. As a result, key data and documentation to support the initial participant eligibility is removed during the recertification process. The California Department of Public Health, WIC Division requested a correction to WIC-WISE to retain eligibility history in the “Cert History Report” when subsequent eligibility information is inputted. The correction had not been implemented and the system defect still existed during the fiscal year ended June 30, 2022. Identification as a Repeat Finding Finding 2021-003 was reported in the immediate prior year. Cause The phase 1 implementation of WIC-WISE did not include system functionality to retain historical eligibility documentation when subsequent information was entered during the participant recertification process. Effect The system limitation of WIC-WISE does not allow for the retention of proper documentation of eligibility information. Accordingly, there is an increased risk for the occurrence of benefits being provided to ineligible individuals, which may not be prevented or detected in a timely manner. Questioned Costs Questioned costs were not determinable. Context Total food vouchers disbursed to program participants during the fiscal year ended June 30, 2022, totaled $566,045,030. Recommendation WIC-WISE system updates should be promptly implemented and tested to ensure that participant data and eligibility documentation is appropriately retained within the system. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-003 Category of Finding: Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 10.557 Federal Program Title: Special Supplemental Nutrition Program for Women, Infants, and Children COVID-19 Special Supplemental Nutrition Program for Women, Infants, and Children Federal Award Numbers and Years: 202019W100647; 2020 202020W100347, 2020 202020W100647, 2020 202120W600347, 2021 202120W600647, 2021 202121W100347, 2021 202121W100647, 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 7 – Agriculture. Subtitle B - Regulations of the Department of Agriculture. Chapter II – Food and Nutrition Service, Department of Agriculture. Subchapter A – Child Nutrition Programs. Part 246 - Special Supplemental Nutrition Program for Women, Infants and Children, §246.7 - Certification of participants: (c) Eligibility criteria and basic certification procedures. (1) To qualify for the Program, infants, children, and pregnant, postpartum, and breastfeeding women must: (i) Reside within the jurisdiction of the State (except for Indian State agencies). Indian State agencies may establish a similar requirement. All State agencies may determine a service area for any local agency, and may require that an applicant reside within the service area. However, the State agency may not use length of residency as an eligibility requirement. (ii) Meet the income criteria specified in paragraph (d) of this section. (iii) Meet the nutritional risk criteria specified in paragraph (e) of this section. (2) (i) At certification, the State or local agency must require each applicant to present proof of residency (i.e., location or address where the applicant routinely lives or spends the night) and proof of identity. The State or local agency must also check the identity of participants, or in the case of infants or children, the identity of the parent or guardian, or proxies when issuing food, cash-value vouchers or food instruments. The State agency may authorize the certification of applicants when no proof of residency or identity exists (such as when an applicant or an applicant's parent is a victim of theft, loss, or disaster; a homeless individual; or a migrant farmworker). In these cases, the State or local agency must require the applicant to confirm in writing his/her residency or identity. Further, an individual residing in a remote Indian or Native village or an individual served by an Indian tribal organization and residing on a reservation or pueblo may establish proof of residency by providing the State agency their mailing address and the name of the remote Indian or Native village. (e) Nutritional risk. To be certified as eligible for the Program, applicants who meet the Program's eligibility standards specified in paragraph (c) of this section must be determined to be at nutritional risk. … Nutritional risk data shall be documented in the participant's file and shall be used to assess an applicant's nutritional status and risk; tailor the food package to address nutritional needs; design appropriate nutrition education, including breastfeeding promotion and support; and make referrals to health and social services for follow-up, as necessary and appropriate. (1) Determination of nutritional risk. (ii) Timing of nutritional risk data. (A) Weight and height or length. Weight and height or length shall be measured not more than 60 days prior to certification for program participation. (B) Hematological test for anemia. (1) For pregnant, breastfeeding, and postpartum women, and child applicants, the hematological test for anemia shall be performed or obtained from referral sources at the time of certification or within 90 days of the date of certification. The hematological test for anemia may be deferred for up to 90 days from the time of certification for applicants who have at least one qualifying nutritional risk factor present at the time of certification. If no qualifying risk factor is identified, a hematological test for anemia must be performed or obtained from referral sources (with the exception of presumptively eligible pregnant women). (2) Infants nine months of age and older (who have not already had a hematological test performed, between six and nine months of age, by a competent professional authority or obtained from referral sources), shall between nine and twelve months of age have a hematological test performed or obtained from referral sources. Such a test may be performed more than 90 days after the date of certification. (3) For pregnant women, the hematological test for anemia shall be performed during their pregnancy. For persons certified as postpartum or breastfeeding women, the hematological test for anemia shall be performed after the termination of their pregnancy. For breastfeeding women who are 6-12 months postpartum, no additional blood test is necessary if a test was performed after the termination of their pregnancy. The participant or parent/guardian shall be informed of the test results when there is a finding of anemia, and notations reflecting the outcome of the tests shall be made in the participant's file. Nutrition education, food package tailoring, and referral services shall be provided to the participant or parent/guardian, as necessary and appropriate. Condition During the fiscal year ended June 30, 2020, the Special Supplemental Food Program for Women, Infants and Children (WIC) nutrition program implemented phase 1 of a new management information system known as the Women, Infants, and Children Web Information System Exchange (WIC-WISE) in a two-phased approach to replace the WIC Management Information Systems (WIC-MIS). WIC-WISE is programmed such that updates to eligibility information overwrites existing data. As a result, key data and documentation to support the initial participant eligibility is removed during the recertification process. The California Department of Public Health, WIC Division requested a correction to WIC-WISE to retain eligibility history in the “Cert History Report” when subsequent eligibility information is inputted. The correction had not been implemented and the system defect still existed during the fiscal year ended June 30, 2022. Identification as a Repeat Finding Finding 2021-003 was reported in the immediate prior year. Cause The phase 1 implementation of WIC-WISE did not include system functionality to retain historical eligibility documentation when subsequent information was entered during the participant recertification process. Effect The system limitation of WIC-WISE does not allow for the retention of proper documentation of eligibility information. Accordingly, there is an increased risk for the occurrence of benefits being provided to ineligible individuals, which may not be prevented or detected in a timely manner. Questioned Costs Questioned costs were not determinable. Context Total food vouchers disbursed to program participants during the fiscal year ended June 30, 2022, totaled $566,045,030. Recommendation WIC-WISE system updates should be promptly implemented and tested to ensure that participant data and eligibility documentation is appropriately retained within the system. