Audit 348113

Program: Various, including AL 10.542 – COVID-19 Pandemic EBT Food Benefits; AL 10.551 – Supplemental Nutrition Assistance Program; AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Reporting Grant Number & Year: Various, including 2401NERCMA, FFY 2024 Federal Grantor Agency: Various, including U.S. Department of Agriculture and U.S. Department of Health and Human Services Criteria: A good internal control plan requires adequate procedures to ensure the Schedule of Expenditures of Federal Awards (SEFA) is presented properly. Title 45 CFR § 75.510(b) (October 1, 2023) and Title 2 CFR § 200.510(b) (January 1, 2024) state, in part, the following: 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 . . . . At a minimum, the schedule must: * * * * (3) Provide total Federal awards expended for each individual Federal program . . . . (4) Include the total amount provided to subrecipients from each Federal program. Neb. Rev. Stat. § 81-1111(1) (Reissue 2014) states, in part, the following: Subject to the supervision of the Director of Administrative Services, the Accounting Administrator shall have the authority to prescribe the system of accounts and accounting to be maintained by the state and its departments and agencies, develop necessary accounting policies and procedures, coordinate and approve all proposed financial systems, and manage all accounting matters of the state’s central system. EnterpriseOne is the official accounting system of the State. Condition: Several programs did not have expenditures or the amount provided to subrecipients reported accurately on the SEFA. We notified Administrative Services of the errors, and the SEFA was subsequently adjusted. A similar finding was noted in the prior audit. Repeat Finding: 2023-022 Questioned Costs: None Statistical Sample: No Context: Administrative Services is responsible for managing the accounting matters of the State and certifies the data collection form for the Statewide Single Audit. Administrative Services compiles the SEFA from information provided by the individual agencies and submits it to the auditor. During our review, we noted the following: The Department of Health and Human Services (DHHS) did not accurately report expenditures for several programs, including overreporting AL 93.566 by $1,154,638. DHHS also reported $20,605,059 under AL 10.551 that should have been under AL 10.542. If the latter adjustment had not been made, this would have resulted in a major program not being reported on the SEFA. Sixteen programs for various State agencies needed correction. The total expenditures and amounts provided to subrecipients, as both originally reported and per the final SEFA, were as follows: See Schedule of Findings and Questioned Costs for chart/table. Cause: Administrative Services lacked adequate procedures for ensuring the accuracy of amounts not obtained directly from the accounting system. Administrative Services established a specific account code for aid to subrecipients, but not all agencies utilized this account code. Effect: Increased risk for the SEFA to be inaccurate, which could lead to Federal sanctions or programs not audited that should be. Recommendation: We recommend Administrative Services improve procedures to ensure the SEFA is complete and accurate. Management Response: We will continue agency training, review of chart of accounts setup, review of object account usage, and working with State employees to help ensure the SEFA is accurate and complete.

Program: Various, including AL 10.542 – COVID-19 Pandemic EBT Food Benefits; AL 10.551 – Supplemental Nutrition Assistance Program; AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Reporting Grant Number & Year: Various, including 2401NERCMA, FFY 2024 Federal Grantor Agency: Various, including U.S. Department of Agriculture and U.S. Department of Health and Human Services Criteria: A good internal control plan requires adequate procedures to ensure the Schedule of Expenditures of Federal Awards (SEFA) is presented properly. Title 45 CFR § 75.510(b) (October 1, 2023) and Title 2 CFR § 200.510(b) (January 1, 2024) state, in part, the following: 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 . . . . At a minimum, the schedule must: * * * * (3) Provide total Federal awards expended for each individual Federal program . . . . (4) Include the total amount provided to subrecipients from each Federal program. Neb. Rev. Stat. § 81-1111(1) (Reissue 2014) states, in part, the following: Subject to the supervision of the Director of Administrative Services, the Accounting Administrator shall have the authority to prescribe the system of accounts and accounting to be maintained by the state and its departments and agencies, develop necessary accounting policies and procedures, coordinate and approve all proposed financial systems, and manage all accounting matters of the state’s central system. EnterpriseOne is the official accounting system of the State. Condition: Several programs did not have expenditures or the amount provided to subrecipients reported accurately on the SEFA. We notified Administrative Services of the errors, and the SEFA was subsequently adjusted. A similar finding was noted in the prior audit. Repeat Finding: 2023-022 Questioned Costs: None Statistical Sample: No Context: Administrative Services is responsible for managing the accounting matters of the State and certifies the data collection form for the Statewide Single Audit. Administrative Services compiles the SEFA from information provided by the individual agencies and submits it to the auditor. During our review, we noted the following: The Department of Health and Human Services (DHHS) did not accurately report expenditures for several programs, including overreporting AL 93.566 by $1,154,638. DHHS also reported $20,605,059 under AL 10.551 that should have been under AL 10.542. If the latter adjustment had not been made, this would have resulted in a major program not being reported on the SEFA. Sixteen programs for various State agencies needed correction. The total expenditures and amounts provided to subrecipients, as both originally reported and per the final SEFA, were as follows: See Schedule of Findings and Questioned Costs for chart/table. Cause: Administrative Services lacked adequate procedures for ensuring the accuracy of amounts not obtained directly from the accounting system. Administrative Services established a specific account code for aid to subrecipients, but not all agencies utilized this account code. Effect: Increased risk for the SEFA to be inaccurate, which could lead to Federal sanctions or programs not audited that should be. Recommendation: We recommend Administrative Services improve procedures to ensure the SEFA is complete and accurate. Management Response: We will continue agency training, review of chart of accounts setup, review of object account usage, and working with State employees to help ensure the SEFA is accurate and complete.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 12.401 – National Guard Military Operations and Maintenance (O&M) Projects – Cash Management & Reporting Grant Number & Year: Appendices – W91243-22-2-1001, FFY 2022; W91243-23-2-1001, FFY 2023; W91243-24-2-1001, FFY 2024; W91243-24-2-1021, FFY 2024; W91243-24-2-1024, FFY 2024 Federal Grantor Agency: U.S. Department of Defense Criteria: Per 2 CFR § 1128.100 and 2 CFR § 1128.200 (January 1, 2024), the Department of Defense adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth at 2 CFR parts 200.302, 200.303, and 200.305. Per 2 CFR § 200.303 (January 1, 2024): 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. Title 2 CFR § 200.302 (January 1, 2024) requires financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Title 2 CFR § 200.305(a) (January 1, 2024) states, in part, “For states, payments are governed by Treasury-State Cash Management Improvement Act (CMIA) agreements and default procedures codified at 31 CFR part 205 . . . .” National Guard Policy (NG Policy) 5-1, National Guard Grants and Cooperative Agreements, Section 11-5, Advance Payment Method, Section (5), states, in part, “[T]he grantee agrees to minimize the time elapsing between the transfer of funds from the U.S. Treasury and their disbursement by the State. (no more than 45 days).” Grants and agreements Policy Letter (GCAPL) 20-02 AQ-A Policy (February 4, 2020) turned NGR 5-1 into NG Policy 5-1. It generally maintained the principles and operational aspects of NGR 5-1, except as provisions of the document were adjusted in the AQ-A Policy. The AQ-A Policy did not make any changes to the 45-day requirement found in NGR 5-1. The instructions for OMB Standard Form 270 (REV. 1/2016) include the following for line 11a: Enter program outlays to date (net of refunds, rebates, and discounts), in the appropriate columns. For requests prepared on a cash basis, outlays are the sum of actual cash disbursements for goods and services, the amount of indirect expenses charged, the value of in- kind contributions applied, and the amount of cash advances and payments made to subcontractors and subrecipients. A good internal control plan would include procedures to ensure the time between the drawdown of Federal funds and disbursements are minimized and in compliance with National Guard regulations. Condition: The Agency was not in compliance with the Federal cash management requirements during the fiscal year and did not properly report program outlays on the OMB Standard Form (SF) 270. A similar finding was noted in the prior audit. Repeat Finding: 2023-057 Questioned Costs: None Statistical Sample: No Context: We tested five drawdowns of Federal funds to support the Agency’s operations. We tested to determine whether the Agency had expended the cumulative amounts drawn down for the awards tested within the required timeframe and noted the following: • Three drawdowns were not in compliance with NG Policy 5-1. Cumulative drawdowns for two of the draws tested were expended 49 and 62 days after the drawdown of Federal funds. Cumulative draws for the other draw tested had yet to be fully expended as of January 7, 2025. The table below provides a summary of the three draws: See Schedule of Findings and Questioned Costs for chart/table. • For five of five SF-270s tested, the Agency did not properly report total program outlays on the OMB SF-270 report. The Agency reported the total drawdowns for the program to date, rather than actual cash disbursements, as total program outlays. The variance between what was reported and what should have been reported ranged from an underreporting of $265,642 to an overreporting of $660,608, with a net total overreporting of expenditures by $1,090,090 for the five reports tested. Cause: Inadequate procedures for estimating fund needs for the upcoming month. Regarding SF-270 reporting, the Agency has stated it agrees with the finding; however, it has yet to implement corrective action. Effect: The Agency is not in compliance with Federal cash management and reporting requirements, which could result in sanctions. Additionally, there is an increased risk for the loss of Federal funding. Recommendation: We recommend the Agency ensure the amount of time between the Federal draw and the disbursement of funds by the State is minimized and in compliance with National Guard requirements. We also recommend the Agency report total program outlays in compliance with Federal requirements. Management Response: The Agency agrees with the finding. The drawdown timeline is a partial result of the variances in federal reimbursement functionalities and the advance state requirement function. The agency has reduced the Average # of Days to spend Total Draws by 23 for those draws in which drawdown timing was reported, indicating a general improvement over the prior year finding.

Program: AL 84.048 – Career and Technical Education – Basic Grants to States – Allowability Grant Number & Year: V048A220027, FFY 2023 Federal Grantor Agency: U.S. Department of Education Criteria: Per 2 CFR § 3474.1 (January 1, 2024), the U.S. Department of Education adopted the OMB Uniform Guidance in 2 CFR part 200, except for 2 CFR § 200.102(a) and 200.207(a). Per 2 CFR § 200.403 (January 1, 2024), allowable costs must be necessary, reasonable, and adequately documented. 2 CFR § 200.430(i)(1) (January 1, 2024) states, in part, the following: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. Enclosure A of the “Letter to Chief State School Officers on Granting Administrative Flexibility for Better Measures of Success” (September 7, 2012) provides guidelines for local educational agencies (LEAs), using a substitute system for time-and-effort reporting. Enclosure A states, in relevant part, the following: (2) Under the substitute system, in lieu of personnel activity reports, eligible employees may support a distribution of their salaries and wages through documentation of an established work schedule that meets the standards under section (3). An acceptable work schedule may be in a style and format already used by an LEA. (3) Employee schedules must: a. Indicate the specific activity or cost objective that the employee worked on for each segment of the employee’s schedule; b. Account for the total hours for which each employee is compensated during the period reflected on the employee’s schedule; and c. Be certified at least semiannually and signed by the employee and a supervisory official having firsthand knowledge of the work performed by the employee. Good internal control requires adequate supporting documentation to ensure that expenditures are correct and allowable. Condition: The Agency lacked documentation to support 3 of 11 aid payments tested. Repeat Finding: No Questioned Costs: $34,983 known Statistical Sample: No Context: We randomly selected 11 reimbursement payments to subrecipients for testing. We noted the following: • One reimbursement to a community college included salaries and benefits for two employees for $23,583. Documentation to support the salaries and benefits was inadequate. The Agency provided time and effort certifications, stating that the employees worked 50% on the Career and Technical Federal program and 50% on a different program. However, no other documentation – such as an employee work schedule – was provided to support that this distribution was correct. The $23,583 paid for salaries and benefits are considered questioned costs. • One reimbursement was to an Educational Service Unit (ESU). The ESU made payments to schools in order for the schools to reimburse its teachers for their costs for attending a conference and also paying the teachers a stipend for attending the conference. The payments to teachers were to include $120/night for hotels, $300 for registration fees, $265 for mileage, and $125/day as a stipend for each day the teachers attended the conference. However, documentation was not provided to support that the reimbursements/stipends went to all the teachers, or if the school should have kept the reimbursement if it paid for the hotels and registration fees. Additionally, documentation was lacking to support that all the teachers actually stayed at the hotel or that the school paid for the hotel. Lastly, documentation was not provided to support that the stipend amount was reasonable and approved by appropriate personnel. This resulted in questioned costs of $11,192. • One reimbursement to a school included payments to teachers for attending a conference. One hundred and sixty dollars was paid to 13 teachers based on the U.S. General Services Administration per diem rates for meals and incidental expenses. However, per the conference agenda, lunch was provided for one of the days, so the amount paid per teacher should have been reduced to $144, but it was not. This resulted in questioned costs of $208. Federal payment errors for the sample tested were $34,983. The total sample tested was $1,910,166, and aid payments for the fiscal year totaled $7,485,494. Based on the sample tested, the dollar error rate for the sample was 1.83% ($34,983/$1,910,166), which estimates the potential dollars at risk for fiscal year 2024 to be $136,985 (dollar error rate multiplied by population). Cause: Lack of procedures to ensure all costs were adequately documented. Effect: Without adequate supporting documentation, there is an increased risk that Federal awards could be used for unallowable costs. Recommendation: We recommend the Agency improve procedures to ensure that payments are supported by adequate documentation. Management Response: The Nebraska Department of Education’s Office of Career, Technical, and Adult Education provided emails which detailed the purpose for Sharri’s work within the CTE program. The college provided the time and effort certification for the time period in question for the employee but the documentation from the college did not provide the actual work performed information. The Nebraska Department of Education’s Office of Career, Technical, and Adult Education was able to provide most of this documentation related to the reimbursement for teachers attending the conference but was unable to collect the documentation from some of the schools within the ESU 4 Perkins consortium. ESU 4 was not able to provide a stipend policy, though they were able to provide meeting notes where the stipend policy was outlined ahead of time.

Program: AL 84.126 – Rehabilitation Services Vocational Rehabilitation Grants to States – Reporting Grant Number & Year: H126A220039, FFY 2022; H126A240039, FFY 2024 Federal Grantor Agency: U.S. Department of Education Criteria: Per 2 CFR § 3474.1 (January 1, 2024), the U.S. Department of Education adopted the OMB Uniform Guidance in 2 CFR part 200, except for 2 CFR § 200.102(a) and 200.207(a). 2 CFR § 200.302 (January 1, 2024) states, in part, the following: (a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State’s own funds. In addition, the state’s and the other non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. 34 CFR § 361.60(a)(1) (July 1, 2023) states the following: Except as provided in paragraph (a)(2) of this section, the Federal share for expenditures made by the State under the vocational rehabilitation services portion of the Unified or Combined State Plan, including expenditures for the provision of vocational rehabilitation services and the administration of the vocational rehabilitation services portion of the Unified or Combined State Plan, is 78.7 percent. Per 34 CFR § 76.707 (July 1, 2023), personal services performed by an employee of the State are obligated when the services are performed. Good internal control and sound accounting practices require adequate policies and procedures to ensure that information included in Federal reports is correct and accurate. Condition: The Agency lacked procedures to ensure that the unliquidated obligations, indirect costs, and administrative costs were reported accurately on the RSA-17 reports. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: We tested two RSA-17 reports submitted by the Agency. We noted the following: Grant H126A240039, Quarter Ended March 31, 2024 • The Federal and Non-Federal Share of Unliquidated Obligations reported on lines 18 and 29 were $2,905,268 and $786,305, respectively. The amounts reported were not correct due to the following: o The Agency included the unliquidated indirect costs for the month of March 2024 twice, resulting in the amount reported being overstated by $43,901 for the Federal Share and $11,882 for the Non-Federal Share. o The Agency did not include the payroll costs for time worked from March 11, 2024, to March 24, 2024. Additionally, the Agency erroneously included the payroll costs for time worked from April 1, 2024, to April 7, 2024. This resulted in the amount reported being overstated by $164,849 for the Federal Share and $44,616 for the Non-Federal Share. o Lastly, the Agency did not provide adequate documentation to support the unliquidated amounts for contracts. Per the Agency, the amount was taken from proposals submitted by possible contractors; however, the Agency did not provide documentation to support those written commitments existed as of March 31, 2024. • The amount reported on line 36g for Federal Share of Indirect Costs was not correct. The Agency reported that the Federal share of indirect costs was $484,844. However, this was 100% of the total indirect costs recorded. Only $381,573 should have been reported as the Federal share based on the 78.7% matching rate. Therefore, the amount reported was overstated by $103,271. Grant H126A220039, Quarter Ended September 30, 2023 • Line 37 Federal and Non-Federal Administrative Expenses was not adequately supported. The Agency reported $1,606,807 of Federal and non-Federal administrative costs. The Agency did not set up business units or other accounts in the State’s financial accounting system (EnterpriseOne) sufficiently to identify the administrative costs recorded for the vocational rehabilitation program. To determine the amount of administrative costs to report, the Agency ran a general ledger of all expenditures and manually identified the administrative costs based off the payee description and prior knowledge of transactions. However, transactions appear to have been excluded that should have been included as administrative expenses. Therefore, we were unable to verify that the amount reported was correct. Cause: Inadequate review and documentation of amounts reported. Additionally, the Agency stated that there was an error in the quarter ended March 31, 2024, report that prevented the Agency from inputting the correct value for the Federal share of indirect costs. However, no documentation was provided to support this was the case. Effect: Increased risk for errors and noncompliance with Federal requirements. Recommendation: We recommend the Agency update its procedures to ensure that obligations and expenditures are being properly reported in accordance with reporting requirements. Management Response: Federal and Non-Federal Share of Unliquidated Obligations - The incorrect amounts reported for unliquidated cost March indirect costs, payroll, and contracts were due to an error when completing the report. An additional review from NDE Budget and Grant Management staff of unliquidated obligations will be included in future reports to ensure accuracy. Federal and Non-Federal Administrative Expenses was not adequately supported - The agency does set up business units or other accounts (subledgers, subsidiaries) in the State’s financial accounting system (EnterpriseOne) to sufficiently identify administrative costs. Sub ledgers ERSO, ERTRANSI and subsidiaries 110, TRYLN, SRC, TRANSI were specifically set up separate administrative costs. These will be used to identify administrative costs for future reports. APA Response: The subledgers and subsidiaries identified in the management’s response were not used to identify administrative expenses when the Agency completed the RSA-17 report. The administrative expenses reported did not agree to the amount recorded in EnterpriseOne to these subledgers and subsidiaries for the grant.

Program: AL 84.126 – Rehabilitation Services Vocational Rehabilitation Grants to States – Period of Performance Grant Number & Year: H126A220039, FFY 2022 Federal Grantor Agency: U.S. Department of Education Criteria: Per 34 CFR § 76.707 (July 1, 2023), work performed by a contractor is obligated on the date the State “makes a binding written commitment to obtain the services.” Per 2 CFR § 3474.1 (January 1, 2024), the U.S. Department of Education adopted the OMB Uniform Guidance in 2 CFR part 200, except for 2 CFR § 200.102(a) and 200.207(a). Per 2 CFR § 200.403(h) (January 1, 2024), costs “must be incurred during the approved budget period.” The Rehabilitation Service Administration Period of Performance for Formula Grant Awards FAQs (published March 21, 2017) states the following: 8. Can the total cost of a contract be obligated to a grant award if some of the contract services will be performed after the period of performance ends? Yes. If a contract is entered into during a period of performance, but some of the services will be performed after the period of performance ends (in other words, some services would be performed after the FFY of appropriation and the carryover year, if applicable, has ended), the contract would still constitute a valid obligation, as established by 34 CFR 76.707, for purposes of the period of performance in which it was incurred. Good internal control and sound accounting procedures require adequate policies and procedures to ensure that only those expenditures obligated within the period of performance are charged to the grant. Condition: One of 25 expenditures tested was not obligated within the period of performance. Repeat Finding: No Questioned Costs: $2,586 known Statistical Sample: No Context: The Agency paid $2,586 to a provider for job search and placement services that occurred between August 15, 2023, to November 22, 2023. The Agency charged the payment to grant H126A220039, and costs were to be obligated by September 30, 2023, for this grant. The State did not make any written commitment to obtain or pay for these services until October 17, 2023, when the Agency signed an authorization form for said services. As the written commitment was not issued until after September 30, 2023, the payment was not allowed to be charged to the grant. Total questioned costs from the random sample were $2,586. The total sample tested was $39,530, and the total sample population was $5,495,235. Based on the sample tested, the dollar error rate for the sample was 6.54% ($2,586/$39,530), which estimates the potential dollars at risk for fiscal year 2024 to be $359,388 (dollar error rate multiplied by the population). Cause: The Agency lacked proper understanding of when costs should be considered obligated. The Agency reported that it completed the Plan for Job Development on September 3, 2023, and considered it obligated at that time. However, the authorization for the plan was not signed until October 17, 2023. Effect: Without adequate procedures, there is increased risk that the Agency will improperly charge expenditures to the grant outside of its period of performance, resulting in noncompliance. Recommendation: We recommend the Agency strengthen procedures to ensure that expenditures are charged to its grants within the period of performance. Management Response: The agency understands costs are considered obligated at the time of authorization. The case management system is programmed to assign the cost to the grant based on the start date of the service at the time of the obligation (authorization). The programming did not account for a situation when the obligation is created in a different federal fiscal year then the start date of the service. The obligation in question was made on 10/17/23 (FFY23) for a service that started on 8/15/23 (FFY22). The obligation is allowed to be charged to grant H126A220039, but should have been reported as an obligation to the carryover year (FY23) business unit for grant H126A220039, rather than an obligation to the year of appropriation (FFY22) business unit for grant H126A220039. The obligation cannot be charged to the H126A2300390 (FFY23) grant due to service being provided in FFY22. APA Response: Grant H126A220039 had a period of performance end date of September 30, 2023. Any obligation made after this date, including the obligation made on October 17, 2023, would not be allowable to charge to this grant.

Program: AL 84.425U – COVID-19 Education Stabilization Fund – American Rescue Plan – Elementary and Secondary School Emergency Relief Fund (ARP ESSER) – Reporting Grant Number & Year: S425U210048, grant period ending 9/30/2024 Federal Grantor Agency: U.S. Department of Education Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) state, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all subawards subject to Federal Funding Accountability and Transparency Act (FFATA) reporting are submitted on time. Condition: FFATA reporting was not submitted for one of seven subawards/amendments tested. Repeat Finding: 2023-028 Questioned Costs: None Statistical Sample: No Context: Per the usaspending.gov website, the Agency had reported 117 subawards/amendments obligated during the fiscal year ended June 30, 2024. We tested seven subawards/amendments. One of the amendments to a subaward was not reported in the FFATA Subaward Reporting Systems (FSRS) as of December 9, 2024. The Agency subsequently reported the amendment to FSRS on December 10, 2024, after we brought to its attention, which was 406 days late. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate review and reporting procedures. Effect: Without adequate procedures, there is an increased risk of noncompliance with Federal regulations. Recommendation: We recommend the Agency review its procedures for FFATA reporting to ensure compliance with Federal requirements. Management Response: NDE missed reporting this subaward which was corrected and submitted immediately after NDE became aware of the oversight.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.558 – Temporary Assistance for Needy Families (TANF) – Allowability & Subrecipient Monitoring Grant Number & Year: 2101NETANF, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 75.352 (October 1, 2023) requires a pass-through entity to do the following: (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 . . . * * * * (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 § 75.501. 45 CFR § 75.403 (October 1, 2023) requires costs to be reasonable, necessary, determined in accordance with generally accepted accounting principles (GAAP), and adequately documented. Per 45 CFR § 75.430(i), standards for documentation of personnel expenses: (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE’s definition of IBS); (iv) Encompass both federally assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity’s written policy; * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards . . . [.] Per 45 CFR § 75.431(c): The cost of fringe benefits . . . must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities, and charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Per the subaward agreement, “Under this Subaward, DHHS shall only pay for actual and allowable costs.” Good internal control requires procedures to ensure State and Federal requirements are met. Condition: Subrecipient monitoring procedures should be improved. Repeat Finding: 2023-039 Questioned Costs: $1,701 known Statistical Sample: No Context: There were 17 subrecipients paid a total of $18,122,989 during the fiscal year. We tested one payment to one subrecipient. When the desk review did not maintain adequate documentation, we provided the Agency with the opportunity to obtain additional support from the subrecipient. The payment did not have adequate support for salaries and benefits. Time records did not reflect the total activity for employees, and fringe benefits were based on budgeted amounts instead of actual costs. After considering subsequent documentation received, $1,701 remained unsupported. The payment tested was $132,711, and we question $1,701. The subrecipient was paid $1,871,251 during the fiscal year. We also noted this subrecipient should have had a Single audit submitted for the fiscal year ended June 30, 2022, by March 31, 2023, and a Single audit for the fiscal year ended June 30, 2023, submitted by March 31, 2024; however, neither had been submitted at the time of fieldwork on November 1, 2024. Cause: Inadequate review procedures. Effect: Noncompliance with Federal regulations and an increased risk for fraud or errors to occur. Recommendation: We recommend the Agency improve procedures to ensure compliance with Federal regulations, including cost principles. We further recommend the Agency improve procedures to ensure that subrecipients have a Single audit completed and submitted as required. Management Response: The agency agrees with the finding.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: Various, including AL 10.542 – COVID-19 Pandemic EBT Food Benefits; AL 10.551 – Supplemental Nutrition Assistance Program; AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Reporting Grant Number & Year: Various, including 2401NERCMA, FFY 2024 Federal Grantor Agency: Various, including U.S. Department of Agriculture and U.S. Department of Health and Human Services Criteria: A good internal control plan requires adequate procedures to ensure the Schedule of Expenditures of Federal Awards (SEFA) is presented properly. Title 45 CFR § 75.510(b) (October 1, 2023) and Title 2 CFR § 200.510(b) (January 1, 2024) state, in part, the following: 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 . . . . At a minimum, the schedule must: * * * * (3) Provide total Federal awards expended for each individual Federal program . . . . (4) Include the total amount provided to subrecipients from each Federal program. Neb. Rev. Stat. § 81-1111(1) (Reissue 2014) states, in part, the following: Subject to the supervision of the Director of Administrative Services, the Accounting Administrator shall have the authority to prescribe the system of accounts and accounting to be maintained by the state and its departments and agencies, develop necessary accounting policies and procedures, coordinate and approve all proposed financial systems, and manage all accounting matters of the state’s central system. EnterpriseOne is the official accounting system of the State. Condition: Several programs did not have expenditures or the amount provided to subrecipients reported accurately on the SEFA. We notified Administrative Services of the errors, and the SEFA was subsequently adjusted. A similar finding was noted in the prior audit. Repeat Finding: 2023-022 Questioned Costs: None Statistical Sample: No Context: Administrative Services is responsible for managing the accounting matters of the State and certifies the data collection form for the Statewide Single Audit. Administrative Services compiles the SEFA from information provided by the individual agencies and submits it to the auditor. During our review, we noted the following: The Department of Health and Human Services (DHHS) did not accurately report expenditures for several programs, including overreporting AL 93.566 by $1,154,638. DHHS also reported $20,605,059 under AL 10.551 that should have been under AL 10.542. If the latter adjustment had not been made, this would have resulted in a major program not being reported on the SEFA. Sixteen programs for various State agencies needed correction. The total expenditures and amounts provided to subrecipients, as both originally reported and per the final SEFA, were as follows: See Schedule of Findings and Questioned Costs for chart/table. Cause: Administrative Services lacked adequate procedures for ensuring the accuracy of amounts not obtained directly from the accounting system. Administrative Services established a specific account code for aid to subrecipients, but not all agencies utilized this account code. Effect: Increased risk for the SEFA to be inaccurate, which could lead to Federal sanctions or programs not audited that should be. Recommendation: We recommend Administrative Services improve procedures to ensure the SEFA is complete and accurate. Management Response: We will continue agency training, review of chart of accounts setup, review of object account usage, and working with State employees to help ensure the SEFA is accurate and complete.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Allowability & Eligibility Grant Number & Year: 2401NERCMA, FFY 2024; 2301NERCMA, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services   Criteria: Per 45 CFR § 75.303 (October 1, 2023): 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. Title 45 CFR § 400.53 (October 1, 2023) states the following: (a) Eligibility for refugee cash assistance is limited to those who— (1) Are new arrivals who have resided in the U.S. less than the RCA eligibility period determined by the ORR Director in accordance with § 400.211; (2) Are ineligible for TANF, SSI, OAA, AB, APTD, and AABD programs; (3) Meet immigration status and identification requirements in subpart D of this part or are the dependent children of, and part of the same family unit as, individuals who meet the requirements in subpart D, subject to the limitation in § 400.208 with respect to nonrefugee children; and (4) Are not full-time students in institutions of higher education, as defined by the Director. (b) A refugee may be eligible for refugee cash assistance under this subpart during a period to be determined by the Director in accordance with § 400.211. Per the U.S. Department of Health and Human Services’ Office of Refugee Resettlement (ORR) guidance published in the Federal Register on March 28, 2022, at 87 FR 17312: In accordance with ORR regulations, the Director of ORR is announcing the expansion of the Refugee Cash Assistance (RCA) and Refugee Medical Assistance (RMA) eligibility period from 8 months to 12 months of assistance for participants whose date of eligibility for ORR benefits is on or after October 1, 2021. 45 CFR § 400.43 (October 1, 2023) states, in part, the following: (a) An applicant for assistance under title IV of the Act must provide proof, in the form of documentation issued by the Immigration and Naturalization Service (INS), of one of the following statuses under the Act as a condition of eligibility: (1) Paroled as a refugee or asylee under section 212(d)(5) of the Act; (2) Admitted as a refugee under section 207 of the Act; (3) Granted asylum under section 208 of the Act; (4) Cuban and Haitian entrants, in accordance with requirements in 45 CFR part 401; (5) Certain Amerasians from Vietnam who are admitted to the U.S. as immigrants pursuant to section 584 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1988 (as contained in section 101(e) of Public Law 100–202 and amended by the 9th proviso under Migration and Refugee Assistance in title II of the Foreign Operations, Export Financing, and Related Programs Appropriations Acts, 1989 (Public Law 100–461 as amended)); or (6) Admitted for permanent residence, provided the individual previously held one of the statuses identified above. Per 45 CFR § 400.66(e) (October 1, 2023), “The State agency may use the date of application as the date refugee cash assistance begins in order to provide payments quickly to newly arrived refugees.” Title 470 NAC 2-002 states, in part, the following: Eligibility begins with the date of arrival in the United States, if the refugee meets all eligibility requirements. For asylees, victims of severe forms of trafficking, and Cuban and Haitian Parolees eligibility begins with the date of granted status. The time limit is applied to each refugee separately, not to the unit as a whole. If the refugee applies after the date of arrival in the United States, they may receive assistance for the remaining months of their eligibility period. Per Title 470 NAC 1-010, “Eligibility is redetermined at six months. Eligibility may be redetermined in less than six months to coordinate review dates for more than one program. An application is required as part of the eligibility review and to establish a new eligibility period.” Title 45 CFR § 400.2 (October 1, 2023) defines “refugee cash assistance” (RCA) as “cash assistance provided under section 412(e) of the Act to refugees who are ineligible for TANF [Temporary Assistance for Needy Families], OAA [Old Age Assistance], AB [Aid to the Blind], APTD [Aid to the Permanently and Totally Disabled], AABD [Aid to the Aged, Blind, and Disabled], or SSI [Supplemental Security Income].” Title 45 CFR § 400.2 defines “refugee medical assistance” (RMA) as “(a) Medical assistance provided under section 412(e) of the Act to refugees who are ineligible for the Medicaid program . . . .” Title 468 NAC 2-001 explains the eligibility requirements for Nebraska’s TANF program, including, “(B) United States citizenship or alien status; (C) Nebraska residence; . . . (F) Age requirement for a dependent child; . . .” Title 45 CFR § 401.2 (October 1, 2023) states the following: For purposes of this part a Cuban and Haitian entrant or entrant is defined as: (a) Any individual granted parole status as a Cuban/Haitian Entrant (Status Pending) or granted any other special status subsequently established under the immigration laws for nationals of Cuba or Haiti, regardless of the status of the individual at the time assistance or services are provided; and (b) Any other national of Cuba or Haiti (1) Who: (i) Was paroled into the United States and has not acquired any other status under the Immigration and Nationality Act; (ii) Is the subject of exclusion or deportation proceedings under the Immigration and Nationality Act; or (iii) Has an application for asylum pending with the Immigration and Naturalization Service; and (2) With respect to whom a final, nonappealable, and legally enforceable order of deportation or exclusion has not been entered. The Agency utilizes SAVE (Systematic Alien Verification for Entitlements) to determine an applicant’s status. SAVE is an online service that allows Federal, State, and local benefit-granting agencies to verify a benefit applicant’s immigration status or naturalized/derived citizenship. SAVE is administered by U.S. Citizenship and Immigration Services, a component of the U.S. Department of Homeland Security. Good internal control requires procedures for maintaining SAVE documentation used to verify an applicant’s status and ensure the applicant is not under an active order of deportation. Condition: Refugee assistance payments were not in compliance with State and Federal requirements. A similar finding was noted in the prior audit. Repeat Finding: 2023-040 Questioned Costs: $33,258 known ($16,281, 2301NERCMA; $16,977, 2401NERCMA) Statistical Sample: No Context: The Refugee Resettlement Program (RRP) helps refugees and other eligible newcomers achieve economic self-sufficiency, well-being, and successful integration in the United States. The RRP provides aid payments both directly to individuals who are deemed eligible for cash assistance (RCA) and medical assistance (RMA) through the managed care program. We randomly tested 25 aid payments: 15 to individuals who received RCA payments and 10 for RMA payments. We noted the following: • For eight recipients tested, adequate documentation was not on file to support that the Agency had verified, using the SAVE system, that the individual was not under an active order of deportation prior to starting benefit payments. Verification was performed 2 to 30 months after benefits started. Additionally, one of these recipients was also missing proper immigration documentation to support eligibility for any RRP benefits and, as a result, we question costs of $1,712. • One recipient tested, who was part of a family unit of four, received both RCA and RMA benefits, but qualified for Temporary Assistance for Needy Families (TANF). Therefore, the recipient should have been receiving benefits from TANF, not RRP benefits. For this recipient, we question costs of $7,557. • Seven of 10 RMA recipients tested appear to have been eligible for Medicaid; however, their monthly capitation payments were paid by RRP. As a result, we question costs of $9,715. • One recipient was enrolled in college courses at the time of her six-month renewal application in February 2024. We question payments, totaling $1,880, made to the recipient after declaration of student status. • Four recipients tested received benefits after their 12-month eligibility period had ended, resulting in additional questioned costs of $825. • We also tested 25 recipients to determine if the six-month benefit determination review was completed. o One recipient tested did not have a six-month review completed to redetermine eligibility. Additionally, the recipient should have been found ineligible to received RMA benefits, due to being past the 12-month eligibility period. The recipient entered the country on September 5, 2021. Therefore, her eligibility period would have expired August 31, 2022; however, she received RMA benefits from April 1, 2023, through March 1, 2024. Had an eligibility review been properly completed, it should have caught that this recipient was ineligible. Furthermore, the recipient’s six family members also received benefits within these dates. One family member’s RMA benefits ran from January 1, 2023, through March 1, 2024. As a result, we question costs of $8,918. o One recipient received RMA benefits when she should have been eligible for Medicaid. We question costs of $2,651 for capitation payments paid by the Refugee grant instead of the Medicaid grant. RRP aid expenditures for the fiscal year totaled $10,554,171. The Federal sample tested was $8,542, and Federal payment errors noted for the random sample tested were $3,191. The dollar error rate for the sample was 37.36% ($3,191/$8,542), which estimates the potential dollar risk for fiscal year 2024 to be $3,943,038 (dollar error rate multiplied by the population). In addition to the $3,191 Federal questioned costs noted on the sample items tested, we also noted $30,067 of Federal questioned costs on other assistance payments on behalf of these recipients. Cause: Ineffective controls. Written procedures are in place but not consistently followed. Effect: Increased risk for loss or misuse of funds. Recommendation: We recommend the Agency strengthen procedures to ensure payments are adequately supported and in accordance with State and Federal regulations. We further recommend the Agency ensure that SAVE documentation is maintained on file. Management Response: The agency agrees with the finding.

Program: AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Allowability & Subrecipient Monitoring Grant Number & Year: 2401NERSSS, FFY 2024; 2301NERSSS, FFY 2023; 2201NERSSS, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 75.352(d) (October 1, 2023) requires a pass-through entity to “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.” 45 CFR § 75.302(a) (October 1, 2023) requires the State to have accounting procedures sufficient to allow for “the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.” 45 CFR § 75.403 (October 1, 2023) requires costs to be reasonable, necessary, and adequately documented. 45 CFR § 75.405(a) (October 1, 2023) states the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. This standard is met if the cost: (1) Is incurred specifically for the Federal award; (2) Benefits both the Federal award and other work of the non-Federal entity and can be distributed in proportions that may be approximated using reasonable methods; and (3) Is necessary to the overall operation of the non-Federal entity and is assignable in part to the Federal award in accordance with the principles in this subpart. 45 CFR § 75.430(i)(1) (October 1, 2023) states, in part, the following: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities . . . * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards . . . . 45 CFR § 75.431(c) (October 1, 2023) states the following: The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker’s compensation insurance (except as indicated in § 75.447); pension plan costs (see paragraph (i) of this section); and other similar benefits are allowable, provided such benefits are granted under established written policies. Such benefits, must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities, and charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. 45 CFR § 75.459 (October 1, 2023) states, in part, the following: (a) Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill, and who are not officers or employees of the non-Federal entity, are allowable, subject to paragraphs (b) and (c) of this section when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Federal Government. In addition, legal and related services are limited under § 75.435. (b) In determining the allowability of costs in a particular case, no single factor or any special combination of factors is necessarily determinative. However, the following factors are relevant: (1) The nature and scope of the service rendered in relation to the service required. (2) The necessity of contracting for the service, considering the non-Federal entity’s capability in the particular area. (3) The past pattern of such costs, particularly in the years prior to Federal awards. (4) The impact of Federal awards on the non-Federal entity’s business (i.e., what new problems have arisen). (5) Whether the proportion of Federal work to the non-Federal entity’s total business is such as to influence the non-Federal entity in favor of incurring the cost, particularly where the services rendered are not of a continuing nature and have little relationship to work under Federal awards. (6) Whether the service can be performed more economically by direct employment rather than contracting. (7) The qualifications of the individual or concern rendering the service and the customary fees charged, especially on non-federally funded activities. (8) Adequacy of the contractual agreement for the service (e.g., description of the service, estimate of time required, rate of compensation, and termination provisions). A good internal control plan requires procedures to ensure subrecipient expenditures are properly documented in accordance with Federal regulations, and payments apply to work performed under the subaward project description. Condition: Subrecipient monitoring procedures were inadequate. A similar finding was noted in the prior audit. Repeat Finding: 2023-041 Questioned Costs: $196,067 known ($154,992, 2201NERSSS; $21,296, 2301NERSSS; $19,779, 2401NERSSS) Statistical Sample: No Context: The Agency paid 15 subrecipients a total of $4,833,486 during the fiscal year ended June 30, 2024, for the program. Subrecipient reimbursement requests are submitted quarterly with a summarized invoice of costs incurred and a Budget Workbook showing expenses by category. However, for the audit period under review, the program did not have procedures to require source documentation, such as invoices and timesheets, at the time of reimbursement. We randomly selected 12 payments to subrecipients for testing. The Agency stated that it was performing desk audits of all subrecipient invoices for Federal fiscal year 2024 reimbursements. However, we noted that 11 of 12 payments tested did not have adequate documentation on file to support costs were allowable and in accordance with Federal regulations. When Agency reviews were not sufficient, we gave the Agency the opportunity to obtain additional support from the subrecipient. We allowed the Agency three weeks to obtain support; however, adequate support was not always obtained. We noted the following: • Eight payments did not have adequate support for personnel costs. o For two payments, the subrecipient did not provide timesheets or time records. o For two payments, the subrecipient indicated it did not keep timesheets but had a spreadsheet of allocations. There was not adequate documentation to support these allocations were accurate or in accordance with Federal cost principles. o For one payment, the timesheets showed only the total hours worked for each day, failing to specify the program/activity upon which the employee was working. o For one payment, the timesheets were provided and noted the “Employee Name” and “Employee Signature” on the timesheet; but, per the subrecipient, these individuals were contractors and not employees. The subrecipient did not have any contractual agreements with the individuals that detailed the description of services, estimate of time required, or rate of compensation. o For one payment, the subrecipient did not provide a timesheet or certification to support the Executive Director’s salary and benefits that were being charged to the grant. o For one payment, the subrecipient did not provide timesheets and was allocating payroll based on a budget estimate. This subrecipient also passed funding to its partners for payrolls costs, without obtaining timesheets and paystubs, even though the written Memorandums of Understanding (MOUs) required such documentation prior to fund distribution. Per the MOUs, “Invoices for expenses incurred each month should be submitted . . . with expenses summarized by line item (personnel, program expenses, etc.) . . . . Include itemized receipts, payroll reports, timesheets, and any other documentation necessary to show how funds were spent.” • Four payments did not have adequate support for non-personnel costs. o For three payments, documentation was inadequate to support the percentage of non-payroll expenses charged to the program, such as rent and utilities. Numerous charges were based on allocations that are allowable only if distributed using reasonable methods in accordance with relative benefits received. Support was inadequate to determine that the allocations were proper. o For one payment, training costs were paid for an employee of another subrecipient, and the charges were invoiced to the other subrecipient. Paying costs of another entity appears unreasonable. • We also noted the following items, for which we did not question the costs. o For one payment, the subaward was for improving academic performance, improving the level of English language acquisition, and increasing parent participation; however, the subrecipient charged $20,513 for mental health therapists for refugee families. These costs were not in accordance with the purpose of the subaward; however, being allowable under the Federal grant, the costs are not questioned. o For one payment, printing and cleaning supplies were purchased by the subrecipient’s Coordinator using his personal credit card and were sent to his personal residence. We did not question these costs; however, there is a greater risk for loss or fraud when purchases are not shipped directly to the business. Federal payment errors for the sample tested were $196,067. The total sample tested was $465,546, and subrecipient payments for the fiscal year totaled $4,833,486. Based on the sample tested, the dollar error rate for the sample was 42.12% (196,067/$465,546), which estimates the potential dollars at risk for fiscal year 2024 to be $2,035,864 (dollar error rate multiplied by the population). Cause: Inadequate procedures. Effect: Without adequate subrecipient monitoring procedures, there is an increased risk for the misuse of Federal funds and noncompliance with Federal regulations. Recommendation: We recommend the Agency perform adequate subrecipient monitoring to ensure both the allowability of costs and adherence to Federal regulations. Management Response: The agency agrees with the finding.