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-004 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 20 - Employees’ Benefits, Chapter V, Employment and Training Administration, Department of Labor, Part 625 - Disaster Unemployment Assistance, §625.14 Overpayments; disqualification for fraud: (h) Provisions in the procedures of each State with respect to detection and prevention of fraudulent overpayments of DUA shall be, as a minimum, commensurate with the procedures adopted by the State with respect to regular compensation and consistent with the Secretary's “Standard for Fraud and Overpayment Detection,” Employment Security Manual, part V, sections 7510 et seq. (Appendix C of this part). (i) Any individual who, with respect to a major disaster, makes or causes another to make a false statement or misrepresentation of a material fact, knowing it to be false, or knowingly fails or causes another to fail to disclose a material fact, in order to obtain for the individual or any other person a payment of DUA to which the individual or any other person is not entitled, shall be disqualified as follows: (1) If the false statement, misrepresentation, or nondisclosure pertains to an initial application for DUA – i. The individual making the false statement, misrepresentation, or nondisclosure shall be disqualified from the receipt of any DUA with respect to that major disaster; and   ii. If the false statement, misrepresentation, or nondisclosure was made on behalf of another individual, and was known to such other individual to be a false statement, misrepresentation, or nondisclosure, such other individual shall be disqualified from the receipt of any DUA with respect to that major disaster; and (2) If the false statement, misrepresentation, or nondisclosure pertains to a week for which application for a payment of DUA is made – i. The individual making the false statement, misrepresentation, or nondisclosure shall be disqualified from the receipt of DUA for that week and the first two compensable weeks in the Disaster Assistance Period that immediately follow that week, with respect to which the individual is otherwise entitled to a payment of DUA; and ii. If the false statement, misrepresentation, or nondisclosure was made on behalf of another individual, and was known to such other individual to be a false statement, misrepresentation, or nondisclosure, such other individual shall be disqualified from the receipt of DUA for that week and the first two compensable weeks in the Disaster Assistance Period that immediately follow that week, with respect to which the individual is otherwise entitled to a payment of DUA. Title 15 - Commerce and Trade, Chapter 116, Coronavirus Economic (CARES Act) Subchapter II - Unemployment Insurance Provisions, §9023 Emergency Increase in Unemployment Compensation Benefits (f) Fraud and Overpayments: (1) In General – If an individual knowingly has made, or caused to be made by another, a false statement or representation of a material fact, or knowingly has failed, or caused another to fail, to disclose a material fact, and as a result of such false statement or representation or of such nondisclosure such individual has received an amount of Federal Pandemic Unemployment Compensation or Mixed Earner Unemployment Compensation to which such individual was not entitled, such individual— 1. shall be ineligible for further Federal Pandemic Unemployment Compensation Mixed Earner Unemployment Compensation in accordance with the provisions of the applicable State unemployment compensation law relating to fraud in connection with a claim for unemployment compensation Condition During the fiscal year ended June 30, 2022, EDD continued its administration of the Pandemic Unemployment Assistance (PUA) program, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19 relief in unemployment compensation. Under the CARES Act, the PUA program was to be administered in accordance with the Disaster Unemployment Assistance (DUA) program under section 625 of Title 20, Code of Federal Regulations. Claimants eligible for PUA benefits were paid additional benefits under the Federal Pandemic Unemployment Compensation program (FPUC). In EDD’s administration of the PUA and FPUC programs, $3,559,865,590 in benefit payments were estimated to be ineligible payments and have not been reported in the schedule of expenditures of federal awards. The estimate was made by the Unemployment Insurance Branch and was based on data parameters to identify claimants that received benefits that matched ineligible criteria for identity fraud or eligibility fraud for misrepresented information.   Out of 138 PUA benefit payments tested, there were 27 benefit payments to claimants determined to be ineligible whose identity or employment was not sufficiently verified. Identification as a Repeat Finding Finding 2021-004 was reported in the immediate prior year. Cause Existing internal controls did not prevent, or detect and correct, instances of potential fraud for benefit payments for the following reasons. • There was a significant increase in unemployment claims that overwhelmed EDD’s existing fraud detection process. • There were insufficient controls in place to prevent or detect fraud associated with benefit payments related to incarceration, identity, and multiple claims from the same address. Effect EDD did not have adequate oversight controls to ensure that benefit payments were not being made to fraudulent claimants. Accordingly, benefit payments were made to fraudulent claimants who were not eligible. Questioned Costs Likely questioned costs were estimated to be $3,559,865,590 for fiscal year 2021-22. Known questioned costs were $417,860. Context Benefits paid to claimants under the COVID-19 Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $15,246,314,741. The sample was not a statistically valid sample. Recommendation EDD should continue to strengthen controls, such as database identification cross-matches, ID.me verification, partnerships with law enforcement and Thompson Reuters, as well as system enhancements to mitigate the potential of further employment benefit fraud. Such improvements in internal controls should improve EDD’s ability to timely prevent and detect unemployment benefit fraud. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-004 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 20 - Employees’ Benefits, Chapter V, Employment and Training Administration, Department of Labor, Part 625 - Disaster Unemployment Assistance, §625.14 Overpayments; disqualification for fraud: (h) Provisions in the procedures of each State with respect to detection and prevention of fraudulent overpayments of DUA shall be, as a minimum, commensurate with the procedures adopted by the State with respect to regular compensation and consistent with the Secretary's “Standard for Fraud and Overpayment Detection,” Employment Security Manual, part V, sections 7510 et seq. (Appendix C of this part). (i) Any individual who, with respect to a major disaster, makes or causes another to make a false statement or misrepresentation of a material fact, knowing it to be false, or knowingly fails or causes another to fail to disclose a material fact, in order to obtain for the individual or any other person a payment of DUA to which the individual or any other person is not entitled, shall be disqualified as follows: (1) If the false statement, misrepresentation, or nondisclosure pertains to an initial application for DUA – i. The individual making the false statement, misrepresentation, or nondisclosure shall be disqualified from the receipt of any DUA with respect to that major disaster; and   ii. If the false statement, misrepresentation, or nondisclosure was made on behalf of another individual, and was known to such other individual to be a false statement, misrepresentation, or nondisclosure, such other individual shall be disqualified from the receipt of any DUA with respect to that major disaster; and (2) If the false statement, misrepresentation, or nondisclosure pertains to a week for which application for a payment of DUA is made – i. The individual making the false statement, misrepresentation, or nondisclosure shall be disqualified from the receipt of DUA for that week and the first two compensable weeks in the Disaster Assistance Period that immediately follow that week, with respect to which the individual is otherwise entitled to a payment of DUA; and ii. If the false statement, misrepresentation, or nondisclosure was made on behalf of another individual, and was known to such other individual to be a false statement, misrepresentation, or nondisclosure, such other individual shall be disqualified from the receipt of DUA for that week and the first two compensable weeks in the Disaster Assistance Period that immediately follow that week, with respect to which the individual is otherwise entitled to a payment of DUA. Title 15 - Commerce and Trade, Chapter 116, Coronavirus Economic (CARES Act) Subchapter II - Unemployment Insurance Provisions, §9023 Emergency Increase in Unemployment Compensation Benefits (f) Fraud and Overpayments: (1) In General – If an individual knowingly has made, or caused to be made by another, a false statement or representation of a material fact, or knowingly has failed, or caused another to fail, to disclose a material fact, and as a result of such false statement or representation or of such nondisclosure such individual has received an amount of Federal Pandemic Unemployment Compensation or Mixed Earner Unemployment Compensation to which such individual was not entitled, such individual— 1. shall be ineligible for further Federal Pandemic Unemployment Compensation Mixed Earner Unemployment Compensation in accordance with the provisions of the applicable State unemployment compensation law relating to fraud in connection with a claim for unemployment compensation Condition During the fiscal year ended June 30, 2022, EDD continued its administration of the Pandemic Unemployment Assistance (PUA) program, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19 relief in unemployment compensation. Under the CARES Act, the PUA program was to be administered in accordance with the Disaster Unemployment Assistance (DUA) program under section 625 of Title 20, Code of Federal Regulations. Claimants eligible for PUA benefits were paid additional benefits under the Federal Pandemic Unemployment Compensation program (FPUC). In EDD’s administration of the PUA and FPUC programs, $3,559,865,590 in benefit payments were estimated to be ineligible payments and have not been reported in the schedule of expenditures of federal awards. The estimate was made by the Unemployment Insurance Branch and was based on data parameters to identify claimants that received benefits that matched ineligible criteria for identity fraud or eligibility fraud for misrepresented information.   Out of 138 PUA benefit payments tested, there were 27 benefit payments to claimants determined to be ineligible whose identity or employment was not sufficiently verified. Identification as a Repeat Finding Finding 2021-004 was reported in the immediate prior year. Cause Existing internal controls did not prevent, or detect and correct, instances of potential fraud for benefit payments for the following reasons. • There was a significant increase in unemployment claims that overwhelmed EDD’s existing fraud detection process. • There were insufficient controls in place to prevent or detect fraud associated with benefit payments related to incarceration, identity, and multiple claims from the same address. Effect EDD did not have adequate oversight controls to ensure that benefit payments were not being made to fraudulent claimants. Accordingly, benefit payments were made to fraudulent claimants who were not eligible. Questioned Costs Likely questioned costs were estimated to be $3,559,865,590 for fiscal year 2021-22. Known questioned costs were $417,860. Context Benefits paid to claimants under the COVID-19 Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $15,246,314,741. The sample was not a statistically valid sample. Recommendation EDD should continue to strengthen controls, such as database identification cross-matches, ID.me verification, partnerships with law enforcement and Thompson Reuters, as well as system enhancements to mitigate the potential of further employment benefit fraud. Such improvements in internal controls should improve EDD’s ability to timely prevent and detect unemployment benefit fraud. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-005 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 20 - Employees’ Benefits, Chapter V, Employment and Training Administration, Department of Labor, Part 625 - Disaster Unemployment Assistance, §625.6 Weekly amount; jurisdictions; reductions Eligibility and Disqualifications, (b) If the weekly amount computed under paragraph (a) of this section is less than 50 percent of the average weekly payment of regular compensation in the State, as provided quarterly by the Department, or, if the individual has insufficient wages from employment or insufficient or no net income from self-employment (which includes individuals falling within paragraphs (a)(3) and (b)(3) of § 625.5) in the applicable base period to compute a weekly amount under paragraph (a) of this section, the individual shall be determined entitled to a weekly amount equal to 50 percent of the average weekly payment of regular compensation in the State. (e) The State agency shall immediately determine, upon the filing of an initial application for DUA, a weekly amount under the provisions of paragraphs (a) through (d) of this section, as the case may be, based on the individual's statement of employment or self-employment preceding the individual's unemployment that was a direct result of the major disaster, and wages earned or paid for such employment or self-employment. An immediate determination of a weekly amount shall also be made where, in conjunction with the filing of an initial application for DUA, the individual submits documentation substantiating employment or self-employment and wages earned or paid for such employment or self-employment, or, in the absence of documentation, where any State agency records of employment or self-employment and wages earned or paid for such employment or self-employment, justify the determination of a weekly amount. An immediate determination shall also be made based   on the individual's statement or in conjunction with the submittal of documentation in those cases where the individual was to commence employment or self-employment on or after the date the major disaster began but was prevented from doing so as a direct result of the disaster. (1) In the case of a weekly amount determined in accordance with paragraph (e) of this section, based only on the individual's statement of earnings, the individual shall furnish documentation to substantiate the employment or self-employment or wages earned from or paid for such employment or self-employment or documentation to support that the individual was to commence employment or self-employment on or after the date the major disaster began. In either case, documentation shall be submitted within 21 calendar days of the filing of the initial application for DUA. (3) For purposes of a computation of a weekly amount under paragraph (a) of this section, if an individual submits documentation to substantiate employment or self-employment in accordance with paragraph (e)(1), but not documentation of wages earned or paid during the base period set forth in paragraph (a)(2) of this section, including those cases where the individual has not filed a tax return for the most recent tax year that has ended, the State agency shall immediately redetermine the weekly amount of DUA payable to the individual in accordance with paragraph (b) of this section. Condition During the fiscal year ended June 30, 2020, EDD implemented the Pandemic Unemployment Assistance (PUA) program, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19 relief in unemployment compensation. Under the CARES Act, the PUA program was to be administered in accordance with the Disaster Unemployment Assistance (DUA) program under section 625 of Title 20, Code of Federal Regulations. The amount of PUA payable to an unemployed or unemployed self-employed individual for a week of total unemployment shall be the weekly amount of compensation the individual would have been paid as regular compensation, as computed under the provisions of the applicable State law for a week of total unemployment. The weekly amount determination is calculated using the wages reported by the claimant. Upon receipt of a PUA claim, EDD would verify wages reported to ensure accurate weekly benefit amounts under PUA. Out of 138 PUA benefit payments tested, there were 67 claimants with verification issues (either wages, self-employment, or both). Identification as a Repeat Finding Finding 2021-005 was reported in the immediate prior year. Cause EDD did not perform timely wage and employment verifications of the claimants due to the significant increase in claims resulting from the COVID-19 pandemic. Effect EDD did not have adequate oversight controls to ensure that the claimant’s wages were timely and properly reviewed and approved. Accordingly, there was an increased risk for the occurrence of overpayment in benefits being provided to individuals, which was not timely prevented or detected. Questioned Costs Known questioned costs for the 67 claimants were $702,538.   