Program: AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Reporting Grant Number & Year: 2301NERSSS, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Title 2 CFR § 170, Appendix A I. (January 1, 2024) states, in relevant part, the following: (a) Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all subawards subject to Federal Funding Accountability and Transparency Act (FFATA) reporting are submitted on time. Condition: FFATA reporting was not submitted for 1 of 11 subawards tested. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: The Agency had 27 subawards obligated to 16 subrecipients during the fiscal year ended June 30, 2024. We tested 11 of the subawards (to three subrecipients), and one of those subawards was not reported as of January 6, 2025. The subaward should have been reported by June 30, 2024. See Schedule of Findings and Questioned Costs for chart/table. Cause: Procedures were not properly implemented to ensure that all subawards were reported as required. Effect: Without adequate procedures, there is an increased risk that subawards will not be reported timely. Recommendation: We recommend the Agency improve its procedures to ensure that all subawards are reported as required. Management Response: The agency agrees with this finding. The additional funds added in May did not get reported into the FFATA system. Furthermore, Renewal 4 signed in September reflected incorrect award information. The department has spoken with the grant manager and confirmed that the totals for the award listed in the state accounting system (E1) are correct.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 93.575 and 93.596 – CCDF Cluster; AL 93.575 – COVID-19 Child Care and Development Block Grant – Allowability & Eligibility & Matching Grant Number & Year: 2301NETANF, FFY 2023; 2101NECDC6, FFY 2021; 2201NECCDD, FFY 2022; 2401NECCDF, FFY 2024; 2401NECCDM, FFY 2024; 2101NECCDF, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 98.67 (October 1, 2023) states, in part, the following: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. * * * * (c) Fiscal control and accounting procedures shall be sufficient to permit: * * * * (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. 42 USC § 9858k(b) (1992) states, “With regard to services provided to students enrolled in grades 1 through 12, no financial assistance provided under this subchapter shall be expended for— (1) any services provided to such students during the regular school day[.]” 45 CFR § 98.55 (October 1, 2023) states the following: (a) Federal matching funds are available for expenditures in a State based upon the formula specified at § 98.63(a). (b) Expenditures in a State under paragraph (a) of this section will be matched at the Federal medical assistance rate for the applicable fiscal year for allowable activities, as described in the approved State Plan, that meet the goals and purposes of the Act. To be eligible for services, 45 CFR § 98.20 (October 1, 2023) requires a child to be under 13 years of age, a citizen, and reside with a family whose income does not exceed 85% of the State’s median income.   Title 391 NAC 1-002 defines “infant” and “toddler” for child care subsidies, as follows: Ages of children: 1. Infant means a child age 6 weeks to 18 months; 2. Toddler means a child age 18 months to 3 years; 3. Preschool-age means a child age 3 or older who has not attended kindergarten; and 4. School-age means a child who attends kindergarten or above. Title 392 NAC 2-004, states, in part, the following: In order to receive Child Care Subsidy, the family must: * * * * (E) Have a child within the age limit. Child care is available for children age 12 or younger. Children who turn age 13 during their eligibility period remain eligible through the end of their eligibility period. Children age 18 or younger with special needs are eligible. The child’s age must be verified in order to qualify for assistance[.] Per Title 392 NAC 2-013.05, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Title 392 NAC 3-001.02(D) requires the recipient and child care provider to ensure that the services are delivered as authorized. Title 392 NAC 3-004.01(A) states the following: The Department pays by attendance, not enrollment. Providers do not receive payment when the provider is on vacation, is ill, or is not providing care for some reason unrelated to the child or recipient. Title 392 NAC 3-004.01(A)(i) states the following: The provider may bill the full authorized amount for times that the child is absent on a scheduled day, up to five times per month. Title 392 NAC 4-002 states, in relevant part, the following: Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards; * * * * (E) To accept a rate which is reasonable, necessary, and does not exceed the amount charged to private-paying persons; * * * * (G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims; The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, the following: You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided. You should mark “A” on the calendars for children who are absent. Up to five absent days can be billed per child per month. Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program provides guidance for 392 NAC Chapter 3-004.01(A)(i) Payment for Absences as follows, “Absent days must be billed as 1 day unit per occurrence up to the maximum of 5 occurrences per month.” Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program has the following guidance for Title 392 NAC Chapter 2-011, Categories of Eligibility Based on Income: The total amount of the sliding fee assessed will be based on 7% of the household’s gross income for all of their children enrolled in the subsidy program. It will not vary with the number of children in care, the amount of care they need, or the type of care they choose to use. The sliding fee must be paid each month to the provider before the provider bills the Department, it covers the first dollars of payment, regardless of when service begins or ends. The Child Care Subsidy Provider Handbook (June 2023 revision) requires that, for providers other than child care centers, “[P]arents/caregivers must sign the calendar at the end of the billing period.” EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that payments are in accordance with Federal and State requirements. Condition: Child care payments did not comply with Federal and State requirements. A similar finding has been noted in our previous audit reports since 2007. Repeat Finding: 2023-043 Questioned Costs: $605,874 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We noted claims that lacked support and/or did not agree to support, services billed more than authorized, and duplicate claims charged, as detailed below.   Random Sample We tested 25 child care claims paid with Federal funds. We noted 12 claims with errors. Some payments had more than one type of error. • For two claims tested, there was a family fee co-pay required of $192 and $149 per month, respectively, but no such co-pay was deducted. • For four claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 8 days and 2 partial days of child care, while the attendance sheet showed 5 days and 5 partial days of care. o One provider claimed 7 full days of care during the claim period; however, the attendance sheet provided did not detail the hours that the child was in the care of the provider. As such, the APA could not determine whether the claim was correct. o One provider billed 10 partial-days services; however, the attendance sheet showed only 4 partial-days and one full-day for this period. o One provider billed for 21 days, but the attendance sheet supported only 20 days. • For two claims tested, the providers billed for services over the authorized amount. o One provider was authorized to provide child care during the time that both the mother and father were working. The provider claimed numerous days for care provided overnight; however, no documentation was on file to support that both parents were working overnight. o One provider was authorized 20 hours of child care a week; however, per the attendance sheet, two weeks during the month had 23 service hours per week. • For six claims tested, the child care payment was incorrect because the rate was in excess of the private rates. Providers must accept a rate that is reasonable, necessary, and does not exceed the amount charged to private-paying persons. o One provider claimed $25/partial day but was only authorized to claim $18.33/partial day. o For two claims, the provider reported private rates of $75/week effective May 27, 2022, and $90/week effective May 2, 2024. Using an Agency-provided conversion table, this would result in a partial rate of $8.33-$10/partial day and $15-18/day. However, the provider was claiming $13.33/partial day and $24/day. o One provider reported a private rate of $40/day but was claiming $40.55/day, exceeding the private rate. o One provider reported its private weekly rate at $83. Using a DHHS-provided conversion table, this would result in $9.22/partial day. However, the provider was charging for $20.56/partial day. o One provider reported on its website a partial day private rate of $47 a week, which would result in a rate of $9.40/partial day. However, the provider was claiming $18 for a partial day. Federal payment errors noted for the sample tested were $1,356. The total Federal sample tested was $10,518, and total child care Federal assistance claims for the fiscal year were $83,226,143. Based on the sample tested, the case error rate was 48% (12/25). The dollar error rate for the sample was 12.89% ($1,356/10,518), which estimates the potential dollars at risk for fiscal year 2024 to be $10,727,850 (dollar error rate multiplied by the population). In addition to the $1,356 questioned costs noted on the sample items tested, we noted $2,027 of questioned costs on other line items of the claims reviewed, which resulted from missing and inaccurate documentation. Excessive Units The Nebraska Family Online Client User System (NFOCUS) application was used to automate benefit/service delivery and claim processing and payments for the Child Care program. Due to the volume of claims processed by the NFOCUS application, the Agency did not perform a review of each claim paid. Therefore, the Agency relied on edit checks within the system to review claims and deny or suspend claims that did not meet the criteria determined by the Agency. As noted in Finding 2024-015, during testing of significant edit checks within the NFOCUS application, it was noted that the “UN” edit check (“Units too high for service dates and frequency”) was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Instead of applying a logical edit check to these claims, such as not exceeding the regular number days in one month (e.g., 31 days), the system only compared the claim to the service authorization to determine if adequate units were authorized. We identified 642 claim lines paid with Federal funds, totaling $286,079, where the number of days or partial days billed exceeded the number of days in the service period. We selected 24 claim lines, totaling $33,709, for review and noted 23 claim lines with errors as follows: • The claims charged to Federal funds were “Version 1” of the claim. Sometimes an error is detected and a “Version 2” of the claim is created with an underpayment or overpayment. We noted 11 of the claim lines tested had a Version 2 and 10 of those had overpayments received or recouped. However, the overpayments collected and recouped are credited to the State General Fund, not Federal funds. The 11 claim lines totaled $16,420 and are considered Federal questioned costs. Errors noted included a claim that had 199 days billed for the month of July 2022, the overpayment was collected in December 2022 and credited to the State General Fund. In February 2024 the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. We also noted a claim that billed 100 partial days for a 19-day period. The error was discovered, and a Version 2 was created in December 2023, but in April 2024, the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. • Twelve claim lines did not agree to the attendance records. One provider billed 25 to 64 partial days for 15-day service periods. Two providers billed 40 to 95 partial days for one month service periods. Per review of the attendance records, providers were overpaid $9,182 for these 12 claim lines, which are considered questioned costs. Duplicate Claims Child care claims are initially paid from State funds. Journal entries are then performed throughout the year to transfer costs to Federal funds. A detailed listing of claims accompanies these journal entries to show which claims are included in the amounts moved from State funds to Federal funds. We reviewed the detailed claim listings for each journal entry completed during the fiscal year and found that duplicate claims were included in two journal entries completed on September 28, 2023. Both entries included 594 identical claims, totaling $141,165. These claims were charged to Federal funds twice, and $141,165 is considered questioned costs. Additionally, we compared the detail claim listing to the claims charged to Federal funds in the prior fiscal year and found 1,144 claims that were used in both fiscal year 2023 and fiscal year 2024 journal entries, totaling $297,553, which are questioned costs. Attestation Examination The APA performed an attestation examination of the Nebraska Department of Health and Human Services Child Care NFOCUS Aid Payments for the period July 1, 2023, through March 31, 2024. All claims were initially paid with State General Funds. The APA reviewed the claims with findings to determine if the claims had been transferred and charged to Federal funds. We noted numerous issues with Federal questioned costs, totaling $138,171. We noted the following related to claims paid with Federal funds: Unusual Claims and Duplicate Billings We tested a family in-home care provider that billed a high number of hours for the month. The provider did not provide the requested attendance calendar for January 2024 services. The provider billed 260 hours at a rate of $12 per hour for a total of $3,120. Child care was authorized for the client’s self-employment, up to 60 hours per week. We were unable to determine if the payment was correct because no attendance calendar was provided; therefore, the entire claim was questioned. We also noted the 60 hours per week was authorized based on the client’s declaration of working 12 hours a day, seven days a week. The client’s reported income for this timeframe was $1,500 per month, which calculates to only $4.12 per hour, which is much less than the Nebraska minimum wage rate of $12 per hour. The client’s income does not appear to meet the self-sufficiency requirement. Federal questioned costs totaled $3,120. We noted overlapping of services as follows: Three children were authorized child care for a maximum of 50 hours per week while the parent was working at U-Stop and participating with Employment First. Child care was authorized with two providers. The attendance calendars for both providers showed no overlapping hours; however, the providers exceeded the authorized 50 hours per week for four weeks in September 2023. The secondary provider billed times from 8:30 a.m. to 3:00 p.m. or 4:00 p.m., and the primary provider billed evening and some overnight hours. A comparison of attendance calendars revealed that the total hours between the two providers exceeded the authorization by 6 to 23.5 hours each week. Federal questioned costs totaled $1,027. See the following chart: See Schedule of Findings and Questioned Costs for chart/table. We analyzed the NFOCUS claims paid during the period from July 1, 2023, through March 31, 2024. During this analysis, we identified several claims where the provider appeared to double bill child care services for the same child during the same time period. The providers were able to double bill when two service authorizations for the child were open at the same time and by changing the rate of the service. There were also multiple instances where the provider billed for duplicate services by changing the rate billed. For example, one provider, Tender Loving Tots, billed services three times for the same child for the same time period. A child was authorized for preschool care at the daily rate of $46.51. Tender Loving Tots billed four daily units at the authorized daily rate of $46.51 for service dates of July 11, 2023, through July 14, 2023, for this child on claim 32347682. The provider also billed four daily units at $46.50 per daily unit on claim 83255070, line 2. Tender Loving Tots billed a third time for this child for the same period on the same claim. On line 5 of claim 83255070, the provider billed four days at $45 per daily unit. As long as the billed rate was lower than the authorized rate, NFOCUS did not reject the claim for double billing. See Schedule of Findings and Questioned Costs for chart/table. The following chart shows the number of duplicate claims reviewed and Federal questioned costs by provider: See Schedule of Findings and Questioned Costs for chart/table. Incorrect Age Group We reviewed the claims for family home providers and child care centers for infant care services for children over the age of 18 months. We noted children over the age of 18 months with services paid at the infant rate. We also reviewed the claims for child care centers for toddler care services for children over the age of 36 months. We noted children over the age of 36 months with services paid at the toddler rate. As the rates for infants are higher than toddler rates, and toddler rates are higher than preschool rates, it is important that services be paid at the proper rate based on a child’s age. The following are a few examples that we noted: • A child who turned 19 months on September 18, 2023, continued to be paid at the infant rate for services through February 2024, resulting in questioned costs of $574. • A child who turned 36 months on March 8, 2023, was paid at the infant rate for services from August 16, 2023, through December 2, 2023, and should have been paid at the preschool rate, resulting in overpayments of $538. • A child over age five was paid at the toddler rate for services from June 16, 2023, through November 30, 2023, and should have been paid at the preschool rate, resulting in overpayments of $349. • A child who turned 36 months on October 5, 2023, was paid at the toddler rate for February 2024 services and should have been paid at the preschool rate, resulting in an overpayment of $105. Other Issues We selected six licensed family home providers and six child care centers and requested all attendance records for one month. We noted claims not agreeing with attendance records; attendance records not being provided; billings at an improper rate; services billed in excess of services authorized; overlapping services; and parents’ employment that did not appear to meet the requirement for self-sufficiency. 1. One family home provider billed full days for one child but should have billed partial days because the attendance record showed services from 4:00 p.m. to 6:00 p.m. (2 hours) each day, resulting in $66 questioned costs. 2. Next Generation Child Care and Preschool was paid $94,405 for February 2024 services. For one child, the attendance record showed service from 6:15 a.m. to 8:30 a.m. Per the parent, however, school began at 7:40 a.m., so it appears the time out of 8:30 a.m. is not accurate, resulting in $48 questioned costs. 3. Little Blazers Academy, located on North 61st Street in Omaha, Nebraska, and Little Blazers Academy II, located on West Dodge in Omaha, Nebraska, have the same owner. We question Federal costs of $2,703 for December 2023 services. • Services were billed for 18 children at both locations. For six of these children, the centers were billing partial days at each location when the total hours were less than five hours. For example, on multiple days, one child was claimed from 4:00 p.m. to 5:00 p.m. at one location and then from 5:30 p.m. to 6:30 p.m. at the second location. Each location billed for a partial day; however, only two hours of service were provided each day; therefore, it does not appear reasonable to bill for more than one partial day each day. • The attendance records for December, the month tested, were not provided for eight children, four of whom were paid with Federal funds. The attendance records provided were for September, not December, and were signed September 30, 2023. Also, the service authorization was exceeded for one child; for two children, the claim did not agree to the attendance records. 4. Sprouting Minds Childcare was paid $41,053 for November 2023 services, and we questioned costs of $14,133 – of which $4,309 was paid with Federal funds. We noted the following: • 19 children were billed and paid as an “absent” day on Thanksgiving and the Friday after Thanksgiving, even though the center was closed, and no children attended. • Attendance records were not provided for five children, and time records did not agree to the services billed for an additional five children. • Services claimed exceeded service authorizations for 13 children. • One child was billed both as a toddler and an infant for the same period and should have been billed only as a toddler. 5. International Day Care was paid $173,260 for November 2023 services – of which $132,328 was charged to Federal funds – and we question $111,609, an 84% dollar error rate. We noted the following: • 191 children were billed and paid as an “absent” day on Thanksgiving even though the center was closed, and no children attended. • One child billed was over age 13 and not eligible for services. • One child was billed as a toddler but was over the age of three at the time of service and should have been billed at the preschool rate. • One child was billed as an infant but was 35 months old at the time of service and should have been billed as a toddler. • Four families authorized for child care while a parent was working at the center billed for days after the parent was no longer working at the center. During our review of service authorizations, moreover, we noted that several children had a parent working at the daycare while the children attended. This is allowable if the parent is not working in the same room. However, of the 222 children paid for the month tested, 201 had a parent working at the daycare, and only 21 children did not. The 222 children were from 53 families, and 44 of those families had a parent working at the daycare. We asked the daycare to provide us with employment records for those parents. Most of the parents had income from International Day Care that was far less than the subsidies paid for child care services. For example, for one family, the parent earned $1,452 for the month, but child care payments totaled $6,353. Title 392 NAC 2-013.05 provides, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Based on a comparison of wages to child care subsidies, however, the employment with the daycare does not appear to have that potential. For the families with a parent working at the daycare, there was a total of $154,326 in child care payments, but the parents’ gross salary from the daycare totaled only $64,163 – a discrepancy hardly reflective of employment arrangements conducive to economic autonomy. Many of these families had additional income from sources other than the daycare; however, child care subsidies still appeared unreasonable. In these cases, as illustrated by the examples below, parents working at the daycare in a capacity that failed to produce even the potential to “achieve or maintain economic self-sufficiency,” contrary to the explicit regulatory language cited above, actually resulted in far greater child care costs than would have occurred had those working parents stayed at home and cared for the children themselves. The following cases are representative of why subsidies are not available for jobs that prove ultimately counterproductive in terms of the relatively low wages received in comparison to the resultant child care expenses to the State: • One family with seven children had child care subsidies for the month of $5,945 plus paid a family fee of $465 per month, for total daycare costs of $6,410. This was a two-parent household, and one parent worked at the daycare and earned $1,386 for the month. The total gross income for the household was $6,647.97, which exceeds the cost of child care, but if the family was responsible for all daycare costs, it would leave less than $250 per month for rent, food, utilities, and other expenses. It would cost the family over $5,000 each month to have a parent working at the daycare; therefore, the employment does not appear to have the potential for self-sufficiency. • Another family had child care subsidies for the month of $5,610, and the parent who worked at the daycare earned $1,323. The family had total gross monthly income of $4,192.16, which is still $1,417.84 less than child care costs, and if the family was responsible for all child care costs, it would cost the family $4,287 each month to have the parent working at the daycare. Therefore, the employment does not appear to have the potential for self-sufficiency. It was also noted that seven families were receiving Temporary Assistance to Needy Families (TANF) and were required to work as a condition of that assistance. These seven families received child care subsidies of $24,850 for the month and were paid wages of $10,456 by the daycare. However, we did not question these costs because the individuals were required to work as a condition of receiving TANF. Excluding the TANF recipients, we questioned all other child care payments for families whose parents’ wages from the child care center were less than the child care payments. Market Rate Survey and Subsidy Rates The 2023 child care subsidy rates, which became effective July 1, 2023, were established following a Market Rate Survey issued in June 2022 by the Buffet Institute at the University of Nebraska (Institute). This market rate survey was commissioned by the Agency pursuant to Neb. Rev. Stat. § 43-536 (Cum. Supp. 2022). The results of the survey were based on a provider response rate of 32.9% (946 providers); however, in calculating the half-day and full-day rates, the Institute used rate information from only 21% of respondents who indicated that they had a part-time and full-time rate schedule similar to the guidelines set by the Agency (partial day for 0 to 4 hours and 59 minutes and full-time for 5 hours to 9 hours and 59 minutes). As such, the rates were established based on rate information provided by only 6.9% of Nebraska’s child care providers. The percentage of providers factored into the benefit calculation is so low because many providers responded that they did not have an equivalent half-day or full-day rate structure. Therefore, we question the reasonableness of the rates established pursuant to the market rate survey and whether it provides a clear picture of private market rates in the State. Additionally, Nebraska regulations require that providers have an established private rate prior to receiving any subsidy payments. This is because the subsidy payment is not allowed to exceed the provider’s private rate. However, as shown in the market survey results, many providers do not have such a rate structure and, therefore, do not have established half-day and full-day rates. In many cases, providers have a weekly rate. The Agency stated that it utilizes a weekly rate to daily/partial day rate conversion table, which was provided by the Institute. However, while this table is used to determine the equivalent rates, there is no written policy or guidance on when or how the table should be implemented, and no mention is made of these conversion tables in the market survey report. State Matching Claims States are required to match the Federal funds spent with the Federal Matching grant with State funded expenditures at the Federal Medical Assistance Percentage (FMAP) rate for the applicable fiscal year. Those State funding expenditures must be an eligible and allowable activity per the State Plan. The Agency periodically performs journal entries to move child care claims to the applicable business unit to identify and track the State matching expenditures. During the fiscal year, the Agency moved $10,737,243 of child care claims paid with State General funds to the business units for State matching expenditures. We tested 25 child care claims paid with State matching funds. We noted 10 claims with errors. Some payments had more than one type of error. • For one claim tested, there was a family fee co-pay required of $203, but no such co-pay was deducted. • For two claims tested, the attendance records were not provided. • For five claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 4 full days and 25.25 hours of child care, while the attendance sheet showed 0 days and 18.75 hours of care. o One provider billed 13 partial days of service; however, the attendance sheet showed only 10 partial days. o Two providers billed an additional day compared to the attendance record. o One provider recorded full days of service from 6:00 a.m. to 9:00 a.m. and 4:00 p.m. to 6:00 p.m., for five hours of service. However, per the school calendar, classes began at 8:50 a.m. and ended at 4:05 p.m. The attendance sheet did not appear reasonable, as the child would still be at the child care provider when school started. If services were from 6:00 a.m. to 8:50 a.m. and 4:05 p.m. to 6:00 p.m., the provider would only be allowed partial days of service. • For one claim tested, the provider billed care over the authorized amount. The provider was authorized 39 hours of child care a week; however, per the attendance sheet, the child received 43 hours for one week tested. • For one claim tested, the attendance record was not signed by the parent, as required. Payment errors noted for the sample tested were $1,397. The total sample tested was $9,396, and total child care matching claims for the fiscal year were $10,737,243. Based on the sample tested, the case error rate was 40% (10/25). The dollar error rate for the sample was 14.87% ($1,397/9,396), which estimates the potential dollars at risk for fiscal year 2024 to be $1,596,628 (dollar error rate multiplied by the population). Cause: Ineffective review. The Agency does not have automated procedures to ensure attendance records agree to billing documents, service authorizations are not exceeded, and claims are in accordance with regulations. The edit check “Units too high for service dates and frequency” was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Effect: Ineffective review of claims increases the risk for errors, fraud, and misuse of State and Federal funds.   Recommendation: We recommend the Agency implement procedures to ensure payments are allowable, adequately supported, and in accordance with State and Federal regulations. We further recommend the Agency ensure billing documents agree with attendance sheets, and services are only authorized as needed and only if the parents’ employment has the potential for economic self-sufficiency. We also recommend the Agency implement procedures to ensure journal entries do not charge duplicate claims. Finally, we recommend the Agency take the necessary action to recover the overpayments. Management Response: Management agrees.

Program: AL 93.575 and 93.596 – CCDF Cluster – Special Tests and Provisions Grant Number & Year: Various, including 2401NECCDF, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 98.41 (October 1, 2023), the State must have requirements to protect the health and safety of children, including the prevention and control of infectious diseases, building and physical premises safety, and health and safety training. Per 391 NAC 3-005.09A and NAC 4-005.09A: The Department will make a fire inspection referral when: . . . 2. Every two years following the initial fire inspection[.] Per 391 NAC 3-005.09B: The Department will make a sanitation inspection referral when: . . . 2. Every two years following the initial sanitation inspection . . . [.] 391 NAC 1-005.02 provides the following: The Department will conduct an unannounced inspection each year to assess compliance with licensing regulations. A good internal control plan requires adequate documentation to be maintained to support compliance with health and safety requirements. Condition: The Agency did not have adequate procedures in place to ensure health and safety requirements were met for child care providers. A similar finding has been noted in prior audits since 2017. Repeat Finding: 2023-044 Questioned Costs: Unknown Statistical Sample: No Context: Child care centers and family child care homes are subject to health and safety requirements. Each type of provider is subject to separate but similar State regulations. We tested 26 child care providers subject to health and safety requirements. We noted the following: • One family home child care provider did not have the required annual inspection completed. The last annual inspection was performed on February 25, 2022. The Agency attempted to conduct unannounced reviews on November 8, 2023, and November 11, 2023, but the child care provider was not home. In December 2023, the Agency emailed the provider and tried contacting the provider by phone twice; however, a response was not received. No annual inspection was completed in 2023, and no inspection for 2024 has been completed as of the end of fieldwork on November 8, 2024. No disciplinary actions have been taken against the provider. • One child care center tested did not have a sanitation inspection. The Agency made a referral for a sanitation inspection on December 5, 2023; however, as of November 8, 2024, no inspection was completed. • Five of 21 child care centers tested did not have a fire inspection within the last two years: See Schedule of Findings and Questioned Costs for chart/table. Cause: Depending on the city or county, the Agency relies on local fire departments or the State Fire Marshal to conduct fire inspections for child care centers. The Agency makes a referral to the fire department when an inspection is due, but the Agency does not pay for these inspections and cannot control the timing of the inspections. Effect: Without adequate procedures to ensure health and safety requirements are met, there is an increased risk of noncompliance with Federal regulations and the possibility of children being cared for in unsafe facilities. Recommendation: We recommend the Agency implement procedures to ensure all health and safety requirements are met for child care centers. Management Response: Management partially agrees. APA Response: The Agency is the recipient of the Federal funds and is, therefore, ultimately responsible to ensure that fire and sanitation inspections are performed. Without such inspections, there is an increased risk of children being cared for in unsafe facilities.

Program: AL 93.575 and 93.596 – CCDF Cluster; AL 93.575 – COVID-19 Child Care and Development Block Grant – Allowability & Eligibility & Matching Grant Number & Year: 2301NETANF, FFY 2023; 2101NECDC6, FFY 2021; 2201NECCDD, FFY 2022; 2401NECCDF, FFY 2024; 2401NECCDM, FFY 2024; 2101NECCDF, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 98.67 (October 1, 2023) states, in part, the following: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. * * * * (c) Fiscal control and accounting procedures shall be sufficient to permit: * * * * (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. 42 USC § 9858k(b) (1992) states, “With regard to services provided to students enrolled in grades 1 through 12, no financial assistance provided under this subchapter shall be expended for— (1) any services provided to such students during the regular school day[.]” 45 CFR § 98.55 (October 1, 2023) states the following: (a) Federal matching funds are available for expenditures in a State based upon the formula specified at § 98.63(a). (b) Expenditures in a State under paragraph (a) of this section will be matched at the Federal medical assistance rate for the applicable fiscal year for allowable activities, as described in the approved State Plan, that meet the goals and purposes of the Act. To be eligible for services, 45 CFR § 98.20 (October 1, 2023) requires a child to be under 13 years of age, a citizen, and reside with a family whose income does not exceed 85% of the State’s median income.   Title 391 NAC 1-002 defines “infant” and “toddler” for child care subsidies, as follows: Ages of children: 1. Infant means a child age 6 weeks to 18 months; 2. Toddler means a child age 18 months to 3 years; 3. Preschool-age means a child age 3 or older who has not attended kindergarten; and 4. School-age means a child who attends kindergarten or above. Title 392 NAC 2-004, states, in part, the following: In order to receive Child Care Subsidy, the family must: * * * * (E) Have a child within the age limit. Child care is available for children age 12 or younger. Children who turn age 13 during their eligibility period remain eligible through the end of their eligibility period. Children age 18 or younger with special needs are eligible. The child’s age must be verified in order to qualify for assistance[.] Per Title 392 NAC 2-013.05, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Title 392 NAC 3-001.02(D) requires the recipient and child care provider to ensure that the services are delivered as authorized. Title 392 NAC 3-004.01(A) states the following: The Department pays by attendance, not enrollment. Providers do not receive payment when the provider is on vacation, is ill, or is not providing care for some reason unrelated to the child or recipient. Title 392 NAC 3-004.01(A)(i) states the following: The provider may bill the full authorized amount for times that the child is absent on a scheduled day, up to five times per month. Title 392 NAC 4-002 states, in relevant part, the following: Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards; * * * * (E) To accept a rate which is reasonable, necessary, and does not exceed the amount charged to private-paying persons; * * * * (G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims; The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, the following: You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided. You should mark “A” on the calendars for children who are absent. Up to five absent days can be billed per child per month. Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program provides guidance for 392 NAC Chapter 3-004.01(A)(i) Payment for Absences as follows, “Absent days must be billed as 1 day unit per occurrence up to the maximum of 5 occurrences per month.” Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program has the following guidance for Title 392 NAC Chapter 2-011, Categories of Eligibility Based on Income: The total amount of the sliding fee assessed will be based on 7% of the household’s gross income for all of their children enrolled in the subsidy program. It will not vary with the number of children in care, the amount of care they need, or the type of care they choose to use. The sliding fee must be paid each month to the provider before the provider bills the Department, it covers the first dollars of payment, regardless of when service begins or ends. The Child Care Subsidy Provider Handbook (June 2023 revision) requires that, for providers other than child care centers, “[P]arents/caregivers must sign the calendar at the end of the billing period.” EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that payments are in accordance with Federal and State requirements. Condition: Child care payments did not comply with Federal and State requirements. A similar finding has been noted in our previous audit reports since 2007. Repeat Finding: 2023-043 Questioned Costs: $605,874 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We noted claims that lacked support and/or did not agree to support, services billed more than authorized, and duplicate claims charged, as detailed below.   Random Sample We tested 25 child care claims paid with Federal funds. We noted 12 claims with errors. Some payments had more than one type of error. • For two claims tested, there was a family fee co-pay required of $192 and $149 per month, respectively, but no such co-pay was deducted. • For four claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 8 days and 2 partial days of child care, while the attendance sheet showed 5 days and 5 partial days of care. o One provider claimed 7 full days of care during the claim period; however, the attendance sheet provided did not detail the hours that the child was in the care of the provider. As such, the APA could not determine whether the claim was correct. o One provider billed 10 partial-days services; however, the attendance sheet showed only 4 partial-days and one full-day for this period. o One provider billed for 21 days, but the attendance sheet supported only 20 days. • For two claims tested, the providers billed for services over the authorized amount. o One provider was authorized to provide child care during the time that both the mother and father were working. The provider claimed numerous days for care provided overnight; however, no documentation was on file to support that both parents were working overnight. o One provider was authorized 20 hours of child care a week; however, per the attendance sheet, two weeks during the month had 23 service hours per week. • For six claims tested, the child care payment was incorrect because the rate was in excess of the private rates. Providers must accept a rate that is reasonable, necessary, and does not exceed the amount charged to private-paying persons. o One provider claimed $25/partial day but was only authorized to claim $18.33/partial day. o For two claims, the provider reported private rates of $75/week effective May 27, 2022, and $90/week effective May 2, 2024. Using an Agency-provided conversion table, this would result in a partial rate of $8.33-$10/partial day and $15-18/day. However, the provider was claiming $13.33/partial day and $24/day. o One provider reported a private rate of $40/day but was claiming $40.55/day, exceeding the private rate. o One provider reported its private weekly rate at $83. Using a DHHS-provided conversion table, this would result in $9.22/partial day. However, the provider was charging for $20.56/partial day. o One provider reported on its website a partial day private rate of $47 a week, which would result in a rate of $9.40/partial day. However, the provider was claiming $18 for a partial day. Federal payment errors noted for the sample tested were $1,356. The total Federal sample tested was $10,518, and total child care Federal assistance claims for the fiscal year were $83,226,143. Based on the sample tested, the case error rate was 48% (12/25). The dollar error rate for the sample was 12.89% ($1,356/10,518), which estimates the potential dollars at risk for fiscal year 2024 to be $10,727,850 (dollar error rate multiplied by the population). In addition to the $1,356 questioned costs noted on the sample items tested, we noted $2,027 of questioned costs on other line items of the claims reviewed, which resulted from missing and inaccurate documentation. Excessive Units The Nebraska Family Online Client User System (NFOCUS) application was used to automate benefit/service delivery and claim processing and payments for the Child Care program. Due to the volume of claims processed by the NFOCUS application, the Agency did not perform a review of each claim paid. Therefore, the Agency relied on edit checks within the system to review claims and deny or suspend claims that did not meet the criteria determined by the Agency. As noted in Finding 2024-015, during testing of significant edit checks within the NFOCUS application, it was noted that the “UN” edit check (“Units too high for service dates and frequency”) was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Instead of applying a logical edit check to these claims, such as not exceeding the regular number days in one month (e.g., 31 days), the system only compared the claim to the service authorization to determine if adequate units were authorized. We identified 642 claim lines paid with Federal funds, totaling $286,079, where the number of days or partial days billed exceeded the number of days in the service period. We selected 24 claim lines, totaling $33,709, for review and noted 23 claim lines with errors as follows: • The claims charged to Federal funds were “Version 1” of the claim. Sometimes an error is detected and a “Version 2” of the claim is created with an underpayment or overpayment. We noted 11 of the claim lines tested had a Version 2 and 10 of those had overpayments received or recouped. However, the overpayments collected and recouped are credited to the State General Fund, not Federal funds. The 11 claim lines totaled $16,420 and are considered Federal questioned costs. Errors noted included a claim that had 199 days billed for the month of July 2022, the overpayment was collected in December 2022 and credited to the State General Fund. In February 2024 the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. We also noted a claim that billed 100 partial days for a 19-day period. The error was discovered, and a Version 2 was created in December 2023, but in April 2024, the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. • Twelve claim lines did not agree to the attendance records. One provider billed 25 to 64 partial days for 15-day service periods. Two providers billed 40 to 95 partial days for one month service periods. Per review of the attendance records, providers were overpaid $9,182 for these 12 claim lines, which are considered questioned costs. Duplicate Claims Child care claims are initially paid from State funds. Journal entries are then performed throughout the year to transfer costs to Federal funds. A detailed listing of claims accompanies these journal entries to show which claims are included in the amounts moved from State funds to Federal funds. We reviewed the detailed claim listings for each journal entry completed during the fiscal year and found that duplicate claims were included in two journal entries completed on September 28, 2023. Both entries included 594 identical claims, totaling $141,165. These claims were charged to Federal funds twice, and $141,165 is considered questioned costs. Additionally, we compared the detail claim listing to the claims charged to Federal funds in the prior fiscal year and found 1,144 claims that were used in both fiscal year 2023 and fiscal year 2024 journal entries, totaling $297,553, which are questioned costs. Attestation Examination The APA performed an attestation examination of the Nebraska Department of Health and Human Services Child Care NFOCUS Aid Payments for the period July 1, 2023, through March 31, 2024. All claims were initially paid with State General Funds. The APA reviewed the claims with findings to determine if the claims had been transferred and charged to Federal funds. We noted numerous issues with Federal questioned costs, totaling $138,171. We noted the following related to claims paid with Federal funds: Unusual Claims and Duplicate Billings We tested a family in-home care provider that billed a high number of hours for the month. The provider did not provide the requested attendance calendar for January 2024 services. The provider billed 260 hours at a rate of $12 per hour for a total of $3,120. Child care was authorized for the client’s self-employment, up to 60 hours per week. We were unable to determine if the payment was correct because no attendance calendar was provided; therefore, the entire claim was questioned. We also noted the 60 hours per week was authorized based on the client’s declaration of working 12 hours a day, seven days a week. The client’s reported income for this timeframe was $1,500 per month, which calculates to only $4.12 per hour, which is much less than the Nebraska minimum wage rate of $12 per hour. The client’s income does not appear to meet the self-sufficiency requirement. Federal questioned costs totaled $3,120. We noted overlapping of services as follows: Three children were authorized child care for a maximum of 50 hours per week while the parent was working at U-Stop and participating with Employment First. Child care was authorized with two providers. The attendance calendars for both providers showed no overlapping hours; however, the providers exceeded the authorized 50 hours per week for four weeks in September 2023. The secondary provider billed times from 8:30 a.m. to 3:00 p.m. or 4:00 p.m., and the primary provider billed evening and some overnight hours. A comparison of attendance calendars revealed that the total hours between the two providers exceeded the authorization by 6 to 23.5 hours each week. Federal questioned costs totaled $1,027. See the following chart: See Schedule of Findings and Questioned Costs for chart/table. We analyzed the NFOCUS claims paid during the period from July 1, 2023, through March 31, 2024. During this analysis, we identified several claims where the provider appeared to double bill child care services for the same child during the same time period. The providers were able to double bill when two service authorizations for the child were open at the same time and by changing the rate of the service. There were also multiple instances where the provider billed for duplicate services by changing the rate billed. For example, one provider, Tender Loving Tots, billed services three times for the same child for the same time period. A child was authorized for preschool care at the daily rate of $46.51. Tender Loving Tots billed four daily units at the authorized daily rate of $46.51 for service dates of July 11, 2023, through July 14, 2023, for this child on claim 32347682. The provider also billed four daily units at $46.50 per daily unit on claim 83255070, line 2. Tender Loving Tots billed a third time for this child for the same period on the same claim. On line 5 of claim 83255070, the provider billed four days at $45 per daily unit. As long as the billed rate was lower than the authorized rate, NFOCUS did not reject the claim for double billing. See Schedule of Findings and Questioned Costs for chart/table. The following chart shows the number of duplicate claims reviewed and Federal questioned costs by provider: See Schedule of Findings and Questioned Costs for chart/table. Incorrect Age Group We reviewed the claims for family home providers and child care centers for infant care services for children over the age of 18 months. We noted children over the age of 18 months with services paid at the infant rate. We also reviewed the claims for child care centers for toddler care services for children over the age of 36 months. We noted children over the age of 36 months with services paid at the toddler rate. As the rates for infants are higher than toddler rates, and toddler rates are higher than preschool rates, it is important that services be paid at the proper rate based on a child’s age. The following are a few examples that we noted: • A child who turned 19 months on September 18, 2023, continued to be paid at the infant rate for services through February 2024, resulting in questioned costs of $574. • A child who turned 36 months on March 8, 2023, was paid at the infant rate for services from August 16, 2023, through December 2, 2023, and should have been paid at the preschool rate, resulting in overpayments of $538. • A child over age five was paid at the toddler rate for services from June 16, 2023, through November 30, 2023, and should have been paid at the preschool rate, resulting in overpayments of $349. • A child who turned 36 months on October 5, 2023, was paid at the toddler rate for February 2024 services and should have been paid at the preschool rate, resulting in an overpayment of $105. Other Issues We selected six licensed family home providers and six child care centers and requested all attendance records for one month. We noted claims not agreeing with attendance records; attendance records not being provided; billings at an improper rate; services billed in excess of services authorized; overlapping services; and parents’ employment that did not appear to meet the requirement for self-sufficiency. 1. One family home provider billed full days for one child but should have billed partial days because the attendance record showed services from 4:00 p.m. to 6:00 p.m. (2 hours) each day, resulting in $66 questioned costs. 2. Next Generation Child Care and Preschool was paid $94,405 for February 2024 services. For one child, the attendance record showed service from 6:15 a.m. to 8:30 a.m. Per the parent, however, school began at 7:40 a.m., so it appears the time out of 8:30 a.m. is not accurate, resulting in $48 questioned costs. 3. Little Blazers Academy, located on North 61st Street in Omaha, Nebraska, and Little Blazers Academy II, located on West Dodge in Omaha, Nebraska, have the same owner. We question Federal costs of $2,703 for December 2023 services. • Services were billed for 18 children at both locations. For six of these children, the centers were billing partial days at each location when the total hours were less than five hours. For example, on multiple days, one child was claimed from 4:00 p.m. to 5:00 p.m. at one location and then from 5:30 p.m. to 6:30 p.m. at the second location. Each location billed for a partial day; however, only two hours of service were provided each day; therefore, it does not appear reasonable to bill for more than one partial day each day. • The attendance records for December, the month tested, were not provided for eight children, four of whom were paid with Federal funds. The attendance records provided were for September, not December, and were signed September 30, 2023. Also, the service authorization was exceeded for one child; for two children, the claim did not agree to the attendance records. 4. Sprouting Minds Childcare was paid $41,053 for November 2023 services, and we questioned costs of $14,133 – of which $4,309 was paid with Federal funds. We noted the following: • 19 children were billed and paid as an “absent” day on Thanksgiving and the Friday after Thanksgiving, even though the center was closed, and no children attended. • Attendance records were not provided for five children, and time records did not agree to the services billed for an additional five children. • Services claimed exceeded service authorizations for 13 children. • One child was billed both as a toddler and an infant for the same period and should have been billed only as a toddler. 5. International Day Care was paid $173,260 for November 2023 services – of which $132,328 was charged to Federal funds – and we question $111,609, an 84% dollar error rate. We noted the following: • 191 children were billed and paid as an “absent” day on Thanksgiving even though the center was closed, and no children attended. • One child billed was over age 13 and not eligible for services. • One child was billed as a toddler but was over the age of three at the time of service and should have been billed at the preschool rate. • One child was billed as an infant but was 35 months old at the time of service and should have been billed as a toddler. • Four families authorized for child care while a parent was working at the center billed for days after the parent was no longer working at the center. During our review of service authorizations, moreover, we noted that several children had a parent working at the daycare while the children attended. This is allowable if the parent is not working in the same room. However, of the 222 children paid for the month tested, 201 had a parent working at the daycare, and only 21 children did not. The 222 children were from 53 families, and 44 of those families had a parent working at the daycare. We asked the daycare to provide us with employment records for those parents. Most of the parents had income from International Day Care that was far less than the subsidies paid for child care services. For example, for one family, the parent earned $1,452 for the month, but child care payments totaled $6,353. Title 392 NAC 2-013.05 provides, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Based on a comparison of wages to child care subsidies, however, the employment with the daycare does not appear to have that potential. For the families with a parent working at the daycare, there was a total of $154,326 in child care payments, but the parents’ gross salary from the daycare totaled only $64,163 – a discrepancy hardly reflective of employment arrangements conducive to economic autonomy. Many of these families had additional income from sources other than the daycare; however, child care subsidies still appeared unreasonable. In these cases, as illustrated by the examples below, parents working at the daycare in a capacity that failed to produce even the potential to “achieve or maintain economic self-sufficiency,” contrary to the explicit regulatory language cited above, actually resulted in far greater child care costs than would have occurred had those working parents stayed at home and cared for the children themselves. The following cases are representative of why subsidies are not available for jobs that prove ultimately counterproductive in terms of the relatively low wages received in comparison to the resultant child care expenses to the State: • One family with seven children had child care subsidies for the month of $5,945 plus paid a family fee of $465 per month, for total daycare costs of $6,410. This was a two-parent household, and one parent worked at the daycare and earned $1,386 for the month. The total gross income for the household was $6,647.97, which exceeds the cost of child care, but if the family was responsible for all daycare costs, it would leave less than $250 per month for rent, food, utilities, and other expenses. It would cost the family over $5,000 each month to have a parent working at the daycare; therefore, the employment does not appear to have the potential for self-sufficiency. • Another family had child care subsidies for the month of $5,610, and the parent who worked at the daycare earned $1,323. The family had total gross monthly income of $4,192.16, which is still $1,417.84 less than child care costs, and if the family was responsible for all child care costs, it would cost the family $4,287 each month to have the parent working at the daycare. Therefore, the employment does not appear to have the potential for self-sufficiency. It was also noted that seven families were receiving Temporary Assistance to Needy Families (TANF) and were required to work as a condition of that assistance. These seven families received child care subsidies of $24,850 for the month and were paid wages of $10,456 by the daycare. However, we did not question these costs because the individuals were required to work as a condition of receiving TANF. Excluding the TANF recipients, we questioned all other child care payments for families whose parents’ wages from the child care center were less than the child care payments. Market Rate Survey and Subsidy Rates The 2023 child care subsidy rates, which became effective July 1, 2023, were established following a Market Rate Survey issued in June 2022 by the Buffet Institute at the University of Nebraska (Institute). This market rate survey was commissioned by the Agency pursuant to Neb. Rev. Stat. § 43-536 (Cum. Supp. 2022). The results of the survey were based on a provider response rate of 32.9% (946 providers); however, in calculating the half-day and full-day rates, the Institute used rate information from only 21% of respondents who indicated that they had a part-time and full-time rate schedule similar to the guidelines set by the Agency (partial day for 0 to 4 hours and 59 minutes and full-time for 5 hours to 9 hours and 59 minutes). As such, the rates were established based on rate information provided by only 6.9% of Nebraska’s child care providers. The percentage of providers factored into the benefit calculation is so low because many providers responded that they did not have an equivalent half-day or full-day rate structure. Therefore, we question the reasonableness of the rates established pursuant to the market rate survey and whether it provides a clear picture of private market rates in the State. Additionally, Nebraska regulations require that providers have an established private rate prior to receiving any subsidy payments. This is because the subsidy payment is not allowed to exceed the provider’s private rate. However, as shown in the market survey results, many providers do not have such a rate structure and, therefore, do not have established half-day and full-day rates. In many cases, providers have a weekly rate. The Agency stated that it utilizes a weekly rate to daily/partial day rate conversion table, which was provided by the Institute. However, while this table is used to determine the equivalent rates, there is no written policy or guidance on when or how the table should be implemented, and no mention is made of these conversion tables in the market survey report. State Matching Claims States are required to match the Federal funds spent with the Federal Matching grant with State funded expenditures at the Federal Medical Assistance Percentage (FMAP) rate for the applicable fiscal year. Those State funding expenditures must be an eligible and allowable activity per the State Plan. The Agency periodically performs journal entries to move child care claims to the applicable business unit to identify and track the State matching expenditures. During the fiscal year, the Agency moved $10,737,243 of child care claims paid with State General funds to the business units for State matching expenditures. We tested 25 child care claims paid with State matching funds. We noted 10 claims with errors. Some payments had more than one type of error. • For one claim tested, there was a family fee co-pay required of $203, but no such co-pay was deducted. • For two claims tested, the attendance records were not provided. • For five claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 4 full days and 25.25 hours of child care, while the attendance sheet showed 0 days and 18.75 hours of care. o One provider billed 13 partial days of service; however, the attendance sheet showed only 10 partial days. o Two providers billed an additional day compared to the attendance record. o One provider recorded full days of service from 6:00 a.m. to 9:00 a.m. and 4:00 p.m. to 6:00 p.m., for five hours of service. However, per the school calendar, classes began at 8:50 a.m. and ended at 4:05 p.m. The attendance sheet did not appear reasonable, as the child would still be at the child care provider when school started. If services were from 6:00 a.m. to 8:50 a.m. and 4:05 p.m. to 6:00 p.m., the provider would only be allowed partial days of service. • For one claim tested, the provider billed care over the authorized amount. The provider was authorized 39 hours of child care a week; however, per the attendance sheet, the child received 43 hours for one week tested. • For one claim tested, the attendance record was not signed by the parent, as required. Payment errors noted for the sample tested were $1,397. The total sample tested was $9,396, and total child care matching claims for the fiscal year were $10,737,243. Based on the sample tested, the case error rate was 40% (10/25). The dollar error rate for the sample was 14.87% ($1,397/9,396), which estimates the potential dollars at risk for fiscal year 2024 to be $1,596,628 (dollar error rate multiplied by the population). Cause: Ineffective review. The Agency does not have automated procedures to ensure attendance records agree to billing documents, service authorizations are not exceeded, and claims are in accordance with regulations. The edit check “Units too high for service dates and frequency” was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Effect: Ineffective review of claims increases the risk for errors, fraud, and misuse of State and Federal funds.   Recommendation: We recommend the Agency implement procedures to ensure payments are allowable, adequately supported, and in accordance with State and Federal regulations. We further recommend the Agency ensure billing documents agree with attendance sheets, and services are only authorized as needed and only if the parents’ employment has the potential for economic self-sufficiency. We also recommend the Agency implement procedures to ensure journal entries do not charge duplicate claims. Finally, we recommend the Agency take the necessary action to recover the overpayments. Management Response: Management agrees.

Program: AL 93.575 – COVID-19 Child Care and Development Block Grant – Period of Performance Grant Number & Year: 2101NECDC6, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 98.60(d) (October 1, 2023): The following obligation and liquidation provisions apply to States and Territories: (1) Discretionary Fund allotments shall be obligated in the fiscal year in which funds are awarded or in the succeeding fiscal year. Unliquidated obligations as of the end of the succeeding fiscal year shall be liquidated within one year. Per the Federal Notice of Award for 2101NECDC6, “ARP CCDF Discretionary funds must be obligated by September 30, 2023, and liquidated by September 30, 2024.” According to 45 CFR § 75.511(a) (October 1, 2023), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) provides, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” A good internal control plan requires procedures to ensure compliance with Federal regulations. Condition: Expenditures were charged to the American Rescue Plan Act (ARPA) grant after the period of performance. A similar finding was noted in the prior audit. The Summary Schedule of Prior Findings lists the status as complete. Repeat Finding: 2023-045 Questioned Costs: $9,321,777 known Statistical Sample: No Context: ARPA Child Care and Development Fund (CCDF) Discretionary funds must be obligated by September 30, 2023, and liquidated by September 30, 2024. Expenditures for the ARPA grant included two journal entries for claims originally paid with State funds from October 2023 through March 2024, which is after the obligation period. See Schedule of Findings and Questioned Costs for chart/table. During our random sample of child care claims, we tested two claims charged to the ARPA grant per the Journal Entry dated June 3, 2024. The eligibility period, service dates, and original paid date for those two claims are as follows: See Schedule of Findings and Questioned Costs for chart/table. Clearly, there was no obligation to pay these claims as of September 30, 2023, as services had not been provided, and the family had not been determined eligible for those service dates. Cause: The Agency had verbal discussions with the Federal grantor and believed, based on those discussions, that the expenditures were allowable. Effect: Noncompliance with Federal regulations. Recommendation: We recommend the Agency improve procedures to ensure expenditures charged are within the allowed time period. Management Response: Management partially agrees. The Agency has worked with Federal Partners on period of performance and were in agreeance with them on what is allowable. We understand that most conversations were verbal, however, the Federal Partners did not see any issues with our definition of obligations, which some of these claims fall into.

Program: AL 93.575 – COVID-19 Child Care and Development Block Grant – Allowability & Period of Performance Grant Number & Year: 2101NECCC5, FFY 2021; 2101NECDC6, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 98.67 (October 1, 2023) states, in part, the following: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. * * * * (c) Fiscal control and accounting procedures shall be sufficient to permit: * * * * (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The Frequently Asked Questions (FAQs) for the Business and Child Care Partnership Grant Program (https://dhhs.ne.gov/Documents/BCCG-FAQs.pdf ) includes, in part, the following: I. 1. The goal of the Business and Child Care Partnership grant program is to increase child care capacity throughout the state of Nebraska. * * * * II. 12. Applicants must expend grant funds by July 31, 2023. * * * * II. 14. [N]ew child care programs need to be licensed and operating by December 31, 2023. * * * * II. 15. Grant recipients are required to remain open and caring for children for three (3) years after their awarded date or from the date of license, whichever is later. Closing the business before three years have passed may require the grant recipient to pay back all or a prorated portion of their award. * * * * III. 4. To be eligible to apply, you will need to be increasing your license capacity . . . * * * * IV. 2. Note that projects must be completed by December 31, 2023. Per the Federal Notice of Award for 2101NECCC5, “CRRSA funds must be obligated by September 30, 2022, and liquidated by September 30, 2023.” Per the Federal Notice of Award for 2101NECDC6, “ARP CCDF Discretionary funds must be obligated by September 30, 2023, and liquidated by September 30, 2024.” The Child Care Stabilization Program Frequently Asked Questions (FAQs) for Round 3 (https://dhhs.ne.gov/Documents/CCSG-FAQ-English.pdf) includes, in part, the following: 4. A licensed child care provider (CCC, FCCHI, FCCHII, PRE, and SAOC) is considered eligible to apply if they became licensed between May 10, 2022 and April 21, 2023 OR has been funded in a previous stabilization grant round and has expanded their current license capacity since previous award . . . . Applicants who, at the time of submission of application, are not trained in Prepare to Care, certified in pediatric first aid and CPR . . . will have 60 days to submit proof of training[.] * * * * 34. Providers who accept the Stabilization Grant payment agree to stay licensed, opened, and actively watching children for a minimum of 12 months from the issue date of the payment. The Grant Payment Survey Frequently Asked Questions for the Inflation Remittance Support payments (https://dhhs.ne.gov/Child%20Care%20Documents/Grant%20Payment%20Survey%20FAQs_Aug_2023.pdf) states, in part, the following: 5. If you do not complete the Grant Payment Survey by September 30, 2023, you will not be eligible to receive the funding. * * * * 9. You agree to stay licensed, open, operational and actively caring for children for a minimum of 12 months from the issue date of the grant payment. Good internal control requires procedures to ensure that State and Federal requirements are met. Good internal control also requires procedures to ensure amounts awarded are adequately supported. Condition: The Agency did not have adequate procedures to ensure that funds paid to child care providers were spent properly and complied with State and Federal requirements. In addition, payments were charged after the period of performance. A similar finding was noted in the prior audit. Repeat Finding: 2023-046 Questioned Costs: $5,185,690 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: The Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act (Public Law 116-260), signed into law on December 27, 2020, and the American Rescue Plan Act (ARPA) of 2021 provided states with supplemental child care funds to build the supply of child care, retain a skilled work force, and support the stability of the child care sector. Business and Child Care Partnership Grants The Agency awarded various grants to child care providers, including the Business and Child Care Partnership Grant (BCC). The purpose of the BCC grants was to help individuals and organizations create new child care programs and enable existing licensed child care programs to increase their license capacity. During fiscal year 2023, a total of $23,303,985 in BCC grants were paid to 125 recipients. Payments were made to grant recipients beginning in March 2023. The Agency paid 19 additional facilities $3,397,763 in BCC grants during fiscal year 2024. Recipients had until December 31, 2023, to spend the funds. Additionally, new child care programs needed to be licensed and operating by December 31, 2023, and projects to increase capacity by existing child care programs were to be completed by December 31, 2023. On October 30, 2024, after our request, the Agency provided a listing of BCC grant recipients that had not increased their licensed capacity as of December 31, 2023. The Agency stated it was working with providers that did not meet the December 31, 2023, requirement on a case-by-case basis. The Agency had not requested any funds to be returned by noncompliant providers as of October 30, 2024. We reviewed the listing and identified 21 child care providers that had not increased their capacity or were not licensed and operating as of November 20, 2024. These providers were paid $3,892,270 in BCC grant payments. This included $2,646,489 in fiscal year 2023 payments made from March 2023 through June 2023 and $1,245,781 in payments made during fiscal year 2024 in August 2023. All of these payments are questioned. See Schedule of Findings and Questioned Costs for chart/table. Additionally, grant recipients were required to remain open for three years after the grant award date or from the date of the licenses, whichever was later. Three of these recipients closed their facilities well before the required three-year deadline. As stated above, the Agency has not requested the providers to return all or any portion of the BCC grant. Additional details on the three grant recipients are below: • J’s Nest Childcare is owned by Jordan Wintz. Wintz received a Provisional Family Child Care Home I license on November 1, 2022. Per court records, a complaint was filed on February 2, 2023, against Jordan Wintz for a Class IIA Felony of Theft by Deception. On January 1, 2024, the charge was amended to Unauthorized Use of a Financial Transaction Device, also a Class IIA Felony. On March 1, 2024, Wintz was found guilty of the amended charge and, on May 17, 2024, she was sentenced to 48 months of probation, 48 days in jail, and restitution of $27,217 to Midwest Bank, which was paid in full as of May 17, 2024. J’s Nest Childcare’s license was revoked on November 7, 2024. • Two providers requested their license be closed. Aleah’s Childcare’s license was closed on November 4, 2024, and the license for Blessed Are They Learning Center was closed on November 8, 2024. Additionally, we tested payments to five facilities, totaling $1,414,825, which received payments during fiscal year 2024. We requested the application, award notification, spending reports, and supporting documentation for expenditures. We noted the following: • Four of the facilities tested had the same owner. None of the four facilities increased capacity by December 31, 2023, and had still not increased capacity as of November 20, 2024. None of the spending reports provided agreed to the grant award. For example, the spending reports included thousands of dollars for staff wages even though the Agency did not award any funds for staff wages. We further noted only $27,585 expenditures of the $773,581 awarded were adequately supported. Copies of checks were provided for several expenditures, but no invoice or contract was provided to support what the expenditure was for, or that it was allowable for the grant. In addition, several amounts were not supported at all. All four facilities tested had an application dated in May 2023, which is after the period of performance for the Federal grant. The Federal grant was required to be obligated by September 30, 2022. All payments for these facilities are questioned in the table above, as obligated after the period of performance, capacity not increased, and inadequate support for expenditures. See Schedule of Findings and Questioned Costs for chart/table. • We also tested one facility that was paid $641,244. Sufficient documentation was on file to support the expenditures; however, the Agency was unable to provide the award notification. This was a new program that was not licensed by December 31, 2023; but a provisional license was issued on May 14, 2024. The recipient had an application that was dated May 4, 2023, which is after the period of performance for the Federal grant. The Federal grant was required to be obligated by September 30, 2022. Therefore, we question $641,244. We tested two additional providers listed as increased capacity and reviewed the applications and documentation of how the grant funds were spent. As a result, we question an additional $479,438, as follows: Kids Express LLC Kids Express LLC (Kids Express) received a BCC grant of $54,186 on August 14, 2023. The application for Kids Express was completed on July 8, 2023, which is after the period of performance for the Federal grant. The Federal grant was required to be obligated by September 30, 2022. The $54,186 payment is questioned. We also identified several additional issues with the application, grant award and expenditures, as follows. • The BCC application provided the address of 7410 Mercy Road in Omaha as the physical address for the new child care program. The center was projected to be licensed and operating by October 15, 2023. Kids Express did not receive a license for this location but received a provisional license at 5352 South 136th Street in Omaha. • The grant was awarded based on quotes and estimates provided for the location of 7410 Mercy Road; however, the expenses were for the 5352 South 136th Street location. Therefore, the expenses did not agree to the grant award notification, as follows. See Schedule of Findings and Questioned Costs for chart/table. • The Agency previously performed an audit of the expenses to support the full grant payment. Based on the audit, the Agency allowed $56,885 in expenses, which covered the full grant award amount. We also completed an analysis of the expenses identified above and determined that the invoices provided by Kids Express did not adequately support $27,046 of the grant funds spent. For example, a $10,490 invoice for playground equipment included the total only and no description of what equipment was purchased. Two invoices for a washer and dryer, and signage, totaling $7,714, did not include the vendor’s name, date purchased, or any payment information. Additional support for expenses appeared to be an estimate or quote and not the actual paid invoice. There were several Walmart receipts that did not include the date of purchase or payment method, and some of these receipts included the purchase of cat litter and groceries; however, the center was not operating when the groceries were purchased. • Kids Express was issued a Provisional Child Care Center license at the 5352 South 136th Street location on November 1, 2023. The center was licensed for 76 kids. Per a local news report from April 15, 2024, Kids Express was not yet open, but should begin accepting children in two weeks, April 29, 2024. Kids Express was not operational by the December 31, 2023, deadline. • Kids Express did not remain open for three years after the license was issued on November 1, 2023. Subsequent to the audit period on August 5, 2024, the property owner of the space leased by Kids Express filed a complaint in District Court. Per the complaint, the parties entered into a lease agreement on August 16, 2023, and Kids Express failed to pay monthly installments or rent and other amounts due under the lease. As of July 30, 2024, there was a total outstanding amount due of at least $65,421. Kids Express owed monthly rent and operating expenses for November 1, 2023, through August 1, 2024. On August 19, 2024, an Order of Restitution granted the property owner immediate possession and restitution of the premises at 5352 South 136th Street. On November 25, 2024, an Order for Default Judgment was filed in the sum of $78,754 plus interest. The Agency noted the provider closed due to not obtaining enough children to care for and other personal issues. The Agency did not request the center return all or a portion of the grant funds. Subsequent to the audit period, Kids Express was paid $37,422 on August 30, 2024, for a Targeted Workforce Supplemental (TWS) payment. Providers who received the BCC grant were eligible to apply for this subgrant and were required to complete a TWS survey by September 30, 2023. Grant amounts were determined based on the number of new child care slots the child care program created. Kids Express was no longer operating the center at the time of payment. Patty’s Child Care Center Inc. Patty’s Child Care Center received payments for two locations. One was an existing center at 4102 South 13th Street in Omaha (Patty’s Child Care Center 2) and the other was a new center to be opened at 4110 South 13th Street in Omaha. We requested support for the funds spent at both locations. We noted the following: 4102 South 13th Street: On May 5, 2023, Patty’s Child Care Center 2 was awarded $709,205 to increase the center’s capacity from 100 to 120 by December 31, 2023. The center did not increase capacity until June 28, 2024, when the license was increased to 110. We requested documentation of expenses made to support the $548,020 awarded for the funding category of minor repairs and renovations. Invoices provided did not support the full amount awarded. The center provided invoices for only $449,720 of the $548,020 grant award. Of the $449,720 expended for minor repairs and renovations, we determined only $122,768 of expenses were allowable, resulting in $425,252 in questioned costs. In addition to the $98,300 support not provided, see examples below of other questioned items: • The grant award allowed $24,200 for the repair of sidewalks and steps; however, the invoice for concrete totaled $100,045 and was for the playground area and did not include sidewalks or steps. • An estimate for updates to the inside of the daycare was provided by a vendor dated May 15, 2023. It included plumbing, electrical updates, patching drywall, painting, window replacement, floor replacement, updates to the HVAC system, replacement of tile in the bathroom and kitchen, door hardware, and ceiling tile replacement. However, the invoices provided for these items were from a different vendor. There was a total of 16 invoices, totaling, $186,475, from the vendor. The invoices included a total price for the service, but there was no itemized breakdown of materials or labor, and no cancelled check or proof of payment for the invoices was provided. • An estimate was provided by a vendor for purchasing and installing turf. The estimate was for $80,163, and the Agency approved this amount as part of the grant award. The invoice from the vendor dated July 1, 2023, was for $120,595. Not only did the square footage of the turf increase, but the costs to install also increased. 4110 South 13th Street: Patty’s Child Care Center owns a building at 4110 South 13th Street, where it wanted to open a new facility with a proposed license capacity of 186. Patty’s Child Care Center was awarded a BCC grant for this location, totaling $677,900. This included $450,000 awarded for the Program Supplies funding category. We requested documentation to support the expense made for this funding category. Patty’s Child Care Center provided invoices for program supplies, totaling $465,590. These invoices included $52,537 for concrete work and $30,356 for turf installation that were not included in the grant application and were not approved as part of the grant award. Additionally, a playground quote dated April 3, 2023, was from one vendor, and the invoice provided for the expense was from a different vendor. No license has been issued for this location, and the entire BCC grant award amount was questioned, as noted in the chart above. Stabilization Grants Section 2201 of the American Rescue Plan Act (ARPA) of 2021 provided states supplemental discretionary Federal funding to help more families afford child care and to improve the quality of child care for all children. The Agency paid $575,572 in Round 3 stabilization subgrants to eligible child care providers during fiscal year 2024. We tested one Round 3 payment, totaling $167,738, to Kiddie Academy of Gretna. To be eligible for the Round 3 payment, the provider had to have become licensed between May 10, 2022, and April 21, 2023, and had to be trained in the Agency’s Prepare to Care program and be certified in pediatric first aid and CPR. Additionally, the provider was obligated to stay licensed, open, and actively watching children for a minimum of 12 months from the issue date of the payment. The payment amount was determined by the Agency’s grant funding formula. The funding formula included a base amount awarded to providers based on their licensed capacity, as well as additional funding for those providers who served children from families with low incomes. We found several issues with this aid payment. • The Agency could not provide documentation to verify that the provider completed the Prepare to Care training and was certified in pediatric first aid and CPR. • We were unable to recalculate the payment amount using the Agency’s funding formula, and the Agency was unable to provide support on how the payment amount was determined. • Kiddie Academy of Gretna did not remain licensed and open for 12 months after the payment date. The payment was issued on July 5, 2023, and the provider’s license was closed on April 29, 2024. The payment of $167,738 is questioned. In response to our inquiry about the provider closing, the Agency stated it would send a letter to the provider asking how the funds were spent and the reason why it closed. Inflation Remittance Support The Agency also offered an Inflation Remittance Support Payment to child care providers who were previously awarded a child care stabilization grant. The Agency provided eligible providers instructions on how to apply and a link to complete the grant survey, which had to be completed by September 30, 2023. The providers certified that the program maintained the same license number submitted at the time of their initial application, and the program must have been open and actively caring for children at the time the survey was submitted and at the time of payment. Providers were also required to stay licensed, open, operational, and actively caring for children for a minimum of 12 months from the date of the grant payment. Two grant payments tested did not follow these requirements. • A Family Child Care Home II provider received a $2,500 grant payment on March 5, 2024; however, the program did not stay open for the required 12 months, as it closed on August 9, 2024. The $2,500 payment is questioned. Per the Agency, a letter was sent to the provider asking for a receipt of all expenses and an explanation for why the program closed. • For another payment, the survey was submitted by the provider on October 10, 2023, after the September 30, 2023, deadline. Per the Agency, the survey instructions and link were sent to the wrong address; therefore, it gave the provider extra time to complete the survey. The ARP CCDF Discretionary funds must be obligated by September 30, 2023. The $2,500 grant payment is questioned. Federal payment errors noted for the Inflation Remittance Support sample tested were $5,000. The total sample tested was $32,500, and the total Inflation payments for the fiscal year were $7,072,500. The Inflation payment dollar error rate for the sample was 15.38% ($5,000/$32,500), which estimates the potential dollars at risk for fiscal year 2024 to be $1,087,851 (dollar error rate multiplied by the population). Cause: Inadequate control procedures. Effect: Noncompliance with Federal regulations. Additionally, a lack of adequate supporting documentation increases risk of payments not being made in accordance with State and Federal requirements, leading to a loss of Federal funds. Recommendation: We recommend the Agency implement procedures to ensure that payments are adequately supported and in accordance with State and Federal requirements. We further recommend the Agency take steps to recover funding that was not spent properly or granted to providers whose capacity did not increase or did not remain open, as required. Management Response: Management agrees.

Program: AL 93.575 and 93.596 – CCDF Cluster; AL 93.575 – COVID-19 Child Care and Development Block Grant – Allowability & Eligibility & Matching Grant Number & Year: 2301NETANF, FFY 2023; 2101NECDC6, FFY 2021; 2201NECCDD, FFY 2022; 2401NECCDF, FFY 2024; 2401NECCDM, FFY 2024; 2101NECCDF, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 98.67 (October 1, 2023) states, in part, the following: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. * * * * (c) Fiscal control and accounting procedures shall be sufficient to permit: * * * * (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. 42 USC § 9858k(b) (1992) states, “With regard to services provided to students enrolled in grades 1 through 12, no financial assistance provided under this subchapter shall be expended for— (1) any services provided to such students during the regular school day[.]” 45 CFR § 98.55 (October 1, 2023) states the following: (a) Federal matching funds are available for expenditures in a State based upon the formula specified at § 98.63(a). (b) Expenditures in a State under paragraph (a) of this section will be matched at the Federal medical assistance rate for the applicable fiscal year for allowable activities, as described in the approved State Plan, that meet the goals and purposes of the Act. To be eligible for services, 45 CFR § 98.20 (October 1, 2023) requires a child to be under 13 years of age, a citizen, and reside with a family whose income does not exceed 85% of the State’s median income.   Title 391 NAC 1-002 defines “infant” and “toddler” for child care subsidies, as follows: Ages of children: 1. Infant means a child age 6 weeks to 18 months; 2. Toddler means a child age 18 months to 3 years; 3. Preschool-age means a child age 3 or older who has not attended kindergarten; and 4. School-age means a child who attends kindergarten or above. Title 392 NAC 2-004, states, in part, the following: In order to receive Child Care Subsidy, the family must: * * * * (E) Have a child within the age limit. Child care is available for children age 12 or younger. Children who turn age 13 during their eligibility period remain eligible through the end of their eligibility period. Children age 18 or younger with special needs are eligible. The child’s age must be verified in order to qualify for assistance[.] Per Title 392 NAC 2-013.05, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Title 392 NAC 3-001.02(D) requires the recipient and child care provider to ensure that the services are delivered as authorized. Title 392 NAC 3-004.01(A) states the following: The Department pays by attendance, not enrollment. Providers do not receive payment when the provider is on vacation, is ill, or is not providing care for some reason unrelated to the child or recipient. Title 392 NAC 3-004.01(A)(i) states the following: The provider may bill the full authorized amount for times that the child is absent on a scheduled day, up to five times per month. Title 392 NAC 4-002 states, in relevant part, the following: Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards; * * * * (E) To accept a rate which is reasonable, necessary, and does not exceed the amount charged to private-paying persons; * * * * (G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims; The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, the following: You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided. You should mark “A” on the calendars for children who are absent. Up to five absent days can be billed per child per month. Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program provides guidance for 392 NAC Chapter 3-004.01(A)(i) Payment for Absences as follows, “Absent days must be billed as 1 day unit per occurrence up to the maximum of 5 occurrences per month.” Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program has the following guidance for Title 392 NAC Chapter 2-011, Categories of Eligibility Based on Income: The total amount of the sliding fee assessed will be based on 7% of the household’s gross income for all of their children enrolled in the subsidy program. It will not vary with the number of children in care, the amount of care they need, or the type of care they choose to use. The sliding fee must be paid each month to the provider before the provider bills the Department, it covers the first dollars of payment, regardless of when service begins or ends. The Child Care Subsidy Provider Handbook (June 2023 revision) requires that, for providers other than child care centers, “[P]arents/caregivers must sign the calendar at the end of the billing period.” EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that payments are in accordance with Federal and State requirements. Condition: Child care payments did not comply with Federal and State requirements. A similar finding has been noted in our previous audit reports since 2007. Repeat Finding: 2023-043 Questioned Costs: $605,874 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We noted claims that lacked support and/or did not agree to support, services billed more than authorized, and duplicate claims charged, as detailed below.   Random Sample We tested 25 child care claims paid with Federal funds. We noted 12 claims with errors. Some payments had more than one type of error. • For two claims tested, there was a family fee co-pay required of $192 and $149 per month, respectively, but no such co-pay was deducted. • For four claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 8 days and 2 partial days of child care, while the attendance sheet showed 5 days and 5 partial days of care. o One provider claimed 7 full days of care during the claim period; however, the attendance sheet provided did not detail the hours that the child was in the care of the provider. As such, the APA could not determine whether the claim was correct. o One provider billed 10 partial-days services; however, the attendance sheet showed only 4 partial-days and one full-day for this period. o One provider billed for 21 days, but the attendance sheet supported only 20 days. • For two claims tested, the providers billed for services over the authorized amount. o One provider was authorized to provide child care during the time that both the mother and father were working. The provider claimed numerous days for care provided overnight; however, no documentation was on file to support that both parents were working overnight. o One provider was authorized 20 hours of child care a week; however, per the attendance sheet, two weeks during the month had 23 service hours per week. • For six claims tested, the child care payment was incorrect because the rate was in excess of the private rates. Providers must accept a rate that is reasonable, necessary, and does not exceed the amount charged to private-paying persons. o One provider claimed $25/partial day but was only authorized to claim $18.33/partial day. o For two claims, the provider reported private rates of $75/week effective May 27, 2022, and $90/week effective May 2, 2024. Using an Agency-provided conversion table, this would result in a partial rate of $8.33-$10/partial day and $15-18/day. However, the provider was claiming $13.33/partial day and $24/day. o One provider reported a private rate of $40/day but was claiming $40.55/day, exceeding the private rate. o One provider reported its private weekly rate at $83. Using a DHHS-provided conversion table, this would result in $9.22/partial day. However, the provider was charging for $20.56/partial day. o One provider reported on its website a partial day private rate of $47 a week, which would result in a rate of $9.40/partial day. However, the provider was claiming $18 for a partial day. Federal payment errors noted for the sample tested were $1,356. The total Federal sample tested was $10,518, and total child care Federal assistance claims for the fiscal year were $83,226,143. Based on the sample tested, the case error rate was 48% (12/25). The dollar error rate for the sample was 12.89% ($1,356/10,518), which estimates the potential dollars at risk for fiscal year 2024 to be $10,727,850 (dollar error rate multiplied by the population). In addition to the $1,356 questioned costs noted on the sample items tested, we noted $2,027 of questioned costs on other line items of the claims reviewed, which resulted from missing and inaccurate documentation. Excessive Units The Nebraska Family Online Client User System (NFOCUS) application was used to automate benefit/service delivery and claim processing and payments for the Child Care program. Due to the volume of claims processed by the NFOCUS application, the Agency did not perform a review of each claim paid. Therefore, the Agency relied on edit checks within the system to review claims and deny or suspend claims that did not meet the criteria determined by the Agency. As noted in Finding 2024-015, during testing of significant edit checks within the NFOCUS application, it was noted that the “UN” edit check (“Units too high for service dates and frequency”) was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Instead of applying a logical edit check to these claims, such as not exceeding the regular number days in one month (e.g., 31 days), the system only compared the claim to the service authorization to determine if adequate units were authorized. We identified 642 claim lines paid with Federal funds, totaling $286,079, where the number of days or partial days billed exceeded the number of days in the service period. We selected 24 claim lines, totaling $33,709, for review and noted 23 claim lines with errors as follows: • The claims charged to Federal funds were “Version 1” of the claim. Sometimes an error is detected and a “Version 2” of the claim is created with an underpayment or overpayment. We noted 11 of the claim lines tested had a Version 2 and 10 of those had overpayments received or recouped. However, the overpayments collected and recouped are credited to the State General Fund, not Federal funds. The 11 claim lines totaled $16,420 and are considered Federal questioned costs. Errors noted included a claim that had 199 days billed for the month of July 2022, the overpayment was collected in December 2022 and credited to the State General Fund. In February 2024 the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. We also noted a claim that billed 100 partial days for a 19-day period. The error was discovered, and a Version 2 was created in December 2023, but in April 2024, the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. • Twelve claim lines did not agree to the attendance records. One provider billed 25 to 64 partial days for 15-day service periods. Two providers billed 40 to 95 partial days for one month service periods. Per review of the attendance records, providers were overpaid $9,182 for these 12 claim lines, which are considered questioned costs. Duplicate Claims Child care claims are initially paid from State funds. Journal entries are then performed throughout the year to transfer costs to Federal funds. A detailed listing of claims accompanies these journal entries to show which claims are included in the amounts moved from State funds to Federal funds. We reviewed the detailed claim listings for each journal entry completed during the fiscal year and found that duplicate claims were included in two journal entries completed on September 28, 2023. Both entries included 594 identical claims, totaling $141,165. These claims were charged to Federal funds twice, and $141,165 is considered questioned costs. Additionally, we compared the detail claim listing to the claims charged to Federal funds in the prior fiscal year and found 1,144 claims that were used in both fiscal year 2023 and fiscal year 2024 journal entries, totaling $297,553, which are questioned costs. Attestation Examination The APA performed an attestation examination of the Nebraska Department of Health and Human Services Child Care NFOCUS Aid Payments for the period July 1, 2023, through March 31, 2024. All claims were initially paid with State General Funds. The APA reviewed the claims with findings to determine if the claims had been transferred and charged to Federal funds. We noted numerous issues with Federal questioned costs, totaling $138,171. We noted the following related to claims paid with Federal funds: Unusual Claims and Duplicate Billings We tested a family in-home care provider that billed a high number of hours for the month. The provider did not provide the requested attendance calendar for January 2024 services. The provider billed 260 hours at a rate of $12 per hour for a total of $3,120. Child care was authorized for the client’s self-employment, up to 60 hours per week. We were unable to determine if the payment was correct because no attendance calendar was provided; therefore, the entire claim was questioned. We also noted the 60 hours per week was authorized based on the client’s declaration of working 12 hours a day, seven days a week. The client’s reported income for this timeframe was $1,500 per month, which calculates to only $4.12 per hour, which is much less than the Nebraska minimum wage rate of $12 per hour. The client’s income does not appear to meet the self-sufficiency requirement. Federal questioned costs totaled $3,120. We noted overlapping of services as follows: Three children were authorized child care for a maximum of 50 hours per week while the parent was working at U-Stop and participating with Employment First. Child care was authorized with two providers. The attendance calendars for both providers showed no overlapping hours; however, the providers exceeded the authorized 50 hours per week for four weeks in September 2023. The secondary provider billed times from 8:30 a.m. to 3:00 p.m. or 4:00 p.m., and the primary provider billed evening and some overnight hours. A comparison of attendance calendars revealed that the total hours between the two providers exceeded the authorization by 6 to 23.5 hours each week. Federal questioned costs totaled $1,027. See the following chart: See Schedule of Findings and Questioned Costs for chart/table. We analyzed the NFOCUS claims paid during the period from July 1, 2023, through March 31, 2024. During this analysis, we identified several claims where the provider appeared to double bill child care services for the same child during the same time period. The providers were able to double bill when two service authorizations for the child were open at the same time and by changing the rate of the service. There were also multiple instances where the provider billed for duplicate services by changing the rate billed. For example, one provider, Tender Loving Tots, billed services three times for the same child for the same time period. A child was authorized for preschool care at the daily rate of $46.51. Tender Loving Tots billed four daily units at the authorized daily rate of $46.51 for service dates of July 11, 2023, through July 14, 2023, for this child on claim 32347682. The provider also billed four daily units at $46.50 per daily unit on claim 83255070, line 2. Tender Loving Tots billed a third time for this child for the same period on the same claim. On line 5 of claim 83255070, the provider billed four days at $45 per daily unit. As long as the billed rate was lower than the authorized rate, NFOCUS did not reject the claim for double billing. See Schedule of Findings and Questioned Costs for chart/table. The following chart shows the number of duplicate claims reviewed and Federal questioned costs by provider: See Schedule of Findings and Questioned Costs for chart/table. Incorrect Age Group We reviewed the claims for family home providers and child care centers for infant care services for children over the age of 18 months. We noted children over the age of 18 months with services paid at the infant rate. We also reviewed the claims for child care centers for toddler care services for children over the age of 36 months. We noted children over the age of 36 months with services paid at the toddler rate. As the rates for infants are higher than toddler rates, and toddler rates are higher than preschool rates, it is important that services be paid at the proper rate based on a child’s age. The following are a few examples that we noted: • A child who turned 19 months on September 18, 2023, continued to be paid at the infant rate for services through February 2024, resulting in questioned costs of $574. • A child who turned 36 months on March 8, 2023, was paid at the infant rate for services from August 16, 2023, through December 2, 2023, and should have been paid at the preschool rate, resulting in overpayments of $538. • A child over age five was paid at the toddler rate for services from June 16, 2023, through November 30, 2023, and should have been paid at the preschool rate, resulting in overpayments of $349. • A child who turned 36 months on October 5, 2023, was paid at the toddler rate for February 2024 services and should have been paid at the preschool rate, resulting in an overpayment of $105. Other Issues We selected six licensed family home providers and six child care centers and requested all attendance records for one month. We noted claims not agreeing with attendance records; attendance records not being provided; billings at an improper rate; services billed in excess of services authorized; overlapping services; and parents’ employment that did not appear to meet the requirement for self-sufficiency. 1. One family home provider billed full days for one child but should have billed partial days because the attendance record showed services from 4:00 p.m. to 6:00 p.m. (2 hours) each day, resulting in $66 questioned costs. 2. Next Generation Child Care and Preschool was paid $94,405 for February 2024 services. For one child, the attendance record showed service from 6:15 a.m. to 8:30 a.m. Per the parent, however, school began at 7:40 a.m., so it appears the time out of 8:30 a.m. is not accurate, resulting in $48 questioned costs. 3. Little Blazers Academy, located on North 61st Street in Omaha, Nebraska, and Little Blazers Academy II, located on West Dodge in Omaha, Nebraska, have the same owner. We question Federal costs of $2,703 for December 2023 services. • Services were billed for 18 children at both locations. For six of these children, the centers were billing partial days at each location when the total hours were less than five hours. For example, on multiple days, one child was claimed from 4:00 p.m. to 5:00 p.m. at one location and then from 5:30 p.m. to 6:30 p.m. at the second location. Each location billed for a partial day; however, only two hours of service were provided each day; therefore, it does not appear reasonable to bill for more than one partial day each day. • The attendance records for December, the month tested, were not provided for eight children, four of whom were paid with Federal funds. The attendance records provided were for September, not December, and were signed September 30, 2023. Also, the service authorization was exceeded for one child; for two children, the claim did not agree to the attendance records. 4. Sprouting Minds Childcare was paid $41,053 for November 2023 services, and we questioned costs of $14,133 – of which $4,309 was paid with Federal funds. We noted the following: • 19 children were billed and paid as an “absent” day on Thanksgiving and the Friday after Thanksgiving, even though the center was closed, and no children attended. • Attendance records were not provided for five children, and time records did not agree to the services billed for an additional five children. • Services claimed exceeded service authorizations for 13 children. • One child was billed both as a toddler and an infant for the same period and should have been billed only as a toddler. 5. International Day Care was paid $173,260 for November 2023 services – of which $132,328 was charged to Federal funds – and we question $111,609, an 84% dollar error rate. We noted the following: • 191 children were billed and paid as an “absent” day on Thanksgiving even though the center was closed, and no children attended. • One child billed was over age 13 and not eligible for services. • One child was billed as a toddler but was over the age of three at the time of service and should have been billed at the preschool rate. • One child was billed as an infant but was 35 months old at the time of service and should have been billed as a toddler. • Four families authorized for child care while a parent was working at the center billed for days after the parent was no longer working at the center. During our review of service authorizations, moreover, we noted that several children had a parent working at the daycare while the children attended. This is allowable if the parent is not working in the same room. However, of the 222 children paid for the month tested, 201 had a parent working at the daycare, and only 21 children did not. The 222 children were from 53 families, and 44 of those families had a parent working at the daycare. We asked the daycare to provide us with employment records for those parents. Most of the parents had income from International Day Care that was far less than the subsidies paid for child care services. For example, for one family, the parent earned $1,452 for the month, but child care payments totaled $6,353. Title 392 NAC 2-013.05 provides, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Based on a comparison of wages to child care subsidies, however, the employment with the daycare does not appear to have that potential. For the families with a parent working at the daycare, there was a total of $154,326 in child care payments, but the parents’ gross salary from the daycare totaled only $64,163 – a discrepancy hardly reflective of employment arrangements conducive to economic autonomy. Many of these families had additional income from sources other than the daycare; however, child care subsidies still appeared unreasonable. In these cases, as illustrated by the examples below, parents working at the daycare in a capacity that failed to produce even the potential to “achieve or maintain economic self-sufficiency,” contrary to the explicit regulatory language cited above, actually resulted in far greater child care costs than would have occurred had those working parents stayed at home and cared for the children themselves. The following cases are representative of why subsidies are not available for jobs that prove ultimately counterproductive in terms of the relatively low wages received in comparison to the resultant child care expenses to the State: • One family with seven children had child care subsidies for the month of $5,945 plus paid a family fee of $465 per month, for total daycare costs of $6,410. This was a two-parent household, and one parent worked at the daycare and earned $1,386 for the month. The total gross income for the household was $6,647.97, which exceeds the cost of child care, but if the family was responsible for all daycare costs, it would leave less than $250 per month for rent, food, utilities, and other expenses. It would cost the family over $5,000 each month to have a parent working at the daycare; therefore, the employment does not appear to have the potential for self-sufficiency. • Another family had child care subsidies for the month of $5,610, and the parent who worked at the daycare earned $1,323. The family had total gross monthly income of $4,192.16, which is still $1,417.84 less than child care costs, and if the family was responsible for all child care costs, it would cost the family $4,287 each month to have the parent working at the daycare. Therefore, the employment does not appear to have the potential for self-sufficiency. It was also noted that seven families were receiving Temporary Assistance to Needy Families (TANF) and were required to work as a condition of that assistance. These seven families received child care subsidies of $24,850 for the month and were paid wages of $10,456 by the daycare. However, we did not question these costs because the individuals were required to work as a condition of receiving TANF. Excluding the TANF recipients, we questioned all other child care payments for families whose parents’ wages from the child care center were less than the child care payments. Market Rate Survey and Subsidy Rates The 2023 child care subsidy rates, which became effective July 1, 2023, were established following a Market Rate Survey issued in June 2022 by the Buffet Institute at the University of Nebraska (Institute). This market rate survey was commissioned by the Agency pursuant to Neb. Rev. Stat. § 43-536 (Cum. Supp. 2022). The results of the survey were based on a provider response rate of 32.9% (946 providers); however, in calculating the half-day and full-day rates, the Institute used rate information from only 21% of respondents who indicated that they had a part-time and full-time rate schedule similar to the guidelines set by the Agency (partial day for 0 to 4 hours and 59 minutes and full-time for 5 hours to 9 hours and 59 minutes). As such, the rates were established based on rate information provided by only 6.9% of Nebraska’s child care providers. The percentage of providers factored into the benefit calculation is so low because many providers responded that they did not have an equivalent half-day or full-day rate structure. Therefore, we question the reasonableness of the rates established pursuant to the market rate survey and whether it provides a clear picture of private market rates in the State. Additionally, Nebraska regulations require that providers have an established private rate prior to receiving any subsidy payments. This is because the subsidy payment is not allowed to exceed the provider’s private rate. However, as shown in the market survey results, many providers do not have such a rate structure and, therefore, do not have established half-day and full-day rates. In many cases, providers have a weekly rate. The Agency stated that it utilizes a weekly rate to daily/partial day rate conversion table, which was provided by the Institute. However, while this table is used to determine the equivalent rates, there is no written policy or guidance on when or how the table should be implemented, and no mention is made of these conversion tables in the market survey report. State Matching Claims States are required to match the Federal funds spent with the Federal Matching grant with State funded expenditures at the Federal Medical Assistance Percentage (FMAP) rate for the applicable fiscal year. Those State funding expenditures must be an eligible and allowable activity per the State Plan. The Agency periodically performs journal entries to move child care claims to the applicable business unit to identify and track the State matching expenditures. During the fiscal year, the Agency moved $10,737,243 of child care claims paid with State General funds to the business units for State matching expenditures. We tested 25 child care claims paid with State matching funds. We noted 10 claims with errors. Some payments had more than one type of error. • For one claim tested, there was a family fee co-pay required of $203, but no such co-pay was deducted. • For two claims tested, the attendance records were not provided. • For five claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 4 full days and 25.25 hours of child care, while the attendance sheet showed 0 days and 18.75 hours of care. o One provider billed 13 partial days of service; however, the attendance sheet showed only 10 partial days. o Two providers billed an additional day compared to the attendance record. o One provider recorded full days of service from 6:00 a.m. to 9:00 a.m. and 4:00 p.m. to 6:00 p.m., for five hours of service. However, per the school calendar, classes began at 8:50 a.m. and ended at 4:05 p.m. The attendance sheet did not appear reasonable, as the child would still be at the child care provider when school started. If services were from 6:00 a.m. to 8:50 a.m. and 4:05 p.m. to 6:00 p.m., the provider would only be allowed partial days of service. • For one claim tested, the provider billed care over the authorized amount. The provider was authorized 39 hours of child care a week; however, per the attendance sheet, the child received 43 hours for one week tested. • For one claim tested, the attendance record was not signed by the parent, as required. Payment errors noted for the sample tested were $1,397. The total sample tested was $9,396, and total child care matching claims for the fiscal year were $10,737,243. Based on the sample tested, the case error rate was 40% (10/25). The dollar error rate for the sample was 14.87% ($1,397/9,396), which estimates the potential dollars at risk for fiscal year 2024 to be $1,596,628 (dollar error rate multiplied by the population). Cause: Ineffective review. The Agency does not have automated procedures to ensure attendance records agree to billing documents, service authorizations are not exceeded, and claims are in accordance with regulations. The edit check “Units too high for service dates and frequency” was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Effect: Ineffective review of claims increases the risk for errors, fraud, and misuse of State and Federal funds.   Recommendation: We recommend the Agency implement procedures to ensure payments are allowable, adequately supported, and in accordance with State and Federal regulations. We further recommend the Agency ensure billing documents agree with attendance sheets, and services are only authorized as needed and only if the parents’ employment has the potential for economic self-sufficiency. We also recommend the Agency implement procedures to ensure journal entries do not charge duplicate claims. Finally, we recommend the Agency take the necessary action to recover the overpayments. Management Response: Management agrees.

Program: AL 93.575 and 93.596 – CCDF Cluster – Special Tests and Provisions Grant Number & Year: Various, including 2401NECCDF, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 98.41 (October 1, 2023), the State must have requirements to protect the health and safety of children, including the prevention and control of infectious diseases, building and physical premises safety, and health and safety training. Per 391 NAC 3-005.09A and NAC 4-005.09A: The Department will make a fire inspection referral when: . . . 2. Every two years following the initial fire inspection[.] Per 391 NAC 3-005.09B: The Department will make a sanitation inspection referral when: . . . 2. Every two years following the initial sanitation inspection . . . [.] 391 NAC 1-005.02 provides the following: The Department will conduct an unannounced inspection each year to assess compliance with licensing regulations. A good internal control plan requires adequate documentation to be maintained to support compliance with health and safety requirements. Condition: The Agency did not have adequate procedures in place to ensure health and safety requirements were met for child care providers. A similar finding has been noted in prior audits since 2017. Repeat Finding: 2023-044 Questioned Costs: Unknown Statistical Sample: No Context: Child care centers and family child care homes are subject to health and safety requirements. Each type of provider is subject to separate but similar State regulations. We tested 26 child care providers subject to health and safety requirements. We noted the following: • One family home child care provider did not have the required annual inspection completed. The last annual inspection was performed on February 25, 2022. The Agency attempted to conduct unannounced reviews on November 8, 2023, and November 11, 2023, but the child care provider was not home. In December 2023, the Agency emailed the provider and tried contacting the provider by phone twice; however, a response was not received. No annual inspection was completed in 2023, and no inspection for 2024 has been completed as of the end of fieldwork on November 8, 2024. No disciplinary actions have been taken against the provider. • One child care center tested did not have a sanitation inspection. The Agency made a referral for a sanitation inspection on December 5, 2023; however, as of November 8, 2024, no inspection was completed. • Five of 21 child care centers tested did not have a fire inspection within the last two years: See Schedule of Findings and Questioned Costs for chart/table. Cause: Depending on the city or county, the Agency relies on local fire departments or the State Fire Marshal to conduct fire inspections for child care centers. The Agency makes a referral to the fire department when an inspection is due, but the Agency does not pay for these inspections and cannot control the timing of the inspections. Effect: Without adequate procedures to ensure health and safety requirements are met, there is an increased risk of noncompliance with Federal regulations and the possibility of children being cared for in unsafe facilities. Recommendation: We recommend the Agency implement procedures to ensure all health and safety requirements are met for child care centers. Management Response: Management partially agrees. APA Response: The Agency is the recipient of the Federal funds and is, therefore, ultimately responsible to ensure that fire and sanitation inspections are performed. Without such inspections, there is an increased risk of children being cared for in unsafe facilities.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.658 – Foster Care Title IV-E – Allowable Costs/Cost Principles Grant Number & Year: 2401NEFOST, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 75.405(a) (October 1, 2023) states, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) provides the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023): 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. Per the CAP’s RMTS Time Study Design/Coding Structure: [P]articipants are asked whether they are working on an activity that is client related. If they select “Yes” to this question, they are asked to identify the Case ID and type of case . . . . Per the CAP’s RMTS Survey Validation: The contractor and the NE DHHS staff review subsample responses to ensure the activity selected matches the description provided. If the activity and description do not match, the participant is notified and the moment is considered invalid. Title 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) require the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of both regulations provides the following, as is relevant: When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken. Good internal control and sound accounting practices require procedures to ensure that staff know how to complete accurate random moment time studies, which are used to allocate costs to Federal programs. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-032 Questioned Costs: $25,554 known Statistical Sample: No Context: The Random Moment Time Study (RMTS) is conducted on an ongoing basis to provide data for the allocations of direct and indirect costs to various programs. The objective is to identify employee efforts directly related to programs administered by the Agency. We tested 40 validated RMTS surveys and noted that inadequate documentation was provided on 5 of 6 surveys charged to Foster Care IV-E (Federally funded). Due to findings noted for the Foster Care program, we tested four additional RMTS surveys coded to Foster Care IV-E cases. We noted inadequate documentation was available for two Foster Care IV-E surveys. For 7 of 10 surveys tested, the workers erroneously reported working on a Foster Care IV-E case when the survey should have been reported as Foster Care Non IV-E; therefore, Foster Care IV-E was overcharged. Total known Federal payment errors, amount tested, error rate (amount of errors/amount tested), total dollars charged via RMTS, and potential dollars at risk (dollar rate multiplied by the population total dollars charged) are summarized below: See Schedule of Findings and Questioned Costs for chart/table. Cause: The Agency’s training of staff and supervisor reviews of RMTS surveys were not sufficient to ensure the surveys were accurately completed. Effect: Random moment sampling is based on the laws of probability, which state, in essence, that there is a high probability that a relatively small number of random surveys will yield an accurate depiction of the overall characteristics of the population for which the sample was taken. If RMTS surveys are not accurate, there is an increased risk costs will be allocated incorrectly between programs. Recommendation: We recommend the Agency improve procedures to ensure that random moment surveys are accurate and adequately reviewed. Management Response: Agency agrees.

Program: AL 93.658 – Foster Care Title IV-E – Allowability Grant Number & Year: 2201NEFOST, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Good internal control requires procedures to ensure journal entries are reasonable, accurate, and not duplicated. 45 CFR § 75.403 (October 1, 2023) provides the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. 45 CFR § 75.303 (October 1, 2023) states, in part, the following: 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. Condition: The Agency did not have adequate procedures to ensure journal entries were proper. Repeat Finding: No Questioned Costs: $1,003,954 known Statistical Sample: No Context: During our review of journal entries, we tested a transaction dated June 21, 2024, that included $1,003,954 in Federal charges to the 2022 grant related to a prior-period adjustment. However, these costs had previously been charged to the grant on a journal entry dated September 22, 2022. As a result, the costs were charged twice, and we question the $1,003,954 in Federal charges. Cause: Inadequate review procedures. The Agency attempted to reconcile the grant costs reported to the accounting system but missed that a journal entry had already been completed for one of the adjustments. Effect: Increased risk for errors to occur and not be detected. Recommendation: We recommend the Agency improve procedures to ensure transactions are proper. Management Response: The agency agrees with the finding.

Program: AL 93.658 – Foster Care Title IV-E; AL 93.658 – COVID-19 Foster Care Tile IV-E – Allowability & Eligibility Grant Number & Year: 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.403 (October 1, 2023), costs must be necessary, reasonable, and adequately documented.   Per 45 CFR § 75.303(a) (October 1, 2023), the Agency must do the following: 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. 45 CFR § 75.302(a) (October 1, 2023) states the following: Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. In addition, the state’s and the other non- Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. Per 42 USC § 671(a)(20)(A), for a state to be eligible for adoption assistance, the state must have a plan that “provides procedures for criminal records checks, including fingerprint-based checks of national crime information databases (as defined in section 534(f)(3)(A) of title 28), for any prospective foster or adoptive parent before the foster or adoptive parent may be finally approved for placement of a child[.]” Title 395 NAC 3-003.08(A)(iv) (Eff. 6/29/2022) states, in relevant part, the following: The applicant and all other members of the household 18 years of age and older will submit background checks prior to licensing. Each individual living in the home on whom a background check will be performed will sign the authorization form granting the Licensing Agent permission to perform the background checks and obtain the results. The authorization must include all previous known names, including maiden names and aliases . . . The following background checks will be conducted: * * * * (5) State-level criminal history; and (6) Fingerprint-based National Criminal History Check. Title 392 NAC 4-002 (Eff. 9/15/2020) states, in relevant part, “Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards;” and “(G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims[.]” The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, “You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided.” (pg. 32) Title 45 CFR § 75.511(a) (October 1, 2023) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The Agency did not have adequate documentation on file to support that payments were in accordance with Federal and State regulations. The Summary Schedule of Prior Audit Findings states the corrective action is completed. Repeat Finding: 2023-048 Questioned Costs: $681 known (2301NEFOST, $352; 2301NEFOST-COVID-19, $9; 2401NEFOST, $319; 2401NEFOST-COVID-19, $1) Statistical Sample: No Context: We tested 25 Foster Care claims for maintenance. Foster Care maintenance payments include payments to foster parents and payments to licensed child care providers for child care when work responsibilities preclude foster parents from being at home. We noted the following: • For two claims tested, the Agency was unable to obtain the child care attendance calendars from the providers. With no attendance calendars, we were unable to verify that the payment amounts were accurate, resulting in questioned costs of $657. • For one claim tested, the provider billed 12 days of child care, while the attendance calendar for the child showed only 11 days of child care. Also, the provider was authorized to provide 40 hours of child care per week, but one week billed 55 hours of care. We questioned costs of $24. • For one claim, there was no documentation of a fingerprint-based background check performed for an adult residing in the foster care household. Federal payment errors noted in the sample were $681. The Federal sample tested was $10,391, and the total Federal maintenance payments during the year were $5,998,283. Based on the sample tested, the dollar error rate was 6.55% ($681/10,391), which estimates the potential dollars at risk for fiscal year 2024 to be $392,888 (dollar error rate multiplied by population). Cause: Employee oversight; inadequate procedures to ensure documentation was on file. Effect: When adequate support is not on file, there is an increased risk of both noncompliance with State and Federal requirements and improper payments. Recommendation: We recommend the Agency implement procedures to ensure that adequate documentation is maintained to support that expenditures are allowable and in accordance with State and Federal regulations. Management Response: The agency agrees with this finding. Bullet Point 3: The department reached out to the home to get a fingerprint check completed but learned that the individual in question had already moved out on 1/16/25. The department is unable to complete the check now.