Context Benefits paid to claimants under the COVID-19 Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $15,246,314,741. The sample was not a statisitcally valid sample. Recommendation EDD should ensure that proper verification procedures are in place to minimize the number of claimants with wage and/or employment verification issues. Effective and robust verification procedures should assist EDD in processing unemployment benefits only to eligible claimants. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-005 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 20 - Employees’ Benefits, Chapter V, Employment and Training Administration, Department of Labor, Part 625 - Disaster Unemployment Assistance, §625.6 Weekly amount; jurisdictions; reductions Eligibility and Disqualifications, (b) If the weekly amount computed under paragraph (a) of this section is less than 50 percent of the average weekly payment of regular compensation in the State, as provided quarterly by the Department, or, if the individual has insufficient wages from employment or insufficient or no net income from self-employment (which includes individuals falling within paragraphs (a)(3) and (b)(3) of § 625.5) in the applicable base period to compute a weekly amount under paragraph (a) of this section, the individual shall be determined entitled to a weekly amount equal to 50 percent of the average weekly payment of regular compensation in the State. (e) The State agency shall immediately determine, upon the filing of an initial application for DUA, a weekly amount under the provisions of paragraphs (a) through (d) of this section, as the case may be, based on the individual's statement of employment or self-employment preceding the individual's unemployment that was a direct result of the major disaster, and wages earned or paid for such employment or self-employment. An immediate determination of a weekly amount shall also be made where, in conjunction with the filing of an initial application for DUA, the individual submits documentation substantiating employment or self-employment and wages earned or paid for such employment or self-employment, or, in the absence of documentation, where any State agency records of employment or self-employment and wages earned or paid for such employment or self-employment, justify the determination of a weekly amount. An immediate determination shall also be made based   on the individual's statement or in conjunction with the submittal of documentation in those cases where the individual was to commence employment or self-employment on or after the date the major disaster began but was prevented from doing so as a direct result of the disaster. (1) In the case of a weekly amount determined in accordance with paragraph (e) of this section, based only on the individual's statement of earnings, the individual shall furnish documentation to substantiate the employment or self-employment or wages earned from or paid for such employment or self-employment or documentation to support that the individual was to commence employment or self-employment on or after the date the major disaster began. In either case, documentation shall be submitted within 21 calendar days of the filing of the initial application for DUA. (3) For purposes of a computation of a weekly amount under paragraph (a) of this section, if an individual submits documentation to substantiate employment or self-employment in accordance with paragraph (e)(1), but not documentation of wages earned or paid during the base period set forth in paragraph (a)(2) of this section, including those cases where the individual has not filed a tax return for the most recent tax year that has ended, the State agency shall immediately redetermine the weekly amount of DUA payable to the individual in accordance with paragraph (b) of this section. Condition During the fiscal year ended June 30, 2020, EDD implemented the Pandemic Unemployment Assistance (PUA) program, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19 relief in unemployment compensation. Under the CARES Act, the PUA program was to be administered in accordance with the Disaster Unemployment Assistance (DUA) program under section 625 of Title 20, Code of Federal Regulations. The amount of PUA payable to an unemployed or unemployed self-employed individual for a week of total unemployment shall be the weekly amount of compensation the individual would have been paid as regular compensation, as computed under the provisions of the applicable State law for a week of total unemployment. The weekly amount determination is calculated using the wages reported by the claimant. Upon receipt of a PUA claim, EDD would verify wages reported to ensure accurate weekly benefit amounts under PUA. Out of 138 PUA benefit payments tested, there were 67 claimants with verification issues (either wages, self-employment, or both). Identification as a Repeat Finding Finding 2021-005 was reported in the immediate prior year. Cause EDD did not perform timely wage and employment verifications of the claimants due to the significant increase in claims resulting from the COVID-19 pandemic. Effect EDD did not have adequate oversight controls to ensure that the claimant’s wages were timely and properly reviewed and approved. Accordingly, there was an increased risk for the occurrence of overpayment in benefits being provided to individuals, which was not timely prevented or detected. Questioned Costs Known questioned costs for the 67 claimants were $702,538.   Context Benefits paid to claimants under the COVID-19 Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $15,246,314,741. The sample was not a statisitcally valid sample. Recommendation EDD should ensure that proper verification procedures are in place to minimize the number of claimants with wage and/or employment verification issues. Effective and robust verification procedures should assist EDD in processing unemployment benefits only to eligible claimants. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-006 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: Unemployment Insurance COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 22 - Social Security, Division 1 - Employment Development Department, Subdivision 1 - Director of Employment Development, Division - 1 Unemployment and Disability Compensation, Part 1 - Unemployment Compensation, Chapter 5 Unemployment Compensation Benefits, Article 1 - Eligibility and Disqualifications §1256, §1257 and §1326 Eligibility and Disqualifications, §1256 California Code of Regulations: (a) An individual is disqualified for unemployment compensation benefits if the director finds that he or she left his or her most recent work voluntarily without good cause or that he or she has been discharged for misconduct connected with his or her most recent work. Eligibility and Disqualifications, §1257 California Code of Regulations: (a) An individual is also disqualified for unemployment compensation benefits if: He or she willfully, for the purpose of obtaining unemployment compensation benefits, either made a false statement or representation, including, but not limited to, using a false name, false social security number, or other false identification, with actual knowledge of the falsity thereof, or withheld a material fact in order to obtain any unemployment compensation benefits under this division.   Continued Claim for Unemployment Benefits - Filing and Contents, §1326-6 California Code of Regulations: (c) The claimant shall, to maintain his or her eligibility to file continued claims during a continuous period of unemployment, file continued claims at intervals of not more than two weeks, or such other interval as the department shall require, unless he or she shows good cause for his or her delay in filing his or her continued claim. Condition In EDD’s administration of the Unemployment Insurance program, $525,494,406 in benefit payments were estimated by EDD to be potentially ineligible payments and have not been reported in the schedule of expenditures of federal awards. The estimate was based on data parameters to identify claimants whom received benefits that matched ineligible criteria for identity or eligibility fraud due to misrepresented information. The Unemployment Insurance Branch of EDD reviews unemployment insurance claims of claimants for involuntary separation to ensure separations were for valid reasons under the Unemployment Insurance Code. Out of 88 unemployment insurance benefit payments tested, there were 6 claimants receiving benefits, whose reasons for involuntary separation indicated separation reasons due to voluntary quitting without good cause and 6 claimants receiving benefits that made false statements regarding wages. In addition to the Unemployment Insurance program, EDD continued its administration of the Pandemic Emergency Unemployment Compensation (PEUC) program for the fiscal year ended June 30, 2022. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19, the PEUC program eligibility was determined from individuals who have exhausted all rights to regular unemployment compensation (UC) under state or Federal law and have no rights to regular UC under any other state or Federal law. A claimant must have an eligible existing Unemployment Insurance program claim that has been exhausted prior to being eligible for PEUC. Out of 50 PEUC benefit payments tested, 1 claimant received benefits, whose reason for involuntary separation indicated separation reasons due to voluntary quitting without good cause, 1 claimant received benefits without completing weekly certifications, and 1 claimant was receiving full benefits while earning wages. Identification as a Repeat Finding Finding 2021-006 was reported in the immediate prior year. Cause EDD has acknowledged that the adjudication process for potential eligibility issues, which includes work separation, was inadequately or not timely performed due to the significant increase in claims resulting from the COVID-19 pandemic. Effect By EDD not performing timely and adequate review for potential eligibility issues, benefit payments were made to ineligible claimants.   Questioned Costs Known questioned costs for the 12 claimants identified for the unemployment compensation were $57,752 for Unemployment Insurance Program and $31,800 for the Federal Pandemic Unemployment Compensation program of the COVID-19 Unemployment Insurance. Known questioned costs for the 3 claimants identified were $9,386 for the PEUC program and $6,000 for the Federal Pandemic Unemployment Compensation (FPUC) program of the COVID-19 Unemployment Insurance. Context Benefits paid to claimants under the Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $7,720,873,424. Benefits to claimants under the PEUC and FPUC programs were $1,713,827,584 and $11,923,097,900, respectively. The sample was not a statistically valid sample. Recommendation EDD should enhance its adjudication process to support proper eligibility determinations and decrease improper payments to ineligible claimants. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-006 Category of Finding: Activities Allowed or Unallowed Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Employment Development Department (EDD) Assistance Listing Number: 17.225 Federal Program Title: Unemployment Insurance COVID-19 Unemployment Insurance Federal Award Number and Year: UI-37212-22-55-A-6; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 22 - Social Security, Division 1 - Employment Development Department, Subdivision 1 - Director of Employment Development, Division - 1 Unemployment and Disability Compensation, Part 1 - Unemployment Compensation, Chapter 5 Unemployment Compensation Benefits, Article 1 - Eligibility and Disqualifications §1256, §1257 and §1326 Eligibility and Disqualifications, §1256 California Code of Regulations: (a) An individual is disqualified for unemployment compensation benefits if the director finds that he or she left his or her most recent work voluntarily without good cause or that he or she has been discharged for misconduct connected with his or her most recent work. Eligibility and Disqualifications, §1257 California Code of Regulations: (a) An individual is also disqualified for unemployment compensation benefits if: He or she willfully, for the purpose of obtaining unemployment compensation benefits, either made a false statement or representation, including, but not limited to, using a false name, false social security number, or other false identification, with actual knowledge of the falsity thereof, or withheld a material fact in order to obtain any unemployment compensation benefits under this division.   Continued Claim for Unemployment Benefits - Filing and Contents, §1326-6 California Code of Regulations: (c) The claimant shall, to maintain his or her eligibility to file continued claims during a continuous period of unemployment, file continued claims at intervals of not more than two weeks, or such other interval as the department shall require, unless he or she shows good cause for his or her delay in filing his or her continued claim. Condition In EDD’s administration of the Unemployment Insurance program, $525,494,406 in benefit payments were estimated by EDD to be potentially ineligible payments and have not been reported in the schedule of expenditures of federal awards. The estimate was based on data parameters to identify claimants whom received benefits that matched ineligible criteria for identity or eligibility fraud due to misrepresented information. The Unemployment Insurance Branch of EDD reviews unemployment insurance claims of claimants for involuntary separation to ensure separations were for valid reasons under the Unemployment Insurance Code. Out of 88 unemployment insurance benefit payments tested, there were 6 claimants receiving benefits, whose reasons for involuntary separation indicated separation reasons due to voluntary quitting without good cause and 6 claimants receiving benefits that made false statements regarding wages. In addition to the Unemployment Insurance program, EDD continued its administration of the Pandemic Emergency Unemployment Compensation (PEUC) program for the fiscal year ended June 30, 2022. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act for COVID-19, the PEUC program eligibility was determined from individuals who have exhausted all rights to regular unemployment compensation (UC) under state or Federal law and have no rights to regular UC under any other state or Federal law. A claimant must have an eligible existing Unemployment Insurance program claim that has been exhausted prior to being eligible for PEUC. Out of 50 PEUC benefit payments tested, 1 claimant received benefits, whose reason for involuntary separation indicated separation reasons due to voluntary quitting without good cause, 1 claimant received benefits without completing weekly certifications, and 1 claimant was receiving full benefits while earning wages. Identification as a Repeat Finding Finding 2021-006 was reported in the immediate prior year. Cause EDD has acknowledged that the adjudication process for potential eligibility issues, which includes work separation, was inadequately or not timely performed due to the significant increase in claims resulting from the COVID-19 pandemic. Effect By EDD not performing timely and adequate review for potential eligibility issues, benefit payments were made to ineligible claimants.   Questioned Costs Known questioned costs for the 12 claimants identified for the unemployment compensation were $57,752 for Unemployment Insurance Program and $31,800 for the Federal Pandemic Unemployment Compensation program of the COVID-19 Unemployment Insurance. Known questioned costs for the 3 claimants identified were $9,386 for the PEUC program and $6,000 for the Federal Pandemic Unemployment Compensation (FPUC) program of the COVID-19 Unemployment Insurance. Context Benefits paid to claimants under the Unemployment Insurance program for the fiscal year ended June 30, 2022, totaled $7,720,873,424. Benefits to claimants under the PEUC and FPUC programs were $1,713,827,584 and $11,923,097,900, respectively. The sample was not a statistically valid sample. Recommendation EDD should enhance its adjudication process to support proper eligibility determinations and decrease improper payments to ineligible claimants. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-007 Category of Finding: Activities Allowed or Unallowed Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: Department of Finance (Finance) Assistance Listing Number: 21.027 Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds Federal Award Number and Years: N/A; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Sections 602(c)(1)(C) and 603(c)(1)(C) of the Social Security Act provide that State and Local Fiscal Recovery Funds (SLFRF) may be used “for the provision of government services to the extent of the reduction in revenue of such…government due to the COVID-19 public health emergency relative to the revenues collected in the most recent full fiscal year of the …government prior to the emergency”. The interim final rule adopted a definition based largely on the components reported under “General Revenue from Own Sources” in the Census Bureau’s Annual Survey of State and Local Government Finances. Under the interim final rule, general revenue included revenue collected by a recipient and generated from its underlying economy, and it would capture a range of different types of tax revenues, as well as other types of revenue that are available to support government services. Specifically, revenue under the interim final rule included money that is received from tax revenue, current charges, and miscellaneous general revenues and excluded refunds and other correcting transactions, proceeds from issuance of debt or the sale of investments, agency or private trust transactions, revenue from utilities, social insurance trust revenues, and intergovernmental transfers from the federal government, including transfers made pursuant to section 9901 of the ARPA. Condition Finance included contributions by State employees to 457(b) and 401(k) deferred compensation plans in the calculation of base year revenues. The contributions from State employees are deposited directly with the third-party deferred compensation plan administrator and do not result in revenue reported by the State in its basic financial statements. Furthermore, the employee contributions do not represent revenues available to the State for the provision of government services and should have been excluded from the calculation of general revenue for the base year and preceding fiscal years establishing the average annual growth rate of general revenues.  Identification as a Repeat Finding This was not a repeat finding from the immediate prior year. Cause The process established by Finance to review and determine the proper inclusion or exclusion of the State’s general ledger revenue accounts in its calculation of base year revenue and preceding fiscal year revenues did not consider whether certain general ledger revenue accounts were reported within the State’s basic financial statements. Additionally, the review controls over the revenue loss calculation did not detect the inclusion of specific general ledger revenue accounts which are included in revenues for budgetary purposes, but which are excluded for financial reporting purposes in the State’s basic financial statements. Effect By including the employee contributions as general revenues in the base revenue calculation, the amount of total revenue loss calculated as available to potentially fund general government services was overstated by $977,898,160. Questioned Costs No questioned costs were identified. Context The amount of revenue loss available to the State to fund general government services was initially calculated as $17,823,151,622. Subsequently, the State revised its calculation by removing contribution amounts by State employees to 457(b) and 401(k) deferred compensation plans, resulting in a revenue loss calculation of $16,845,253,462, a reduction of 5.5%. As of June 30, 2022, the State has reported $11,158,313,000 of total revenue loss utilized for the provision of government services. The amount of revenue loss funded expenditures reported for fiscal year 2022 was not impacted by the reduction. Recommendation Finance should include a reconciliation between general revenues identified for inclusion in the revenue loss calculation and the State’s basic financial statements, to ensure that all revenue recorded in the identified general ledger revenue accounts are in compliance with the definition of general revenues as established by the U.S. Treasury in the Final Rule. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-008 Category of Finding: Activities Allowed or Unallowed Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Health Care Services (Health Care Services) Assistance Listing Number: 93.767 Federal Program Title: Children’s Health Insurance Program Federal Award Numbers and Years: 2205CA5021; 2022 2105CA5021; 2021 Assistance Listing Number: 93.778 Federal Program Title: Medical Assistance Program Federal Award Numbers and Years: 2205CA5ADM; 2022 2205CA5MAP; 2022 2105CA5ADM; 2021 2105CA5MAP; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). California Welfare and Institutions Code - WIC, Division 9. Public Social Services, Part 3. Aid and Medical Assistance, Chapter 8.9. Transition of Community-Based Medi-Cal Mental Health: §14705: (c) With regard to county operated facilities, clinics, or programs for which claims are submitted to the department for Medi-Cal reimbursement for specialty mental health services to Medi-Cal eligible individuals, the county shall ensure that all requirements necessary for Medi-Cal reimbursement for these services are complied with, including, but not limited to, utilization review and the submission of yearend cost reports by December 31 following the close of the fiscal year.   §14713: (b) If the department determines that a mental health plan has failed to comply with the requirements of Chapter 7 (commencing with Section 14000), Chapter 8 (commencing with Section 14200), Chapter 8.8 (commencing with Section 14600), or this chapter, the department may impose sanctions and plans of correction pursuant to Section 14197.7. Condition Fifteen of 56 contractor counties of Short-Doyle funding were tested and 10 had not submitted their cost reports by the December 31 due date. Three of the 10 contractor counties had not submitted their cost reports for fiscal year 2020-21 (more than 12 months late) and 7 of the 10 contractor counties have subsequently submitted their cost reports for fiscal year 2020-21. Although the Mental Health Division of Health Care Services did take the required action of notifying the ten contractor counties in writing within 30 days of the noncompliance, it has not taken any additional action necessary to ensure contract and performance compliance. The cost reports are the basis for the allocation of payments made to contractor counties providing mental health services to eligible beneficiaries and serve to provide the Mental Health Division with fiscal oversight for contract and performance compliance. Identification as a Repeat Finding Finding 2021-008 was reported in the immediate prior year. Cause The Mental Health Division did not take additional action for significantly late annual cost reports because its monitoring and follow-up process does not go beyond emailing the delinquent subrecipients every 30 days. Effect Delays in reviewing cost reports do not comply with the objective of timely and effective contract monitoring. Inaccurate or untimely cost reports could result in under/over funding each contractor county and increases the risk of statewide noncompliance with contract requirements. Questioned Costs Questioned costs were not determinable. Context For the fiscal year ended June 30, 2022, disbursements of Short-Doyle funding from the Medical Assistance Program to the 10 noncompliant contractor counties totaled $1,521,017,226, the 15 tested contractor counties totaled $1,827,939,268, and all 56 contractor counties totaled $2,511,609,039. For the fiscal year ended June 30, 2022, disbursements of Short-Doyle funding from the Children’s Health Insurance Program to the 10 noncompliant contractor counties totaled $143,710,692, the 15 tested contractor counties totaled $165,488,866, and all 56 contractor counties totaled $218,883,485. The sample was not a statistically valid sample.   Recommendation Health Care Services should develop and follow policies and procedures to take additional action for significantly late annual cost reports. These policies and procedures should include imposing sanctions, including, but not limited to, fines, penalties, the withholding of payments, probationary or corrective actions, or any other actions deemed necessary to promptly ensure contract and performance compliance. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-008 Category of Finding: Activities Allowed or Unallowed Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Health Care Services (Health Care Services) Assistance Listing Number: 93.767 Federal Program Title: Children’s Health Insurance Program Federal Award Numbers and Years: 2205CA5021; 2022 2105CA5021; 2021 Assistance Listing Number: 93.778 Federal Program Title: Medical Assistance Program Federal Award Numbers and Years: 2205CA5ADM; 2022 2205CA5MAP; 2022 2105CA5ADM; 2021 2105CA5MAP; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). California Welfare and Institutions Code - WIC, Division 9. Public Social Services, Part 3. Aid and Medical Assistance, Chapter 8.9. Transition of Community-Based Medi-Cal Mental Health: §14705: (c) With regard to county operated facilities, clinics, or programs for which claims are submitted to the department for Medi-Cal reimbursement for specialty mental health services to Medi-Cal eligible individuals, the county shall ensure that all requirements necessary for Medi-Cal reimbursement for these services are complied with, including, but not limited to, utilization review and the submission of yearend cost reports by December 31 following the close of the fiscal year.   §14713: (b) If the department determines that a mental health plan has failed to comply with the requirements of Chapter 7 (commencing with Section 14000), Chapter 8 (commencing with Section 14200), Chapter 8.8 (commencing with Section 14600), or this chapter, the department may impose sanctions and plans of correction pursuant to Section 14197.7. Condition Fifteen of 56 contractor counties of Short-Doyle funding were tested and 10 had not submitted their cost reports by the December 31 due date. Three of the 10 contractor counties had not submitted their cost reports for fiscal year 2020-21 (more than 12 months late) and 7 of the 10 contractor counties have subsequently submitted their cost reports for fiscal year 2020-21. Although the Mental Health Division of Health Care Services did take the required action of notifying the ten contractor counties in writing within 30 days of the noncompliance, it has not taken any additional action necessary to ensure contract and performance compliance. The cost reports are the basis for the allocation of payments made to contractor counties providing mental health services to eligible beneficiaries and serve to provide the Mental Health Division with fiscal oversight for contract and performance compliance. Identification as a Repeat Finding Finding 2021-008 was reported in the immediate prior year. Cause The Mental Health Division did not take additional action for significantly late annual cost reports because its monitoring and follow-up process does not go beyond emailing the delinquent subrecipients every 30 days. Effect Delays in reviewing cost reports do not comply with the objective of timely and effective contract monitoring. Inaccurate or untimely cost reports could result in under/over funding each contractor county and increases the risk of statewide noncompliance with contract requirements. Questioned Costs Questioned costs were not determinable. Context For the fiscal year ended June 30, 2022, disbursements of Short-Doyle funding from the Medical Assistance Program to the 10 noncompliant contractor counties totaled $1,521,017,226, the 15 tested contractor counties totaled $1,827,939,268, and all 56 contractor counties totaled $2,511,609,039. For the fiscal year ended June 30, 2022, disbursements of Short-Doyle funding from the Children’s Health Insurance Program to the 10 noncompliant contractor counties totaled $143,710,692, the 15 tested contractor counties totaled $165,488,866, and all 56 contractor counties totaled $218,883,485. The sample was not a statistically valid sample.   Recommendation Health Care Services should develop and follow policies and procedures to take additional action for significantly late annual cost reports. These policies and procedures should include imposing sanctions, including, but not limited to, fines, penalties, the withholding of payments, probationary or corrective actions, or any other actions deemed necessary to promptly ensure contract and performance compliance. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-009 Category of Finding: Activities Allowed or Unallowed Type of Finding: Material Weakness State Administering Department: California Department of Health Care Services (Health Care Services) Assistance Listing Number: 93.959 Federal Program Title: Block Grants for Prevention and Treatment of Substance Abuse (SAPT) Federal Award Numbers and Years: 1B08TI083437-01; 2021 6B08TI083437-01M002; 2021 6B08TI083437-01M003; 2021 6B08TI083437-01M004; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Condition During our testing of 40 employee timesheets, 19 of the 40 employees did not prepare and submit timesheets as required by the Department of Health Care Services (Health Care Services) internal control procedures. Identification as a Repeat Finding This was not a repeat finding from the immediate prior year. Cause Health Care Services did not adhere to its documented controls due to the effects of COVID-19. The effects resulted in high staff turnover and increased demand on staff resources. Effect Nonadherence to the internal controls over the documentation of employee timesheets can result in the risk of noncompliance with established policies and procedures. Questioned Costs None. Context Expenditures related to payroll costs charged to the SAPT program for fiscal year 2021-22 totaled $11,606,958. Recommendation Health Care Services should adhere to its processes and controls in place to ensure all required employees submit a timesheet. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-010 Category of Finding: Eligibility Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 93.917 Federal Program Title: HIV Care Formula Grants COVID-19 HIV Care Formula Grants Federal Award Numbers and Years: 5 X07HA12778-13-00; 2021 6 X07HA12778-13-01; 2021 6 X07HA12778-13-02; 2022 6 X07HA12778-13-03; 2022 6 X07HA12778-13-04; 2022 2 X07HA12778-14-00; 2022 6 X07HA12778-14-01; 2022 6 X07HA12778-14-02; 2022 6 X07HA12778-14-03; 2022 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Title 42 - The Public Health and Welfare. Chapter 6A - Public Health Service. Subchapter XXIV - HIV Health Care Services Program. Part B - Care Grant Program. Subpart I - General Grant Provisions. Section 300ff-26 - Provision of Treatments: (a) In general A State shall use a portion of the amounts provided under a grant awarded under section 300ff–21 of this title to establish a program under section 300ff–22(b)(3)(B) of this title to provide therapeutics to treat HIV/AIDS or prevent the serious deterioration of health arising from HIV/AIDS in eligible individuals, including measures for the prevention and treatment of opportunistic infections. (b) Eligible individual To be eligible to receive assistance from a State under this section an individual shall: (1) Have a medical diagnosis of HIV/AIDS; and (2) Be a low-income individual, as defined by the State.   California State AIDS Drug Assistance Program Guidelines January 2022: (1.1) AIDS Drug Assistance Program (ADAP) Eligibility Criteria: To be eligible for the ADAP program, a client must: • Have a positive HIV/AIDS diagnosis. • Be at least 18 years old. • Be a resident of California. • Have an annual Modified Adjusted Gross Income (MAGI) that does not exceed 500 percent Federal Poverty Level (FPL) based on household size and income. • Not be fully covered by Medi-Cal or any other third-party payers (an entity that reimburses and manages health care expenses such as private insurance or governmental agencies, employers, etc.). HRSA PCN 15-04 (Revised 1/11/2019): The RWHAP legislation requires that rebates collected on ADAP medication purchases be applied to the RWHAP Part B Program with a priority, but not a requirement, that the rebates be placed back into ADAP. Although ADAP rebates are neither program income nor refunds, they are subject to the same regulatory provision regarding expenditure. These rebates must be used for the statutorily permitted purposes under the RWHAP Part B Program, which are limited to core medical services including ADAP, support services, clinical quality management, and administrative expenses (including planning and evaluation) as part of a comprehensive system of care for low-income individuals living with HIV. Condition Our sample of 60 participants from a population of 25,749 participants who received benefits during the fiscal year identified 10 participants who did not submit all required documentation, including proof of HIV/AIDS diagnosis, proof of residency, and income documentation to verify their annual MAGI did not exceed 500 percent Federal Poverty Level based on household size and income. Identification as a Repeat Finding Finding 2021-011 was reported in the immediate prior year pertaining to not submitting all required documentation. Cause Procedures that required the collection of valid supporting documents were not followed. Existing internal controls did not prevent, or detect and correct, the occurrence of benefits being provided to potentially ineligible individuals. Effect Public Health did not have adequate oversight controls to ensure that the applicant’s eligibility was properly reviewed and approved. Accordingly, there is an increased risk for the occurrence of benefits being provided to ineligible individuals that may not be prevented or detected in a timely manner. Questioned Costs Questioned costs were not determinable because benefit costs were not tracked by individual participants.   