Program: AL 93.658 – Foster Care Title IV-E; AL 93.658 – COVID-19 Foster Care Tile IV-E – Allowability & Eligibility Grant Number & Year: 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.403 (October 1, 2023), costs must be necessary, reasonable, and adequately documented.   Per 45 CFR § 75.303(a) (October 1, 2023), the Agency must do the following: 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. 45 CFR § 75.302(a) (October 1, 2023) states the following: Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. In addition, the state’s and the other non- Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. Per 42 USC § 671(a)(20)(A), for a state to be eligible for adoption assistance, the state must have a plan that “provides procedures for criminal records checks, including fingerprint-based checks of national crime information databases (as defined in section 534(f)(3)(A) of title 28), for any prospective foster or adoptive parent before the foster or adoptive parent may be finally approved for placement of a child[.]” Title 395 NAC 3-003.08(A)(iv) (Eff. 6/29/2022) states, in relevant part, the following: The applicant and all other members of the household 18 years of age and older will submit background checks prior to licensing. Each individual living in the home on whom a background check will be performed will sign the authorization form granting the Licensing Agent permission to perform the background checks and obtain the results. The authorization must include all previous known names, including maiden names and aliases . . . The following background checks will be conducted: * * * * (5) State-level criminal history; and (6) Fingerprint-based National Criminal History Check. Title 392 NAC 4-002 (Eff. 9/15/2020) states, in relevant part, “Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards;” and “(G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims[.]” The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, “You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided.” (pg. 32) Title 45 CFR § 75.511(a) (October 1, 2023) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The Agency did not have adequate documentation on file to support that payments were in accordance with Federal and State regulations. The Summary Schedule of Prior Audit Findings states the corrective action is completed. Repeat Finding: 2023-048 Questioned Costs: $681 known (2301NEFOST, $352; 2301NEFOST-COVID-19, $9; 2401NEFOST, $319; 2401NEFOST-COVID-19, $1) Statistical Sample: No Context: We tested 25 Foster Care claims for maintenance. Foster Care maintenance payments include payments to foster parents and payments to licensed child care providers for child care when work responsibilities preclude foster parents from being at home. We noted the following: • For two claims tested, the Agency was unable to obtain the child care attendance calendars from the providers. With no attendance calendars, we were unable to verify that the payment amounts were accurate, resulting in questioned costs of $657. • For one claim tested, the provider billed 12 days of child care, while the attendance calendar for the child showed only 11 days of child care. Also, the provider was authorized to provide 40 hours of child care per week, but one week billed 55 hours of care. We questioned costs of $24. • For one claim, there was no documentation of a fingerprint-based background check performed for an adult residing in the foster care household. Federal payment errors noted in the sample were $681. The Federal sample tested was $10,391, and the total Federal maintenance payments during the year were $5,998,283. Based on the sample tested, the dollar error rate was 6.55% ($681/10,391), which estimates the potential dollars at risk for fiscal year 2024 to be $392,888 (dollar error rate multiplied by population). Cause: Employee oversight; inadequate procedures to ensure documentation was on file. Effect: When adequate support is not on file, there is an increased risk of both noncompliance with State and Federal requirements and improper payments. Recommendation: We recommend the Agency implement procedures to ensure that adequate documentation is maintained to support that expenditures are allowable and in accordance with State and Federal regulations. Management Response: The agency agrees with this finding. Bullet Point 3: The department reached out to the home to get a fingerprint check completed but learned that the individual in question had already moved out on 1/16/25. The department is unable to complete the check now.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.659 – Adoption Assistance – Allowability & Eligibility Grant Number & Year: 2401NEADPT, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.403 (October 1, 2023), costs must be necessary, reasonable, and adequately documented. Per 45 CFR § 75.303(a) (October 1, 2023), the Agency must do the following: 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. 45 CFR § 75.302(a) (October 1, 2023) states the following: Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. In addition, the state’s and the other non- Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. Title 392 NAC 4-002 (Eff. 9/15/2020) states, in relevant part, “Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards;” and “(G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims[.]” The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, “You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided.” (pg. 32) Condition: The Agency did not have adequate documentation on file to support that Adoption Assistance payments were in accordance with Federal and State regulations. Repeat Finding: No Questioned Costs: $350 known Statistical Sample: No Context: We tested 25 assistance claims and noted the following: • For one claim, the Agency was unable to obtain the child care attendance calendar from the provider. With no attendance calendar, we were unable to verify that the payment amount was accurate, resulting in questioned costs of $105. • For one claim, the provider billed 22 days of child care, while the attendance calendar for the child showed only 11 days, resulting in questioned costs of $245. Federal payment errors noted in the sample were $350. The Federal sample tested was $9,968, and the total Federal assistance payments during the year were $27,200,378. The dollar error rate was 3.51% ($350/9,968), which estimates the potential dollars at risk for fiscal year 2024 to be $954,733 (dollar error rate multiplied by population). Cause: Employee oversight; inadequate procedures to ensure documentation was on file. Effect: When adequate support is not on file, there is an increased risk of both noncompliance with State and Federal requirements and improper payments. Recommendation: We recommend the Agency implement procedures to ensure that adequate documentation is maintained to support that expenditures are allowable and in accordance with State and Federal regulations. Management Response: The agency agrees with this finding.

Program: AL 93.659 – Adoption Assistance – Level-of-Effort & Reporting Grant Number & Year: 2301NEADPT, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: A good internal control plan requires procedures to ensure reports are accurate and complete and reconcile to the accounting system. EnterpriseOne is the official accounting system of the State. 45 CFR § 75.302 (October 1, 2023) states, in part, the following: (a) Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state's own funds. In addition, the state’s and the other non- Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. See also §75.450. (b) The financial management system of each non-Federal entity must provide for . . . (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements . . . . Per Instructions for Completion of Form CB – 496: Line 10. Reporting Period - Expenditures of Adoption Savings On Post-Adoption or Post-Guardianship Services (from line 8 amount) – This line consists of the actual title IV-E agency expenditures (without federal matching funds) of calculated cumulative adoption savings for the purposes of providing post-adoption or post-guardianship services. . . . Line 11. Reporting Period - Expenditures of Adoption Savings On Services for Children At Risk of Foster Care (from line 8 amount) – This line consists of the actual title IV-E agency expenditures (without federal matching funds) of calculated cumulative adoption savings for the purposes of providing services to support positive permanent outcomes for children at risk of entering foster care. . . . Line 12. Reporting Period - Expenditures of Adoption Savings On Other Title IV-B or Title IV-E Allowable Services (from line 8 amount) – This line consists of the actual title IV-E agency expenditures (without federal matching funds) of calculated cumulative adoption savings for the purposes of providing title IV-B or title IV-E allowable services other than those specified for reporting on lines 10 and 11 of this Part. . . . Title IV-E agencies are required to enter into an adoption assistance agreement with the prospective adoptive parents of any child who meets specified criteria by applying differing, and less restrictive, program eligibility criteria. This results in some number of children who, under previously applied program eligibility criteria, would not have been determined as Title IV-E eligible, but who will now be determined as Title IV-E eligible for adoption assistance. Each Title IV-E agency is required to calculate and spend an amount equal to any savings in Title IV-E agency expenditures as a result of applying the differing program eligibility criteria for a Federal fiscal year for services permitted under Title IV-B or IV-E. These non-Federal funds are referred to as “adoption savings.” The State is required to spend an amount equal to any adoption savings in State expenditures for a fiscal year for any services that may be provided under Title IV-B or IV-E. Per 42 USC § 673(a)(8)(D)(ii), “Any State spending required under clause (i) shall be used to supplement, and not supplant, any Federal or non-Federal funds used to provide any service under part B or this part.” Title 45 CFR § 75.511(a) (October 1, 2023) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The Agency did not have adequate procedures to ensure Federal Financial Reports (FFRs) were accurate. Adoption Savings reported were not in accordance with Level-of-Effort requirements. The Summary Schedule of Prior Audit Findings states the corrective action is completed. Repeat Finding: 2023-049 Questioned Costs: Unknown Statistical Sample: No Context: We tested the FFRs for the quarters ended December 2023 and June 2024. We also tested Part 4 of the September 2023 report for the Annual Adoption Savings Calculation and Accounting Report. We noted the following: • Line 10 Expenditures of Adoption Savings on Post-Adoption or Post-Guardianship Services was reported as $9,684,007 but only had support for $9,555,098. • Line 12 Expenditures of Adoption Savings on Other Title IV-B or IV-E Allowable Services reported $638,161, but $470,913 of these expenditures should not have been included. These expenditures were paid with Federal funds and State matching funds and, therefore, are not allowable uses of Adoption Savings. • Line 11 Expenditures for Children at Risk of Foster Care was reported as $1,078,475 but was overstated $136,305 due to including expenditures paid with Federal funds. • Line 13 Total Expenditures of Calculated Adoption Savings was overstated by $736,127 due to the errors noted on Lines 10-12. Cause: Inadequate review. Effect: Increased risk for errors and noncompliance with Federal requirements. Recommendation: We recommend the Agency implement procedures to ensure Federal reports are accurate and reconcile to the accounting system. Management Response: The agency agrees with this finding.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024; 2405NE5021, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per Title 42 CFR § 455.104(b)(4) (October 1, 2023), the State Medicaid Agency must require the disclosing entity to provide the following disclosures: The name, address, date of birth, and Social Security Number of any managing employee of the disclosing entity (or fiscal agent or managed care entity). Per 42 CFR § 455.101 (October 1, 2023): Managing employee means a general manager, business manager, administrator, director, or other individual who exercises operational or managerial control over, or who directly or indirectly conducts the day-to-day operation of an institution, organization, or agency[.] Per the Medicaid Provider Enrollment Compendium (MPEC) (3/22/21) Section 1.4.1C: There are not exceptions to the managing employee disclosure requirement. To the extent any individual meets the definition of “managing employee” under §455.101, their information is required to be disclosed. MPEC Section 1.4.1C states further the following: However, if a non-profit entity has managing employees, to the extent these individuals meet the definition of “managing employee” under § 455.101; they would have to be disclosed as such. In addition, as discussed further below, entities, including non-profit entities, that are organized as corporations must provide disclosures regarding their officers and directors . . . . If a corporation has, for instance, a Director of Finance who is not a member of the board of directors, he/she would not need to be disclosed as a director/board member. However, as discussed in section C., below, to the extent he/she meets the definition of “managing employee” under § 455.101; he/she would have to be disclosed as a “managing employee.” Per 42 CFR § 455.436 (October 1, 2023), the State Medicaid Agency must do the following: (a) Confirm the identity and determine the exclusion status of providers and any person with an ownership or control interest or who is an agent or managing employee of the provider through routine checks of Federal databases. (b) Check the Social Security Administration’s Death Master File, the National Plan and Provider Enumeration System (NPPES), the List of Excluded Individuals/Entities (LEIE), the Excluded Parties List System (EPLS), and any such other databases as the Secretary may prescribe. (c)(1) Consult appropriate databases to confirm identity upon enrollment and reenrollment; and (2) Check the LEIE and EPLS no less frequently than monthly. 45 CFR § 75.303(a) (October 1, 2023) requires the Agency to “[e]stablish 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.” Good internal control requires procedures to ensure that all required disclosures are provided. Condition: Four of 25 providers tested did not include disclosure requirements for managing employees. A similar finding was noted in the prior audit. Repeat Finding: 2023-053 Questioned Costs: Unknown Statistical Sample: No Context: We tested screening and enrollment for 25 Medicaid/CHIP providers. We noted four providers failed to disclose any managing employee. Therefore, no screenings for managing employees were performed for these four providers. Cause: The Agency relies on each provider’s disclosure to be complete, true, and accurate. The provider is allowed to complete the enrollment process even if an owner or managing employee is not disclosed. Effect: Without adequate procedures to ensure providers are screened, and disclosures are complete, there is an increased risk of provider ineligibility, which could result in unallowable costs or potential harm to patients. Recommendation: We recommend the Agency obtain disclosures and screen providers as required by Federal regulations. Management Response: Management agrees. Starting in January of 2024, the Department has received reports from Maximus that lists the agency, owner(s), and managing employee(s) that were listed in PDMS. On July 1, 2024, a ticket was deployed in the enrollment system that would require an owner (when applicable) and managing employee on the application to move forward with the enrollment. It was set to have a “hard stop” which would prevent enrollment without the required information in the enrollment/revalidation process if not completed. If a provider were to attempt to leave both owners and managing employees blank: a message will pop up that says “Ownership or control interest in the disclosing entity or in any subcontractor in which the disclosing entity has direct or indirect ownership of 5% or more is required when applicable. You are required to supply your managing employees.” If a provider lists managing employees but no owners: there is a notice that pops up saying “You have indicated there are no Owners of this provider entity associated with your enrollment, please verify this is correct before continuing.” They will keep the option to move forward with no owners. If they list owners but not a managing employee, the provider will receive the message “Managing Employees are required”. They can only cancel and remain on the page. They must supply a managing employee or cancel their enrollment/revalidation. If the provider supplies a minimum of one owner and one managing employee, they will not get an error or pop up and they will be able to continue. This ticket was deployed within the enrollment system on July 1, 2024. Not knowing the entities that did not have managing employees listed, we are unable to determine if they were providers that had not gone through their revalidation this year, or prior to the release of that ticket. However, no providers will have been able to complete the enrollment process without listing an owner and/or managing employee since July 1, 2024.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024; 2405NE5021, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 42 CFR § 438.3(m) (October 1, 2023): The contract must require MCOs [managed care organizations], PIHPs [prepaid inpatient health plans], and PAHPs [prepaid ambulatory health plans] to submit audited financial reports specific to the Medicaid contract on an annual basis. The audit must be conducted in accordance with generally accepted accounting principles and generally accepted auditing standards. A good internal control plan requires policies and procedures to ensure that mandatory financial audits are completed in accordance with Federal regulations. Condition: The MCO and PAHP audited financial reports for year ended December 31, 2023, were not conducted in accordance with generally accepted accounting principles (GAAP). A similar finding was noted in the prior audit. Repeat Finding: 2023-054 Questioned Costs: Unknown Statistical Sample: No Context: Nebraska Total Care, Inc., Community Care Health Plan of Nebraska, Inc., United Healthcare of the Midlands, Inc., and MCNA Insurance Company had audits performed in accordance with generally accepted auditing standards; however, the financial statements were not in accordance with GAAP. The financial statements for the MCOs were prepared using “accounting practices prescribed or permitted by the Nebraska Department of Insurance, which is a basis of accounting other than U.S. generally accepted accounting principles.” The PAHP audit was prepared using “accounting practices prescribed or permitted by the Texas Department of Insurance . . . .” The Department of Insurance has adopted the Statement of Statutory Accounting Principles (SSAP) found in the National Association of Insurance Commissioners’ (NAIC) manual. Cause: The MCO and PAHP audited financial reports were completed for the Nebraska Department of Insurance, which did not require the audit to be conducted in accordance with GAAP. Amendments to the contract effective January 1, 2024, now require the financial audits to be conducted in accordance with GAAP. Effect: When the financial audits completed by the MCOs and PAHP are not conducted according to GAAP, the Agency is not in compliance with Federal regulations, and there is an increased risk for fraud or errors. Recommendation: We recommend the Agency require the MCO and PAHP financial audits to be conducted in accordance with GAAP. Management Response: Management agrees. As part of a prior year finding, we amended MCO contracts to require GAAP (generally accepted accounting principles) Audits to be performed beginning with contract period CY24 forward.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Allowability & Eligibility Grant Number & Year: 2305NE5MAP, FFY 2023; 2405NE5MAP, FFY 2024; 2305NE3002, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 42 CFR § 435.1009(a) (October 1, 2023) states, in part, the following: FFP is not available in expenditures for services provided to— (1) Individuals who are inmates of public institutions as defined in § 435.1010[.] Per NE DHHS Medicaid Eligibility 477-000-002 (03/07/2023): A redetermination of eligibility for continued Medicaid benefits must be completed every twelve (12) months. * * * * The completed renewal form and necessary verifications shall be returned within thirty (30) days of the date the renewal form was sent. 477 Nebraska Administrative Code (NAC) 19.004(E) states the following: Children age 18 or younger who do not meet income limits for Medicaid are eligible for Children’s Health Insurance Program (CHIP) if their household income is equal to or less than 213% of the Federal Poverty Level (FPL) and the children are not covered by creditable health insurance[.] 477 NAC 3-007.01 states, in part, “The completed renewal form and necessary verifications shall be returned within 30 days of the date the renewal form was sent.” 482 NAC 1-002.36 (July 29, 2020) defines a Managed Care Organization (MCO) as an “organization that has or is seeking to qualify for a comprehensive risk contract to provide services to managed care enrollees.” 42 CFR § 438.806(c) (October 1, 2023) states, in part, “FFP is not available in an MCO contract that does not have prior approval from CMS . . . .” 42 CFR § 438.3(a) (October 1, 2023) states, in part, “CMS must review and approve all MCO, PIHP, and PAHP contracts, including those risk and nonrisk contracts . . . .” 42 CFR § 438.4(b) (October 1, 2023) requires, “Capitation rates for MCOs, PIHPs, and PAHPs must be reviewed and approved by CMS as actuarially sound.” Good internal control requires policies and procedures to ensure that recipients meet eligibility requirements, and reviews are completed in accordance with State and Federal regulations. Good internal control also requires contracts and rates to be approved before implemented. Condition: Managed care capitation rates were implemented prior to Federal approval. In addition, procedures should be improved to ensure payments for managed care are allowable, and recipients are eligible. Repeat Finding: No Questioned Costs: $10,777 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 40 Medicaid managed care claims and 25 CHIP managed care claims. We noted the following: Unapproved Rates Managed care claims tested for April 2024 services used calendar year 2024 contract rates prior to the required Federal approval. Upon further review, it was noted that all payments for services starting with January 2024 were made using the unapproved 2024 rates. Per support from the Agency, certified actuarial letters dated September 29, 2023, and other documentation required to be submitted to CMS for approval was submitted in an email dated December 21, 2023, 10 days prior to the beginning effective date of the MCO contracts and 83 days after actuarial rates were certified. Managed Care payments from January 2024 through June 2024 using unapproved rates totaled $1.29 billion. See Schedule of Findings and Questioned Costs for chart/table. Medicaid Three of 40 claims tested were not in compliance with regulations. • Payments were made for an incarcerated individual. A review and determination of eligibility did not occur for the Medicaid recipient, and no verifications were collected for over a 12-month period between January 2023 and April 2024. This was evidently because the recipient of the Medicaid benefits was incarcerated between January 4, 2023, and March 28, 2024, during which time no verification of household composition and living situation was verified. As a result, we question $625 for the payment tested and $8,276 for additional payments during the period of incarceration. • NFOCUS narratives showed that a renewal form was requested to be completed by the recipient on January 12, 2023; however, due to the State of Emergency declaration, the verifications and form requested due date was extended to February 11, 2024. The recipient failed to provide the renewal form or the verifications requested by the due date. The case should have been closed 30 days (March 12, 2024) after the renewal forms and verification were due, which would have been prior to the budget date of April 1, 2024. The case was not closed until June 4, 2024, resulting in questioned costs of $396 for the payment tested and additional questioned costs of $791 for May and June 2024. • One case was reviewed on July 31, 2020, and not again until September 9, 2023. This is over three years between reviews, and no redetermination of eligibility occurred in the Medicaid Program. Federal payment errors noted in the sample were $1,021. The Federal sample tested was $18,816, and the total Federal Managed Care expenditures during the fiscal year were $1,766,039,418. Based on the sample tested, the case error rate was 7.50% (3/40). The dollar error rate was 5.43% ($1,021/$18,816), which projects the potential dollars at risk for fiscal year 2024 to be $95,895,940 (dollar error rate multiplied by population). Out- of-sample questioned costs totaled $9,067. CHIP For 1 of 25 claims tested, the recipient did not meet age requirements to be eligible for the CHIP program, and the incorrect rating region was used for capitation payment rates. Additionally, Medicaid renewal/verification processes were not followed. The budget used for the Medicaid recipient was created in March 2021, when the recipient was 18 or younger. This budget was extended through June 2024 due to the State of Emergency. A renewal notice was sent to the recipient on April 10, 2024, and an incomplete renewal form was received on July 15, 2024. The case should have been closed 30 days (May 10, 2024) after the renewal forms and verification were due. Had the renewal and redetermination occurred, the recipient would have been ineligible for the CHIP program due to the recipient being over 18 years of age. However, capitation payments were made in June, July, and August 2024, for a total of $670 Federal questioned costs outside of the sample. Because of the lack of renewal verifications, the address information for the recipient was for Region 2, even though the recipient’s address information had been updated to Region 1. This resulted in a Federal overpayment of $20. Federal payment errors noted in the sample were $20. The Federal sample tested was $4,282, and the total Federal managed care expenditures during the fiscal year were $97,464,908. Based on the sample tested, the case error rate was 4% (1/25). The dollar error rate was 0.47% ($20/$4,282), which projects the potential dollars at risk for fiscal year 2024 to be $458,085 (dollar error rate multiplied by population). Out-of-sample questioned costs totaled $670. Cause: The Agency indicated that the 2024 rates were paid prior to approval, as the contract had substantive changes, and the Agency believed using the 2024 rates would result in smaller adjustments than if the 2023 rates were used. Claim errors due to inadequate review. Effect: Noncompliance with Federal regulations and increased risk for fraud or errors. Recommendation: We recommend the Agency implement MCO contracts and rate changes only after approval from the Federal grantor. We further recommend the Agency strengthen procedures to ensure recipients are eligible, and payments are proper. Management Response: Management agrees. As noted, due to significant program changes at the start of the reprocured managed care contracts January 1, 2024, such as carving in dental services, the Department made a calculated decision to pay the actuarily developed capitation rates for rate cells, prior to receiving approval from CMS. The Department otherwise follows our standard process of waiting for CMS approval prior to paying updated rates for subsequent rating periods.

Program: Various, including AL 93.778 – Medical Assistance Program (Medicaid) – Allowable Costs/Cost Principles Grant Number & Year: Various, including 2305NE5ADM, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR § 200.403 (January 1, 2024) and 45 CFR § 75.403 (October 1, 2023) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. * * * * (g) Be adequately documented. 2 CFR § 200.405(b) (January 1, 2024) and 45 CFR § 75.405(b) (October 1, 2023) state, in relevant part, the following: All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR § 200, Appendix V, Subsection (G)(2) (January 1, 2024) and 45 CFR § 75, Appendix V, Subsection (G)(2) (October 1, 2023) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR § 200, Appendix V, Subsection (G)(4) (January 1, 2024) and 45 CFR § 75, Appendix V, Subsection (G)(4) (October 1, 2023) state, in relevant part, the following: Billing rates used to change Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenues generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually, and an adjustment will be made for the difference between the revenue and the allowable costs. Neb. Rev Stat. § 81-1120.22 (Cum. Supp. 2022) provides the following: The Director of Communications shall develop a system of equitable billings and charges for communications services provided in any consolidated or joint-use system of communications. Such system of charges shall reflect, as nearly as may be practical, the actual share of costs incurred on behalf of or for services to each department, agency, or political subdivision provided communications services. Using agencies shall pay for such services out of appropriated or available funds. Beginning July 1, 2011, all payments shall be credited to the Communications Revolving Fund. Beginning July 1, 2011, all collections for payment of telephone expenses shall be credited to the Communications Revolving Fund. 2 CFR § 200.444(a) (January 1, 2024) and 45 CFR § 75.444(a) (October 1, 2023) state, in relevant part, the following: For states . . . the general costs of government are unallowable . . . . Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . [.] (2) Salaries and other expenses of a state legislature . . . [.] A good internal control plan requires: • Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure charges are appropriate for the services provided. • Maintenance of adequate documentation to support both rates charged and the approval of those rates. • Periodic review of internal service fund balances to ensure revenues are not in excess of expenses. Condition: The Agency lacked adequate documentation to support the rates charged by the Office of the Chief Information Office (OCIO). Additionally, the Agency’s Material Division lacked adequate documentation to support service rates charges for the Print Shop. Furthermore, we noted also that the Agency lacked adequate documentation to support the allocation of security costs in developing building rental rates. Lastly, the OCIO Internal Service Fund Balance was greater than 60 calendar days for cash expenses for normal operations incurred. A similar finding has been noted in prior audits since 2015. Repeat Finding: 2023-021 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Office of the Chief Information Officer (OCIO) As noted in prior audits, the OCIO lacked adequate support for service rates charged. The Agency was in the process of updating its rates through a new methodology, but no changes were made for fiscal year 2024. In that year, the OCIO receipted $26,824,419 in Federal dollars for services performed for Federal programs. Of this amount, $12,871,044 was charged to Medicaid. Print Shop As noted in prior audits, the Print Shop lacked adequate support for service rates charged. The Agency was in the process of updating its rates through a new methodology, but no changes were made for fiscal year 2024. Receipts from sales for that year totaled $3,254,109. Building Division The rental rate charged to agencies for building space includes an allocation for security costs. We noted that neither the State Capitol Building (Capitol) nor the Governor’s residence was allocated any costs for security, even though both locations have security. Because these locations were not allocated any security costs, Federal programs could be overcharged. Moreover, security costs to the Capitol and the Governor’s residence are general costs of government and, therefore, not allowable. The fiscal year 2024 indirect allocations for security totaled $1,083,488. OCIO Internal Service Fund Balance Per the Agency’s calculation, as of June 30, 2023, the OCIO Internal Service Fund Balance for allowable costs was $27.922 million; however, the allowable reserve was only $20.048 million, a difference of $7.874 million. The Agency has not completed its calculation for June 30, 2024; however, per the APA’s review of the State accounting system, the fund balance has increased by over $40 million during State fiscal year 2024 and was significantly larger than the allowable reserve at June 30, 2024. Cause: Inadequate procedures to ensure that rates are adequately supported, and the Internal Service Fund Balances do not exceed allowable thresholds. Effect: Without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs or State agencies will be overcharged for services, and the Agency’s internal service funds will exceed the allowable threshold per Federal regulations. When security costs are not allocated to all buildings in an equitable manner, moreover, the risk of Federal programs not being charged in accordance with Federal cost principles is increased. Recommendation: We recommend the Agency review its allocation of security costs to ensure that such costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. Lastly, we recommend the Agency implement procedures to ensure fund balances do not exceed the allowable threshold. Management Response: OCIO - The OCIO agrees with the finding as it is the result of rates calculated 18 months in advance of the period under review. DAS Materiel – Print Shop continues to work with software that was purchased to assist with developing rates. Work continues to capture costs and actual historical units sold. DAS Building - The methodology for the allocation for security (an Indirect Cost) is a management decision and there have been no changes in the allocation methodology. APA Response: Regardless of any management business decision, security costs to both the Capitol and the Governor’s residence remain, as noted above, general costs of government and, therefore, not allowable.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 93.778 – Medical Assistance Program; AL 93.778 – COVID-19 Medical Assistance Program – Allowability Grant Number & Year: 2305NE5MAP, FFY 2023; 2405NE5MAP, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.302 (October 1, 2023), each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. Per 45 CFR § 75.403 (October 1, 2023), costs must be reasonable, necessary, and adequately documented. Title 471 NAC 15-003.02(H) requires that the provider perform the personal assistance services noted on the service plan, accurately document services provided in the EVV (Electronic Visit Verification) system, and confirm that services were received as authorized according to Agency procedures. Title 471 NAC 15-005.02(A) states that the provider can provide services to only one client at a time, and services will not be paid unless performed during the actual hours noted in the EVV system. Title 471 NAC 15-005.01(A) states that the provider will comply with all EVV billing requirements. Per the “Service Definition” provided in the Personal Care Service Handbook, “Personal Care is a service of the HCBS Waiver for Aged and Adults and Children with Disabilities (AD) and Traumatic Brain Injury (TBI) which provides needed assistance with Activities of Daily Living (ADLs) health-related tasks or Instrumental Activities of Daily Living (IADLs) provided in a participant’s home and other community settings.” A good internal control plan requires procedures to ensure services provided agree to the service needs assessment or individual support plan and service authorization. Section 1903(l)(5)(A) of the Social Security Act states the following: The term “electronic visit verification system” means, with respect to personal care services or home health care services, a system under which visits conducted as part of such services are electronically verified with respect to – (i) the type of service performed; (ii) the individual receiving the service; (iii) the date of the service; (iv) the location of service delivery; (v) the individual providing the service; and (vi) the time the service begins and ends. Public Law 114-255, § 12006 (December 13, 2016) (“21st Century Cures Act”) provides, as is relevant, the following: (a) In general. Section 1903 of the Social Security Act (42 U.S.C. 1396b) is amended by inserting after subsection (k) the following new subsection: “(l)(1) Subject to paragraphs (3) and (4), with respect to any amount expended for personal care services or home health care services requiring an in-home visit by a provider that are provided under a State plan under this title (or under a waiver of the plan) and furnished in a calendar quarter beginning on or after January 1, 2019 (or, in the case of home health care services, on or after January 1, 2023), unless a State requires the use of an electronic visit verification system for such services furnished in such quarter under the plan or such waiver, the Federal medical assistance percentage shall be reduced— ‘‘(A) in the case of personal care services— “(i) for calendar quarters in 2019 and 2020, by .25 percentage points; “(ii) for calendar quarters in 2021, by .5 percentage points; “(iii) for calendar quarters in 2022, by .75 percentage points; and “(iv) for calendar quarters in 2023 and each year thereafter, by 1 percentage point[.] Neb. Rev. Stat. § 28-512 (Reissue 2016) creates the offense of “theft by deception.” That statute says the following, in relevant part: A person commits theft if he obtains property of another by deception. A person deceives if he intentionally: (1) Creates or reinforces a false impression, including false impressions as to law, value, intention, or other state of mind; but deception as to a person’s intention to perform a promise shall not be inferred from the fact alone that he did not subsequently perform the promise; or (2) Prevents another from acquiring information which would affect his judgment of a transaction; or (3) Fails to correct a false impression which the deceiver previously created or reinforced, or which the deceiver knows to be influencing another to whom he stands in a fiduciary or confidential relationship[.] Further, Neb. Rev. Stat. § 28-911 (Reissue 2016) prohibits “abuse of public records,” as follows: (1) A person commits abuse of public records, if: (a) He knowingly makes a false entry in or falsely alters any public record; or (b) Knowing he lacks the authority to do so, he intentionally destroys, mutilates, conceals, removes, or impairs the availability of any public record; or (c) Knowing he lacks the authority to retain the record, he refuses to deliver up a public record in his possession upon proper request of any person lawfully entitled to receive such record; or (d) He makes, presents, or uses any record, document, or thing, knowing it to be false, and with the intention that it be taken as a genuine part of the public record. (2) As used in this section, the term public record includes all official books, papers, or records created, received, or used by or in any governmental office or agency. (3) Abuse of public records is a Class II misdemeanor. Condition: During testing of personal assistance service (PAS) and personal care service claims, we noted the following: • Services provided lacked adequate supporting documentation. This included providers being able to submit claims without the verification of the location where the services were provided. • Services billed exceeded the number of hours authorized. • PAS and personal care services appeared to be claimed at the same time the provider was working at another job or was no longer providing services for the client, resulting in apparently fraudulent billings and payments. • The caregivers for two clients were incarcerated at the time of service and could not have provided the services. • The PAS and other employment hours exceeded 24 hours in one day for one client, which is not possible. • The PAS and personal care providers had the ability to edit the billable start and end times in the EVV system. • The Agency authorized a PAS provider to perform services for three clients, totaling up to 85 hours a week, which is unreasonable. • A PAS provider did not declare all income earned when applying for assistance. Similar findings have been noted in prior audits since 2014. Repeat Finding: 2023-050 Questioned Costs: $98,008 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: The Agency offers PAS (assistance with hygiene mobility, housekeeping, etc.) to Medicaid recipients with disabilities and chronic conditions. The services to be provided are based on individual needs and criteria that must be determined in a written service needs assessment (SNA). The Agency also offers personal care services under the Aged and Disabled (AD) Waiver to recipients with disabilities. These services enable the participants to carry out tasks that they are unable to perform because of their disabilities. The services provided are based on individual needs and criteria that are documented in the individual support plan and service authorization. The Agency implemented an electronic visit verification (EVV) system for PAS and personal care providers in January 2021, as required by Section 12006(a) of the 21st Century CURES Act, passed by Congress in 2016. The EVV system electronically captured and verified provider visit information, and providers were required to submit claims to the Agency electronically through this application. We judgmentally selected four providers and a PAS/personal care agency based on high total dollars and units for testing and two PAS providers from the prior year audit with findings who received payments during fiscal year 2024. For those providers, we selected one week of claims for testing. We also randomly selected five PAS and ten waiver payments for testing. Due to the numerous issues identified with the billings, we expanded testing for several of the providers. In addition to the billing issues identified for the weeks tested, we noted three of these providers had outside employment that conflicted with the PAS hours billed. We also identified billings submitted for two employees who no longer worked for the PAS agency. We identified $5,640 in potentially fraudulent payments made to the providers during fiscal year 2024. In addition to the potentially fraudulent payments, we noted $92,368 in Federal payment errors related to other issues, resulting in total Federal questioned costs of $98,008. See Schedule of Findings and Questioned Costs for chart/table. The Federal share of PAS and AD Waiver claims paid for the fiscal year totaled $6,282,331 and $170,743,608, respectively. Payments tested and questioned costs for each are as follows: See Schedule of Findings and Questioned Costs for chart/table. The following information describes issues noted with each provider: Provider #1 Murray’s Blessings LLC (Murray’s Blessings) is an agency that employed caregivers to provide PAS and personal care assistance for multiple clients. Murray’s Blessings received $87,857 in PAS payments and $921,160 in personal care payments during the fiscal year, for a total of $1,009,017. We initially selected one week of claims to test, from April 28, 2024, through May 4, 2024, for all clients. Six clients received PAS and 16 clients received personal care services during this week. Services for 18 of 22 clients were not completed through a device using Global Positioning System (GPS) verification. The caregiver for five of the clients was unknown because the forms listed only “Murray’s Blessings Admin” as the caregiver, and there were mileage variances for visits that were completed using GPS devices. Due to the numerous issues identified with the initial week tested, we reviewed an additional seven weeks of PAS and personal care services for the period of May 5, 2024, through June 22, 2024. We identified similar issues. The following is a summary of the issues identified for the eight-week period. Client 1 No personal care visits from April 28, 2024, through May 18, 2024, used a device with GPS verification. According to payroll records provided by Murray’s Blessings, the caregiver (caregiver A) for this client received his last check on April 30, 2024. Additionally, county court records noted that the caregiver was arrested on April 29, 2024, for possession of a firearm by a prohibited person, terroristic threats, and use of a firearm to commit a felony. The caregiver was in custody during the entire time that services for Murray’s Blessings submitted billings were supposedly provided. All visits were questioned as potential fraud, as this caregiver could not have performed these services. Previously, the caregiver served time in a Nebraska prison for State drug offenses from June 2013 through May 2019. In June 2017, while serving time for these State offenses, the caregiver was charged with committing Federal offenses. The caregiver was found guilty and on July 2, 2018, was sentenced to seven years in Federal prison for participating in a racketeering conspiracy involving acts of violence, including attempted murder and assaults, witness tampering, and drug distribution. The sentence was later reduced to 71 months. The caregiver was no longer in Federal prison as of October 5, 2023. Client 2 No PAS visits completed from April 28, 2024, through June 22, 2024, used a device with GPS verification. According to payroll records provided by Murray’s Blessings, the caregiver (caregiver B) for this client received her final paycheck on April 23, 2024, prior to these visits. Additionally, county court records noted the caregiver was in jail from June 3, 2024, until June 5, 2024, and could not have provided the services billed on June 3, 2024. All visits were questioned as potential fraud because services do not appear to have been provided by this caregiver. An arrest warrant was issued for the caregiver on May 30, 2024, for delivery of a controlled substance. The warrant was served on June 3, 2024, at the jail. The caregiver was taken into custody on June 3, 2024, for a pretrial violation in another case filed on April 11, 2024, for possession of a controlled substance. Client 3 All of the personal care visits for this caregiver had starting and ending mileage variances. Based on the GPS coordinates, the visits started at either the caregiver’s home or the home of another client receiving personal care services from another agency. All visits ended at the caregiver’s home, raising doubt that the visits were provided as billed. Additionally, the client was authorized to receive 25 hours of service per week, and the provider exceeded the service authorization all eight weeks by 0.5 to 3.75 hours. Due to these variances, all claims were questioned. Client 4 The SNA authorized 31.5 PAS hours of services each week. The provider exceeded the SNA for seven of eight weeks, ranging from 2.5 to 38.25 hours over the authorization. Four visits were not completed through a device using GPS. For the remaining visits, GPS was utilized; however, there were mileage variances for each visit, and only one visit appears to have had an end location at the client’s home. The client in this case was the caregiver’s parent. The majority of the visits started and ended at the caregiver’s home per the captured GPS coordinates. Seven visits occurred overnight. Other beginning or ending locations included a daycare center attended by the caregiver’s child and also a plasma donation center. All claims for this client are questioned due to the various issues identified. Client 5 This client was authorized to receive 70 hours of personal care each week. There were two caregivers for this client. All visits completed by Antoinette Murray, the owner of Murray’s Blessings, were from 4:00 p.m. to 12:00 a.m., and GPS verification was not used. The second caregiver used GPS; however, there were mileage variances for each visit. Per the GPS coordinates, the caregiver clocked in at her home for all visits but one. The starting location for the other visit was a retirement home that was not where the client lived. The majority of the visits ended at the caregiver’s home or at the home of the caregiver’s parents. The caregivers exceeded the service authorization for six of eight weeks, ranging from 2 to 10 hours over the authorization. All claims were questioned due to these issues.   Client 6 The client was authorized to receive 60 hours of personal care services each week between two agencies. For Murray’s Blessings, seven visits were not completed using a GPS device, and they included a duplicate claim on June 22, 2024. Due to the duplicate billing, the service authorization was exceeded by 4.5 hours. Additionally, the second agency billed 10 hours on this day – for a total of 27.5 hours of care provided in a day, which is impossible. Client 7 Six visits were completed that did not use a GPS device and, therefore, are questioned. One visit completed with a GPS device had a start time of 2:57:00 p.m. to 2:57:58 p.m. The billable start time was changed to 9:00 a.m. The client was authorized for 42 personal care hours each week. The caregiver exceeded the service authorization by 4.25 hours for one week. Other Clients For 18 additional clients (13 personal care and 5 PAS), no visits over the eight-week period were completed through a device using GPS verification. All claims were questioned. Additional billing issues were identified for these claims, as follows: • The caregiver for six personal care clients and two PAS clients was noted as “Murray’s Blessings Admin” for all or some of the visits, so the caregiver remains unknown. • Overlapping and duplicate services were paid for three personal care clients, as detailed in the following table: See Schedule of Findings and Questioned Costs for chart/table. • The caregiver for one personal care client received family support services and supervised visitation for a child who was removed from the home. Four family support visits and one visitation service overlapped with services performed by the caregiver. All personal care visits were logged from 9:00 a.m. to 4:30 p.m., and the family support and visitation services started at 4:00 p.m. Consequently, overlapping services occurred from at least 4:00 p.m. to 4:30 p.m. The following table summarizes the questioned costs for each client during the eight-week period: See Schedule of Findings and Questioned Costs for chart/table. Per the Nebraska Secretary of State’s website (https://sos.nebraska.gov/), Murray’s Blessings was established on June 1, 2022. The agreement with the Agency for the provision of PAS and personal care services began on August 5, 2022. Prior to the establishment of Murray’s Blessings, Ms. Murray was an individual PAS provider, beginning on August 13, 2013. Ms. Murray was also a license-exempt child care subsidy provider from November 13, 2015, through November 1, 2017, when her agreement was terminated for not providing attendance calendars, not billing according to service authorizations, and double billing. A $6,468 overpayment was established on October 14, 2017, due to the billing issues. A $1,617 recoupment was applied toward the balance in December 2017, and Ms. Murray made two $50 payments towards the overpayment balance in March 2018. The Agency wrote off the remaining debt of $4,751 in May 2024. The child care subsidy program did not approve another agreement with Ms. Murray due to this overpayment and her subsequent failure to make full restitution. Given her history of billing problems, as well as a substantial overpayment, the Agency’s decision to approve a Medicaid agreement with Ms. Murray appears questionable. Nevertheless, the Agency did not require Ms. Murray to repay the overpayment balance prior to consideration of a new personal care agreement. It is evident, based on the PAS and personal care findings, that billing problems have continued. Further, on August 25, 2023, the Agency met with Ms. Murray to complete the annual Medicaid provider renewal. The worker explained to Ms. Murray that the caregivers must clock in and out using the EVV system. No changes occurred, however, as the majority of the Murray’s Blessings caregivers continued to neglect using, either intentionally or otherwise, a GPS device to clock in and out. Provider #2 This provider was authorized a total of 27.75 hours of service per week for one client. For the week tested of April 14, 2024, through April 20, 2024, the provider billed 148.25 hours of service. The provider exceeded the SNA by 120.5 hours, more than four times the number of hours authorized. During this week, the provider billed multiple 24-hour visits using the GPS verification method. The provider lived with the client, making it convenient to clock in the morning of one day and then clock out the next morning and then repeat the process with no GPS mileage variances. From January 28, 2024, through April 7, 2024, the provider exceeded the SNA for an additional 11 weeks, ranging from 17.75 to 91.25 hours over the SNA. Beginning on May 6, 2024, the SNA was increased to 37 hours of service per week, and the provider continued to exceed the SNA by 0.5 to 17.75 hours per week through June 22, 2024. Not only was the number of hours billed excessive and unreasonable, but also the provider was employed full-time with a financial technology company. We obtained the provider’s employment records and compared the PAS billings to those employment records for a three-month period from February 2024 through April 2024. The provider generally worked for the other employer from 8:00 a.m. to 4:30 p.m., Monday through Friday, which conflicted with the hours being billed for personal assistance services. We identified 55 days during which PAS hours billed overlapped with times that the provider was recorded as having been working for the other employer. Based on employment records, the provider appears to have worked remotely; however, PAS hours would not be allowed during the time the provider was working another job. We questioned 338.5 hours as potential fraud, totaling $4,577 (Federal share $2,682 and State share $1,895). Below are examples of the overlapping hours identified: See Schedule of Findings and Questioned Costs for chart/table. We noted that 11 of the PAS visits from February 2024 through April 2024 were not completed using a device with GPS verification, and 30 visits were billed overnight. Due to the apparent fraudulent billings, excessive hours, visits completed overnight, and some visits not being completed using a GPS device, we questioned all claims paid from February 2024 through April 2024. This resulted in additional questioned costs of $3,506. This individual became a PAS provider on August 17, 2023, and began the outside employment on October 30, 2023. The provider had three children noted in the household and was receiving Supplemental Nutrition Assistance Program (SNAP) and Medicaid benefits at the time the PAS agreement was signed. On January 30, 2024, the provider submitted a renewal application for SNAP and declared income from only the PAS payments and reported working only 2-3 hours per week. Subsequent to the audit period, the provider applied for child care benefits on August 14, 2024, and declared only the income from the outside employer. The provider told the Agency worker that the PAS employment ended on August 20, 2024; however, the provider continued to receive PAS payments. The provider was evidently not only overbilling PAS services but also being deceitful when applying for public assistance. Provider #3 For the initial week tested, the provider was authorized a total of 38.5 hours per week for one client. The provider exceeded the SNA by 10.25 hours for the week. Additionally, from June 2, 2024, through June 8, 2024, the provider did not follow the SNA when billing for tasks provided. The SNA included some services to be provided every day of the week, but services were billed on only five days. For example, the client was authorized for meal preparation assistance for seven days, but the provider performed services on only five days. We considered the hours charged for meal preparation on two days overbilled. We also noted the provider exceeded the frequency for some services authorized. For example, the client was authorized to shop for food once a week, but the provider billed this service on five days. Additionally, we noted the client attended county court on June 6, 2024, at 10:30 a.m., and the provider billed from 8:00 a.m. – 4:00 p.m. on that day. Per Title 471 NAC 15-004.02(B)(ii), accompanying the client to court is not an allowable service for PAS. Due to the issues noted for the initial week tested, we reviewed additional weeks. From July 1, 2023, through March 1, 2024, the provider performed PAS services for three individuals. In addition to the 38.5 hours authorized for the first client, the provider was authorized to provide PAS services for two clients who lived in the same home. The SNA authorized 26 hours and 21 hours of PAS services for these two clients for a total of 85.5 hours each week for the three clients. The provider billed over the SNA for an additional 25 weeks reviewed. There were 128.5 hours overbilled. We also questioned three visits that were not completed through a GPS device. This provider not only billed over the authorization, recording up to 95 PAS hours worked in a week, but also worked full-time for a rental management company. We obtained the employment records for the provider and compared the PAS billings to those records for a three-month period from October 22, 2023, through December 16, 2023. We identified 29 days during which PAS hours billed overlapped with times that the provider was recorded as having been working at the rental management company. In determining overlapping hours, we did not factor in any travel time that may have occurred between the client homes and the provider’s place of employment; therefore, the possibility of additional fraudulent payments exist. On several days, the PAS hours and employment hours exceeded 24 hours, which is impossible. We questioned 62.75 hours of personal assistance services as potential fraud, totaling $848 ($510 Federal Share and $338 State share). The majority of the visits were completed through a device using GPS; therefore, another individual appears to have aided the provider in falsely claiming that personal assistance services were performed, as the provider could not have been in two places at once. Based on case file documentation, the first client lived with the provider, and those evening hours billed for this client overlapped with the provider’s other employment hours. The table below contains examples of the overlapping of hours: See Schedule of Findings and Questioned Costs for chart/table. Other billing issues were identified as well. On several occasions, for instance, the provider changed the start and/or end times of the visit. The claim form in the EVV system included the scheduled start time, the actual service start time, and the billable service start time. The provider was allowed to edit the billable start and end times verified through a GPS device, which resulted in duplicate billings and overlapping times billed between clients. There were other instances of the provider changing the time, so that there would be no overlapping of times between clients and the provider’s outside employment. The ability to edit the billable start and stop times recorded in the EVV system, with no secondary review, places doubt on whether the service was performed as billed. Below are some examples: See Schedule of Findings and Questioned Costs for chart/table. It is unreasonable for the Agency to authorize a provider to perform services for three clients for up to 85 hours a week. With those hours alone, the provider would have to average more than 12 hours per day for 7 days a week. After adding in the hours worked at the outside employment, the provider would have been working over 20 hours a day. We noted also that the provider received Medicaid benefits during the fiscal year. The provider signed a Medicaid renewal application on September 14, 2023, and reported only the income at the rental management company. The provider did not disclose the income made through PAS, which averaged out to be $3,186 for both July and August 2023. PAS payments made to the provider during the fiscal year totaled $52,900. The Agency had access to this information, so it is questionable how this income was not discovered and included in determining Medicaid eligibility. Additional questioned costs for the provider totaled $1,126. Provider #4 The provider double billed a service on June 17, 2024. The visit form on June 17, 2024, had a clock-in time of 1:31 p.m. and a clock-out time of 6:48 a.m. on June 18, 2024. It appears that the provider may have forgotten to clock out. Upon crossing from one day to another, the visit generated two claim forms in the EVV system. The first claim had an end time of 11:59 p.m., and the second claim form had the start time of midnight or 24:00 on the next day. In this case, the provider changed the billable start and end times for both claims and was able to double bill 4.25 hours. See Schedule of Findings and Questioned Costs for chart/table. The provider was authorized 31 hours per week for one client. The provider exceeded the SNA by three hours for the week tested. Questioned costs totaled $33. Provider #5 This provider was authorized 26.25 hours per week for one client. The provider exceeded the SNA by 25 hours for the initial week tested from April 14, 2024, through April 20, 2024. This included billing 21.75 hours on April 16, 2024. For the week tested, the provider did not follow the SNA when billing for tasks provided. The SNA included some services to be provided every day of the week, but services were billed on only five days. For example, the client was authorized for assistance with medication administration three times a day for seven days, but the provider performed services on only five days. We also noted the provider exceeded the frequency for some services. For example, the client was authorized to have cleaning done once a week, but the provider billed this service on five days. We reviewed an additional eight weeks of claims and noted the provider billed over the SNA for an additional five weeks. Hours that exceeded the SNA ranged from 1.5 to 21 hours. Questioned costs for the provider totaled $452. Provider #6 This provider was authorized a total of 66.75 hours of service per week for two clients. For the week tested of May 12, 2024, through May 18, 2024, no visits were completed using a GPS device that captured the location of the visits. We questioned the entire claim, totaling $499. This provider was tested in the prior year with similar issues. Potential fraud was also identified, as the provider billed PAS hours that overlapped with her employment hours as a student bus driver and with other court-related activities. A law enforcement raid was conducted at the provider’s home on December 2, 2022, and her child was removed after Fentanyl and firearms were discovered there. The provider’s agreement closed on June 15, 2023; however, the Agency received a referral on January 17, 2024, for the provider to perform personal assistance services for a client, and a new provider agreement was signed on January 30, 2024. The Agency was notified of the prior year billing issues on January 22, 2024. The Agency established overpayments for PAS hours billed that exceeded the service authorization; however, no PAS overpayments were established for those hours billed that overlapped with other employment hours and court-related activities. The provider began providing services again on January 30, 2024, and, according to quarterly employment records, the provider was also employed as a student bus driver. We inquired with the Agency in July 2024 to determine what action had been taken against the provider, and we were informed that preparation was underway to terminate the provider. On September 3, 2024, the Agency sent a letter to the provider terminating her from participation as a Medicaid provider due to the billing issues identified from the prior year audit. The provider appealed the termination, and on November 27, 2024, the Agency received the final order from the hearing officer affirming the Agency’s actions, and the provider’s agreement was terminated as of November 27, 2024. We obtained the provider’s timecard records from the employer and compared the employment records to the EVV visit forms for the week of May 12, 2024, through May 18, 2024. We identified four days during the week in which PAS hours billed overlapped with times the provider was working as a student bus driver. In determining overlapping hours, we did not factor in any travel time that may have occurred between the clients’ homes and the provider’s place of employment. Additionally, we compared only one week of records; therefore, the possibility of additional fraudulent payments exists. We questioned seven hours of personal assistance services as potential fraud, totaling $95 ($56 Federal share and $39 State share). It is concerning that the Agency signed a new agreement with the provider on January 30, 2024, after the potential fraud was disclosed and after the Agency had established $2,062 in overpayments for billing hours over the SNA. It is unreasonable for the Agency to have allowed the provider to submit billings that did not comply with EVV guidelines in order for the provider to “pay back” the overpayments for previous billing errors. From January 30, 2024, through June 30, 2024, the provider was paid $13,317, and payments from July 1, 2024, through December 2, 2024 totaled $21,475. See Schedule of Findings and Questioned Costs for the remainder of the text to the audit finding.

Program: AL 93.778 – Medical Assistance Program – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Title 42 CFR § 447.253(b)(1)(i) (October 1, 2023) provides the following: The Medicaid agency pays for inpatient hospital services and long-term care facility services through the use of rates that are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards. According to 42 CFR § 447.253(g) (October 1, 2023), “The Medicaid agency must provide for periodic audits of the financial and statistical records of participating providers.” The Nebraska Medicaid State Plan, Attachment 4.19-D (Audits), says the following: The Department will perform at least one initial desk audit and may perform subsequent desk audits and/or a periodic field audit of each cost report. Selection of subsequent desk audits and field audits will be made as determined necessary by the Department to maintain the integrity of the Nebraska Medicaid. The Department may retain an outside independent public accounting firm, licensed to do business in Nebraska or the state where the financial records are maintained, to perform the audits. Audit reports must be completed on all field audits and desk audits. American Institute of Certified Public Accountants (AICPA) Professional Standards AU-C Section 520.07 states, “If analytical procedures performed in accordance with this section identify fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount, the auditor should investigate such differences by a. inquiring of management and obtaining appropriate audit evidence relevant to management’s responses and b. performing other audit procedures as necessary in the circumstances.” A good internal control plan requires desk audits to include a testing sample of expenses to supporting documentation. Condition: Desk audit procedures could be improved. A similar finding was noted in the prior audit. Repeat Finding: 2023-052 Questioned Costs: Unknown Statistical Sample: No Context: The APA selected 21 of 201 facilities to review desk audits of the fiscal year 2023 cost reports. Seven of 21 desk audits tested did not have adequate support to verify large variances. The contractor compared costs from the prior year to the current year and did request verbal explanations; however, appropriate audit evidence was not obtained to verify the explanations. For example: • For one facility, Total Nursing Services Direct Care Costs increased by 35% from $1,100,667 to $1,478,888. The facility explained that all employees received a cost-of-living increase of 5% and a yearly raise increase. The explanation was accepted with no support obtained. However, this does not satisfactorily explain a 35% increase in costs. • For another facility, Nursing Purchased Services – Direct Care increased by $1,961,780 (156%), and Total Nursing Direct Care Costs increased by $1,933,563 (57%). The provider explanation was that the increase in purchased services is supported by a corresponding net decrease in Direct Care nursing services. However, Direct Care nursing decreased by only $45,675. Also, Plant Costs salaries increased by $139,181 (62%), and the provider’s explanation for that increase was not supported. In neither example did the contractor obtain any underlying invoices to determine if the increased costs for supplies and services were accurate, nor any documentation to support that the number of direct staff had decreased. Additionally, looking at variances alone would not support that expenses are accurate and not misstated from year to year. The total Federal share of nursing facility expenditures during fiscal year 2024 was over $290 million. Cause: The contract does not require the accounting firm to obtain underlying support for expenses. Effect: When facilities do not have adequate desk audits performed, there is an increased risk for submitted cost reports to contain errors or fraud. Recommendation: We recommend the Agency ensure desk audits provide reasonable assurance that nursing facility cost reports are accurate. Management Response: Management agrees. In a previous audit finding of the FY2022 Cost Reports, it was determined that the Department should require more information for the Desk Review process. The Department started requiring nursing facilities to include the General Ledger reports along with the Cost Reports and additional documentation; however, by this time the FY2023 Cost Reports had already been completed – therefore, there was insufficient time between the prior finding and completion of the FY2023 cost reports to incorporate the Desk Review process change. Facilities were required to provide the General Ledger reports for the FY2024 Cost Report. Additionally, the Department intends to expand its testing for large variances and to obtain supporting materials from the facilities.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024; 2405NE5021, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per Title 42 CFR § 455.104(b)(4) (October 1, 2023), the State Medicaid Agency must require the disclosing entity to provide the following disclosures: The name, address, date of birth, and Social Security Number of any managing employee of the disclosing entity (or fiscal agent or managed care entity). Per 42 CFR § 455.101 (October 1, 2023): Managing employee means a general manager, business manager, administrator, director, or other individual who exercises operational or managerial control over, or who directly or indirectly conducts the day-to-day operation of an institution, organization, or agency[.] Per the Medicaid Provider Enrollment Compendium (MPEC) (3/22/21) Section 1.4.1C: There are not exceptions to the managing employee disclosure requirement. To the extent any individual meets the definition of “managing employee” under §455.101, their information is required to be disclosed. MPEC Section 1.4.1C states further the following: However, if a non-profit entity has managing employees, to the extent these individuals meet the definition of “managing employee” under § 455.101; they would have to be disclosed as such. In addition, as discussed further below, entities, including non-profit entities, that are organized as corporations must provide disclosures regarding their officers and directors . . . . If a corporation has, for instance, a Director of Finance who is not a member of the board of directors, he/she would not need to be disclosed as a director/board member. However, as discussed in section C., below, to the extent he/she meets the definition of “managing employee” under § 455.101; he/she would have to be disclosed as a “managing employee.” Per 42 CFR § 455.436 (October 1, 2023), the State Medicaid Agency must do the following: (a) Confirm the identity and determine the exclusion status of providers and any person with an ownership or control interest or who is an agent or managing employee of the provider through routine checks of Federal databases. (b) Check the Social Security Administration’s Death Master File, the National Plan and Provider Enumeration System (NPPES), the List of Excluded Individuals/Entities (LEIE), the Excluded Parties List System (EPLS), and any such other databases as the Secretary may prescribe. (c)(1) Consult appropriate databases to confirm identity upon enrollment and reenrollment; and (2) Check the LEIE and EPLS no less frequently than monthly. 45 CFR § 75.303(a) (October 1, 2023) requires the Agency to “[e]stablish 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.” Good internal control requires procedures to ensure that all required disclosures are provided. Condition: Four of 25 providers tested did not include disclosure requirements for managing employees. A similar finding was noted in the prior audit. Repeat Finding: 2023-053 Questioned Costs: Unknown Statistical Sample: No Context: We tested screening and enrollment for 25 Medicaid/CHIP providers. We noted four providers failed to disclose any managing employee. Therefore, no screenings for managing employees were performed for these four providers. Cause: The Agency relies on each provider’s disclosure to be complete, true, and accurate. The provider is allowed to complete the enrollment process even if an owner or managing employee is not disclosed. Effect: Without adequate procedures to ensure providers are screened, and disclosures are complete, there is an increased risk of provider ineligibility, which could result in unallowable costs or potential harm to patients. Recommendation: We recommend the Agency obtain disclosures and screen providers as required by Federal regulations. Management Response: Management agrees. Starting in January of 2024, the Department has received reports from Maximus that lists the agency, owner(s), and managing employee(s) that were listed in PDMS. On July 1, 2024, a ticket was deployed in the enrollment system that would require an owner (when applicable) and managing employee on the application to move forward with the enrollment. It was set to have a “hard stop” which would prevent enrollment without the required information in the enrollment/revalidation process if not completed. If a provider were to attempt to leave both owners and managing employees blank: a message will pop up that says “Ownership or control interest in the disclosing entity or in any subcontractor in which the disclosing entity has direct or indirect ownership of 5% or more is required when applicable. You are required to supply your managing employees.” If a provider lists managing employees but no owners: there is a notice that pops up saying “You have indicated there are no Owners of this provider entity associated with your enrollment, please verify this is correct before continuing.” They will keep the option to move forward with no owners. If they list owners but not a managing employee, the provider will receive the message “Managing Employees are required”. They can only cancel and remain on the page. They must supply a managing employee or cancel their enrollment/revalidation. If the provider supplies a minimum of one owner and one managing employee, they will not get an error or pop up and they will be able to continue. This ticket was deployed within the enrollment system on July 1, 2024. Not knowing the entities that did not have managing employees listed, we are unable to determine if they were providers that had not gone through their revalidation this year, or prior to the release of that ticket. However, no providers will have been able to complete the enrollment process without listing an owner and/or managing employee since July 1, 2024.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024; 2405NE5021, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 42 CFR § 438.3(m) (October 1, 2023): The contract must require MCOs [managed care organizations], PIHPs [prepaid inpatient health plans], and PAHPs [prepaid ambulatory health plans] to submit audited financial reports specific to the Medicaid contract on an annual basis. The audit must be conducted in accordance with generally accepted accounting principles and generally accepted auditing standards. A good internal control plan requires policies and procedures to ensure that mandatory financial audits are completed in accordance with Federal regulations. Condition: The MCO and PAHP audited financial reports for year ended December 31, 2023, were not conducted in accordance with generally accepted accounting principles (GAAP). A similar finding was noted in the prior audit. Repeat Finding: 2023-054 Questioned Costs: Unknown Statistical Sample: No Context: Nebraska Total Care, Inc., Community Care Health Plan of Nebraska, Inc., United Healthcare of the Midlands, Inc., and MCNA Insurance Company had audits performed in accordance with generally accepted auditing standards; however, the financial statements were not in accordance with GAAP. The financial statements for the MCOs were prepared using “accounting practices prescribed or permitted by the Nebraska Department of Insurance, which is a basis of accounting other than U.S. generally accepted accounting principles.” The PAHP audit was prepared using “accounting practices prescribed or permitted by the Texas Department of Insurance . . . .” The Department of Insurance has adopted the Statement of Statutory Accounting Principles (SSAP) found in the National Association of Insurance Commissioners’ (NAIC) manual. Cause: The MCO and PAHP audited financial reports were completed for the Nebraska Department of Insurance, which did not require the audit to be conducted in accordance with GAAP. Amendments to the contract effective January 1, 2024, now require the financial audits to be conducted in accordance with GAAP. Effect: When the financial audits completed by the MCOs and PAHP are not conducted according to GAAP, the Agency is not in compliance with Federal regulations, and there is an increased risk for fraud or errors. Recommendation: We recommend the Agency require the MCO and PAHP financial audits to be conducted in accordance with GAAP. Management Response: Management agrees. As part of a prior year finding, we amended MCO contracts to require GAAP (generally accepted accounting principles) Audits to be performed beginning with contract period CY24 forward.

Program: AL 93.778 – Medical Assistance Program – Special Tests and Provisions Grant Number & Year: 2405NE5MAP, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Title 42 CFR § 455.1 (October 1, 2023) sets forth requirements for a State fraud detection and investigation program, including a method to verify whether services reimbursed by Medicaid were actually furnished to beneficiaries. The Agency’s Program Integrity (PI) and Special Investigations Units (SIU) perform these functions. Per 42 CFR § 455.14 (October 1, 2023): If the agency receives a complaint of Medicaid fraud or abuse from any source or identifies any questionable practices, it must conduct a preliminary investigation to determine whether there is sufficient basis to warrant a full investigation. The Nebraska Medicaid State Plan, Section 4.5 (Medicaid Agency Fraud Detection and Investigation Program), states, “The Medicaid agency has established and will maintain methods, criteria and procedures that meet all requirements of 42 CFR 455.13 through 455.21 and 455.23 for prevention and control of program fraud and abuse.” Under PI’s Policies and Procedures: Full investigations • Each month, investigators will review their cases and use their professional judgment to determine the prioritization of their active cases. The following guidelines will be considered in this review: o The investigation of a provider for termination due to a finding on annual or monthly screening is a HIGH priority o Client health & safety influences the priority of a case o Definitive interpretation of regulations influences the priority of a case o Cases in the preliminary investigation phase are of a moderate priority PI’s Policies and Procedures also include the following under the Surveillance and Utilization Review Subsystem (SURS) Quarterly Sample Selection & Review Procedures: At the end of each calendar quarter, [a contractor] runs the Advantage Suite SURS reports . . . Effective with the reports received in January 2008, a minimum of three provider and three recipient cases will be opened from the SURS Ranking Reports sometime during the calendar quarter of January 1, 2008 – March 31, 2008 and for each quarter thereafter unless notified otherwise. Per Section V.O. (“Program Integrity”) of the contract between the State of Nebraska and each of the three Heritage Health Managed Care Organizations (MCOs): O.2. The MCO must pursue the recovery of overpayments identified as FWA after receiving permission from NMPI and reflect the recovery on the encounter record and other reports used for rate setting. In the event that the MCO does not pursue all recoveries, MLTC will pursue them and collect the money. A good internal control plan requires procedures to ensure that cases are reviewed, and adequately collected on, and appropriate dispositions are made in a timely manner. Title 42 CFR § 433.320(a)(1) (October 1, 2023) states the following: (1) The agency must refund the Federal share of overpayments that are subject to recovery to CMS through a credit on its Quarterly Statement of Expenditures (Form CMS-64). Title 45 CFR § 75.511(a) (October 1, 2023) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: For 2 of the 20 PI cases tested, there was a lack of documentation to support that the cases were being worked timely. Additionally, policies and procedures to identify potential cases are not being followed, and an overpayment was not properly reported. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings listed the status as completed. Repeat Finding: 2023-055 Questioned Costs: $23,120 known Statistical Sample: No Context: PI is tasked with, among other things, investigating cases of potential provider fraud in the Medicaid Program. Cases received are delegated to investigators who track their activity notes and documentation in one central Investigative Case Management system (ICM). Substantial cases with a large amount of money that may be due back will be referred to the Attorney General’s Medicaid Fraud and Patient Abuse Unit (MFPAU). In cases that are not referred and accepted by MFPAU, PI can sanction a provider, request a refund, provide education, and/or terminate the provider from the Medicaid Program. We tested 20 PI cases and noted the following: • One case opened in April 2023 was referred by a Managed Care Organization (MCO) for a provider potentially overbilling for Mental Health services and other “red flags,” including possible billing for therapy services provided to a household member, providing services through an unregistered business, not following proper diagnostic methods, and not complying with other required services through provider agreement with local Drug Court. The first investigator ran a background check on the provider and contacted the Nebraska Department of Labor, which stated there were no records of the provider using the social security number provided. That investigator left in October 2023, and the case was reassigned. The second investigator was contacted by the MCO in December 2023, requesting the provider to be removed from the network. From January 2024 to July 2024, the only updates on the case were notes indicating that the investigation was ongoing. The Agency could not provide support to show what the investigator had done in those six months to further the case. Communication was made to the other two MCOs in July 2024, requesting any additional information they may have on the provider. As of October 2024, at the time of field work, the case was still open, and the investigator was waiting for guidance on what to do next. • A case was referred to PI in November 2023 by a Managed Care Organization (MCO) for a provider potentially overbilling for medical services. The MCO’s investigative team found claims were not supported due to upcoding of the evaluation and management services, duplicate claims, and no records being provided for 69 claim lines. The MCO identified an overpayment, totaling $15,491, and requested approval to seek reimbursement. The MCO cannot seek reimbursement without State approval, as it could interfere with other investigations that may be occurring. From January 2024 to October 2024 (at the time of field work), the only actions taken on the case were background checks on the providers and searches for other businesses owned by the providers. We asked the Agency if any other documentation was available to show what actions had been taken on the case. The Agency indicated there was no other information on the case, and there is “no standard timing for requesting vetting information from the other two MCOs when a case originates with an MCO.” Furthermore, we noted that PI was not following current policies and procedures for identifying potential fraud, waste, and abuse. Its policies and procedures indicated it would review the statewide SURS report quarterly and “a minimum of three provider and three recipient cases will be opened from the SURS Ranking Reports.” Beginning January 2023, no cases were opened from the SURS report. This was noted in our prior audit, and the Agency indicated it would be updating its policies and procedures; however, this was not completed as of June 2024. The Agency noted during our current audit that the SURS reporting mechanism was not functioning as designed, so it will be searching for a replacement fraud abuse detection system and will use other methods to identify potential fraud, waste, and abuse. In addition, we noted one of four overpayments tested was not properly reported. • In November 2020, PI started a project to analyze the MCO for dental services for excessive reimbursements. The initial overpayment was calculated at $237,633; however, in July 2023, a settlement was reached between PI and the MCO for $52,308. It was noted in the case that this amount was all Federal dollars and should be returned as such. The refund was received in August 2023 and reported on the quarter ended September 30, 2023, CMS-64 report. However, the refund was reported as $23,120 State and $29,188 Federal funds. The $23,120 not included in the Federal portion is considered questioned costs. Cause: The Agency did not follow proper procedures, including supervisor reviews of cases, to ensure Medicaid cases were properly and timely worked. The PI unit is understaffed. Clerical error by Finance staff in reporting overpayment. Effect: When potential fraud cases are not adequately and timely pursued, there is an increased risk for misuse of funds and potential harm to individuals receiving services. Recommendation: We recommend the Agency strengthen procedures to ensure cases are properly and timely reviewed, and appropriate dispositions are made. We further recommend the Agency strengthen procedures to ensure overpayments are accurately reported. Management Response: Management partially agrees. For the two cases listed, these cases should have been worked in a timelier manner. For the reporting of cases using exception reporting, the reports developed by the Department’s contractor for Fraud Abuse Detection reporting were consistently found to be inaccurate. Program Integrity leadership found that the reports were presenting false positives for cases. During this time frame, the Program Integrity team was addressing cases identified through the previous findings related to EVV and was working on other ways to identify providers that were different from their peers. APA Response: No cases were opened from the exception reports, and the Agency did not have alternate policies in place during the fiscal year.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Allowability & Eligibility Grant Number & Year: 2305NE5MAP, FFY 2023; 2405NE5MAP, FFY 2024; 2305NE3002, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 42 CFR § 435.1009(a) (October 1, 2023) states, in part, the following: FFP is not available in expenditures for services provided to— (1) Individuals who are inmates of public institutions as defined in § 435.1010[.] Per NE DHHS Medicaid Eligibility 477-000-002 (03/07/2023): A redetermination of eligibility for continued Medicaid benefits must be completed every twelve (12) months. * * * * The completed renewal form and necessary verifications shall be returned within thirty (30) days of the date the renewal form was sent. 477 Nebraska Administrative Code (NAC) 19.004(E) states the following: Children age 18 or younger who do not meet income limits for Medicaid are eligible for Children’s Health Insurance Program (CHIP) if their household income is equal to or less than 213% of the Federal Poverty Level (FPL) and the children are not covered by creditable health insurance[.] 477 NAC 3-007.01 states, in part, “The completed renewal form and necessary verifications shall be returned within 30 days of the date the renewal form was sent.” 482 NAC 1-002.36 (July 29, 2020) defines a Managed Care Organization (MCO) as an “organization that has or is seeking to qualify for a comprehensive risk contract to provide services to managed care enrollees.” 42 CFR § 438.806(c) (October 1, 2023) states, in part, “FFP is not available in an MCO contract that does not have prior approval from CMS . . . .” 42 CFR § 438.3(a) (October 1, 2023) states, in part, “CMS must review and approve all MCO, PIHP, and PAHP contracts, including those risk and nonrisk contracts . . . .” 42 CFR § 438.4(b) (October 1, 2023) requires, “Capitation rates for MCOs, PIHPs, and PAHPs must be reviewed and approved by CMS as actuarially sound.” Good internal control requires policies and procedures to ensure that recipients meet eligibility requirements, and reviews are completed in accordance with State and Federal regulations. Good internal control also requires contracts and rates to be approved before implemented. Condition: Managed care capitation rates were implemented prior to Federal approval. In addition, procedures should be improved to ensure payments for managed care are allowable, and recipients are eligible. Repeat Finding: No Questioned Costs: $10,777 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 40 Medicaid managed care claims and 25 CHIP managed care claims. We noted the following: Unapproved Rates Managed care claims tested for April 2024 services used calendar year 2024 contract rates prior to the required Federal approval. Upon further review, it was noted that all payments for services starting with January 2024 were made using the unapproved 2024 rates. Per support from the Agency, certified actuarial letters dated September 29, 2023, and other documentation required to be submitted to CMS for approval was submitted in an email dated December 21, 2023, 10 days prior to the beginning effective date of the MCO contracts and 83 days after actuarial rates were certified. Managed Care payments from January 2024 through June 2024 using unapproved rates totaled $1.29 billion. See Schedule of Findings and Questioned Costs for chart/table. Medicaid Three of 40 claims tested were not in compliance with regulations. • Payments were made for an incarcerated individual. A review and determination of eligibility did not occur for the Medicaid recipient, and no verifications were collected for over a 12-month period between January 2023 and April 2024. This was evidently because the recipient of the Medicaid benefits was incarcerated between January 4, 2023, and March 28, 2024, during which time no verification of household composition and living situation was verified. As a result, we question $625 for the payment tested and $8,276 for additional payments during the period of incarceration. • NFOCUS narratives showed that a renewal form was requested to be completed by the recipient on January 12, 2023; however, due to the State of Emergency declaration, the verifications and form requested due date was extended to February 11, 2024. The recipient failed to provide the renewal form or the verifications requested by the due date. The case should have been closed 30 days (March 12, 2024) after the renewal forms and verification were due, which would have been prior to the budget date of April 1, 2024. The case was not closed until June 4, 2024, resulting in questioned costs of $396 for the payment tested and additional questioned costs of $791 for May and June 2024. • One case was reviewed on July 31, 2020, and not again until September 9, 2023. This is over three years between reviews, and no redetermination of eligibility occurred in the Medicaid Program. Federal payment errors noted in the sample were $1,021. The Federal sample tested was $18,816, and the total Federal Managed Care expenditures during the fiscal year were $1,766,039,418. Based on the sample tested, the case error rate was 7.50% (3/40). The dollar error rate was 5.43% ($1,021/$18,816), which projects the potential dollars at risk for fiscal year 2024 to be $95,895,940 (dollar error rate multiplied by population). Out- of-sample questioned costs totaled $9,067. CHIP For 1 of 25 claims tested, the recipient did not meet age requirements to be eligible for the CHIP program, and the incorrect rating region was used for capitation payment rates. Additionally, Medicaid renewal/verification processes were not followed. The budget used for the Medicaid recipient was created in March 2021, when the recipient was 18 or younger. This budget was extended through June 2024 due to the State of Emergency. A renewal notice was sent to the recipient on April 10, 2024, and an incomplete renewal form was received on July 15, 2024. The case should have been closed 30 days (May 10, 2024) after the renewal forms and verification were due. Had the renewal and redetermination occurred, the recipient would have been ineligible for the CHIP program due to the recipient being over 18 years of age. However, capitation payments were made in June, July, and August 2024, for a total of $670 Federal questioned costs outside of the sample. Because of the lack of renewal verifications, the address information for the recipient was for Region 2, even though the recipient’s address information had been updated to Region 1. This resulted in a Federal overpayment of $20. Federal payment errors noted in the sample were $20. The Federal sample tested was $4,282, and the total Federal managed care expenditures during the fiscal year were $97,464,908. Based on the sample tested, the case error rate was 4% (1/25). The dollar error rate was 0.47% ($20/$4,282), which projects the potential dollars at risk for fiscal year 2024 to be $458,085 (dollar error rate multiplied by population). Out-of-sample questioned costs totaled $670. Cause: The Agency indicated that the 2024 rates were paid prior to approval, as the contract had substantive changes, and the Agency believed using the 2024 rates would result in smaller adjustments than if the 2023 rates were used. Claim errors due to inadequate review. Effect: Noncompliance with Federal regulations and increased risk for fraud or errors. Recommendation: We recommend the Agency implement MCO contracts and rate changes only after approval from the Federal grantor. We further recommend the Agency strengthen procedures to ensure recipients are eligible, and payments are proper. Management Response: Management agrees. As noted, due to significant program changes at the start of the reprocured managed care contracts January 1, 2024, such as carving in dental services, the Department made a calculated decision to pay the actuarily developed capitation rates for rate cells, prior to receiving approval from CMS. The Department otherwise follows our standard process of waiting for CMS approval prior to paying updated rates for subsequent rating periods.

Program: AL 93.778 – Medical Assistance Program; AL 93.778 – COVID-19 Medical Assistance Program – Allowability Grant Number & Year: 2305NE5MAP, FFY 2023; 2405NE5MAP, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.302 (October 1, 2023), each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. Per 45 CFR § 75.403 (October 1, 2023), costs must be reasonable, necessary, and adequately documented. Title 471 NAC 15-003.02(H) requires that the provider perform the personal assistance services noted on the service plan, accurately document services provided in the EVV (Electronic Visit Verification) system, and confirm that services were received as authorized according to Agency procedures. Title 471 NAC 15-005.02(A) states that the provider can provide services to only one client at a time, and services will not be paid unless performed during the actual hours noted in the EVV system. Title 471 NAC 15-005.01(A) states that the provider will comply with all EVV billing requirements. Per the “Service Definition” provided in the Personal Care Service Handbook, “Personal Care is a service of the HCBS Waiver for Aged and Adults and Children with Disabilities (AD) and Traumatic Brain Injury (TBI) which provides needed assistance with Activities of Daily Living (ADLs) health-related tasks or Instrumental Activities of Daily Living (IADLs) provided in a participant’s home and other community settings.” A good internal control plan requires procedures to ensure services provided agree to the service needs assessment or individual support plan and service authorization. Section 1903(l)(5)(A) of the Social Security Act states the following: The term “electronic visit verification system” means, with respect to personal care services or home health care services, a system under which visits conducted as part of such services are electronically verified with respect to – (i) the type of service performed; (ii) the individual receiving the service; (iii) the date of the service; (iv) the location of service delivery; (v) the individual providing the service; and (vi) the time the service begins and ends. Public Law 114-255, § 12006 (December 13, 2016) (“21st Century Cures Act”) provides, as is relevant, the following: (a) In general. Section 1903 of the Social Security Act (42 U.S.C. 1396b) is amended by inserting after subsection (k) the following new subsection: “(l)(1) Subject to paragraphs (3) and (4), with respect to any amount expended for personal care services or home health care services requiring an in-home visit by a provider that are provided under a State plan under this title (or under a waiver of the plan) and furnished in a calendar quarter beginning on or after January 1, 2019 (or, in the case of home health care services, on or after January 1, 2023), unless a State requires the use of an electronic visit verification system for such services furnished in such quarter under the plan or such waiver, the Federal medical assistance percentage shall be reduced— ‘‘(A) in the case of personal care services— “(i) for calendar quarters in 2019 and 2020, by .25 percentage points; “(ii) for calendar quarters in 2021, by .5 percentage points; “(iii) for calendar quarters in 2022, by .75 percentage points; and “(iv) for calendar quarters in 2023 and each year thereafter, by 1 percentage point[.] Neb. Rev. Stat. § 28-512 (Reissue 2016) creates the offense of “theft by deception.” That statute says the following, in relevant part: A person commits theft if he obtains property of another by deception. A person deceives if he intentionally: (1) Creates or reinforces a false impression, including false impressions as to law, value, intention, or other state of mind; but deception as to a person’s intention to perform a promise shall not be inferred from the fact alone that he did not subsequently perform the promise; or (2) Prevents another from acquiring information which would affect his judgment of a transaction; or (3) Fails to correct a false impression which the deceiver previously created or reinforced, or which the deceiver knows to be influencing another to whom he stands in a fiduciary or confidential relationship[.] Further, Neb. Rev. Stat. § 28-911 (Reissue 2016) prohibits “abuse of public records,” as follows: (1) A person commits abuse of public records, if: (a) He knowingly makes a false entry in or falsely alters any public record; or (b) Knowing he lacks the authority to do so, he intentionally destroys, mutilates, conceals, removes, or impairs the availability of any public record; or (c) Knowing he lacks the authority to retain the record, he refuses to deliver up a public record in his possession upon proper request of any person lawfully entitled to receive such record; or (d) He makes, presents, or uses any record, document, or thing, knowing it to be false, and with the intention that it be taken as a genuine part of the public record. (2) As used in this section, the term public record includes all official books, papers, or records created, received, or used by or in any governmental office or agency. (3) Abuse of public records is a Class II misdemeanor. Condition: During testing of personal assistance service (PAS) and personal care service claims, we noted the following: • Services provided lacked adequate supporting documentation. This included providers being able to submit claims without the verification of the location where the services were provided. • Services billed exceeded the number of hours authorized. • PAS and personal care services appeared to be claimed at the same time the provider was working at another job or was no longer providing services for the client, resulting in apparently fraudulent billings and payments. • The caregivers for two clients were incarcerated at the time of service and could not have provided the services. • The PAS and other employment hours exceeded 24 hours in one day for one client, which is not possible. • The PAS and personal care providers had the ability to edit the billable start and end times in the EVV system. • The Agency authorized a PAS provider to perform services for three clients, totaling up to 85 hours a week, which is unreasonable. • A PAS provider did not declare all income earned when applying for assistance. Similar findings have been noted in prior audits since 2014. Repeat Finding: 2023-050 Questioned Costs: $98,008 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: The Agency offers PAS (assistance with hygiene mobility, housekeeping, etc.) to Medicaid recipients with disabilities and chronic conditions. The services to be provided are based on individual needs and criteria that must be determined in a written service needs assessment (SNA). The Agency also offers personal care services under the Aged and Disabled (AD) Waiver to recipients with disabilities. These services enable the participants to carry out tasks that they are unable to perform because of their disabilities. The services provided are based on individual needs and criteria that are documented in the individual support plan and service authorization. The Agency implemented an electronic visit verification (EVV) system for PAS and personal care providers in January 2021, as required by Section 12006(a) of the 21st Century CURES Act, passed by Congress in 2016. The EVV system electronically captured and verified provider visit information, and providers were required to submit claims to the Agency electronically through this application. We judgmentally selected four providers and a PAS/personal care agency based on high total dollars and units for testing and two PAS providers from the prior year audit with findings who received payments during fiscal year 2024. For those providers, we selected one week of claims for testing. We also randomly selected five PAS and ten waiver payments for testing. Due to the numerous issues identified with the billings, we expanded testing for several of the providers. In addition to the billing issues identified for the weeks tested, we noted three of these providers had outside employment that conflicted with the PAS hours billed. We also identified billings submitted for two employees who no longer worked for the PAS agency. We identified $5,640 in potentially fraudulent payments made to the providers during fiscal year 2024. In addition to the potentially fraudulent payments, we noted $92,368 in Federal payment errors related to other issues, resulting in total Federal questioned costs of $98,008. See Schedule of Findings and Questioned Costs for chart/table. The Federal share of PAS and AD Waiver claims paid for the fiscal year totaled $6,282,331 and $170,743,608, respectively. Payments tested and questioned costs for each are as follows: See Schedule of Findings and Questioned Costs for chart/table. The following information describes issues noted with each provider: Provider #1 Murray’s Blessings LLC (Murray’s Blessings) is an agency that employed caregivers to provide PAS and personal care assistance for multiple clients. Murray’s Blessings received $87,857 in PAS payments and $921,160 in personal care payments during the fiscal year, for a total of $1,009,017. We initially selected one week of claims to test, from April 28, 2024, through May 4, 2024, for all clients. Six clients received PAS and 16 clients received personal care services during this week. Services for 18 of 22 clients were not completed through a device using Global Positioning System (GPS) verification. The caregiver for five of the clients was unknown because the forms listed only “Murray’s Blessings Admin” as the caregiver, and there were mileage variances for visits that were completed using GPS devices. Due to the numerous issues identified with the initial week tested, we reviewed an additional seven weeks of PAS and personal care services for the period of May 5, 2024, through June 22, 2024. We identified similar issues. The following is a summary of the issues identified for the eight-week period. Client 1 No personal care visits from April 28, 2024, through May 18, 2024, used a device with GPS verification. According to payroll records provided by Murray’s Blessings, the caregiver (caregiver A) for this client received his last check on April 30, 2024. Additionally, county court records noted that the caregiver was arrested on April 29, 2024, for possession of a firearm by a prohibited person, terroristic threats, and use of a firearm to commit a felony. The caregiver was in custody during the entire time that services for Murray’s Blessings submitted billings were supposedly provided. All visits were questioned as potential fraud, as this caregiver could not have performed these services. Previously, the caregiver served time in a Nebraska prison for State drug offenses from June 2013 through May 2019. In June 2017, while serving time for these State offenses, the caregiver was charged with committing Federal offenses. The caregiver was found guilty and on July 2, 2018, was sentenced to seven years in Federal prison for participating in a racketeering conspiracy involving acts of violence, including attempted murder and assaults, witness tampering, and drug distribution. The sentence was later reduced to 71 months. The caregiver was no longer in Federal prison as of October 5, 2023. Client 2 No PAS visits completed from April 28, 2024, through June 22, 2024, used a device with GPS verification. According to payroll records provided by Murray’s Blessings, the caregiver (caregiver B) for this client received her final paycheck on April 23, 2024, prior to these visits. Additionally, county court records noted the caregiver was in jail from June 3, 2024, until June 5, 2024, and could not have provided the services billed on June 3, 2024. All visits were questioned as potential fraud because services do not appear to have been provided by this caregiver. An arrest warrant was issued for the caregiver on May 30, 2024, for delivery of a controlled substance. The warrant was served on June 3, 2024, at the jail. The caregiver was taken into custody on June 3, 2024, for a pretrial violation in another case filed on April 11, 2024, for possession of a controlled substance. Client 3 All of the personal care visits for this caregiver had starting and ending mileage variances. Based on the GPS coordinates, the visits started at either the caregiver’s home or the home of another client receiving personal care services from another agency. All visits ended at the caregiver’s home, raising doubt that the visits were provided as billed. Additionally, the client was authorized to receive 25 hours of service per week, and the provider exceeded the service authorization all eight weeks by 0.5 to 3.75 hours. Due to these variances, all claims were questioned. Client 4 The SNA authorized 31.5 PAS hours of services each week. The provider exceeded the SNA for seven of eight weeks, ranging from 2.5 to 38.25 hours over the authorization. Four visits were not completed through a device using GPS. For the remaining visits, GPS was utilized; however, there were mileage variances for each visit, and only one visit appears to have had an end location at the client’s home. The client in this case was the caregiver’s parent. The majority of the visits started and ended at the caregiver’s home per the captured GPS coordinates. Seven visits occurred overnight. Other beginning or ending locations included a daycare center attended by the caregiver’s child and also a plasma donation center. All claims for this client are questioned due to the various issues identified. Client 5 This client was authorized to receive 70 hours of personal care each week. There were two caregivers for this client. All visits completed by Antoinette Murray, the owner of Murray’s Blessings, were from 4:00 p.m. to 12:00 a.m., and GPS verification was not used. The second caregiver used GPS; however, there were mileage variances for each visit. Per the GPS coordinates, the caregiver clocked in at her home for all visits but one. The starting location for the other visit was a retirement home that was not where the client lived. The majority of the visits ended at the caregiver’s home or at the home of the caregiver’s parents. The caregivers exceeded the service authorization for six of eight weeks, ranging from 2 to 10 hours over the authorization. All claims were questioned due to these issues.   Client 6 The client was authorized to receive 60 hours of personal care services each week between two agencies. For Murray’s Blessings, seven visits were not completed using a GPS device, and they included a duplicate claim on June 22, 2024. Due to the duplicate billing, the service authorization was exceeded by 4.5 hours. Additionally, the second agency billed 10 hours on this day – for a total of 27.5 hours of care provided in a day, which is impossible. Client 7 Six visits were completed that did not use a GPS device and, therefore, are questioned. One visit completed with a GPS device had a start time of 2:57:00 p.m. to 2:57:58 p.m. The billable start time was changed to 9:00 a.m. The client was authorized for 42 personal care hours each week. The caregiver exceeded the service authorization by 4.25 hours for one week. Other Clients For 18 additional clients (13 personal care and 5 PAS), no visits over the eight-week period were completed through a device using GPS verification. All claims were questioned. Additional billing issues were identified for these claims, as follows: • The caregiver for six personal care clients and two PAS clients was noted as “Murray’s Blessings Admin” for all or some of the visits, so the caregiver remains unknown. • Overlapping and duplicate services were paid for three personal care clients, as detailed in the following table: See Schedule of Findings and Questioned Costs for chart/table. • The caregiver for one personal care client received family support services and supervised visitation for a child who was removed from the home. Four family support visits and one visitation service overlapped with services performed by the caregiver. All personal care visits were logged from 9:00 a.m. to 4:30 p.m., and the family support and visitation services started at 4:00 p.m. Consequently, overlapping services occurred from at least 4:00 p.m. to 4:30 p.m. The following table summarizes the questioned costs for each client during the eight-week period: See Schedule of Findings and Questioned Costs for chart/table. Per the Nebraska Secretary of State’s website (https://sos.nebraska.gov/), Murray’s Blessings was established on June 1, 2022. The agreement with the Agency for the provision of PAS and personal care services began on August 5, 2022. Prior to the establishment of Murray’s Blessings, Ms. Murray was an individual PAS provider, beginning on August 13, 2013. Ms. Murray was also a license-exempt child care subsidy provider from November 13, 2015, through November 1, 2017, when her agreement was terminated for not providing attendance calendars, not billing according to service authorizations, and double billing. A $6,468 overpayment was established on October 14, 2017, due to the billing issues. A $1,617 recoupment was applied toward the balance in December 2017, and Ms. Murray made two $50 payments towards the overpayment balance in March 2018. The Agency wrote off the remaining debt of $4,751 in May 2024. The child care subsidy program did not approve another agreement with Ms. Murray due to this overpayment and her subsequent failure to make full restitution. Given her history of billing problems, as well as a substantial overpayment, the Agency’s decision to approve a Medicaid agreement with Ms. Murray appears questionable. Nevertheless, the Agency did not require Ms. Murray to repay the overpayment balance prior to consideration of a new personal care agreement. It is evident, based on the PAS and personal care findings, that billing problems have continued. Further, on August 25, 2023, the Agency met with Ms. Murray to complete the annual Medicaid provider renewal. The worker explained to Ms. Murray that the caregivers must clock in and out using the EVV system. No changes occurred, however, as the majority of the Murray’s Blessings caregivers continued to neglect using, either intentionally or otherwise, a GPS device to clock in and out. Provider #2 This provider was authorized a total of 27.75 hours of service per week for one client. For the week tested of April 14, 2024, through April 20, 2024, the provider billed 148.25 hours of service. The provider exceeded the SNA by 120.5 hours, more than four times the number of hours authorized. During this week, the provider billed multiple 24-hour visits using the GPS verification method. The provider lived with the client, making it convenient to clock in the morning of one day and then clock out the next morning and then repeat the process with no GPS mileage variances. From January 28, 2024, through April 7, 2024, the provider exceeded the SNA for an additional 11 weeks, ranging from 17.75 to 91.25 hours over the SNA. Beginning on May 6, 2024, the SNA was increased to 37 hours of service per week, and the provider continued to exceed the SNA by 0.5 to 17.75 hours per week through June 22, 2024. Not only was the number of hours billed excessive and unreasonable, but also the provider was employed full-time with a financial technology company. We obtained the provider’s employment records and compared the PAS billings to those employment records for a three-month period from February 2024 through April 2024. The provider generally worked for the other employer from 8:00 a.m. to 4:30 p.m., Monday through Friday, which conflicted with the hours being billed for personal assistance services. We identified 55 days during which PAS hours billed overlapped with times that the provider was recorded as having been working for the other employer. Based on employment records, the provider appears to have worked remotely; however, PAS hours would not be allowed during the time the provider was working another job. We questioned 338.5 hours as potential fraud, totaling $4,577 (Federal share $2,682 and State share $1,895). Below are examples of the overlapping hours identified: See Schedule of Findings and Questioned Costs for chart/table. We noted that 11 of the PAS visits from February 2024 through April 2024 were not completed using a device with GPS verification, and 30 visits were billed overnight. Due to the apparent fraudulent billings, excessive hours, visits completed overnight, and some visits not being completed using a GPS device, we questioned all claims paid from February 2024 through April 2024. This resulted in additional questioned costs of $3,506. This individual became a PAS provider on August 17, 2023, and began the outside employment on October 30, 2023. The provider had three children noted in the household and was receiving Supplemental Nutrition Assistance Program (SNAP) and Medicaid benefits at the time the PAS agreement was signed. On January 30, 2024, the provider submitted a renewal application for SNAP and declared income from only the PAS payments and reported working only 2-3 hours per week. Subsequent to the audit period, the provider applied for child care benefits on August 14, 2024, and declared only the income from the outside employer. The provider told the Agency worker that the PAS employment ended on August 20, 2024; however, the provider continued to receive PAS payments. The provider was evidently not only overbilling PAS services but also being deceitful when applying for public assistance. Provider #3 For the initial week tested, the provider was authorized a total of 38.5 hours per week for one client. The provider exceeded the SNA by 10.25 hours for the week. Additionally, from June 2, 2024, through June 8, 2024, the provider did not follow the SNA when billing for tasks provided. The SNA included some services to be provided every day of the week, but services were billed on only five days. For example, the client was authorized for meal preparation assistance for seven days, but the provider performed services on only five days. We considered the hours charged for meal preparation on two days overbilled. We also noted the provider exceeded the frequency for some services authorized. For example, the client was authorized to shop for food once a week, but the provider billed this service on five days. Additionally, we noted the client attended county court on June 6, 2024, at 10:30 a.m., and the provider billed from 8:00 a.m. – 4:00 p.m. on that day. Per Title 471 NAC 15-004.02(B)(ii), accompanying the client to court is not an allowable service for PAS. Due to the issues noted for the initial week tested, we reviewed additional weeks. From July 1, 2023, through March 1, 2024, the provider performed PAS services for three individuals. In addition to the 38.5 hours authorized for the first client, the provider was authorized to provide PAS services for two clients who lived in the same home. The SNA authorized 26 hours and 21 hours of PAS services for these two clients for a total of 85.5 hours each week for the three clients. The provider billed over the SNA for an additional 25 weeks reviewed. There were 128.5 hours overbilled. We also questioned three visits that were not completed through a GPS device. This provider not only billed over the authorization, recording up to 95 PAS hours worked in a week, but also worked full-time for a rental management company. We obtained the employment records for the provider and compared the PAS billings to those records for a three-month period from October 22, 2023, through December 16, 2023. We identified 29 days during which PAS hours billed overlapped with times that the provider was recorded as having been working at the rental management company. In determining overlapping hours, we did not factor in any travel time that may have occurred between the client homes and the provider’s place of employment; therefore, the possibility of additional fraudulent payments exist. On several days, the PAS hours and employment hours exceeded 24 hours, which is impossible. We questioned 62.75 hours of personal assistance services as potential fraud, totaling $848 ($510 Federal Share and $338 State share). The majority of the visits were completed through a device using GPS; therefore, another individual appears to have aided the provider in falsely claiming that personal assistance services were performed, as the provider could not have been in two places at once. Based on case file documentation, the first client lived with the provider, and those evening hours billed for this client overlapped with the provider’s other employment hours. The table below contains examples of the overlapping of hours: See Schedule of Findings and Questioned Costs for chart/table. Other billing issues were identified as well. On several occasions, for instance, the provider changed the start and/or end times of the visit. The claim form in the EVV system included the scheduled start time, the actual service start time, and the billable service start time. The provider was allowed to edit the billable start and end times verified through a GPS device, which resulted in duplicate billings and overlapping times billed between clients. There were other instances of the provider changing the time, so that there would be no overlapping of times between clients and the provider’s outside employment. The ability to edit the billable start and stop times recorded in the EVV system, with no secondary review, places doubt on whether the service was performed as billed. Below are some examples: See Schedule of Findings and Questioned Costs for chart/table. It is unreasonable for the Agency to authorize a provider to perform services for three clients for up to 85 hours a week. With those hours alone, the provider would have to average more than 12 hours per day for 7 days a week. After adding in the hours worked at the outside employment, the provider would have been working over 20 hours a day. We noted also that the provider received Medicaid benefits during the fiscal year. The provider signed a Medicaid renewal application on September 14, 2023, and reported only the income at the rental management company. The provider did not disclose the income made through PAS, which averaged out to be $3,186 for both July and August 2023. PAS payments made to the provider during the fiscal year totaled $52,900. The Agency had access to this information, so it is questionable how this income was not discovered and included in determining Medicaid eligibility. Additional questioned costs for the provider totaled $1,126. Provider #4 The provider double billed a service on June 17, 2024. The visit form on June 17, 2024, had a clock-in time of 1:31 p.m. and a clock-out time of 6:48 a.m. on June 18, 2024. It appears that the provider may have forgotten to clock out. Upon crossing from one day to another, the visit generated two claim forms in the EVV system. The first claim had an end time of 11:59 p.m., and the second claim form had the start time of midnight or 24:00 on the next day. In this case, the provider changed the billable start and end times for both claims and was able to double bill 4.25 hours. See Schedule of Findings and Questioned Costs for chart/table. The provider was authorized 31 hours per week for one client. The provider exceeded the SNA by three hours for the week tested. Questioned costs totaled $33. Provider #5 This provider was authorized 26.25 hours per week for one client. The provider exceeded the SNA by 25 hours for the initial week tested from April 14, 2024, through April 20, 2024. This included billing 21.75 hours on April 16, 2024. For the week tested, the provider did not follow the SNA when billing for tasks provided. The SNA included some services to be provided every day of the week, but services were billed on only five days. For example, the client was authorized for assistance with medication administration three times a day for seven days, but the provider performed services on only five days. We also noted the provider exceeded the frequency for some services. For example, the client was authorized to have cleaning done once a week, but the provider billed this service on five days. We reviewed an additional eight weeks of claims and noted the provider billed over the SNA for an additional five weeks. Hours that exceeded the SNA ranged from 1.5 to 21 hours. Questioned costs for the provider totaled $452. Provider #6 This provider was authorized a total of 66.75 hours of service per week for two clients. For the week tested of May 12, 2024, through May 18, 2024, no visits were completed using a GPS device that captured the location of the visits. We questioned the entire claim, totaling $499. This provider was tested in the prior year with similar issues. Potential fraud was also identified, as the provider billed PAS hours that overlapped with her employment hours as a student bus driver and with other court-related activities. A law enforcement raid was conducted at the provider’s home on December 2, 2022, and her child was removed after Fentanyl and firearms were discovered there. The provider’s agreement closed on June 15, 2023; however, the Agency received a referral on January 17, 2024, for the provider to perform personal assistance services for a client, and a new provider agreement was signed on January 30, 2024. The Agency was notified of the prior year billing issues on January 22, 2024. The Agency established overpayments for PAS hours billed that exceeded the service authorization; however, no PAS overpayments were established for those hours billed that overlapped with other employment hours and court-related activities. The provider began providing services again on January 30, 2024, and, according to quarterly employment records, the provider was also employed as a student bus driver. We inquired with the Agency in July 2024 to determine what action had been taken against the provider, and we were informed that preparation was underway to terminate the provider. On September 3, 2024, the Agency sent a letter to the provider terminating her from participation as a Medicaid provider due to the billing issues identified from the prior year audit. The provider appealed the termination, and on November 27, 2024, the Agency received the final order from the hearing officer affirming the Agency’s actions, and the provider’s agreement was terminated as of November 27, 2024. We obtained the provider’s timecard records from the employer and compared the employment records to the EVV visit forms for the week of May 12, 2024, through May 18, 2024. We identified four days during the week in which PAS hours billed overlapped with times the provider was working as a student bus driver. In determining overlapping hours, we did not factor in any travel time that may have occurred between the clients’ homes and the provider’s place of employment. Additionally, we compared only one week of records; therefore, the possibility of additional fraudulent payments exists. We questioned seven hours of personal assistance services as potential fraud, totaling $95 ($56 Federal share and $39 State share). It is concerning that the Agency signed a new agreement with the provider on January 30, 2024, after the potential fraud was disclosed and after the Agency had established $2,062 in overpayments for billing hours over the SNA. It is unreasonable for the Agency to have allowed the provider to submit billings that did not comply with EVV guidelines in order for the provider to “pay back” the overpayments for previous billing errors. From January 30, 2024, through June 30, 2024, the provider was paid $13,317, and payments from July 1, 2024, through December 2, 2024 totaled $21,475. See Schedule of Findings and Questioned Costs for the remainder of the text to the audit finding.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 93.959 – Block Grants for Prevention and Treatment of Substance Abuse – Level of Effort Grant Number & Year: B08TI084658, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Good internal control requires procedures to ensure Maintenance of Effort (MOE) requirements are met. 45 CFR § 96.30(a) (October 1, 2023) requires the following: Except where otherwise required by Federal law or regulation, a State shall obligate and expend block grant funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds. Fiscal control and accounting procedures must be sufficient to (a) permit preparation of reports required by the statute authorizing the block grant and (b) permit the tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of the statute authorizing the block grant. 45 CFR § 96.134(a) (October 1, 2023) states the following: With respect to the principal agency of a State for carrying out authorized activities, the agency shall for each fiscal year maintain aggregate State expenditures by the principal agency for authorized activities at a level that is not less than the average level of such expenditures maintained by the State for the two year period preceding the fiscal year for which the State is applying for the grant. The Block Grant shall not be used to supplant State funding of alcohol and other drug prevention and treatment programs. 45 CFR § 96.124(c) (October 1, 2023) requires the State to expend the Block Grant on treatment services for pregnant women and women with dependent children no less than an amount equal to the amount expended by the State for fiscal year 1994. “A Primer on Maintenance of Effort Requirements” (2020), issued by the Substance Abuse and Mental Health Services Administration (SAMHSA), states the following, as is relevant: A state MUST provide accurate MOE figures every year. Otherwise, it risks a reduction in its award following the period of noncompliance. * * * * States must use a consistent methodology to calculate spending in base and subsequent years so that the expenditure data reflect the same fund sources from year to year. States must use generally accepted accounting principles. * * * * Examples of state fund sources that can be included in the SABG state MOE calculations are: * * * * Medicaid match funds (the state’s share of covered services in state Medicaid programs; this does not include the federal share of covered services) Condition: The Agency lacked adequate documentation to support that Maintenance of Effort (MOE) requirements were met. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: We tested the State MOE and the MOE for Expenditures for Services to Pregnant Women and Women with Dependent Children (Women’s Set-Aside) for State fiscal year 2023, which was reported on December 1, 2023. The required State MOE was $24,756,036, and the Agency reported $31,213,508 of expenditures. Included in reported expenditures was $7,004,989 of Medicaid Matching funds. The detail of Medicaid Matching provided totaled only $6,552,612. In addition, the detail provided was not expenditures paid directly from the State accounting system and did not agree to the State’s financial report. Nebraska operates a managed care program for Medicaid, and the State pays a per-member, per-month capitation fee to the managed care contractor. The Agency performed a query of substance use disorder services paid by the managed care contractors and estimated the State General funded portion based on the beneficiary’s enrollment information at the time of service. The Agency believes that, since the capitation payments are determined by an actuarial model that has a basis in paid claims experience, the method used is a reasonable proximation. Although this method appears consistent with the prior year, it was not described in the report and did not have formal, written approval from the Federal grantor. The required Women’s Set-Aside was $753,713, and the Agency reported $2,038,637. We noted the following issues: • The expenditures reported included $1,669,738 of Medicaid funds, which, as noted above, are not expenditures paid directly by the State. • The Medicaid expenditures included both State and Federal Medicaid funds, but Federal Medicaid funds are not an allowable source of funds to include. • The Agency used alcohol/drug services by providers that served exclusively women; however, the Agency did not ensure those women were either pregnant or had dependent children. We selected 10 individuals included in the detail of claims, and 6 of those were neither pregnant nor had dependent children. Given the inadequate support for the Medicaid dollars used, the Agency appears to have failed to maintain expenditures at the base amount for Women’s Set-Aside services. Cause: Inadequate procedures and employee turnover. Effect: Without adequate procedures, there is an increased risk for errors or unallowable expenditures to be reported. Recommendation: We recommend the Agency obtain written approval from the Federal grantor for the methodology used to report MOE expenditures. We further recommend the Agency ensure that MOE requirements are both met and accurately reported, and only allowable categories of expenditures are utilized. Management Response: Management agrees.