Context Pharmacy benefits management services are provided by a contractor who received administrative fees and reimbursements for prescription drug costs to program participants. Payments to the contractor totaled $108,210,356 for approximately 26,000 program participants for the fiscal year ended June 30, 2022. The sample was not a statistically valid sample. Recommendation The ADAP Branch should continue to monitor compliance with its policies to ensure enrollment workers and secondary reviews of ADAP applications follow the established guidelines and retain acceptable documentation to support eligibility determinations. Applications that have been granted an eligibility exception (i.e., Temporary Access Period, Medi-Cal Eligibility Exception Request, or Eligibility Exception Request) should be reviewed in a timely manner to ensure clients who do not provide the required documentation within the approved extension period are disenrolled in a timely manner. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-011 Category of Finding: Subrecipient Monitoring Type of Finding: Material Weakness and Material Instance of Noncompliance State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 93.323 Federal Program Title: Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Federal Award Number and Year: NU50CK000539; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. §200.303 Internal controls (2 CFR 200.303): 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). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. §200.332 Requirements for pass-through entities (2 CFR 200.332): All pass-through entities must: (b) Evaluate each subrecipient’s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this section, which may include consideration of such factors as: (1) The subrecipient’s prior experience with the same or similar subawards: (2) The results of previous audits including whether or not the subrecipient receives a Single Audit in accordance with Subpart F of this part, and the extent to which the same or similar subaward has been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and (4) The extent and results of Federal awarding agency monitoring (e.g., if the subrecipient also receives Federal awards directly from a Federal awarding agency). (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include:  (1) Reviewing financial and performance reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and written confirmation from the subrecipient, highlighting the status of actions planned or taken to address Single Audit findings related to the particular subaward. (3) Issuing a management decision for applicable audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by §200.521. (4) The pass-through entity is responsible for resolving audit findings specifically related to the subaward and not responsible for resolving cross-cutting findings. If a subrecipient has a current Single Audit report posted in the Federal Audit Clearinghouse and has not otherwise been excluded from receipt of Federal funding (e.g., has been debarred or suspended), the pass-through entity may rely on the subrecipient's cognizant audit agency or cognizant oversight agency to perform audit follow-up and make management decisions related to cross-cutting findings in accordance with section §200.513(a)(3)(vii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. (f) Verify that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient’s Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in §200.501. (g) Consider whether the results of the subrecipient’s audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the pass-through entity’s own records. Condition Public Health did not establish a formal risk assessment process over its subrecipients of federal awards to determine the frequency and extent of subrecipient monitoring to be performed. While Public Health received reimbursement invoices from subrecipients, there did not appear to be other financial or programmatic monitoring to verify subrecipents compliance with applicable requirements. In addition, Public Health did not obtain Single Audit reports from those subrecipients as required. Identification as a Repeat Finding Finding 2021-014 was reported in the immediate prior year. Cause Procedures to perform the required subrecipient monitoring were not established nor performed by Public Health. Effect By not properly evaluating the risk of noncompliance, Public Health may inadvertently award grant funds to subrecipients who lack the necessary mechanisms or understanding to adhere to federal statutes. This increases the likelihood of noncompliance arising during the performance of the grant-funded activities. Furthermore, failure to perform monitoring procedures or obtain Single Audit reports increases the risk for not properly identifying subrecipient program control weaknesses, noncompliance, and performing sufficient follow-up on any subrecipient corrective action. Questioned Costs No questioned costs were identified.   Context Disbursements to subrecipients for the ELC program totaled $301,107,041, or 31.0% of total reported program expenditures. Recommendation Public Health should establish and document formal procedures for conducting risk assessments of its subrecipients, including criteria for evaluating organizational capacity, financial stability, compliance history, and programmatic capabilities. Public Health should also develop and implement specific subrecipient monitoring procedures and establish a process for obtaining Single Audit reports from its subrecipients. Furthermore, a monitoring mechanism should be implemented to track compliance with the single audit mandate among subrecipients, including regular follow-ups and documentation of communication efforts. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.

Reference Number: 2022-012 Category of Finding: Special Tests and Provisions – Provider Health and Safety Standards Type of Finding: Material Weakness State Administering Department: California Department of Public Health (Public Health) Assistance Listing Number: 93.778 Federal Program Title: Medical Assistance Program Federal Award Numbers and Years: 2205CA5ADM; 2022 2205CA5MAP; 2022 2105CA5ADM; 2021 2105CA5MAP; 2021 Criteria Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter II - Office of Management and Budget Guidance. Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Subpart D - Post Federal Award Requirements. Standards for Financial and Program Management. §200.303 Internal controls (2 CFR 200.303): 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). Condition There was no evidence of surveyor signature or supervisor review and approval on Form CMS-1539 for all 40 surveys of providers tested. Identification as a Repeat Finding This was not a repeat finding from the immediate prior year. Cause California Department of Public Health (Public Health) did not adhere to its documented controls due to staff members either no longer working with Public Health or being on extended leave. Effect Nonadherence to internal controls over the review and approval process of the Form CMS-1539 can result in the risk of statewide noncompliance as providers may not meet the prescribed health and safety standards. Further, the integrity of the surveys can be compromised because they are being conducted with no apparent oversight. Questioned Costs No questioned costs were identified. Context A total of 987 surveys were included in the population, which consisted of all surveys completed by Public Health for Hospitals, Intermediate Care Facility and Individuals with Intellectual Disabilities and Nursing Facilities during fiscal year 2021-22. Recommendation Public Health should update its processes and controls in place to ensure compliance with established procedures and performance of timely review and approval of the Form CMS-1539, including for situations when staff is on leave and/or has left the department. Views of Responsible Officials and Corrective Action Plan Management’s response is reported in “Management’s Response and Corrective Action Plan” included in a separate section at the end of this report.