Program: AL 93.959 – Block Grants for Prevention and Treatment of Substance Abuse – Allowability & Subrecipient Monitoring Grant Number & Year: B08TI085820, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Good internal control requires procedures to ensure costs are reasonable, necessary, allowable, and in accordance with Federal requirements. 45 CFR § 75.352(d) (October 1, 2023) requires the Agency to do the following: 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. 45 CFR § 96.30(a) (October 1, 2023) states the following: Except where otherwise required by Federal law or regulation, a State shall obligate and expend block grant funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds. Fiscal control and accounting procedures must be sufficient to (a) permit preparation of reports required by the statute authorizing the block grant and (b) permit the tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of the statute authorizing the block grant. Condition: Subrecipient monitoring procedures should be improved. Repeat Finding: No Questioned Costs: $9,141 known Statistical Sample: No Context: The Agency paid 10 subrecipients a total of $7,089,404 during the fiscal year. We tested one payment to each of the seven largest subrecipients and noted the following: Region IV Behavioral Health System was paid $647,025 during the fiscal year, and we selected a payment for $42,625. Of this amount, $9,141 was for services provided by Region IV, and $33,484 was for services provided by contractors of Region IV. The Agency performed a sampling of expenditures for Region IV; however, documentation was inadequate to support that personnel costs were related to the grant or prevention activities or women’s set-aside activities. Timesheets did not indicate the grant or activities upon which the employees worked. In addition, indirect costs were reimbursed, but the subaward agreement did not allow indirect costs. The Agency provided a spreadsheet to indicate how the Region allocated personnel time, but documentation was inadequate to support that the allocations were appropriate and in accordance with the time study results and methodology. In addition, the time study results provided were from July 2022, and the Region utilized an even earlier time study to allocate the costs. As a result, we question costs of $9,141. Cause: Inadequate procedures and employee turnover. Effect: Without adequate procedures, there is an increased risk for errors or fraud to occur and not be detected. Recommendation: We recommend the Agency improve subrecipient monitoring procedures to ensure that costs are allowable and in accordance with the grant and subaward terms and conditions. Management Response: Management agrees.

Program: AL 97.036 – Disaster Grants – Public Assistance (Presidentially Declared Disasters) – Subrecipient Monitoring Grant Number & Year: 4616-DR-NE, declared September 6, 2021; 4420-DR-NE, declared March 21, 2019; 4641-DR-NE, declared February 23, 2022; 4662-DR-NE, declared July 27, 2022; 4521-DR-NE, declared April 4, 2020 Federal Grantor Agency: U.S. Department of Homeland Security Criteria: 2 CFR § 200.332 (January 1, 2024) states, in relevant part, the following: All pass-through entities must: * * * * (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. 2 CFR § 200.501(b) (January 1, 2024) states, in relevant part, the following, “A non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single audit conducted in accordance with § 200.514 . . . .” A good internal control plan includes procedures to ensure subrecipient audits are reviewed timely. Condition: The Agency did not ensure subrecipients obtained Single audits. A similar finding was noted in the prior audit. Repeat Finding: 2023-063 Questioned Costs: None Statistical Sample: No Context: We selected three subrecipients for testing that would have required a Single audit based on the amount of funds received from the Agency during the subrecipient’s previous fiscal year. One of the three subrecipients received $12,604,747 in disaster grant funds passed through the Agency during the subrecipient’s fiscal year 2023, but did not submit a Single audit and the Agency had not followed up with the subrecipient. Cause: Employee oversight. The subrecipient returned a certification stating that they did not require a Single audit, and the Agency failed to verify the certification was proper. Effect: Without adequate monitoring procedures, there is an increased risk that Federal awards could be used for unallowable costs. Recommendation: We recommend the Agency implement procedures to ensure subrecipient audits are obtained and reviewed timely. Management Response: Military (NEMA) agrees with the finding and has implemented the corrective action plan.

Program: AL 15.611 – Wildlife Restoration and Basic Hunter Education and Safety – Allowability & Subrecipient Monitoring Grant Number & Year: F22AF01344-00, July 1, 2022, through June 30, 2025 Federal Grantor Agency: U.S. Department of the Interior Criteria: For the Wildlife Restoration program, Title 50 CFR § 80.50(a)(6)(iii) (October 1, 2023) states, in part, “Grantees and subgrantees must follow the requirements at 2 CFR part 200 when acquiring equipment, goods, and services under an award[.]” 2 CFR § 200.332(d) (January 1, 2024) requires a pass-through entity to do the following: 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[.] 2 CFR § 200.403 (January 1, 2024) requires costs to be necessary, reasonable, and adequately documented. 2 CFR § 200.430(i) (January 1, 2024) provides the following, in relevant part: (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE’s definition of IBS); * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that: * * * * (C) The non-Federal entity’s system of internal controls includes processes to review after-the-fact interim charges made to a Federal award based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated. 2 CFR § 200.431(b) (January 1, 2024) states, in relevant part: The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave, and other similar benefits, are allowable if all of the following criteria are met: (1) They are provided under established written leave policies; (2) The costs are equitably allocated to all related activities, including Federal awards; and, (3) The accounting basis (cash or accrual) selected for costing each type of leave is consistently followed by the non-Federal entity or specified grouping of employees. (i) When a non-Federal entity uses the cash basis of accounting, the cost of leave is recognized in the period that the leave is taken and paid for. Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment. (ii) The accrual basis may be only used for those types of leave for which a liability as defined by GAAP exists when the leave is earned. When a non-Federal entity uses the accrual basis of accounting, allowable leave costs are the lesser of the amount accrued or funded. 2 CFR § 200.431(c) (January 1, 2024) states the following: The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker’s compensation insurance (except as indicated in §200.447); pension plan costs (see paragraph (i) of this section); and other similar benefits are allowable, provided such benefits are granted under established written policies. Such benefits, must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities, and charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. A good internal control plan requires procedures to ensure that salaries and wages, as well as other costs charged to subawards, are documented properly. Condition: Adequate documentation was not on file to support a payment to a subrecipient. Repeat Finding: No Questioned Costs: $1,697 known Statistical Sample: No Context: We randomly selected 16 non-payroll documents to test. Our sample population included operating expenditures, capital outlay expenditures, and subrecipient reimbursements. One of 16 documents tested lacked adequate documentation to support that the costs were in accordance with Federal cost principles. The Agency paid $17,268 to a subrecipient that submitted an invoice for lodging and travel costs, payroll, and indirect costs for one employee. The employee’s base rate of $35.82 per hour for 378.5 hours worked on the grant was calculated according to the following: a pay rate of $24.76 per hour; a charge of 18% for paid time off; 22.6% for employer taxes and benefits; and 26.2% for indirect costs. However, the subrecipient provided no documentation, such as payroll records or bank statements, to support the payroll costs, totaling $17,110. After the APA requested support, the Agency provided paystubs and detailed payroll records from the subrecipient’s accounting system; however, based on the support provided, the wages, benefits, taxes, and indirect costs allocable to the grant totaled $15,413. As a result, we questioned the variance of $1,697 between the support provided and the amount charged to the grant for the payroll costs. Federal payment errors noted for the sample tested were $1,697. The total Federal sample tested was $300,860, and the total sample population was $10,649,122. Based on the sample tested, the case error rate was 6.25% (1/16). The dollar error rate was 0.56% ($1,697/$300,860), which estimates the potential dollars at risk for fiscal year 2024 to be $59,635 (dollar error rate multiplied by the population). Cause: Inadequate subrecipient monitoring procedures. Effect: Without adequate subrecipient monitoring procedures and supporting documentation on file, there is an increased risk for not only misuse of Federal funds but also payments not complying with State and Federal requirements. Recommendation: We recommend the Agency improve subrecipient monitoring to ensure both the allowability of costs and adherence to Federal regulations. Management Response: NGPC disagrees with the questioned costs identified by the APA. Our subrecipient policy includes the ability to ask for detailed records for any expense at any time. Accounting records, invoices, and paystubs were provided to substantiate the total invoice amount. The subrecipient has been audited and there were no issues with their financial systems. Explanations and calculations were provided to include the benefits and taxes paid out by the subrecipient, which matched the accounting records. Per their latest audit, these expenses are allocated on the basis of time and effort which complies with 2 CFR § 200.431(c). Performance reports were received and activity monitored by NGPC staff. NGPC works closely with the subrecipient which is considered a low-risk entity as demonstrated by the information provided for the audit. APA Response: Documentation provided to the auditors was inadequate to support the full amount charged to the grant. Documentation was not provided to support that the paid time off charged to the grant was reasonable, and no support was provided for Federal and State unemployment taxes, workers’ compensation costs, retirement plan fees, and other benefit costs.

Program: AL 17.225 – Unemployment Insurance (UI) – State – Allowability & Eligibility Grant Number & Year: N/A Federal Grantor Agency: U.S. Department of Labor Repeat Finding: 2023-056 Questioned Costs: $40,983 known Statistical Sample: No Summary: Audit Finding 2024-021, included in Part II of this report, relates to both the financial statements and Federal awards. The APA performed a random sample of benefit payments and tested payments to State employees, individuals with high wages, and other payments. Our procedures revealed adjudication issues, improper payments to claimants, and other issues. The APA randomly selected 40 claimant benefit payments. The total sample tested was $17,624, and questioned costs for payments tested were $2,983. Total benefit payments for the fiscal year ended June 30, 2024, were $87,552,659. Based on the sample tested, the dollar error rate for the sample was 16.93% ($2,983/$17,624), which estimates the potential dollars at risk for fiscal year 2024 to be $14,822,665 (dollar error rate multiplied by population). We noted additional questioned costs during testing, totaling $38,000. A similar finding was noted in the prior audit. Recommendation: We recommend the Agency implement procedures to prevent the payment of improper UI benefits by ensuring compliance with applicable State and Federal requirements. At a minimum, those procedures should ensure the following: 1) proper adjudication actions – including wage crossmatches, investigations into suspect separation from employment information, and separation information requests being sent to employers – are undertaken; and 2) neither ineligible State employees nor other ineligible claimants receive benefit payments. Management Response: As part of our ongoing commitment to the accuracy of benefit payments, we plan to take additional steps in our effort to reduce improper payments. We will continue refining our processes to reduce errors. We acknowledge that there are areas where continued improvement is necessary, and we are committed to working to address these issues. We will also continue to monitor performance and make adjustments as needed. NDOL stressed the importance of quality this year and has been making changes to its review process to catch and prevent errors earlier.

Program: AL 17.225 – Unemployment Insurance (UI) – State – Reporting Grant Number & Year: N/A Federal Grantor Agency: U.S. Department of Labor Criteria: Per 2 CFR § 2900.4 (January 1, 2024), the U.S. Department of Labor adopted the OMB Uniform Guidance as its policies and procedures for financial assistance administration. Per 2 CFR § 200.302(a) (January 1, 2024): [T]he state’s and the other non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. The ETA Handbook 401 (5th Edition) (August 16, 2017) states the following, in relevant part: c. Line 12. Penalty/Interest. Enter in columns C and D the net collections of penalty, interest, and fines deposited during the month if transferred to the UTF. * * * * g. Line 36. FECA Net Federal Benefits – UCX. Enter in columns C and F the net Federal portion of unemployment compensation paid to former members of the armed services from funds in the benefit payment account. The total payments should be adjusted for refunds deposited during the month, credits and recharges, and cancellations and reissuances and exclude EUC08 benefits. Report in column F all benefits paid, including amounts transferred to the IRS for Federal income tax withholding, regardless whether paid from the state account in the UTF or the state benefit payment account. * * * * s. Line 46. FECA Net Benefit Payments-UCFE. Enter in columns C and F net benefit payments made during the month to former Federal civilian (including postal) employees, excluding EUC 2008, with funds from the FEC account. Report in column F all benefits paid, including amounts transferred to the IRS for Federal income tax withholding, regardless whether paid from the state account in the UTF or the state benefit payment account. Good internal control requires adequate procedures to ensure reports are complete and accurate. Condition: During testing of the ETA 2112 reports, we noted the following: • For three reports tested, a reconciliation of the ending balance per the report to the bank statement for each account was not completed. • For two reports tested, amounts reported either could not be traced to supporting documentation or used the inaccurate amounts from the supporting documentation provided. Repeat Finding: No Questioned Costs: None Statistical Sample: No  Context: The ETA 2112 Report is a monthly summary of transactions in the State unemployment insurance fund, which consists of the Clearing Account, Unemployment Trust Fund (UTF) Account, and Benefit Payment Account. Agency controls over the ETA 2112 report include completing a reconciliation of the ending balance per the report to the bank statement for each account. For the three months the APA tested, a reconciliation was completed by the Agency; however, the ending balances per the report did not agree to the reconciled bank account balances. See the table below for a summary of the variances noted. After this issue was brought to the Agency’s attention, the Agency restated all 12 reports for fiscal year 2024. See Schedule of Findings and Questioned Costs for chart/table. In addition to testing the Agency’s reconciliations, the APA performed detailed testing of two monthly ETA 2112 reports. During this review, the following issues were noted: October 2023 • The beginning benefit account balance did not agree to the ending benefit account balance from the September 2023 report, resulting in the beginning balance being overstated by $39,217. • Total benefit disbursements and Net UI Benefit disbursements were understated by $37,168, as the Agency had backed out re-issued payments for the month. • The ending benefit account balance did not agree to the reconciled ending benefit bank account balance, due to the issues noted above, resulting in the ending balance being overstated by $76,385. • Clearing account Penalty/Interest deposits reported were amounts charged during the month, not amounts collected. This resulted in Penalty/Interest deposits being understated by $13,747 and Net UI Contributions being overstated by $13,747. The first three errors noted were corrected by the Agency with a reissued report on July 12, 2024, after we questioned the Agency about the amounts reported. The fourth error noted was not corrected. February 2024 • The beginning benefit account balance did not agree to the ending benefit account balance from the January 2024 report, resulting in the beginning balance being overstated by $140,808. • Total benefit disbursements and Net UI Benefit disbursements were understated by $33,826, as the Agency had backed out re-issued payments for the month. Additionally, these items were overstated by $85, as the Agency had manually adjusted February 2024 outstanding checks in order to have the ending balance agree to their reporting software. • The ending benefit account balance did not agree to the reconciled ending benefit bank account balance, due to the issues noted above, resulting in the ending balance being overstated by $174,549. • UCX and UCFE benefit disbursements were reported net of Federal and State withholdings when these amounts should have been included. This resulted in UCX disbursements being understated by $1,006, UCFE disbursements being understated by $2,495, and Net UI Benefit disbursements being overstated by $3,501. • January 2024 outstanding checks were not adjusted for January 2024 activity on the benefit account reconciliation, resulting in the beginning balance being understated by $13,209 and Net UI Benefits disbursements being overstated by $13,209. This error was not corrected by the Agency when the reports were reissued. The first three errors noted were corrected by the Agency with a reissued report on July 12, 2024, after we questioned the Agency about the amounts reported. The fourth and fifth errors noted were not corrected. Additionally, for both months tested, it was noted that the Daily Payment Register Summary was used to report the amount of disbursements by program. However, the Daily Payment Register Summary does not account for cancellations, which caused certain program disbursements to be overstated, such as UCFE, and Net UI Benefits to be understated. Cause: Inadequate review and reporting procedures. Effect: Without adequate procedures, there is an increased risk of inaccurate amounts being reported for unemployment insurance programs. Recommendation: We recommend the Agency implement procedures to ensure that amounts reported for unemployment insurance programs are accurate. These procedures should ensure the following: 1) accurate reconciliations between the ending balances on the reports and supporting documentation are completed; 2) duplicate payments for the various programs are accounted for to ensure proper reporting; 3) amounts reported on the 2112 report can be traced to supporting documentation; and 4) amounts reported on the 2112 report are in line with Federal and State guidelines. Management Response: NDOL agrees that incorrect values were taken from reports, and that the reconciliation and review process was not sufficient.

Program: AL 17.225 – Unemployment Insurance (UI) – State – Special Tests Grant Number & Year: N/A Federal Grantor Agency: U.S. Department of Labor Criteria: Per 2 CFR § 2900.4 (January 1, 2024), the U.S. Department of Labor adopted the OMB Uniform Guidance as its policies and procedures for financial assistance administration. 20 CFR § 616.8(f)(2) (April 1, 2024) states the following: Except as provided in paragraphs (c)(2), (f)(3), and (f)(5) of this section, each such charge shall bear the same ratio to the total benefits paid to the Combined-Wage Claimant by the paying State as the claimant’s wages transferred by the transferring State bear to the total wages used in such determination. Each such ratio shall be computed as a percentage, to three or more decimal places. Neb. Rev. Stat. § 48-652 (Cum. Supp. 2024) states the following: (3)(a) Each experience account shall be charged only for benefits based upon wages paid by such employer. No benefits shall be charged to the experience account of any employer if: (i) Such benefits were paid on the basis of a period of employment from which the claimant (A) left work voluntarily without good cause, (B) left work voluntarily due to a nonwork-connected illness or injury, (C) left work voluntarily with good cause to escape abuse as defined in section 42-903 between household members as provided in subdivision (1) of section 48-628.13, (D) left work from which he or she was discharged for misconduct connected with his or her work, (E) left work voluntarily and is entitled to unemployment benefits without disqualification in accordance with subdivision (3), (5), or (11) of section 48-628.13, or (F) was involuntarily separated from employment and such benefits were paid pursuant to section 48-628.17[.] Good internal controls require procedures to ensure that employers are properly charged, or not charged, for benefit payments made to claimants that have separated from them. Condition: For two claims tested, the base period employers on the claims were not properly charged according to State statute or Federal regulation. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: For Claim #1, the claimant was originally found to have been discharged for misconduct from the base period employer. This ruling was subsequently reversed upon appeal by the claimant. The Agency failed to charge the employer for $12,850 of benefit payments on the claim, until notified by the APA, at which time the employer was correctly charged. For Claim #2, the claim was a Combined Wage Claim (CWC), in which there were base period employers from Nebraska and Texas. On a CWC, employers are to be charged proportionately to wages paid in the base period by the employers from each state. In the claim tested, the Nebraska employer had paid 48.38% of the base period wages, while the Texas employer had paid 51.62%. It was found that the employers were not charged proportionately to the wages paid in the base period and that the total charges on the claim did not agree to total payments on the claim. This resulted in the Nebraska employer being overcharged by $991 and the Texas employer being undercharged by $1,409. See Schedule of Findings and Questioned Costs for chart/table. Cause: Adjudication errors, and the system was not set up properly to charge employers correctly for Combined Wage Claims. Effect: When adjudication errors are made and system errors occur, there is an increased risk of benefit payments being incorrectly charged, or not charged, to the base period employers. Recommendation: We recommend the Agency implement procedures to ensure that employer charging is correctly updated subsequent to appeal determinations and that the Agency corrects known system issues. Management Response: We understand the importance of ensuring that employer charging is correctly updated following appeal determinations. We are committed to improving the accuracy and timeliness of these updates. We are actively working with the vendor to prioritize the required system updates, and in the interim, we will continue to monitor and adjust our processes to minimize any impact on employer charging accuracy.

Program: AL 17.225 – Unemployment Insurance (UI) – State – Special Tests Grant Number & Year: N/A Federal Grantor Agency: U.S. Department of Labor Criteria: Neb. Rev. Stat. § 48-652 (Supp. 2023) states, in relevant part, the following: (3)(a) Each experience account shall be charged only for benefits based upon wages paid by such employer. No benefits shall be charged to the experience account of any employer if: (i) Such benefits were paid on the basis of a period of employment from which the claimant (A) left work voluntarily without good cause, (B) left work voluntarily due to a nonwork-connected illness or injury, (C) left work voluntarily with good cause to escape abuse as defined in section 42-903 between household members as provided in subdivision (1) of section 48-628.13, (D) left work from which he or she was discharged for misconduct connected with his or her work, (E) left work voluntarily and is entitled to unemployment benefits without disqualification in accordance with subdivision (3), (5), or (11) of section 48-628.13, or (F) was involuntarily separated from employment and such benefits were paid pursuant to section 48-628.17[.] * * * * (d) Benefits paid to an eligible individual shall be charged against the account of his or her most recent employers within his or her base period[.] (Emphasis added.) Neb. Rev. Stat. § 48-664 (Reissue 2021) provides the following: Any employer, whether or not subject to the Employment Security Law, or any officer or agent of such an employer or any other person who makes a false statement or representation knowing it to be false, or who knowingly fails to disclose a material fact, to prevent or reduce the payment of benefits to any individual entitled thereto, to obtain benefits for an individual not entitled thereto, to avoid becoming or remaining subject to such law, or to avoid or reduce any contribution or other payment required from an employer under sections 48-648 and 48-649 to 48-649.04, or who willfully fails or refuses to make any such contributions or other payment or to furnish any reports required under the Employment Security Law or to produce or permit the inspection or copying of records as required under such law, shall be guilty of a Class III misdemeanor. . . . When an unemployment benefit overpayment occurs, in whole or in part, as the result of a violation of this section by an employer, the amount of the overpayment recovered shall not be credited back to such employer's experience account. Title 221 NAC Chapter 3-004 provides that employers have 10 days to respond to the Separation Information Request. Title 219 NAC Chapter 15-001 provides the following: Pursuant to Neb. Rev. Stat. §48-631 and §48-607, the Commissioner or the Commissioner’s designee may redetermine a previous monetary or non-monetary determination if (1) there is an error in computation or identity, (2) pertinent wages not previously considered have been newly discovered, or (3) benefits have been allowed or denied or the amount fixed based upon misrepresentations of fact. When deciding if a redetermination should be made, the following definitions shall provide guidelines: A. “Error in computation”. Erroneous information based on omission, misconception, or mathematical error with a resultant consequence of altering claimant eligibility. B. “Error in identity”. The identity of a specific individual or employer as claimed or asserted which does not meet the condition of being the same as described. C. “Newly discovered wages”. Wages for an individual relevant to their eligibility which have not been previously known or incorrectly reported and documented. D. “Misrepresentation of fact”. An indication by words or other conduct by a person(s) to another that, under the circumstances, amounts to an assertion by words or other conduct not in accordance with the facts, and that if accepted leads the mind of the person relying thereon to an understanding other and different from that which actually exists. Misrepresentation can occur either ignorantly or intentionally[.] Good internal controls require procedures to ensure the following: 1) employers are properly charged, or credited, for unemployment benefits; 2) overpayments are established according to State statute and Federal regulation; and 3) overpayments are established in a timely manner by Agency staff after discovery by the Benefit Accuracy Management (BAM) team. Condition: During our testing, we noted the following issues regarding overpayments: • For seven overpayments established, the employers on the claim were not properly charged or relieved of charging for benefits overpaid to claimants. • For three overpayments, the overpayments were not established consistent with written procedures in statute and regulations. • One overpayment was not established in a timely manner after discovery by BAM staff. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: The table below outlines the overpayments tested, the amount of each overpayment, the week endings during which the overpayments occurred, the amount each employer was charged for these weeks, and the amounts credited to their accounts after the overpayments were established. In each case, we noted that the amount credited to the employer’s account was incorrect based on the amount overpaid and State statute. See Schedule of Findings and Questioned Costs for chart/table. For overpayments #1 through #6, the overpayment amount should have been credited to the employers’ accounts. However, the credits were not appropriately applied to the employers’ accounts due to system and employee errors when applying the credits. For overpayment #7, the employer’s account should not have been credited as the overpayment was due to the employer’s untimely response to the separation information request. However, the Agency still credited the employer’s account. Additionally, we noted the following regarding improper credits to employer accounts. Overpayment #1 was established in conjunction with two other overpayments, one for week ended (W.E.) April 29, 2023, for $73 and another for W.E. May 27, 2023, for $514. Employer #1 was originally charged a total of $721 for W.E.s April 29, 2023, and May 20, 2023, and received a full credit for these charges, when only a $73 credit was received. Thus, Employer #1 was improperly credited an additional $319. Employer #2 should have received total credits of $552 but was instead charged an additional $207 during these weeks. Therefore, along with the amount in the table, an additional $392 was charged improperly. For Overpayment #2, the APA noted that Employer #3 was also credited for all additional payments made on the claim, not merely for the W.E.s put into overpayment. This resulted in an additional $9,252 that was incorrectly credited to the employer’s account. On Overpayment #4, Employer #6 was credited all charges that had been made against the account for the claim, a $8,997 total. The amount credited was greater than total overpayments established on the claim of $906. Due to this, Employer #6 incorrectly received additional credits of $7,376. For Overpayment #6, all payments on the claim had previously been credited to the employer’s account due to the claimant’s base period being incorrect. Due to this, Employer #8 had already received the $31 credit due to them by the overpayment tested. In addition to the incorrect employer charging errors, the following three overpayments were incorrectly established by the Agency. See Schedule of Findings and Questioned Costs for chart/table. In addition to the charging errors noted above for Overpayment #2, it was noted that the overpayment established by the Agency was incorrect. The Agency did not correctly consider the wage amounts reported by the claimant’s employer, resulting in the overpayment established being understated by $199. Overpayment #8 was established by the Agency on November 7, 2023. This had occurred because the claimant’s base period wages were redetermined after an earlier overpayment was established on the claim due to the claimant not reporting all wages earned to the Agency. When asked by the APA why the claimant’s base period wages were redetermined, the Agency stated that the earlier overpayment was caused by fraud; thus, the wages were cancelled in the base period. This was incorrect as, per 219 NAC 15, a claimant’s base period may only be redetermined if there is evidence to show that the initial base period was incorrect. As no evidence of this could be provided, the claimant’s base period should not have been redetermined, and Overpayment #8 should not have been established. Overpayment #9 was established after the Agency received a wage audit from the claimant’s employer on July 12, 2021, that stated the claimant earned $431 in wages during the period. However, the Agency had also received a separate wage audit from the same employer on July 6, 2021, which stated the claimant only earned $162 during the period. There was no documentation available to support how the Agency determined which wage amount was the correct one to consider when establishing the overpayment. Additionally, when sent a notice of the overpayment establishment on November 18, 2021, the claimant responded to the Agency on November 22, 2021, claiming not to have worked for this employer during that period. The Agency did not consider the claimant’s response when establishing the overpayment. Finally, during testing of the Benefits Accuracy Measurement (BAM) Investigations completed in fiscal year 2024, it was noted that the BAM investigator had obtained documentation showing the claimant was overpaid $980 for weeks ending February 17, 2024, and March 2, 2024. BAM completed review of the claim on May 6, 2024, and communicated the overpayment to the Benefits team to establish the overpayment. As of testing on August 9, 2024, an overpayment has yet to be established for this issue. Cause: Adjudication errors and the system not properly set up to charge employers correctly. Effect: Without adequate procedures to ensure employer charging is correct, and overpayments are established in a timely manner or properly according to written procedures, there is an increased risk of not only benefit payments being incorrectly charged, or not charged, to the base period employers but also noncompliance with Federal and State regulations. Recommendation: We recommend the Agency implement procedures to ensure the following: 1) employer accounts are properly charged or relieved of charges when overpayments are established; 2) overpayments are established in compliance with Federal and State regulations; and 3) overpayments are established in a timely manner after discovery by the BAM team. Management Response: We are committed to ensuring that employer accounts are properly charged or relieved of charges when overpayments are identified. We recognize the importance of addressing overpayments promptly to maintain the integrity of the UI system. We have established procedures to address the timely establishment of overpayment and their impact on charging.

Program: AL 17.225 – Unemployment Insurance (UI) – Admin – Allowability Grant Number & Year: UI347272055A31, grant period 4/1/2020 to 6/30/2024; UI370762155A31, grant period 9/1/2021 to 8/31/2024; UI386582255A31, grant period 4/1/2022 to 3/31/2024; UI393342355A31, grant period 10/1/2022 to 12/31/2025; UI395462355A31, grant period 1/1/2023 to 9/30/2024; 23A60UR000043, grant period 1/1/2023 to 9/30/2024 Federal Grantor Agency: U.S. Department of Labor Criteria: Per 2 CFR § 2900.4 (January 1, 2024), the U.S. Department of Labor adopted the OMB Uniform Guidance as its policies and procedures for financial assistance administration. 2 CFR § 200.405 (January 1, 2024) states the following, in relevant part: a) A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. * * * * d) Direct cost allocation principles: If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, notwithstanding paragraph (c) of this section, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis. 2 CFR § 200, Appendix VII, subsection (E)(1) (January 1, 2024), states the following: Indirect cost rates will be reviewed, negotiated, and approved by the cognizant agency on a timely basis. Once a rate has been agreed upon, it will be accepted and used by all Federal agencies unless prohibited or limited by statute. 2 CFR § 200, Appendix VII, subsection (F)(3) (January 1, 2024), states the following: In certain situations, governmental departments or agencies (components of the governmental unit), because of the nature of their Federal awards, may be required to develop a cost allocation plan that distributes indirect (and, in some cases, direct) costs to the specific funding sources. In these cases, a narrative cost allocation methodology should be developed, documented, maintained for audit, or submitted, as appropriate, to the cognizant agency for indirect costs for review, negotiation, and approval. Sound accounting practices require the indirect costs to be allocated based on a reasonable basis and, when required, per an approved cost allocation plan. Condition: The Agency did not allocate indirect costs in accordance with its approved cost allocation plan. Repeat Finding: No Questioned Costs: $26,393 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: Per the Agency’s indirect cost allocation plan, which was approved for the period July 1, 2021, to June 30, 2022, and provisionally approved through June 30, 2024, indirect costs were to be allocated based on direct labor hours allocated monthly. For the State fiscal year ended June 30, 2024, the Agency planned to submit an indirect cost allocation plan where each month’s costs would first be allocated to each Federal program Assistance Listing by the prior year’s total direct expenses, and then be allocated within each Federal program Assistance Listing by direct labor hours to each Federal grant. However, as this indirect cost allocation plan had not yet been approved, the Agency should have continued to allocate costs based on the plan that was provisionally approved and adjusted once the plan had been approved. Additionally, the Agency’s plan to allocate costs based on prior year expenses does not appear reasonable, and using a basis that considers more current information would be more reasonable. During the fiscal year, the Agency charged $3,099,014 to Unemployment Insurance from allocated indirect costs. We tested an entry that allocated $194,430 to the Unemployment Insurance program. Based on our recalculation, we determined that only $168,037 should have been allocated to the Unemployment Insurance program, a variance of $26,393. Cause: The Agency developed and used a new cost allocation plan for State fiscal year 2024 without approval from its cognizant Federal agency. Effect: When costs are not allocated based on the approved indirect cost allocation plan, Federal programs will not be allocated correctly, which could result in improper payments. Recommendation: We recommend the Agency allocate costs in accordance with its approved cost allocation plan. Management Response: NDOL agrees that the cost allocation plan requires approval from the Federal authority. The process as described in the finding was designed to establish a weighted factor to prevent over allocation of indirect costs to smaller federal grant programs. The factor was supposed to be updated every month rather than determined and set for an entire year.

Program: AL 20.509 – Formula Grants for Rural Areas – Allowability & Subrecipient Monitoring Grant Number & Year: NE-2021-11-00, Performance End FFY 2024; NE-2023-030-00, Performance End October 30, 2025; NE-2024-006-00, Performance End December 31, 2026 Federal Grantor Agency: U.S. Department of Transportation Criteria: Per 2 CFR § 1201.1 (January 1, 2024), the U.S. Department of Transportation adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth at Title 2 CFR part 200. 2 CFR § 200.403 (January 1, 2024) requires costs to be reasonable, necessary, and adequately documented. A good internal control plan requires procedures to be in place to ensure compliance with Federal and State requirements. 2 CFR § 200.332(d) (January 1, 2024) requires the pass-through entity to do the following: 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. 2 CFR § 200.430(i)(1) (January 1, 2024) states the following, in relevant part: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards . . . . Per 2 CFR § 200.405(a) (January 1, 2024), “A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received.” 2 CFR § 200.442(a) (January 1, 2024) states the following: Costs of organized fund raising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions, are unallowable. Fund raising costs for the purposes of meeting the Federal program objectives are allowable with the prior written approval of the Federal agency. Condition: The Agency lacked adequate documentation to support that payments were for allowable activities and in accordance with allowable cost principles. A similar finding was noted in the prior audit. Repeat Finding: 2023-065 Questioned Costs: $4,905 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: During the fiscal year, the Agency paid 64 subrecipients a total of $12,622,391. We selected five payments to subrecipients for testing. The Agency performed financial reviews for subrecipients; however, the reviews tested did not always include all necessary supporting documentation. When additional documentation was needed, we provided the Agency with the opportunity to obtain additional support from the subrecipient; however, adequate support was not always obtained or able to be provided. See Schedule of Findings and Questioned Costs for chart/table. We noted the following: • Two subrecipients tested did not have adequate support for all personnel charges. One individual tested was reimbursed at the non-operating rate but should have been reimbursed at the operating rate. Another individual’s personnel costs were based on budgeted amounts. • Fuel costs for one subrecipient did not agree with invoices. • One subrecipient did not properly report revenues collected, resulting in an overcharge of the Federal reimbursement. • All five subrecipients tested had capital or non-operating costs that were not adequately supported. Costs allocated between programs were not adequately supported, travel costs did not appear reasonable, and fundraising costs of $100 were charged. Cause: Procedures were not adequate to ensure costs were in accordance with Federal requirements. Effect: Increased risk for errors or misuse of funds. Recommendation: We recommend the Agency improve procedures to ensure expenditures are allowable and in accordance with Federal regulations. Management Response: NDOT acknowledges the audit findings related to subrecipient monitoring and cost allowability under the grant funding. We will continue to ensure compliance with regulations and are committed to improving our internal controls to prevent recurrence of similar findings.

Program: AL 21.023 – COVID-19 Emergency Rental Assistance – Allowability & Eligibility Grant Number & Year: ERAE1185, grant period ending 9/30/2025 Federal Grantor Agency: U.S. Department of the Treasury Criteria: Title III, Subtitle B, Section 3201(f)(2), of the American Rescue Plan Act, 2021, Pub. L. No. 117-2 (March 11, 2021) states the following: ELIGIBLE HOUSEHOLD. – The term ‘‘eligible household’’ means a household of 1 or more individuals who are obligated to pay rent on a residential dwelling and with respect to which the eligible grantee involved determines that— (A) 1 or more individuals within the household has-- (i) qualified for unemployment benefits; or (ii) experienced a reduction in household income, incurred significant costs, or experienced other financial hardship during or due, directly or indirectly, to the coronavirus pandemic; (B) 1 or more individuals within the household can demonstrate a risk of experiencing homelessness or housing instability; and (C) the household is a low-income family (as such term is defined in section 3(b) of the United States Housing Act of 1937 (42 U.S.C. 1437a(b)). Low-income family is defined in 42 U.S.C. § 1437a(b)(2)(A) as follows: [F]amilies whose incomes do not exceed 80 per centum of the median income for the area, as determined by the Secretary with adjustments for smaller and larger families . . . . Per 2 CFR § 1000.10 (January 1, 2024), the U.S. Department of the Treasury adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth in 2 CFR part 200. Per 2 CFR § 200.303 (January 1, 2024): 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. Question 4 of the Frequently Asked Questions (FAQ) guidance document (Revised March 5, 2024), issued by the U.S. Department of the Treasury, for the Emergency Rental Assistance program, states, in relevant part, the following: If a written attestation without further verification is relied on to document the majority of the applicant’s income, the grantee must reassess the household’s income every three months, by obtaining appropriate documentation or a new self-attestation. Question 5 of the FAQ guidance document states, in relevant part, the following: Grantees must obtain, if available, a current lease, signed by the applicant and the landlord or sublessor, that identifies the unit where the applicant resides and establishes the rental payment amount. If a household does not have a signed lease, documentation of residence may include evidence of paying utilities for the residential unit, an attestation by a landlord who can be identified as the verified owner or management agent of the unit, or other reasonable documentation as determined by the grantee. In the absence of a signed lease, evidence of the amount of a rental payment may include bank statements, check stubs, or other documentation that reasonably establishes a pattern of paying rent, a written attestation by a landlord who can be verified as the legitimate owner or management agent of the unit, or other reasonable documentation as defined by the grantee in its policies and procedures. Question 7 of the FAQ guidance document states, in relevant part, the following: For both ERA1 and ERA2, other expenses related to housing include relocation expenses (including prospective relocation expenses), such as rental security deposits, and rental fees, which may include application or screening fees. It can also include reasonable accrued late fees (if not included in rental or utility arrears), and Internet service provided to the rental unit . . . . All payments for housing-related expenses must be supported by documentary evidence such as a bill, invoice, or evidence of payment to the provider of the service. Good internal control requires procedures to ensure that adequate supporting documentation is obtained and utilized during the application review process. Good internal control also requires procedures to ensure compliance with Federal regulations. Condition: Procedures were inadequate to ensure that households were eligible and that the payment amounts were correct. A similar finding was noted in the prior audit. Repeat Finding: 2023-058 Questioned Costs: $12,343 known Statistical Sample: No Context: We tested 27 assistance payments. We noted the following: • For four payments, adequate income verification was not performed. o For one payment, the application stated that there was only one adult in the household. However, a second adult was included on the lease agreement. The Agency failed to verify whether a second adult was included in the household; thus, income verification was also not performed on the second adult. This resulted in questioned costs of $2,730. o For two payments, at least one member from each household attested on the application that the household member did not have income. Subsequent payments were made for rent three months after the attestation. The Agency did not reassess the household’s income, nor obtain a new self-attestation as required per the FAQ. This resulted in questioned costs of $3,525. o For one payment, the applicant was married but did not include the spouse on the application. The Agency considered only the applicant’s income when determining eligibility. However, income documentation on file for both the applicant and the spouse would result in the applicant being ineligible. The Agency did not verify whether the spouse should have been included in the household. This resulted in questioned costs of $3,540. • For 10 payments, the payment amount was incorrect. o For one payment, the Agency calculated a payment amount of $1,285; however, after reviewing the lease, we calculated an amount of $1,161, a difference of $123. o For eight payments, we did not agree with the amount paid for late fees. For rent paid for future months, it was the Agency’s policy to pay the late fee if the payment was approved after the 15th of the previous month. For example, if the Agency approved a rental payment for the month of May 2024 on April 16, 2024, the Agency would also pay a late fee for May 2024. However, per review of the actual date paid, the late fees paid were either excessive or should not have been paid at all. Additionally, in some cases, the Agency calculated the late fee by taking the monthly rent amount multiplied by 10%. However, this also resulted in the amount of late fees paid being excessive per the lease agreement. In total, we questioned $425 in excessive late fees. o For one payment, the Agency paid future rent for three months, totaling $3,000, on May 7, 2024. However, the tenant moved after the first month. The Agency did not start to attempt to collect the overpayment of $2,000 until January 10, 2025. The $2,000 overpayment is considered questioned costs. Federal payment errors for the sample tested were $12,343. The total sample tested was $68,482, and assistance payments for the fiscal year totaled $11,541,538. Based on the sample tested, the dollar error rate for the sample was 18.02% ($12,343/$68,482), which estimated the potential dollars at risk for fiscal year 2024 to be $2,079,785 (dollar error rate multiplied by the population). Cause: Inadequate procedures to ensure all income was verified, and self-attestations of income were obtained every three months. Inadequate procedures to ensure the payment amount was correct. Effect: Increased risk of loss or misuse of funds and noncompliance with Federal guidelines. Recommendation: We recommend the Agency strengthen policies and procedures to ensure applicants are eligible for assistance, and payment amounts are reasonable and proper. Management Response: NEMA will work with NIFA to strengthen policies and procedures and provide additional guidance to Nelnet agents to ensure applicants are eligible for assistance and payment amounts are reasonable and proper. Regarding late fees, we will consider a change to the existing policy and review recommended changes.

Program: AL 21.023 – COVID-19 Emergency Rental Assistance – Reporting Grant Number & Year: ERAE1185, grant period ending 9/30/2025 Federal Grantor Agency: U.S. Department of the Treasury Criteria: Per 2 CFR § 1000.10 (January 1, 2024), the U.S. Department of the Treasury adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth in 2 CFR part 200. 2 CFR § 200.302(a) (January 1, 2024) states, in relevant part, the following: [T]he state’s and the other non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.   The Emergency Rental Assistance Program (ERA 2) Reporting Guidance (Revised January 3, 2024), issued by the U.S. Department of the Treasury, states, in part, the following: Each ERA2 Recipient must report the cumulative number of unique ERA2 participant households that were paid any dollar amount for at least one of the following: rent, rental arrears, utilities/home energy costs, utility/home energy arrears, or other expenses related to housing, between the date of receipt of the ERA2 award and the end of the current reporting period, by the following ranges of household income levels: i. Less than 30% of area median income (#) ii. Between 30% and 50% of area median income (#) iii. Between 50% and 80% of area median income (#) A good internal control plan requires procedures to ensure that all required information is reported accurately and supported by underlying data. Condition: For two of two quarterly reports tested, figures reported for unique participant households at certain income levels did not agree to supporting documentation. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: For the quarters ended March 31, 2024, and June 30, 2024, ERA 2 quarterly compliance reports, the Agency reported a cumulative number of unique households of 862 and 1,940, respectively. We noted during testing that the cumulative number of unique households, once split between different ranges of household income levels, did not agree with the Agency’s supporting documentation. The tables below show the differences between the reported households and the actual households. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate review of supporting documentation. Effect: Without adequate procedures to ensure reports contain accurate information, there is increased risk of noncompliance with Federal regulations. Recommendation: We recommend the Agency implement procedures to ensure figures reported in the ERA 2 quarterly compliance reports are accurate and agree to supporting documentation. Management Response: A vendor supplied report was found to contain an error in the way summary AMI data was accumulated.

Program: AL 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds – Allowability Grant Number & Year: SLFRP1965, March 3, 2021, through December 31, 2024 Federal Grantor Agency: U.S. Department of the Treasury Criteria: 31 CFR § 35.6(b) (July 1, 2023) states, in relevant part, the following: A recipient may use funds to respond to the public health emergency or its negative economic impacts if the use meets the criteria provided in paragraph (b)(1) of this section or is enumerated in paragraph (b)(3) of this section; provided that, in case of a use of funds for a capital expenditure under paragraph (b)(1) or (b)(3) of this section, the use of funds must also meet the criteria provided in paragraph (b)(4) of this section. Treasury may also articulate additional eligible programs, services, or capital expenditures from time to time that satisfy the eligibility criteria of this paragraph (b), which shall be eligible under this paragraph (b). (1) Identifying eligible responses to the public health emergency or its negative economic impacts. (i) A program, service, or capital expenditure is eligible under this paragraph (b)(1) if a recipient identifies a harm or impact to a beneficiary or class of beneficiaries caused or exacerbated by the public health emergency or its negative economic impacts and the program, service, or capital expenditure responds to such harm. (ii) A program, service, or capital expenditure responds to a harm or impact experienced by an identified beneficiary or class of beneficiaries if it is reasonably designed to benefit the beneficiary or class of beneficiaries that experienced the harm or impact and is related and reasonably proportional to the extent and type of harm or impact experienced. * * * * (3) Enumerated eligible uses: Responses presumed reasonably proportional. A recipient may use funds to respond to the public health emergency or its negative economic impacts on a beneficiary or class of beneficiaries for one or more of the following purposes unless such use is grossly disproportionate to the harm caused or exacerbated by the public health emergency or its negative economic impacts: * * * * (ii) Responding to the negative economic impacts of the public health emergency for purposes including: * * * * (D) Assistance to tourism, travel, hospitality, and other impacted industries for programs, services, or capital expenditures, including support for payroll costs and covered benefits for employees, compensating returning employees, support for operations and maintenance of existing equipment and facilities, and technical assistance[.] 31 CFR § 35.6(c) (July 1, 2023) states the following: Providing premium pay to eligible workers. A recipient may use funds to provide premium pay to eligible workers of the recipient who perform essential work or to provide grants to eligible employers that have eligible workers who perform essential work, provided that any premium pay or grants provided under this paragraph (c) must respond to eligible workers performing essential work during the COVID–19 public health emergency. A recipient uses premium pay or grants provided under this paragraph (c) to respond to eligible workers performing essential work during the COVID–19 public health emergency if: (1) The eligible worker’s total wages and remuneration, including the premium pay, is less than or equal to 150 percent of the greater of such eligible worker’s residing State’s or county’s average annual wage for all occupations as defined by the Bureau of Labor Statistics’ Occupational Employment and Wage Statistics; (2) The eligible worker is not exempt from the Fair Labor Standards Act overtime provisions (29 U.S.C. 207); or (3) The recipient has submitted to the Secretary a written justification that explains how providing premium pay to the eligible worker is responsive to the eligible worker performing essential work during the COVID–19 public health emergency (such as a description of the eligible workers’ duties, health, or financial risks faced due to COVID–19, and why the recipient determined that the premium pay was responsive despite the worker’s higher income). [Emphasis added] 31 CFR § 35.3 (July 1, 2023) defines “premium pay,” in relevant part, as follows: Premium pay means an amount of up to $13 per hour that is paid to an eligible worker, in addition to wages or remuneration the eligible worker otherwise receives, for all work performed by the eligible worker during the COVID–19 public health emergency. Such amount may not exceed $25,000 in total over the period of performance with respect to any single eligible worker. H.J. Res 7 (2023) states the following: Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That, pursuant to section 202 of the National Emergencies Act (50 U.S.C. 1622), the national emergency declared by the finding of the President on March 13, 2020, in Proclamation 9994 (85 Fed. Reg. 15337) is hereby terminated. Approved April 10, 2023. Additionally, the “Final Rule” was released by the U.S. Department of the Treasury on January 6, 2022. The Final Rule, Section II. Eligible Uses, A. Public Health and Negative Economic Impacts, 1. General Provisions: Structure and Standards, a. Standards for Identifying a Public Health or Negative Economic Impact, Standards: Designating a Negative Economic Impact, states the following, in relevant part: (Page 4344) First, there must be a negative economic impact, or an economic harm, experienced by an individual or a class. The recipient should assess whether, and the extent to which, there has been an economic harm, such as loss of earnings or revenue, that resulted from the COVID-19 public health emergency. A recipient should first consider whether an economic harm exists and then whether this harm was caused or made worse by the COVID-19 public health emergency. * * * * Second, the response must be designated to address the identified economic harm or impact resulting from or exacerbated by the public health emergency. In selecting responses, the recipient must assess whether, and the extent to which, the use would respond to or address this harm or impact. * * * * Responses must be reasonably designed to benefit the individual or class that experienced the negative economic impact or harm. Uses of funds should be assessed based on their responsiveness to their intended beneficiary and the ability of the response to address the impact or harm experienced by that beneficiary. Responses must also be related and reasonably proportional to the extent and type of harm experienced. The Final Rule, Section II. Eligible Uses, A. Public Health and Negative Economic Impacts, 4. General Provisions: Other, a. Public Sector Capacity and Workforce, states the following, in relevant part: (Page 4386) The final rule allows for an expanded set of eligible uses to restore and support public sector employment. Eligible uses include hiring up to a pre-pandemic baseline that is adjusted for historic underinvestment in the public sector, providing additional funds for employees who experienced pay cuts or were furloughed, avoiding layoffs, providing worker retention incentives, and paying for ancillary administrative costs related to hiring. * * * * The final rule provides two options to restore pre-pandemic employment, depending on recipient’s needs. Under the first and simpler option, recipients may use SLFRF funds to rehire staff for pre-pandemic positions that were unfilled or were eliminated due the pandemic without undergoing further analysis. Under the second option, the final rule provides recipients an option to hire above the pre-pandemic baseline, by adjusting the pre-pandemic baseline for historical growth in public sector employment over time, as well as flexibility on roles for hire. * * * * To pursue the second option, recipients should undergo the analysis provided below. In short, this option allows recipients to pay for payroll and covered benefits associated with the recipient increasing its number of budgeted full-time equivalent employees (FTEs) up to 7.5 percent above its pre-pandemic employment baseline, which adjusts for the continued underinvestment in state and local governments since the Great Recession. * * * * Funds may be used to maintain current compensation levels, with adjustments for inflation, in order to prevent layoffs that would otherwise be necessary. Recipients must be able to substantiate that layoffs were likely in the absence of SLFRF funds and would be substantially due to the public health emergency or its negative economic impacts (e.g., fiscal pressures on state and local budgets) and should document their assessment. * * * * Funds may be used to provide worker retention incentives, which are designed to persuade employees to remain with the employer as compared to other employment options. Recipients must be able to substantiate that the employees were likely to leave employment in the absence of the retention incentive and should document their assessment. * * * * All worker retention incentives must be narrowly tailored to need and should not exceed incentives traditionally offered by the recipient or compensation that alternative employers may offer to compete for the employees. Further, because retention incentives are intended to provide additional incentive to remain with the employer, they must be entirely additive to an employee’s regular rate of wages and other remuneration and may not be used to reduce or substitute for an employee’s normal earnings. Treasury will presume that retention incentives that are less than 25 percent of the rate of base pay for an individual employee or 10 percent for a group or category of employees are reasonably proportional to the need to retain employees, as long as the other requirements are met. The Final Rule, Footnote 230 states the following, in relevant part: (Page 4379) Ultimately, recipients must comply with the eligible use requirements and any other applicable laws or requirements and are responsible for the actions of their subrecipients or beneficiaries. Per 2 CFR § 1000.10 (January 1, 2024), “[T]he Department of the Treasury adopts the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, set forth at 2 CFR part 200.” 2 CFR § 200.303 (January 1, 2024) states, in relevant part, the following: 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. Per 2 CFR § 200.403 (January 1, 2024), costs must be necessary and reasonable for the performance of the Federal award. Costs must also be adequately documented. Good internal control and sound business practices require procedures for ensuring that: 1) grants issued to beneficiaries are reasonable and proportional to the harm identified; 2) premium pay is paid to only eligible individuals; 3) expenditures are adequately supported; and 4) all expenditures are for allowable purposes. 2 CFR § 200.511(a) (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The State lacked procedures to ensure that: • Grants issued to beneficiaries for worker retention and incentives were used for such purposes. • Premium pay paid to eligible individuals was for work performed during the COVID-19 public health emergency. • Grants to beneficiaries were proportional to the negative economic harm incurred. • Funds used for behavioral healthcare programs were adequately documented. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as complete. Repeat Finding: 2023-061 Questioned Costs: $512,698 known Statistical Sample: No Context: We randomly selected 40 payments to test. We also judgmentally selected 16 payments and 10 journal entries to test. We noted the following: Payments to Nursing Facilities and Assisted-Living for Employee Retention and Recruitment Nebraska Legislative Bill (LB) 1014 (2022), section 28, appropriated $15,000,000 from the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) grant to the Department of Health and Human Services (DHHS) for State fiscal year 2024 to be paid out to Medicaid-certified nursing facilities. The funds were to be used to provide supplemental incentive payments for direct care staff members employed at the nursing facilities. DHHS paid out $15,000,000 to Medicaid-certified nursing facilities during State fiscal year 2024. LB 1412 (2024), section 24, appropriated $1,499,657 in CSLFRF funds to DHHS to be used to issue payments to rural assisted-living facilities. Per DHHS, these funds were intended to be used for employee retention and recruitment programs at the facilities. DHHS paid out $1,499,657 to assisted-living facilities during State fiscal year 2024. During testing of a random sample of 40 CSLFRF expenditures, we tested four payments made to Medicaid-certified nursing facilities, totaling $383,409. We asked for documentation of how DHHS ensured that the payments were used for allowable employee retention and recruitment programs, and for any documented assessments that were required by the Final Rule for worker incentive programs. According to DHHS, the funds were paid out in accordance with the requirements of LB 1014. Additionally, DHHS obtained signed attestations from all nursing facilities that received funds in which the facility attested that it is aware that funds provided can only be used to enhance employee recruitment and retention and that funds were used for said purpose. No other procedures were performed by DHHS to ensure that the nursing facilities were using the funds for eligible recruitment and retention purposes and DHHS failed to provide documentation supporting any of the assessments required by the CSLFRF Final Rule. Given the lack of procedures to support that funds were being used for allowable purposes, all four payments of the $383,409 tested are considered questioned costs. Additionally, we judgmentally selected one payment to an assisted living facility pursuant to LB 1412, section 24, totaling $54,464. Similar to the nursing facility payments tested, DHHS intends to have each assisted-living facility sign an affidavit attesting that the assisted-living facility is aware that funds provided can only be used to enhance employee recruitment and retention and that funds were used for said purpose. No other procedures were performed or planned to be performed. Therefore, the $54,464 payment tested is considered a questioned cost. We also noted that one nursing facility did not receive its proportional allocation of $131,839. Instead, that amount was split among the other nursing facilities that received payments. Assistance to the State Fair LB 1014, section 52, appropriated $20,000,000 to the Department of Environment and Energy (DEE) from the CSLFRF grant to be used to provide wastewater and drainage system updates at the State fairgrounds. The State Fair Board received a grant of $20,000,000, and we judgmentally selected one payment to the State Fair Board, totaling $798,092. Of the $20,000,000 grant, $14,705,610 was for stormwater and sewer infrastructure, and $5,294,390 was for aid to tourism due to experiencing negative economic harm due to the COVID-19 public health emergency. Of the $5,249,390, however, the documentation on file only supported negative economic harm experienced of $4,539,525. Therefore, the grant award is not proportional to the harm experienced. As of June 30, 2024, only $1,396,267 of the portion for aid to tourism had been paid to the State Fair Board; therefore, we did not question costs. Payments to Schools, Child Care Providers, and Health Care Providers for Employee Premium Pay LB 1014, section 15, appropriated $10,000,000 to the Nebraska Department of Labor (NDOL) to be administered and distributed by NDOL through the recommendation of the Nebraska Worker Training Board. A portion of the $10,000,000 was being used for premium pay to teachers, child care providers, and nurses. NDOL paid out $5,277,250 to recipients for premium pay during the fiscal year. During our testing of a random sample of 40 CSLFRF payments, we tested four payments to recipients for premium pay, totaling $669,500. As part of NDOL’s procedures for reviewing requests for premium pay, NDOL had the entity provide the details of the employees that the premium pay was meant to benefit including name, hire date, and pay rate. NDOL had no procedures to verify the information submitted by the recipients to ensure that the employees met the eligibility requirements of 31 CFR § 35.6. Additionally, we noted that NDOL did not have any procedures in place after payments were issued to recipients to ensure that the premium pay was actually paid out to the employees they were intended to benefit. We asked NDOL to reach out to the recipients and subsequently provide us with underlying documentation for a selection of employees from the recipient. We noted that the employee information provided by the recipient was sufficient to determine eligibility and verify that individual employees received the premium pay that NDOL approved for them. However, for the four payments tested, we noted that premium pay was paid to 44 employees that were not hired until after the COVID-19 public health emergency ended or a few days prior to when the public health emergency ended on April 10, 2023. Premium pay paid to these individuals totaled $71,500, of which $70,250 was in-sample, and $1,250 was out-of-sample. The $71,500 is considered questioned costs. Behavioral Healthcare Programs LB 1014, section 24, appropriated $10,000,000 to DHHS to be distributed to local health departments for one-time infrastructure needs and any other costs including testing, personal protective equipment, and other preventative measures to combat the COVID-19 virus. We judgmentally selected one payment made pursuant to this purpose, totaling $367,699. Of the $367,699 tested, $3,325 was for backstage passes and zoo memberships purchased from the Henry Doorly Zoo. Per DHHS, these passes and memberships were used by program participants and employees of the local health department to facilitate non-traditional therapy methods, such as animal therapy and physical activity for the program participants. DHHS provided a list of 11 participants that supposedly used the passes and memberships; however, adequate documentation was not provided to support that those were the individuals that actually used the passes and memberships. We consider the $3,325 to be questioned costs. Total questioned costs from the random sample were $453,659. The total sample tested was $15,192,612, and the total sample population was $186,386,848. Based on the sample tested, the dollar error rate for the sample was 2.99% ($453,659/$15,192,612), which estimates the potential dollars at risk for fiscal year 2024 to be $5,572,967 (dollar error rate multiplied by the population). Cause: Inadequate procedures to ensure that grants to nursing and assisted-living facilities were used for allowable purposes, to ensure that premium pay was only paid to individuals employed during the COVID-19 public health emergency, and to obtain adequate documentation to verify that grants made were reasonably proportional to the negative economic harm experienced. Effect: Without adequate supporting documentation and review procedures, there is an increased risk that Federal awards could be used for unallowable costs. Recommendation: We recommend the State strengthen procedures for ensuring that all Federal funds are used for intended and allowable purposes. Management Response: Department of Health and Human Services DHHS agrees with the finding regarding payments to nursing facilities and assisted-living for employee retention and recruitment. DHHS does not disagree with APA’s characterization of the Behavioral Health Care program administered by Douglas County Health Department. However, DHHS provided the membership IDs purchased and contact details, including name, phone, email, and address, for every parent or guardian and the age of their minor children who participated in this behavioral health program. To the Department’s knowledge, APA did not follow up with any of these contacts. Department of Environment and Energy NDEE management in coordination/conjunction with the Department of Administrative Services Budget Team revisited the State Fair Board tourism loss calculation, taking the APA’s assessment into consideration. We agree with the APA’s assessment and recalculation of tourism loss in the amount of $4,539,525. Department of Labor Premium pay is additional hourly compensation paid to eligible workers in addition to their regular hourly wages for the heightened risk they faced during the COVID-19 pandemic as defined under the CSLFRF. It may be called “Premium Pay” in the NDOL Guidance document, but the payments were for “recruitment and retention” of workers which are not subject to the time restrictions of the declaration of the COVID-19 emergency. The 12-31-2024 obligation date applies to recruitment and retention grants. Teacher Recruitment and Retention Grant (“TRRG”) awards will fund premium pay as part of a strategy to support recruitment and retention of educators in high-demand positions. Nursing Recruitment and Retention Grant (“NRRG”) awards will fund premium pay as part of a strategy to support recruitment and retention of healthcare workers in high-demand positions. Premium pay will target registered nurses (RNs), licensed practical nurses (LPNs), and certified nursing assistants (CNAs) working in eligible practice settings. NRRG award recipients will be healthcare institutions and healthcare systems, and these recipients will commit to provide training and professional development to support the retention of the healthcare workers eligible for premium pay. NRRG funds will be used to make lump sum payments of premium pay wages of $2,500.00 to RNs, $1500 to LPNs, and $1000 to CNAs in eligible positions who remain employed as of January 9, 2024. APA Response: The health department is a subrecipient of DHHS. It is DHHS’s responsibility to ensure that subrecipients comply with the requirements of the Federal program. Adequate documentation, such as attestation forms or sign-in sheets, were not provided to support that the zoo memberships and passes were actually used by those individuals for the behavioral health program. The guidance document that the NDOL provided to the APA referred to these payments as “premium pay.” Under the CSLFRF Final Rule, the use of CSLFRF funds for the purposes of employee retention and recruitment requires, among other things, the recipient to be able to substantiate that employees were likely to leave in the absence of the retention incentive or that funds were used only to rehire roles that became vacant due to the COVID-19 pandemic or up to an adjustment pre-pandemic baseline. No documentation of such an analysis was provided to the APA.

Program: AL 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds – Reporting Grant Number & Year: SLFRP1965, March 3, 2021, through December 31, 2024 Federal Grantor Agency: U.S. Department of the Treasury Criteria: 31 CFR § 35.3 (July 1, 2023) defines “obligation” as the following: [A]n order placed for property and services and entering into contracts, subawards, and similar transactions that require payment. 31 CFR § 35.6(b)(4) (July 1, 2023) states, in relevant part, the following: A recipient, other than a Tribal government, must prepare a written justification for certain capital expenditures according to Table 1 to paragraph (b)(4) of this section. Such written justification must include the following elements: (i) Describe the harm or need to be addressed; (ii) Explain why a capital expenditure is appropriate; and (iii) Compare the proposed capital expenditure to at least two alternative capital expenditures and demonstrate why the proposed capital expenditure is superior. See Schedule of Findings and Questioned Costs for chart/table. 2 CFR § 200.302(a) (January 1, 2024) states, in relevant part, the following: [T]he state’s and the other non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions[.] Good internal control and sound business practices require policies and procedures to ensure that all Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) reporting requirements are met, including the maintenance of written justification on file for projects with expected capital expenditures of more than $1 million and that written justification is submitted to the Treasury, as required, for projects with expected capital expenditures of $10 million or more. 2 CFR § 200.511(a) (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The Department of Administrative Services (DAS) was responsible for preparing the Quarterly Project and Expenditure Reports. DAS lacked procedures to ensure that CSLFRF obligations and expenditures were reported accurately on the Quarterly Project and Expenditure Reports, or written justification was accurately submitted or on file for projects with expected capital expenditures. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as complete. Repeat Finding: 2023-062 Questioned Costs: None Statistical Sample: No Context: We tested the quarters ended December 31, 2023, and June 30, 2024, Project and Expenditure reports. We selected 10 of 93 projects from the quarter ended December 31, 2023, report and 10 of 96 projects from the quarter ended June 30, 2024, report to test. We noted the following: Current and Cumulative Obligations Reported Nine of the projects tested did not have current obligations or cumulative obligations reported correctly, as shown in the following table. See Schedule of Findings and Questioned Costs for chart/table. For the Nursing Scholarships and Private Reverse Osmosis projects, the obligations consisted of multiple different awards to individuals. When testing some of the awards, we noted that the date the State was reporting the awards as obligated did not agree to the date that the awards were signed. For example, one award tested was reported as obligated in December 2023, but it was not actually signed until January 2024. Therefore, we were unable to determine the amount that should have been reported as obligations. During testing of the projects above, we also noted the following errors in the obligations reported. See Schedule of Findings and Questioned Costs for chart/table. Additionally, the PH EMS Ambulance project reported $0 in current period obligations on the quarter ended September 30, 2023, report. However, we reviewed two awards that were reported as obligated in April 2023 but were not actually signed until July 2023. Therefore, the current period obligations for September 2023 were understated. Current and Cumulative Expenditures Reported Three of the projects tested did not have cumulative or current period expenditures reported correctly. See Schedule of Findings and Questioned Costs for chart/table. For the Loan Repayment for Healthcare Workers project, $53,802 should have been reported under the ARPA Administration project, of which $23,709 was current period expenditures. Additionally, during our testing of the projects above, we noted that the cumulative expenditures reported for projects administered by the State Colleges System were overstated by $6,999 as of June 30, 2024. Capital Expenditures Four projects either did not properly report expected capital expenditures, or the required written justification was not on file. • Long-Term Housing Security – Affordable Housing – The State reported expected capital expenditures of $750,000 as of June 30, 2024, for this project and included no written justification in the quarterly report. Per the Department of Economic Development (DED), the State agency administering the project, all $39.4 million of CSLFRF funds obligated under the project are expected to be used for capital expenditures. Based on this valuation, written justification would have been required to be submitted to the Treasury and kept on file. Per DED, no written justification had been completed for the project, and nothing was submitted to the Treasury. • PH EMS Ambulance – The State reported no expected capital expenditures for this project. The project uses CSLFRF grant funds to reimburse licensed EMS services for partial costs of acquiring new ambulances. Per discussion with DHHS, all costs recorded under this project should be expected capital expenditures. DHHS treated each subaward under the project separately when determining if written justification was required. As no single subaward was for $1 million or more, DHHS had not documented any written justification. • Medical Facilities for Disproportionately Impacted Communities – The State reported no expected capital expenditures for this project, which is solely for the design and construction of a new clinic. Per discussion with DED, the agency administering the project, the project should have had $2,000,000 of expected capital expenditures. DED also stated that no written justification had been completed for the project. • New Law Enforcement Training Center – The State reported expected capital expenditures of $47,000,000 for this project. The written justification was submitted with the quarterly report; however, the written justification did not include a comparison of the proposed capital expenditure to at least two alternatives and demonstrate why the proposed expenditure was superior, as required by Federal regulations. • Additionally, during testing we noted that the Food Security project reported expected capital expenditures of $3,967,469; however, no written justification was on file for the project. DHHS treated each subaward under the project separately when determining if written justification was required. As no single subaward was for $1 million or more, DHHS had not documented any written justification. Cause: Individual agencies were responsible for reporting to DAS what should be reported on the Quarterly Project and Expenditure Report. Not all information reported by the agencies was accurate, and the State was not determining obligations in accordance with Federal definitions in several instances. Effect: Without adequate procedures, there is increased risk that the quarterly project and expenditure reports will be materially misstated, and required written justification will not be on file. Recommendation: We recommend the Agency strengthen procedures to ensure that all quarterly project and expenditure reports are complete and accurate, and any required written justification is maintained on file or submitted to the Treasury as required. Management Response: Each quarter DAS pulls actual expenditures during the reporting period and sends to each agency for their reconciliation. Each agency submits its obligations and reconciled expenditures which are inputted into the US Treasury portal. DAS is working with agencies to ensure all funds are obligated as of December 31, 2024.

Program: AL 21.029 – COVID-19 Coronavirus Capital Projects Fund – Subrecipient Monitoring Grant Number & Year: CPFFN0183, grant period ending December 31, 2026 Federal Grantor Agency: U.S. Department of the Treasury Criteria: Per 2 CFR § 1000.10 (January 1, 2024), the U.S. Department of the Treasury adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth at 2 CFR part 200. 2 CFR § 200.201(b)(1) (January 1, 2024) states the following, in relevant part: The Federal awarding agency or pass-through entity may use fixed amount awards if the project scope has measurable goals and objectives and if adequate cost, historical, or unit pricing data is available to establish a fixed amount award based on a reasonable estimate of actual cost. On May 17, 2023, the U.S. Department of the Treasury issued the SLFRF and CPF Supplementary Broadband Guidance, which states the following, in relevant part: Treasury further clarifies that a subaward that otherwise meets the requirements of 2 CFR 200.201(b) may be considered a fixed amount subaward even if: 1) the recipient uses its discretion to impose a cost-sharing or match requirement on the subrecipient; or 2) the recipient requires ISPs to submit evidence of costs. More specifically, subawards that provide for a maximum payment amount that is calculated based on a reasonable estimate of actual cost (see 2 CFR 200.201(b)(1)) will be considered fixed amount subawards even if the subaward agreement also provides that payments to the ISP subrecipient will be limited to actual costs after review of evidence of costs. Good internal controls require procedures to ensure that fixed amount subawards are based on a reasonable estimate of actual costs. This would include tracing budgeted costs to historical costs for similar projects, unit pricing data, or other documentation. Condition: For all four subrecipients tested, the Agency did not obtain adequate documentation to support that the subrecipients’ fixed amount subawards were based on a reasonable estimate of actual costs. Repeat Finding: No Questioned Costs: Unknown Statistical Sample: No Context: The Agency awarded an initial amount of $61,345,287 to 18 subrecipients for broadband infrastructure projects. The Agency considered the subawards to be fixed amount subawards. We tested all the subawards issued to four subrecipients, which totaled $12,774,913. The Agency did not have adequate documentation on file to support that the fixed amount of the subaward was based on a reasonable estimate of actual costs. Documentation on file included a project budget, business plan, technical capability, and a funding breakdown. However, none of the costs included in this documentation was traced to historical costs for similar projects, unit pricing data, or other documentation. The Agency’s procedures include obtaining documentation for all costs actually incurred by the subrecipients when the project is completed. However, none of the projects were completed as of June 30, 2024, so the Agency had not yet obtained additional documentation. Total payments to subrecipients during the fiscal year ended June 30, 2024, were $24,426,287. Cause: Inadequate procedures to verify that the amount of the subaward was based on a reasonable estimate of actual costs. Effect: Without procedures in place to ensure the fixed amount of the subaward is based on a reasonable estimate of actual costs, there is an increased risk Federal funds disbursed could exceed a justifiable amount. Recommendation: We recommend the Agency improve its procedures to include tracing estimated costs of a project to historical costs for similar projects, unit pricing data, or other documentation. Management Response: As a threshold issue, we would note that the referenced supplemental guidance issued by the Treasury on May 17, 2023, stating that these should be considered fixed priced awards even though there is a review of actual costs prior to full reimbursement, came after our first round of applications were filed, budgets reviewed, and applications cured. Modified procedures were put into place for the second round of applications, which occurred after the supplemental guidance was issued. However, we feel the review of submitted budgets for the first round of applications that was conducted by PSC staff, assessed the reasonableness of costs presented using historical experience based on the scope of the project, geography/terrain, and type of technology used for deployment. Applicants based their budgets on prior experience with broadband deployments in similar project areas, which relied on practical knowledge and reasonable estimates. In cases where costs appeared to be outliers, staff would inquire for further explanations and justifications. This process reflects our commitment to ensuring that the funding requests were based on reasonable estimates of actual costs in that first round of applications. We concede that portion of review was not initially fully documented, however we have already implemented processes to better document this going forward. Additionally, we would mention with traditional Fixed Price Awards, awardees are paid the original budget amount with no reconciliation to actual costs. The Treasury nontraditional fixed price awards allow for reimbursements to not exceed actual costs, which we feel eliminates any opportunity for unjust enrichment. There is a complete review of actual costs done at project completion and subrecipients will only be reimbursed for allowable, actual incurred costs up to the award amount. In the unlikely event that support already advanced exceeds the final review of actual costs, awardees are required to repay those amounts as outlined in the grant agreement. APA Response: The U.S. Department of the Treasury requires recipients to follow Uniform Guidance, which requires fixed amount subawards to be based on adequate cost, historical, or unit pricing data. The U.S. Department of the Treasury further clarified in its supplemental guidance dated May 17, 2023, that subawards can be considered fixed amount subawards if the subaward otherwise met the requirements of 2 CFR § 200.201(b). Documentation was not provided to support that the subawards met those requirements.

Program: Various, including AL 10.542 – COVID-19 Pandemic EBT Food Benefits; AL 10.551 – Supplemental Nutrition Assistance Program; AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Reporting Grant Number & Year: Various, including 2401NERCMA, FFY 2024 Federal Grantor Agency: Various, including U.S. Department of Agriculture and U.S. Department of Health and Human Services Criteria: A good internal control plan requires adequate procedures to ensure the Schedule of Expenditures of Federal Awards (SEFA) is presented properly. Title 45 CFR § 75.510(b) (October 1, 2023) and Title 2 CFR § 200.510(b) (January 1, 2024) state, in part, the following: 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 . . . . At a minimum, the schedule must: * * * * (3) Provide total Federal awards expended for each individual Federal program . . . . (4) Include the total amount provided to subrecipients from each Federal program. Neb. Rev. Stat. § 81-1111(1) (Reissue 2014) states, in part, the following: Subject to the supervision of the Director of Administrative Services, the Accounting Administrator shall have the authority to prescribe the system of accounts and accounting to be maintained by the state and its departments and agencies, develop necessary accounting policies and procedures, coordinate and approve all proposed financial systems, and manage all accounting matters of the state’s central system. EnterpriseOne is the official accounting system of the State. Condition: Several programs did not have expenditures or the amount provided to subrecipients reported accurately on the SEFA. We notified Administrative Services of the errors, and the SEFA was subsequently adjusted. A similar finding was noted in the prior audit. Repeat Finding: 2023-022 Questioned Costs: None Statistical Sample: No Context: Administrative Services is responsible for managing the accounting matters of the State and certifies the data collection form for the Statewide Single Audit. Administrative Services compiles the SEFA from information provided by the individual agencies and submits it to the auditor. During our review, we noted the following: The Department of Health and Human Services (DHHS) did not accurately report expenditures for several programs, including overreporting AL 93.566 by $1,154,638. DHHS also reported $20,605,059 under AL 10.551 that should have been under AL 10.542. If the latter adjustment had not been made, this would have resulted in a major program not being reported on the SEFA. Sixteen programs for various State agencies needed correction. The total expenditures and amounts provided to subrecipients, as both originally reported and per the final SEFA, were as follows: See Schedule of Findings and Questioned Costs for chart/table. Cause: Administrative Services lacked adequate procedures for ensuring the accuracy of amounts not obtained directly from the accounting system. Administrative Services established a specific account code for aid to subrecipients, but not all agencies utilized this account code. Effect: Increased risk for the SEFA to be inaccurate, which could lead to Federal sanctions or programs not audited that should be. Recommendation: We recommend Administrative Services improve procedures to ensure the SEFA is complete and accurate. Management Response: We will continue agency training, review of chart of accounts setup, review of object account usage, and working with State employees to help ensure the SEFA is accurate and complete.

Program: Various, including AL 10.542 – COVID-19 Pandemic EBT Food Benefits; AL 10.551 – Supplemental Nutrition Assistance Program; AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Reporting Grant Number & Year: Various, including 2401NERCMA, FFY 2024 Federal Grantor Agency: Various, including U.S. Department of Agriculture and U.S. Department of Health and Human Services Criteria: A good internal control plan requires adequate procedures to ensure the Schedule of Expenditures of Federal Awards (SEFA) is presented properly. Title 45 CFR § 75.510(b) (October 1, 2023) and Title 2 CFR § 200.510(b) (January 1, 2024) state, in part, the following: 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 . . . . At a minimum, the schedule must: * * * * (3) Provide total Federal awards expended for each individual Federal program . . . . (4) Include the total amount provided to subrecipients from each Federal program. Neb. Rev. Stat. § 81-1111(1) (Reissue 2014) states, in part, the following: Subject to the supervision of the Director of Administrative Services, the Accounting Administrator shall have the authority to prescribe the system of accounts and accounting to be maintained by the state and its departments and agencies, develop necessary accounting policies and procedures, coordinate and approve all proposed financial systems, and manage all accounting matters of the state’s central system. EnterpriseOne is the official accounting system of the State. Condition: Several programs did not have expenditures or the amount provided to subrecipients reported accurately on the SEFA. We notified Administrative Services of the errors, and the SEFA was subsequently adjusted. A similar finding was noted in the prior audit. Repeat Finding: 2023-022 Questioned Costs: None Statistical Sample: No Context: Administrative Services is responsible for managing the accounting matters of the State and certifies the data collection form for the Statewide Single Audit. Administrative Services compiles the SEFA from information provided by the individual agencies and submits it to the auditor. During our review, we noted the following: The Department of Health and Human Services (DHHS) did not accurately report expenditures for several programs, including overreporting AL 93.566 by $1,154,638. DHHS also reported $20,605,059 under AL 10.551 that should have been under AL 10.542. If the latter adjustment had not been made, this would have resulted in a major program not being reported on the SEFA. Sixteen programs for various State agencies needed correction. The total expenditures and amounts provided to subrecipients, as both originally reported and per the final SEFA, were as follows: See Schedule of Findings and Questioned Costs for chart/table. Cause: Administrative Services lacked adequate procedures for ensuring the accuracy of amounts not obtained directly from the accounting system. Administrative Services established a specific account code for aid to subrecipients, but not all agencies utilized this account code. Effect: Increased risk for the SEFA to be inaccurate, which could lead to Federal sanctions or programs not audited that should be. Recommendation: We recommend Administrative Services improve procedures to ensure the SEFA is complete and accurate. Management Response: We will continue agency training, review of chart of accounts setup, review of object account usage, and working with State employees to help ensure the SEFA is accurate and complete.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 10.553 – School Breakfast Program; AL 10.555 – National School Lunch Program; AL 10.556 – Special Milk Program for Children; AL 10.559 – Summer Food Service Program for Children; and AL 10.582 – Fresh Fruit and Vegetable Program – Reporting Grant Number & Year: Various, including 243NE308N1199, FFY 2024; and 243NE377L1603, FFY 2024 Federal Grantor Agency: U.S. Department of Agriculture Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) states, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all required reports are submitted on time. 2 CFR § 200.511 (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of that same regulation states, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Federal Funding Accountability and Transparency Act (FFATA) reporting for the Child Nutrition programs has not been completed since December 2020 as of January 13, 2025. A similar finding was noted in the prior audit. The Schedule of Prior Audit Findings states, “Required report should be submitted within the next 45 days.” Repeat Finding: 2023-024 Questioned Costs: None Statistical Sample: No Context: Per the Summary Schedule, the Agency stated that it would have the reporting completed within “45 days.” We received the Summary Schedule from the Department of Administrative Services on July 31, 2024. However, when we reached out to the Agency on November 27, 2024, the Agency stated that it had not completed the reporting but planned to complete it by January 8, 2025. As of January 13, 2025, the reporting still had not been completed. For the fiscal year ended June 30, 2024, the Agency paid subrecipients from the Child Nutrition programs $144,225,430. Cause: The Agency had not developed adequate procedures to complete the reporting requirements. Effect: Without adequate procedures to ensure that FFATA reports are submitted in a timely manner, there is an increased risk of the State not complying with Federal regulations. Recommendation: We recommend the Agency update its procedures and complete the FFATA reporting as soon as possible. Management Response: NDE submitted the required reports on time but the reports were rejected as the system noted errors with the report. NDE reached out to the Federal agency numerous times but was unable to get any assistance on how to correct the issue. Since NDE has been unable to get assistance from the Federal agency we have been working with others to identify solutions to the reporting errors.

Program: AL 12.401 – National Guard Military Operations and Maintenance (O&M) Projects – Cash Management & Reporting Grant Number & Year: Appendices – W91243-22-2-1001, FFY 2022; W91243-23-2-1001, FFY 2023; W91243-24-2-1001, FFY 2024; W91243-24-2-1021, FFY 2024; W91243-24-2-1024, FFY 2024 Federal Grantor Agency: U.S. Department of Defense Criteria: Per 2 CFR § 1128.100 and 2 CFR § 1128.200 (January 1, 2024), the Department of Defense adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth at 2 CFR parts 200.302, 200.303, and 200.305. Per 2 CFR § 200.303 (January 1, 2024): 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. Title 2 CFR § 200.302 (January 1, 2024) requires financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Title 2 CFR § 200.305(a) (January 1, 2024) states, in part, “For states, payments are governed by Treasury-State Cash Management Improvement Act (CMIA) agreements and default procedures codified at 31 CFR part 205 . . . .” National Guard Policy (NG Policy) 5-1, National Guard Grants and Cooperative Agreements, Section 11-5, Advance Payment Method, Section (5), states, in part, “[T]he grantee agrees to minimize the time elapsing between the transfer of funds from the U.S. Treasury and their disbursement by the State. (no more than 45 days).” Grants and agreements Policy Letter (GCAPL) 20-02 AQ-A Policy (February 4, 2020) turned NGR 5-1 into NG Policy 5-1. It generally maintained the principles and operational aspects of NGR 5-1, except as provisions of the document were adjusted in the AQ-A Policy. The AQ-A Policy did not make any changes to the 45-day requirement found in NGR 5-1. The instructions for OMB Standard Form 270 (REV. 1/2016) include the following for line 11a: Enter program outlays to date (net of refunds, rebates, and discounts), in the appropriate columns. For requests prepared on a cash basis, outlays are the sum of actual cash disbursements for goods and services, the amount of indirect expenses charged, the value of in- kind contributions applied, and the amount of cash advances and payments made to subcontractors and subrecipients. A good internal control plan would include procedures to ensure the time between the drawdown of Federal funds and disbursements are minimized and in compliance with National Guard regulations. Condition: The Agency was not in compliance with the Federal cash management requirements during the fiscal year and did not properly report program outlays on the OMB Standard Form (SF) 270. A similar finding was noted in the prior audit. Repeat Finding: 2023-057 Questioned Costs: None Statistical Sample: No Context: We tested five drawdowns of Federal funds to support the Agency’s operations. We tested to determine whether the Agency had expended the cumulative amounts drawn down for the awards tested within the required timeframe and noted the following: • Three drawdowns were not in compliance with NG Policy 5-1. Cumulative drawdowns for two of the draws tested were expended 49 and 62 days after the drawdown of Federal funds. Cumulative draws for the other draw tested had yet to be fully expended as of January 7, 2025. The table below provides a summary of the three draws: See Schedule of Findings and Questioned Costs for chart/table. • For five of five SF-270s tested, the Agency did not properly report total program outlays on the OMB SF-270 report. The Agency reported the total drawdowns for the program to date, rather than actual cash disbursements, as total program outlays. The variance between what was reported and what should have been reported ranged from an underreporting of $265,642 to an overreporting of $660,608, with a net total overreporting of expenditures by $1,090,090 for the five reports tested. Cause: Inadequate procedures for estimating fund needs for the upcoming month. Regarding SF-270 reporting, the Agency has stated it agrees with the finding; however, it has yet to implement corrective action. Effect: The Agency is not in compliance with Federal cash management and reporting requirements, which could result in sanctions. Additionally, there is an increased risk for the loss of Federal funding. Recommendation: We recommend the Agency ensure the amount of time between the Federal draw and the disbursement of funds by the State is minimized and in compliance with National Guard requirements. We also recommend the Agency report total program outlays in compliance with Federal requirements. Management Response: The Agency agrees with the finding. The drawdown timeline is a partial result of the variances in federal reimbursement functionalities and the advance state requirement function. The agency has reduced the Average # of Days to spend Total Draws by 23 for those draws in which drawdown timing was reported, indicating a general improvement over the prior year finding.

Program: AL 84.048 – Career and Technical Education – Basic Grants to States – Allowability Grant Number & Year: V048A220027, FFY 2023 Federal Grantor Agency: U.S. Department of Education Criteria: Per 2 CFR § 3474.1 (January 1, 2024), the U.S. Department of Education adopted the OMB Uniform Guidance in 2 CFR part 200, except for 2 CFR § 200.102(a) and 200.207(a). Per 2 CFR § 200.403 (January 1, 2024), allowable costs must be necessary, reasonable, and adequately documented. 2 CFR § 200.430(i)(1) (January 1, 2024) states, in part, the following: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. Enclosure A of the “Letter to Chief State School Officers on Granting Administrative Flexibility for Better Measures of Success” (September 7, 2012) provides guidelines for local educational agencies (LEAs), using a substitute system for time-and-effort reporting. Enclosure A states, in relevant part, the following: (2) Under the substitute system, in lieu of personnel activity reports, eligible employees may support a distribution of their salaries and wages through documentation of an established work schedule that meets the standards under section (3). An acceptable work schedule may be in a style and format already used by an LEA. (3) Employee schedules must: a. Indicate the specific activity or cost objective that the employee worked on for each segment of the employee’s schedule; b. Account for the total hours for which each employee is compensated during the period reflected on the employee’s schedule; and c. Be certified at least semiannually and signed by the employee and a supervisory official having firsthand knowledge of the work performed by the employee. Good internal control requires adequate supporting documentation to ensure that expenditures are correct and allowable. Condition: The Agency lacked documentation to support 3 of 11 aid payments tested. Repeat Finding: No Questioned Costs: $34,983 known Statistical Sample: No Context: We randomly selected 11 reimbursement payments to subrecipients for testing. We noted the following: • One reimbursement to a community college included salaries and benefits for two employees for $23,583. Documentation to support the salaries and benefits was inadequate. The Agency provided time and effort certifications, stating that the employees worked 50% on the Career and Technical Federal program and 50% on a different program. However, no other documentation – such as an employee work schedule – was provided to support that this distribution was correct. The $23,583 paid for salaries and benefits are considered questioned costs. • One reimbursement was to an Educational Service Unit (ESU). The ESU made payments to schools in order for the schools to reimburse its teachers for their costs for attending a conference and also paying the teachers a stipend for attending the conference. The payments to teachers were to include $120/night for hotels, $300 for registration fees, $265 for mileage, and $125/day as a stipend for each day the teachers attended the conference. However, documentation was not provided to support that the reimbursements/stipends went to all the teachers, or if the school should have kept the reimbursement if it paid for the hotels and registration fees. Additionally, documentation was lacking to support that all the teachers actually stayed at the hotel or that the school paid for the hotel. Lastly, documentation was not provided to support that the stipend amount was reasonable and approved by appropriate personnel. This resulted in questioned costs of $11,192. • One reimbursement to a school included payments to teachers for attending a conference. One hundred and sixty dollars was paid to 13 teachers based on the U.S. General Services Administration per diem rates for meals and incidental expenses. However, per the conference agenda, lunch was provided for one of the days, so the amount paid per teacher should have been reduced to $144, but it was not. This resulted in questioned costs of $208. Federal payment errors for the sample tested were $34,983. The total sample tested was $1,910,166, and aid payments for the fiscal year totaled $7,485,494. Based on the sample tested, the dollar error rate for the sample was 1.83% ($34,983/$1,910,166), which estimates the potential dollars at risk for fiscal year 2024 to be $136,985 (dollar error rate multiplied by population). Cause: Lack of procedures to ensure all costs were adequately documented. Effect: Without adequate supporting documentation, there is an increased risk that Federal awards could be used for unallowable costs. Recommendation: We recommend the Agency improve procedures to ensure that payments are supported by adequate documentation. Management Response: The Nebraska Department of Education’s Office of Career, Technical, and Adult Education provided emails which detailed the purpose for Sharri’s work within the CTE program. The college provided the time and effort certification for the time period in question for the employee but the documentation from the college did not provide the actual work performed information. The Nebraska Department of Education’s Office of Career, Technical, and Adult Education was able to provide most of this documentation related to the reimbursement for teachers attending the conference but was unable to collect the documentation from some of the schools within the ESU 4 Perkins consortium. ESU 4 was not able to provide a stipend policy, though they were able to provide meeting notes where the stipend policy was outlined ahead of time.

Program: AL 84.126 – Rehabilitation Services Vocational Rehabilitation Grants to States – Reporting Grant Number & Year: H126A220039, FFY 2022; H126A240039, FFY 2024 Federal Grantor Agency: U.S. Department of Education Criteria: Per 2 CFR § 3474.1 (January 1, 2024), the U.S. Department of Education adopted the OMB Uniform Guidance in 2 CFR part 200, except for 2 CFR § 200.102(a) and 200.207(a). 2 CFR § 200.302 (January 1, 2024) states, in part, the following: (a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State’s own funds. In addition, the state’s and the other non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. 34 CFR § 361.60(a)(1) (July 1, 2023) states the following: Except as provided in paragraph (a)(2) of this section, the Federal share for expenditures made by the State under the vocational rehabilitation services portion of the Unified or Combined State Plan, including expenditures for the provision of vocational rehabilitation services and the administration of the vocational rehabilitation services portion of the Unified or Combined State Plan, is 78.7 percent. Per 34 CFR § 76.707 (July 1, 2023), personal services performed by an employee of the State are obligated when the services are performed. Good internal control and sound accounting practices require adequate policies and procedures to ensure that information included in Federal reports is correct and accurate. Condition: The Agency lacked procedures to ensure that the unliquidated obligations, indirect costs, and administrative costs were reported accurately on the RSA-17 reports. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: We tested two RSA-17 reports submitted by the Agency. We noted the following: Grant H126A240039, Quarter Ended March 31, 2024 • The Federal and Non-Federal Share of Unliquidated Obligations reported on lines 18 and 29 were $2,905,268 and $786,305, respectively. The amounts reported were not correct due to the following: o The Agency included the unliquidated indirect costs for the month of March 2024 twice, resulting in the amount reported being overstated by $43,901 for the Federal Share and $11,882 for the Non-Federal Share. o The Agency did not include the payroll costs for time worked from March 11, 2024, to March 24, 2024. Additionally, the Agency erroneously included the payroll costs for time worked from April 1, 2024, to April 7, 2024. This resulted in the amount reported being overstated by $164,849 for the Federal Share and $44,616 for the Non-Federal Share. o Lastly, the Agency did not provide adequate documentation to support the unliquidated amounts for contracts. Per the Agency, the amount was taken from proposals submitted by possible contractors; however, the Agency did not provide documentation to support those written commitments existed as of March 31, 2024. • The amount reported on line 36g for Federal Share of Indirect Costs was not correct. The Agency reported that the Federal share of indirect costs was $484,844. However, this was 100% of the total indirect costs recorded. Only $381,573 should have been reported as the Federal share based on the 78.7% matching rate. Therefore, the amount reported was overstated by $103,271. Grant H126A220039, Quarter Ended September 30, 2023 • Line 37 Federal and Non-Federal Administrative Expenses was not adequately supported. The Agency reported $1,606,807 of Federal and non-Federal administrative costs. The Agency did not set up business units or other accounts in the State’s financial accounting system (EnterpriseOne) sufficiently to identify the administrative costs recorded for the vocational rehabilitation program. To determine the amount of administrative costs to report, the Agency ran a general ledger of all expenditures and manually identified the administrative costs based off the payee description and prior knowledge of transactions. However, transactions appear to have been excluded that should have been included as administrative expenses. Therefore, we were unable to verify that the amount reported was correct. Cause: Inadequate review and documentation of amounts reported. Additionally, the Agency stated that there was an error in the quarter ended March 31, 2024, report that prevented the Agency from inputting the correct value for the Federal share of indirect costs. However, no documentation was provided to support this was the case. Effect: Increased risk for errors and noncompliance with Federal requirements. Recommendation: We recommend the Agency update its procedures to ensure that obligations and expenditures are being properly reported in accordance with reporting requirements. Management Response: Federal and Non-Federal Share of Unliquidated Obligations - The incorrect amounts reported for unliquidated cost March indirect costs, payroll, and contracts were due to an error when completing the report. An additional review from NDE Budget and Grant Management staff of unliquidated obligations will be included in future reports to ensure accuracy. Federal and Non-Federal Administrative Expenses was not adequately supported - The agency does set up business units or other accounts (subledgers, subsidiaries) in the State’s financial accounting system (EnterpriseOne) to sufficiently identify administrative costs. Sub ledgers ERSO, ERTRANSI and subsidiaries 110, TRYLN, SRC, TRANSI were specifically set up separate administrative costs. These will be used to identify administrative costs for future reports. APA Response: The subledgers and subsidiaries identified in the management’s response were not used to identify administrative expenses when the Agency completed the RSA-17 report. The administrative expenses reported did not agree to the amount recorded in EnterpriseOne to these subledgers and subsidiaries for the grant.

Program: AL 84.126 – Rehabilitation Services Vocational Rehabilitation Grants to States – Period of Performance Grant Number & Year: H126A220039, FFY 2022 Federal Grantor Agency: U.S. Department of Education Criteria: Per 34 CFR § 76.707 (July 1, 2023), work performed by a contractor is obligated on the date the State “makes a binding written commitment to obtain the services.” Per 2 CFR § 3474.1 (January 1, 2024), the U.S. Department of Education adopted the OMB Uniform Guidance in 2 CFR part 200, except for 2 CFR § 200.102(a) and 200.207(a). Per 2 CFR § 200.403(h) (January 1, 2024), costs “must be incurred during the approved budget period.” The Rehabilitation Service Administration Period of Performance for Formula Grant Awards FAQs (published March 21, 2017) states the following: 8. Can the total cost of a contract be obligated to a grant award if some of the contract services will be performed after the period of performance ends? Yes. If a contract is entered into during a period of performance, but some of the services will be performed after the period of performance ends (in other words, some services would be performed after the FFY of appropriation and the carryover year, if applicable, has ended), the contract would still constitute a valid obligation, as established by 34 CFR 76.707, for purposes of the period of performance in which it was incurred. Good internal control and sound accounting procedures require adequate policies and procedures to ensure that only those expenditures obligated within the period of performance are charged to the grant. Condition: One of 25 expenditures tested was not obligated within the period of performance. Repeat Finding: No Questioned Costs: $2,586 known Statistical Sample: No Context: The Agency paid $2,586 to a provider for job search and placement services that occurred between August 15, 2023, to November 22, 2023. The Agency charged the payment to grant H126A220039, and costs were to be obligated by September 30, 2023, for this grant. The State did not make any written commitment to obtain or pay for these services until October 17, 2023, when the Agency signed an authorization form for said services. As the written commitment was not issued until after September 30, 2023, the payment was not allowed to be charged to the grant. Total questioned costs from the random sample were $2,586. The total sample tested was $39,530, and the total sample population was $5,495,235. Based on the sample tested, the dollar error rate for the sample was 6.54% ($2,586/$39,530), which estimates the potential dollars at risk for fiscal year 2024 to be $359,388 (dollar error rate multiplied by the population). Cause: The Agency lacked proper understanding of when costs should be considered obligated. The Agency reported that it completed the Plan for Job Development on September 3, 2023, and considered it obligated at that time. However, the authorization for the plan was not signed until October 17, 2023. Effect: Without adequate procedures, there is increased risk that the Agency will improperly charge expenditures to the grant outside of its period of performance, resulting in noncompliance. Recommendation: We recommend the Agency strengthen procedures to ensure that expenditures are charged to its grants within the period of performance. Management Response: The agency understands costs are considered obligated at the time of authorization. The case management system is programmed to assign the cost to the grant based on the start date of the service at the time of the obligation (authorization). The programming did not account for a situation when the obligation is created in a different federal fiscal year then the start date of the service. The obligation in question was made on 10/17/23 (FFY23) for a service that started on 8/15/23 (FFY22). The obligation is allowed to be charged to grant H126A220039, but should have been reported as an obligation to the carryover year (FY23) business unit for grant H126A220039, rather than an obligation to the year of appropriation (FFY22) business unit for grant H126A220039. The obligation cannot be charged to the H126A2300390 (FFY23) grant due to service being provided in FFY22. APA Response: Grant H126A220039 had a period of performance end date of September 30, 2023. Any obligation made after this date, including the obligation made on October 17, 2023, would not be allowable to charge to this grant.

Program: AL 84.425U – COVID-19 Education Stabilization Fund – American Rescue Plan – Elementary and Secondary School Emergency Relief Fund (ARP ESSER) – Reporting Grant Number & Year: S425U210048, grant period ending 9/30/2024 Federal Grantor Agency: U.S. Department of Education Criteria: 2 CFR § 170, Appendix A I. (January 1, 2024) state, in part, the following: a. Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all subawards subject to Federal Funding Accountability and Transparency Act (FFATA) reporting are submitted on time. Condition: FFATA reporting was not submitted for one of seven subawards/amendments tested. Repeat Finding: 2023-028 Questioned Costs: None Statistical Sample: No Context: Per the usaspending.gov website, the Agency had reported 117 subawards/amendments obligated during the fiscal year ended June 30, 2024. We tested seven subawards/amendments. One of the amendments to a subaward was not reported in the FFATA Subaward Reporting Systems (FSRS) as of December 9, 2024. The Agency subsequently reported the amendment to FSRS on December 10, 2024, after we brought to its attention, which was 406 days late. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate review and reporting procedures. Effect: Without adequate procedures, there is an increased risk of noncompliance with Federal regulations. Recommendation: We recommend the Agency review its procedures for FFATA reporting to ensure compliance with Federal requirements. Management Response: NDE missed reporting this subaward which was corrected and submitted immediately after NDE became aware of the oversight.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.558 – Temporary Assistance for Needy Families (TANF) – Allowability & Subrecipient Monitoring Grant Number & Year: 2101NETANF, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 75.352 (October 1, 2023) requires a pass-through entity to do the following: (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 . . . * * * * (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 § 75.501. 45 CFR § 75.403 (October 1, 2023) requires costs to be reasonable, necessary, determined in accordance with generally accepted accounting principles (GAAP), and adequately documented. Per 45 CFR § 75.430(i), standards for documentation of personnel expenses: (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE’s definition of IBS); (iv) Encompass both federally assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity’s written policy; * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards . . . [.] Per 45 CFR § 75.431(c): The cost of fringe benefits . . . must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities, and charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Per the subaward agreement, “Under this Subaward, DHHS shall only pay for actual and allowable costs.” Good internal control requires procedures to ensure State and Federal requirements are met. Condition: Subrecipient monitoring procedures should be improved. Repeat Finding: 2023-039 Questioned Costs: $1,701 known Statistical Sample: No Context: There were 17 subrecipients paid a total of $18,122,989 during the fiscal year. We tested one payment to one subrecipient. When the desk review did not maintain adequate documentation, we provided the Agency with the opportunity to obtain additional support from the subrecipient. The payment did not have adequate support for salaries and benefits. Time records did not reflect the total activity for employees, and fringe benefits were based on budgeted amounts instead of actual costs. After considering subsequent documentation received, $1,701 remained unsupported. The payment tested was $132,711, and we question $1,701. The subrecipient was paid $1,871,251 during the fiscal year. We also noted this subrecipient should have had a Single audit submitted for the fiscal year ended June 30, 2022, by March 31, 2023, and a Single audit for the fiscal year ended June 30, 2023, submitted by March 31, 2024; however, neither had been submitted at the time of fieldwork on November 1, 2024. Cause: Inadequate review procedures. Effect: Noncompliance with Federal regulations and an increased risk for fraud or errors to occur. Recommendation: We recommend the Agency improve procedures to ensure compliance with Federal regulations, including cost principles. We further recommend the Agency improve procedures to ensure that subrecipients have a Single audit completed and submitted as required. Management Response: The agency agrees with the finding.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: Various, including AL 10.542 – COVID-19 Pandemic EBT Food Benefits; AL 10.551 – Supplemental Nutrition Assistance Program; AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Reporting Grant Number & Year: Various, including 2401NERCMA, FFY 2024 Federal Grantor Agency: Various, including U.S. Department of Agriculture and U.S. Department of Health and Human Services Criteria: A good internal control plan requires adequate procedures to ensure the Schedule of Expenditures of Federal Awards (SEFA) is presented properly. Title 45 CFR § 75.510(b) (October 1, 2023) and Title 2 CFR § 200.510(b) (January 1, 2024) state, in part, the following: 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 . . . . At a minimum, the schedule must: * * * * (3) Provide total Federal awards expended for each individual Federal program . . . . (4) Include the total amount provided to subrecipients from each Federal program. Neb. Rev. Stat. § 81-1111(1) (Reissue 2014) states, in part, the following: Subject to the supervision of the Director of Administrative Services, the Accounting Administrator shall have the authority to prescribe the system of accounts and accounting to be maintained by the state and its departments and agencies, develop necessary accounting policies and procedures, coordinate and approve all proposed financial systems, and manage all accounting matters of the state’s central system. EnterpriseOne is the official accounting system of the State. Condition: Several programs did not have expenditures or the amount provided to subrecipients reported accurately on the SEFA. We notified Administrative Services of the errors, and the SEFA was subsequently adjusted. A similar finding was noted in the prior audit. Repeat Finding: 2023-022 Questioned Costs: None Statistical Sample: No Context: Administrative Services is responsible for managing the accounting matters of the State and certifies the data collection form for the Statewide Single Audit. Administrative Services compiles the SEFA from information provided by the individual agencies and submits it to the auditor. During our review, we noted the following: The Department of Health and Human Services (DHHS) did not accurately report expenditures for several programs, including overreporting AL 93.566 by $1,154,638. DHHS also reported $20,605,059 under AL 10.551 that should have been under AL 10.542. If the latter adjustment had not been made, this would have resulted in a major program not being reported on the SEFA. Sixteen programs for various State agencies needed correction. The total expenditures and amounts provided to subrecipients, as both originally reported and per the final SEFA, were as follows: See Schedule of Findings and Questioned Costs for chart/table. Cause: Administrative Services lacked adequate procedures for ensuring the accuracy of amounts not obtained directly from the accounting system. Administrative Services established a specific account code for aid to subrecipients, but not all agencies utilized this account code. Effect: Increased risk for the SEFA to be inaccurate, which could lead to Federal sanctions or programs not audited that should be. Recommendation: We recommend Administrative Services improve procedures to ensure the SEFA is complete and accurate. Management Response: We will continue agency training, review of chart of accounts setup, review of object account usage, and working with State employees to help ensure the SEFA is accurate and complete.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Allowability & Eligibility Grant Number & Year: 2401NERCMA, FFY 2024; 2301NERCMA, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services   Criteria: Per 45 CFR § 75.303 (October 1, 2023): 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. Title 45 CFR § 400.53 (October 1, 2023) states the following: (a) Eligibility for refugee cash assistance is limited to those who— (1) Are new arrivals who have resided in the U.S. less than the RCA eligibility period determined by the ORR Director in accordance with § 400.211; (2) Are ineligible for TANF, SSI, OAA, AB, APTD, and AABD programs; (3) Meet immigration status and identification requirements in subpart D of this part or are the dependent children of, and part of the same family unit as, individuals who meet the requirements in subpart D, subject to the limitation in § 400.208 with respect to nonrefugee children; and (4) Are not full-time students in institutions of higher education, as defined by the Director. (b) A refugee may be eligible for refugee cash assistance under this subpart during a period to be determined by the Director in accordance with § 400.211. Per the U.S. Department of Health and Human Services’ Office of Refugee Resettlement (ORR) guidance published in the Federal Register on March 28, 2022, at 87 FR 17312: In accordance with ORR regulations, the Director of ORR is announcing the expansion of the Refugee Cash Assistance (RCA) and Refugee Medical Assistance (RMA) eligibility period from 8 months to 12 months of assistance for participants whose date of eligibility for ORR benefits is on or after October 1, 2021. 45 CFR § 400.43 (October 1, 2023) states, in part, the following: (a) An applicant for assistance under title IV of the Act must provide proof, in the form of documentation issued by the Immigration and Naturalization Service (INS), of one of the following statuses under the Act as a condition of eligibility: (1) Paroled as a refugee or asylee under section 212(d)(5) of the Act; (2) Admitted as a refugee under section 207 of the Act; (3) Granted asylum under section 208 of the Act; (4) Cuban and Haitian entrants, in accordance with requirements in 45 CFR part 401; (5) Certain Amerasians from Vietnam who are admitted to the U.S. as immigrants pursuant to section 584 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1988 (as contained in section 101(e) of Public Law 100–202 and amended by the 9th proviso under Migration and Refugee Assistance in title II of the Foreign Operations, Export Financing, and Related Programs Appropriations Acts, 1989 (Public Law 100–461 as amended)); or (6) Admitted for permanent residence, provided the individual previously held one of the statuses identified above. Per 45 CFR § 400.66(e) (October 1, 2023), “The State agency may use the date of application as the date refugee cash assistance begins in order to provide payments quickly to newly arrived refugees.” Title 470 NAC 2-002 states, in part, the following: Eligibility begins with the date of arrival in the United States, if the refugee meets all eligibility requirements. For asylees, victims of severe forms of trafficking, and Cuban and Haitian Parolees eligibility begins with the date of granted status. The time limit is applied to each refugee separately, not to the unit as a whole. If the refugee applies after the date of arrival in the United States, they may receive assistance for the remaining months of their eligibility period. Per Title 470 NAC 1-010, “Eligibility is redetermined at six months. Eligibility may be redetermined in less than six months to coordinate review dates for more than one program. An application is required as part of the eligibility review and to establish a new eligibility period.” Title 45 CFR § 400.2 (October 1, 2023) defines “refugee cash assistance” (RCA) as “cash assistance provided under section 412(e) of the Act to refugees who are ineligible for TANF [Temporary Assistance for Needy Families], OAA [Old Age Assistance], AB [Aid to the Blind], APTD [Aid to the Permanently and Totally Disabled], AABD [Aid to the Aged, Blind, and Disabled], or SSI [Supplemental Security Income].” Title 45 CFR § 400.2 defines “refugee medical assistance” (RMA) as “(a) Medical assistance provided under section 412(e) of the Act to refugees who are ineligible for the Medicaid program . . . .” Title 468 NAC 2-001 explains the eligibility requirements for Nebraska’s TANF program, including, “(B) United States citizenship or alien status; (C) Nebraska residence; . . . (F) Age requirement for a dependent child; . . .” Title 45 CFR § 401.2 (October 1, 2023) states the following: For purposes of this part a Cuban and Haitian entrant or entrant is defined as: (a) Any individual granted parole status as a Cuban/Haitian Entrant (Status Pending) or granted any other special status subsequently established under the immigration laws for nationals of Cuba or Haiti, regardless of the status of the individual at the time assistance or services are provided; and (b) Any other national of Cuba or Haiti (1) Who: (i) Was paroled into the United States and has not acquired any other status under the Immigration and Nationality Act; (ii) Is the subject of exclusion or deportation proceedings under the Immigration and Nationality Act; or (iii) Has an application for asylum pending with the Immigration and Naturalization Service; and (2) With respect to whom a final, nonappealable, and legally enforceable order of deportation or exclusion has not been entered. The Agency utilizes SAVE (Systematic Alien Verification for Entitlements) to determine an applicant’s status. SAVE is an online service that allows Federal, State, and local benefit-granting agencies to verify a benefit applicant’s immigration status or naturalized/derived citizenship. SAVE is administered by U.S. Citizenship and Immigration Services, a component of the U.S. Department of Homeland Security. Good internal control requires procedures for maintaining SAVE documentation used to verify an applicant’s status and ensure the applicant is not under an active order of deportation. Condition: Refugee assistance payments were not in compliance with State and Federal requirements. A similar finding was noted in the prior audit. Repeat Finding: 2023-040 Questioned Costs: $33,258 known ($16,281, 2301NERCMA; $16,977, 2401NERCMA) Statistical Sample: No Context: The Refugee Resettlement Program (RRP) helps refugees and other eligible newcomers achieve economic self-sufficiency, well-being, and successful integration in the United States. The RRP provides aid payments both directly to individuals who are deemed eligible for cash assistance (RCA) and medical assistance (RMA) through the managed care program. We randomly tested 25 aid payments: 15 to individuals who received RCA payments and 10 for RMA payments. We noted the following: • For eight recipients tested, adequate documentation was not on file to support that the Agency had verified, using the SAVE system, that the individual was not under an active order of deportation prior to starting benefit payments. Verification was performed 2 to 30 months after benefits started. Additionally, one of these recipients was also missing proper immigration documentation to support eligibility for any RRP benefits and, as a result, we question costs of $1,712. • One recipient tested, who was part of a family unit of four, received both RCA and RMA benefits, but qualified for Temporary Assistance for Needy Families (TANF). Therefore, the recipient should have been receiving benefits from TANF, not RRP benefits. For this recipient, we question costs of $7,557. • Seven of 10 RMA recipients tested appear to have been eligible for Medicaid; however, their monthly capitation payments were paid by RRP. As a result, we question costs of $9,715. • One recipient was enrolled in college courses at the time of her six-month renewal application in February 2024. We question payments, totaling $1,880, made to the recipient after declaration of student status. • Four recipients tested received benefits after their 12-month eligibility period had ended, resulting in additional questioned costs of $825. • We also tested 25 recipients to determine if the six-month benefit determination review was completed. o One recipient tested did not have a six-month review completed to redetermine eligibility. Additionally, the recipient should have been found ineligible to received RMA benefits, due to being past the 12-month eligibility period. The recipient entered the country on September 5, 2021. Therefore, her eligibility period would have expired August 31, 2022; however, she received RMA benefits from April 1, 2023, through March 1, 2024. Had an eligibility review been properly completed, it should have caught that this recipient was ineligible. Furthermore, the recipient’s six family members also received benefits within these dates. One family member’s RMA benefits ran from January 1, 2023, through March 1, 2024. As a result, we question costs of $8,918. o One recipient received RMA benefits when she should have been eligible for Medicaid. We question costs of $2,651 for capitation payments paid by the Refugee grant instead of the Medicaid grant. RRP aid expenditures for the fiscal year totaled $10,554,171. The Federal sample tested was $8,542, and Federal payment errors noted for the random sample tested were $3,191. The dollar error rate for the sample was 37.36% ($3,191/$8,542), which estimates the potential dollar risk for fiscal year 2024 to be $3,943,038 (dollar error rate multiplied by the population). In addition to the $3,191 Federal questioned costs noted on the sample items tested, we also noted $30,067 of Federal questioned costs on other assistance payments on behalf of these recipients. Cause: Ineffective controls. Written procedures are in place but not consistently followed. Effect: Increased risk for loss or misuse of funds. Recommendation: We recommend the Agency strengthen procedures to ensure payments are adequately supported and in accordance with State and Federal regulations. We further recommend the Agency ensure that SAVE documentation is maintained on file. Management Response: The agency agrees with the finding.

Program: AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Allowability & Subrecipient Monitoring Grant Number & Year: 2401NERSSS, FFY 2024; 2301NERSSS, FFY 2023; 2201NERSSS, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 75.352(d) (October 1, 2023) requires a pass-through entity to “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.” 45 CFR § 75.302(a) (October 1, 2023) requires the State to have accounting procedures sufficient to allow for “the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.” 45 CFR § 75.403 (October 1, 2023) requires costs to be reasonable, necessary, and adequately documented. 45 CFR § 75.405(a) (October 1, 2023) states the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. This standard is met if the cost: (1) Is incurred specifically for the Federal award; (2) Benefits both the Federal award and other work of the non-Federal entity and can be distributed in proportions that may be approximated using reasonable methods; and (3) Is necessary to the overall operation of the non-Federal entity and is assignable in part to the Federal award in accordance with the principles in this subpart. 45 CFR § 75.430(i)(1) (October 1, 2023) states, in part, the following: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities . . . * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards . . . . 45 CFR § 75.431(c) (October 1, 2023) states the following: The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker’s compensation insurance (except as indicated in § 75.447); pension plan costs (see paragraph (i) of this section); and other similar benefits are allowable, provided such benefits are granted under established written policies. Such benefits, must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities, and charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. 45 CFR § 75.459 (October 1, 2023) states, in part, the following: (a) Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill, and who are not officers or employees of the non-Federal entity, are allowable, subject to paragraphs (b) and (c) of this section when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Federal Government. In addition, legal and related services are limited under § 75.435. (b) In determining the allowability of costs in a particular case, no single factor or any special combination of factors is necessarily determinative. However, the following factors are relevant: (1) The nature and scope of the service rendered in relation to the service required. (2) The necessity of contracting for the service, considering the non-Federal entity’s capability in the particular area. (3) The past pattern of such costs, particularly in the years prior to Federal awards. (4) The impact of Federal awards on the non-Federal entity’s business (i.e., what new problems have arisen). (5) Whether the proportion of Federal work to the non-Federal entity’s total business is such as to influence the non-Federal entity in favor of incurring the cost, particularly where the services rendered are not of a continuing nature and have little relationship to work under Federal awards. (6) Whether the service can be performed more economically by direct employment rather than contracting. (7) The qualifications of the individual or concern rendering the service and the customary fees charged, especially on non-federally funded activities. (8) Adequacy of the contractual agreement for the service (e.g., description of the service, estimate of time required, rate of compensation, and termination provisions). A good internal control plan requires procedures to ensure subrecipient expenditures are properly documented in accordance with Federal regulations, and payments apply to work performed under the subaward project description. Condition: Subrecipient monitoring procedures were inadequate. A similar finding was noted in the prior audit. Repeat Finding: 2023-041 Questioned Costs: $196,067 known ($154,992, 2201NERSSS; $21,296, 2301NERSSS; $19,779, 2401NERSSS) Statistical Sample: No Context: The Agency paid 15 subrecipients a total of $4,833,486 during the fiscal year ended June 30, 2024, for the program. Subrecipient reimbursement requests are submitted quarterly with a summarized invoice of costs incurred and a Budget Workbook showing expenses by category. However, for the audit period under review, the program did not have procedures to require source documentation, such as invoices and timesheets, at the time of reimbursement. We randomly selected 12 payments to subrecipients for testing. The Agency stated that it was performing desk audits of all subrecipient invoices for Federal fiscal year 2024 reimbursements. However, we noted that 11 of 12 payments tested did not have adequate documentation on file to support costs were allowable and in accordance with Federal regulations. When Agency reviews were not sufficient, we gave the Agency the opportunity to obtain additional support from the subrecipient. We allowed the Agency three weeks to obtain support; however, adequate support was not always obtained. We noted the following: • Eight payments did not have adequate support for personnel costs. o For two payments, the subrecipient did not provide timesheets or time records. o For two payments, the subrecipient indicated it did not keep timesheets but had a spreadsheet of allocations. There was not adequate documentation to support these allocations were accurate or in accordance with Federal cost principles. o For one payment, the timesheets showed only the total hours worked for each day, failing to specify the program/activity upon which the employee was working. o For one payment, the timesheets were provided and noted the “Employee Name” and “Employee Signature” on the timesheet; but, per the subrecipient, these individuals were contractors and not employees. The subrecipient did not have any contractual agreements with the individuals that detailed the description of services, estimate of time required, or rate of compensation. o For one payment, the subrecipient did not provide a timesheet or certification to support the Executive Director’s salary and benefits that were being charged to the grant. o For one payment, the subrecipient did not provide timesheets and was allocating payroll based on a budget estimate. This subrecipient also passed funding to its partners for payrolls costs, without obtaining timesheets and paystubs, even though the written Memorandums of Understanding (MOUs) required such documentation prior to fund distribution. Per the MOUs, “Invoices for expenses incurred each month should be submitted . . . with expenses summarized by line item (personnel, program expenses, etc.) . . . . Include itemized receipts, payroll reports, timesheets, and any other documentation necessary to show how funds were spent.” • Four payments did not have adequate support for non-personnel costs. o For three payments, documentation was inadequate to support the percentage of non-payroll expenses charged to the program, such as rent and utilities. Numerous charges were based on allocations that are allowable only if distributed using reasonable methods in accordance with relative benefits received. Support was inadequate to determine that the allocations were proper. o For one payment, training costs were paid for an employee of another subrecipient, and the charges were invoiced to the other subrecipient. Paying costs of another entity appears unreasonable. • We also noted the following items, for which we did not question the costs. o For one payment, the subaward was for improving academic performance, improving the level of English language acquisition, and increasing parent participation; however, the subrecipient charged $20,513 for mental health therapists for refugee families. These costs were not in accordance with the purpose of the subaward; however, being allowable under the Federal grant, the costs are not questioned. o For one payment, printing and cleaning supplies were purchased by the subrecipient’s Coordinator using his personal credit card and were sent to his personal residence. We did not question these costs; however, there is a greater risk for loss or fraud when purchases are not shipped directly to the business. Federal payment errors for the sample tested were $196,067. The total sample tested was $465,546, and subrecipient payments for the fiscal year totaled $4,833,486. Based on the sample tested, the dollar error rate for the sample was 42.12% (196,067/$465,546), which estimates the potential dollars at risk for fiscal year 2024 to be $2,035,864 (dollar error rate multiplied by the population). Cause: Inadequate procedures. Effect: Without adequate subrecipient monitoring procedures, there is an increased risk for the misuse of Federal funds and noncompliance with Federal regulations. Recommendation: We recommend the Agency perform adequate subrecipient monitoring to ensure both the allowability of costs and adherence to Federal regulations. Management Response: The agency agrees with the finding.

Program: AL 93.566 – Refugee and Entrant Assistance State/Replacement Designee Administered Programs – Reporting Grant Number & Year: 2301NERSSS, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Title 2 CFR § 170, Appendix A I. (January 1, 2024) states, in relevant part, the following: (a) Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non-Federal entity or Federal agency . . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. Good internal control requires procedures to ensure all subawards subject to Federal Funding Accountability and Transparency Act (FFATA) reporting are submitted on time. Condition: FFATA reporting was not submitted for 1 of 11 subawards tested. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: The Agency had 27 subawards obligated to 16 subrecipients during the fiscal year ended June 30, 2024. We tested 11 of the subawards (to three subrecipients), and one of those subawards was not reported as of January 6, 2025. The subaward should have been reported by June 30, 2024. See Schedule of Findings and Questioned Costs for chart/table. Cause: Procedures were not properly implemented to ensure that all subawards were reported as required. Effect: Without adequate procedures, there is an increased risk that subawards will not be reported timely. Recommendation: We recommend the Agency improve its procedures to ensure that all subawards are reported as required. Management Response: The agency agrees with this finding. The additional funds added in May did not get reported into the FFATA system. Furthermore, Renewal 4 signed in September reflected incorrect award information. The department has spoken with the grant manager and confirmed that the totals for the award listed in the state accounting system (E1) are correct.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 93.575 and 93.596 – CCDF Cluster; AL 93.575 – COVID-19 Child Care and Development Block Grant – Allowability & Eligibility & Matching Grant Number & Year: 2301NETANF, FFY 2023; 2101NECDC6, FFY 2021; 2201NECCDD, FFY 2022; 2401NECCDF, FFY 2024; 2401NECCDM, FFY 2024; 2101NECCDF, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 98.67 (October 1, 2023) states, in part, the following: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. * * * * (c) Fiscal control and accounting procedures shall be sufficient to permit: * * * * (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. 42 USC § 9858k(b) (1992) states, “With regard to services provided to students enrolled in grades 1 through 12, no financial assistance provided under this subchapter shall be expended for— (1) any services provided to such students during the regular school day[.]” 45 CFR § 98.55 (October 1, 2023) states the following: (a) Federal matching funds are available for expenditures in a State based upon the formula specified at § 98.63(a). (b) Expenditures in a State under paragraph (a) of this section will be matched at the Federal medical assistance rate for the applicable fiscal year for allowable activities, as described in the approved State Plan, that meet the goals and purposes of the Act. To be eligible for services, 45 CFR § 98.20 (October 1, 2023) requires a child to be under 13 years of age, a citizen, and reside with a family whose income does not exceed 85% of the State’s median income.   Title 391 NAC 1-002 defines “infant” and “toddler” for child care subsidies, as follows: Ages of children: 1. Infant means a child age 6 weeks to 18 months; 2. Toddler means a child age 18 months to 3 years; 3. Preschool-age means a child age 3 or older who has not attended kindergarten; and 4. School-age means a child who attends kindergarten or above. Title 392 NAC 2-004, states, in part, the following: In order to receive Child Care Subsidy, the family must: * * * * (E) Have a child within the age limit. Child care is available for children age 12 or younger. Children who turn age 13 during their eligibility period remain eligible through the end of their eligibility period. Children age 18 or younger with special needs are eligible. The child’s age must be verified in order to qualify for assistance[.] Per Title 392 NAC 2-013.05, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Title 392 NAC 3-001.02(D) requires the recipient and child care provider to ensure that the services are delivered as authorized. Title 392 NAC 3-004.01(A) states the following: The Department pays by attendance, not enrollment. Providers do not receive payment when the provider is on vacation, is ill, or is not providing care for some reason unrelated to the child or recipient. Title 392 NAC 3-004.01(A)(i) states the following: The provider may bill the full authorized amount for times that the child is absent on a scheduled day, up to five times per month. Title 392 NAC 4-002 states, in relevant part, the following: Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards; * * * * (E) To accept a rate which is reasonable, necessary, and does not exceed the amount charged to private-paying persons; * * * * (G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims; The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, the following: You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided. You should mark “A” on the calendars for children who are absent. Up to five absent days can be billed per child per month. Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program provides guidance for 392 NAC Chapter 3-004.01(A)(i) Payment for Absences as follows, “Absent days must be billed as 1 day unit per occurrence up to the maximum of 5 occurrences per month.” Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program has the following guidance for Title 392 NAC Chapter 2-011, Categories of Eligibility Based on Income: The total amount of the sliding fee assessed will be based on 7% of the household’s gross income for all of their children enrolled in the subsidy program. It will not vary with the number of children in care, the amount of care they need, or the type of care they choose to use. The sliding fee must be paid each month to the provider before the provider bills the Department, it covers the first dollars of payment, regardless of when service begins or ends. The Child Care Subsidy Provider Handbook (June 2023 revision) requires that, for providers other than child care centers, “[P]arents/caregivers must sign the calendar at the end of the billing period.” EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that payments are in accordance with Federal and State requirements. Condition: Child care payments did not comply with Federal and State requirements. A similar finding has been noted in our previous audit reports since 2007. Repeat Finding: 2023-043 Questioned Costs: $605,874 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We noted claims that lacked support and/or did not agree to support, services billed more than authorized, and duplicate claims charged, as detailed below.   Random Sample We tested 25 child care claims paid with Federal funds. We noted 12 claims with errors. Some payments had more than one type of error. • For two claims tested, there was a family fee co-pay required of $192 and $149 per month, respectively, but no such co-pay was deducted. • For four claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 8 days and 2 partial days of child care, while the attendance sheet showed 5 days and 5 partial days of care. o One provider claimed 7 full days of care during the claim period; however, the attendance sheet provided did not detail the hours that the child was in the care of the provider. As such, the APA could not determine whether the claim was correct. o One provider billed 10 partial-days services; however, the attendance sheet showed only 4 partial-days and one full-day for this period. o One provider billed for 21 days, but the attendance sheet supported only 20 days. • For two claims tested, the providers billed for services over the authorized amount. o One provider was authorized to provide child care during the time that both the mother and father were working. The provider claimed numerous days for care provided overnight; however, no documentation was on file to support that both parents were working overnight. o One provider was authorized 20 hours of child care a week; however, per the attendance sheet, two weeks during the month had 23 service hours per week. • For six claims tested, the child care payment was incorrect because the rate was in excess of the private rates. Providers must accept a rate that is reasonable, necessary, and does not exceed the amount charged to private-paying persons. o One provider claimed $25/partial day but was only authorized to claim $18.33/partial day. o For two claims, the provider reported private rates of $75/week effective May 27, 2022, and $90/week effective May 2, 2024. Using an Agency-provided conversion table, this would result in a partial rate of $8.33-$10/partial day and $15-18/day. However, the provider was claiming $13.33/partial day and $24/day. o One provider reported a private rate of $40/day but was claiming $40.55/day, exceeding the private rate. o One provider reported its private weekly rate at $83. Using a DHHS-provided conversion table, this would result in $9.22/partial day. However, the provider was charging for $20.56/partial day. o One provider reported on its website a partial day private rate of $47 a week, which would result in a rate of $9.40/partial day. However, the provider was claiming $18 for a partial day. Federal payment errors noted for the sample tested were $1,356. The total Federal sample tested was $10,518, and total child care Federal assistance claims for the fiscal year were $83,226,143. Based on the sample tested, the case error rate was 48% (12/25). The dollar error rate for the sample was 12.89% ($1,356/10,518), which estimates the potential dollars at risk for fiscal year 2024 to be $10,727,850 (dollar error rate multiplied by the population). In addition to the $1,356 questioned costs noted on the sample items tested, we noted $2,027 of questioned costs on other line items of the claims reviewed, which resulted from missing and inaccurate documentation. Excessive Units The Nebraska Family Online Client User System (NFOCUS) application was used to automate benefit/service delivery and claim processing and payments for the Child Care program. Due to the volume of claims processed by the NFOCUS application, the Agency did not perform a review of each claim paid. Therefore, the Agency relied on edit checks within the system to review claims and deny or suspend claims that did not meet the criteria determined by the Agency. As noted in Finding 2024-015, during testing of significant edit checks within the NFOCUS application, it was noted that the “UN” edit check (“Units too high for service dates and frequency”) was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Instead of applying a logical edit check to these claims, such as not exceeding the regular number days in one month (e.g., 31 days), the system only compared the claim to the service authorization to determine if adequate units were authorized. We identified 642 claim lines paid with Federal funds, totaling $286,079, where the number of days or partial days billed exceeded the number of days in the service period. We selected 24 claim lines, totaling $33,709, for review and noted 23 claim lines with errors as follows: • The claims charged to Federal funds were “Version 1” of the claim. Sometimes an error is detected and a “Version 2” of the claim is created with an underpayment or overpayment. We noted 11 of the claim lines tested had a Version 2 and 10 of those had overpayments received or recouped. However, the overpayments collected and recouped are credited to the State General Fund, not Federal funds. The 11 claim lines totaled $16,420 and are considered Federal questioned costs. Errors noted included a claim that had 199 days billed for the month of July 2022, the overpayment was collected in December 2022 and credited to the State General Fund. In February 2024 the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. We also noted a claim that billed 100 partial days for a 19-day period. The error was discovered, and a Version 2 was created in December 2023, but in April 2024, the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. • Twelve claim lines did not agree to the attendance records. One provider billed 25 to 64 partial days for 15-day service periods. Two providers billed 40 to 95 partial days for one month service periods. Per review of the attendance records, providers were overpaid $9,182 for these 12 claim lines, which are considered questioned costs. Duplicate Claims Child care claims are initially paid from State funds. Journal entries are then performed throughout the year to transfer costs to Federal funds. A detailed listing of claims accompanies these journal entries to show which claims are included in the amounts moved from State funds to Federal funds. We reviewed the detailed claim listings for each journal entry completed during the fiscal year and found that duplicate claims were included in two journal entries completed on September 28, 2023. Both entries included 594 identical claims, totaling $141,165. These claims were charged to Federal funds twice, and $141,165 is considered questioned costs. Additionally, we compared the detail claim listing to the claims charged to Federal funds in the prior fiscal year and found 1,144 claims that were used in both fiscal year 2023 and fiscal year 2024 journal entries, totaling $297,553, which are questioned costs. Attestation Examination The APA performed an attestation examination of the Nebraska Department of Health and Human Services Child Care NFOCUS Aid Payments for the period July 1, 2023, through March 31, 2024. All claims were initially paid with State General Funds. The APA reviewed the claims with findings to determine if the claims had been transferred and charged to Federal funds. We noted numerous issues with Federal questioned costs, totaling $138,171. We noted the following related to claims paid with Federal funds: Unusual Claims and Duplicate Billings We tested a family in-home care provider that billed a high number of hours for the month. The provider did not provide the requested attendance calendar for January 2024 services. The provider billed 260 hours at a rate of $12 per hour for a total of $3,120. Child care was authorized for the client’s self-employment, up to 60 hours per week. We were unable to determine if the payment was correct because no attendance calendar was provided; therefore, the entire claim was questioned. We also noted the 60 hours per week was authorized based on the client’s declaration of working 12 hours a day, seven days a week. The client’s reported income for this timeframe was $1,500 per month, which calculates to only $4.12 per hour, which is much less than the Nebraska minimum wage rate of $12 per hour. The client’s income does not appear to meet the self-sufficiency requirement. Federal questioned costs totaled $3,120. We noted overlapping of services as follows: Three children were authorized child care for a maximum of 50 hours per week while the parent was working at U-Stop and participating with Employment First. Child care was authorized with two providers. The attendance calendars for both providers showed no overlapping hours; however, the providers exceeded the authorized 50 hours per week for four weeks in September 2023. The secondary provider billed times from 8:30 a.m. to 3:00 p.m. or 4:00 p.m., and the primary provider billed evening and some overnight hours. A comparison of attendance calendars revealed that the total hours between the two providers exceeded the authorization by 6 to 23.5 hours each week. Federal questioned costs totaled $1,027. See the following chart: See Schedule of Findings and Questioned Costs for chart/table. We analyzed the NFOCUS claims paid during the period from July 1, 2023, through March 31, 2024. During this analysis, we identified several claims where the provider appeared to double bill child care services for the same child during the same time period. The providers were able to double bill when two service authorizations for the child were open at the same time and by changing the rate of the service. There were also multiple instances where the provider billed for duplicate services by changing the rate billed. For example, one provider, Tender Loving Tots, billed services three times for the same child for the same time period. A child was authorized for preschool care at the daily rate of $46.51. Tender Loving Tots billed four daily units at the authorized daily rate of $46.51 for service dates of July 11, 2023, through July 14, 2023, for this child on claim 32347682. The provider also billed four daily units at $46.50 per daily unit on claim 83255070, line 2. Tender Loving Tots billed a third time for this child for the same period on the same claim. On line 5 of claim 83255070, the provider billed four days at $45 per daily unit. As long as the billed rate was lower than the authorized rate, NFOCUS did not reject the claim for double billing. See Schedule of Findings and Questioned Costs for chart/table. The following chart shows the number of duplicate claims reviewed and Federal questioned costs by provider: See Schedule of Findings and Questioned Costs for chart/table. Incorrect Age Group We reviewed the claims for family home providers and child care centers for infant care services for children over the age of 18 months. We noted children over the age of 18 months with services paid at the infant rate. We also reviewed the claims for child care centers for toddler care services for children over the age of 36 months. We noted children over the age of 36 months with services paid at the toddler rate. As the rates for infants are higher than toddler rates, and toddler rates are higher than preschool rates, it is important that services be paid at the proper rate based on a child’s age. The following are a few examples that we noted: • A child who turned 19 months on September 18, 2023, continued to be paid at the infant rate for services through February 2024, resulting in questioned costs of $574. • A child who turned 36 months on March 8, 2023, was paid at the infant rate for services from August 16, 2023, through December 2, 2023, and should have been paid at the preschool rate, resulting in overpayments of $538. • A child over age five was paid at the toddler rate for services from June 16, 2023, through November 30, 2023, and should have been paid at the preschool rate, resulting in overpayments of $349. • A child who turned 36 months on October 5, 2023, was paid at the toddler rate for February 2024 services and should have been paid at the preschool rate, resulting in an overpayment of $105. Other Issues We selected six licensed family home providers and six child care centers and requested all attendance records for one month. We noted claims not agreeing with attendance records; attendance records not being provided; billings at an improper rate; services billed in excess of services authorized; overlapping services; and parents’ employment that did not appear to meet the requirement for self-sufficiency. 1. One family home provider billed full days for one child but should have billed partial days because the attendance record showed services from 4:00 p.m. to 6:00 p.m. (2 hours) each day, resulting in $66 questioned costs. 2. Next Generation Child Care and Preschool was paid $94,405 for February 2024 services. For one child, the attendance record showed service from 6:15 a.m. to 8:30 a.m. Per the parent, however, school began at 7:40 a.m., so it appears the time out of 8:30 a.m. is not accurate, resulting in $48 questioned costs. 3. Little Blazers Academy, located on North 61st Street in Omaha, Nebraska, and Little Blazers Academy II, located on West Dodge in Omaha, Nebraska, have the same owner. We question Federal costs of $2,703 for December 2023 services. • Services were billed for 18 children at both locations. For six of these children, the centers were billing partial days at each location when the total hours were less than five hours. For example, on multiple days, one child was claimed from 4:00 p.m. to 5:00 p.m. at one location and then from 5:30 p.m. to 6:30 p.m. at the second location. Each location billed for a partial day; however, only two hours of service were provided each day; therefore, it does not appear reasonable to bill for more than one partial day each day. • The attendance records for December, the month tested, were not provided for eight children, four of whom were paid with Federal funds. The attendance records provided were for September, not December, and were signed September 30, 2023. Also, the service authorization was exceeded for one child; for two children, the claim did not agree to the attendance records. 4. Sprouting Minds Childcare was paid $41,053 for November 2023 services, and we questioned costs of $14,133 – of which $4,309 was paid with Federal funds. We noted the following: • 19 children were billed and paid as an “absent” day on Thanksgiving and the Friday after Thanksgiving, even though the center was closed, and no children attended. • Attendance records were not provided for five children, and time records did not agree to the services billed for an additional five children. • Services claimed exceeded service authorizations for 13 children. • One child was billed both as a toddler and an infant for the same period and should have been billed only as a toddler. 5. International Day Care was paid $173,260 for November 2023 services – of which $132,328 was charged to Federal funds – and we question $111,609, an 84% dollar error rate. We noted the following: • 191 children were billed and paid as an “absent” day on Thanksgiving even though the center was closed, and no children attended. • One child billed was over age 13 and not eligible for services. • One child was billed as a toddler but was over the age of three at the time of service and should have been billed at the preschool rate. • One child was billed as an infant but was 35 months old at the time of service and should have been billed as a toddler. • Four families authorized for child care while a parent was working at the center billed for days after the parent was no longer working at the center. During our review of service authorizations, moreover, we noted that several children had a parent working at the daycare while the children attended. This is allowable if the parent is not working in the same room. However, of the 222 children paid for the month tested, 201 had a parent working at the daycare, and only 21 children did not. The 222 children were from 53 families, and 44 of those families had a parent working at the daycare. We asked the daycare to provide us with employment records for those parents. Most of the parents had income from International Day Care that was far less than the subsidies paid for child care services. For example, for one family, the parent earned $1,452 for the month, but child care payments totaled $6,353. Title 392 NAC 2-013.05 provides, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Based on a comparison of wages to child care subsidies, however, the employment with the daycare does not appear to have that potential. For the families with a parent working at the daycare, there was a total of $154,326 in child care payments, but the parents’ gross salary from the daycare totaled only $64,163 – a discrepancy hardly reflective of employment arrangements conducive to economic autonomy. Many of these families had additional income from sources other than the daycare; however, child care subsidies still appeared unreasonable. In these cases, as illustrated by the examples below, parents working at the daycare in a capacity that failed to produce even the potential to “achieve or maintain economic self-sufficiency,” contrary to the explicit regulatory language cited above, actually resulted in far greater child care costs than would have occurred had those working parents stayed at home and cared for the children themselves. The following cases are representative of why subsidies are not available for jobs that prove ultimately counterproductive in terms of the relatively low wages received in comparison to the resultant child care expenses to the State: • One family with seven children had child care subsidies for the month of $5,945 plus paid a family fee of $465 per month, for total daycare costs of $6,410. This was a two-parent household, and one parent worked at the daycare and earned $1,386 for the month. The total gross income for the household was $6,647.97, which exceeds the cost of child care, but if the family was responsible for all daycare costs, it would leave less than $250 per month for rent, food, utilities, and other expenses. It would cost the family over $5,000 each month to have a parent working at the daycare; therefore, the employment does not appear to have the potential for self-sufficiency. • Another family had child care subsidies for the month of $5,610, and the parent who worked at the daycare earned $1,323. The family had total gross monthly income of $4,192.16, which is still $1,417.84 less than child care costs, and if the family was responsible for all child care costs, it would cost the family $4,287 each month to have the parent working at the daycare. Therefore, the employment does not appear to have the potential for self-sufficiency. It was also noted that seven families were receiving Temporary Assistance to Needy Families (TANF) and were required to work as a condition of that assistance. These seven families received child care subsidies of $24,850 for the month and were paid wages of $10,456 by the daycare. However, we did not question these costs because the individuals were required to work as a condition of receiving TANF. Excluding the TANF recipients, we questioned all other child care payments for families whose parents’ wages from the child care center were less than the child care payments. Market Rate Survey and Subsidy Rates The 2023 child care subsidy rates, which became effective July 1, 2023, were established following a Market Rate Survey issued in June 2022 by the Buffet Institute at the University of Nebraska (Institute). This market rate survey was commissioned by the Agency pursuant to Neb. Rev. Stat. § 43-536 (Cum. Supp. 2022). The results of the survey were based on a provider response rate of 32.9% (946 providers); however, in calculating the half-day and full-day rates, the Institute used rate information from only 21% of respondents who indicated that they had a part-time and full-time rate schedule similar to the guidelines set by the Agency (partial day for 0 to 4 hours and 59 minutes and full-time for 5 hours to 9 hours and 59 minutes). As such, the rates were established based on rate information provided by only 6.9% of Nebraska’s child care providers. The percentage of providers factored into the benefit calculation is so low because many providers responded that they did not have an equivalent half-day or full-day rate structure. Therefore, we question the reasonableness of the rates established pursuant to the market rate survey and whether it provides a clear picture of private market rates in the State. Additionally, Nebraska regulations require that providers have an established private rate prior to receiving any subsidy payments. This is because the subsidy payment is not allowed to exceed the provider’s private rate. However, as shown in the market survey results, many providers do not have such a rate structure and, therefore, do not have established half-day and full-day rates. In many cases, providers have a weekly rate. The Agency stated that it utilizes a weekly rate to daily/partial day rate conversion table, which was provided by the Institute. However, while this table is used to determine the equivalent rates, there is no written policy or guidance on when or how the table should be implemented, and no mention is made of these conversion tables in the market survey report. State Matching Claims States are required to match the Federal funds spent with the Federal Matching grant with State funded expenditures at the Federal Medical Assistance Percentage (FMAP) rate for the applicable fiscal year. Those State funding expenditures must be an eligible and allowable activity per the State Plan. The Agency periodically performs journal entries to move child care claims to the applicable business unit to identify and track the State matching expenditures. During the fiscal year, the Agency moved $10,737,243 of child care claims paid with State General funds to the business units for State matching expenditures. We tested 25 child care claims paid with State matching funds. We noted 10 claims with errors. Some payments had more than one type of error. • For one claim tested, there was a family fee co-pay required of $203, but no such co-pay was deducted. • For two claims tested, the attendance records were not provided. • For five claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 4 full days and 25.25 hours of child care, while the attendance sheet showed 0 days and 18.75 hours of care. o One provider billed 13 partial days of service; however, the attendance sheet showed only 10 partial days. o Two providers billed an additional day compared to the attendance record. o One provider recorded full days of service from 6:00 a.m. to 9:00 a.m. and 4:00 p.m. to 6:00 p.m., for five hours of service. However, per the school calendar, classes began at 8:50 a.m. and ended at 4:05 p.m. The attendance sheet did not appear reasonable, as the child would still be at the child care provider when school started. If services were from 6:00 a.m. to 8:50 a.m. and 4:05 p.m. to 6:00 p.m., the provider would only be allowed partial days of service. • For one claim tested, the provider billed care over the authorized amount. The provider was authorized 39 hours of child care a week; however, per the attendance sheet, the child received 43 hours for one week tested. • For one claim tested, the attendance record was not signed by the parent, as required. Payment errors noted for the sample tested were $1,397. The total sample tested was $9,396, and total child care matching claims for the fiscal year were $10,737,243. Based on the sample tested, the case error rate was 40% (10/25). The dollar error rate for the sample was 14.87% ($1,397/9,396), which estimates the potential dollars at risk for fiscal year 2024 to be $1,596,628 (dollar error rate multiplied by the population). Cause: Ineffective review. The Agency does not have automated procedures to ensure attendance records agree to billing documents, service authorizations are not exceeded, and claims are in accordance with regulations. The edit check “Units too high for service dates and frequency” was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Effect: Ineffective review of claims increases the risk for errors, fraud, and misuse of State and Federal funds.   Recommendation: We recommend the Agency implement procedures to ensure payments are allowable, adequately supported, and in accordance with State and Federal regulations. We further recommend the Agency ensure billing documents agree with attendance sheets, and services are only authorized as needed and only if the parents’ employment has the potential for economic self-sufficiency. We also recommend the Agency implement procedures to ensure journal entries do not charge duplicate claims. Finally, we recommend the Agency take the necessary action to recover the overpayments. Management Response: Management agrees.

Program: AL 93.575 and 93.596 – CCDF Cluster – Special Tests and Provisions Grant Number & Year: Various, including 2401NECCDF, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 98.41 (October 1, 2023), the State must have requirements to protect the health and safety of children, including the prevention and control of infectious diseases, building and physical premises safety, and health and safety training. Per 391 NAC 3-005.09A and NAC 4-005.09A: The Department will make a fire inspection referral when: . . . 2. Every two years following the initial fire inspection[.] Per 391 NAC 3-005.09B: The Department will make a sanitation inspection referral when: . . . 2. Every two years following the initial sanitation inspection . . . [.] 391 NAC 1-005.02 provides the following: The Department will conduct an unannounced inspection each year to assess compliance with licensing regulations. A good internal control plan requires adequate documentation to be maintained to support compliance with health and safety requirements. Condition: The Agency did not have adequate procedures in place to ensure health and safety requirements were met for child care providers. A similar finding has been noted in prior audits since 2017. Repeat Finding: 2023-044 Questioned Costs: Unknown Statistical Sample: No Context: Child care centers and family child care homes are subject to health and safety requirements. Each type of provider is subject to separate but similar State regulations. We tested 26 child care providers subject to health and safety requirements. We noted the following: • One family home child care provider did not have the required annual inspection completed. The last annual inspection was performed on February 25, 2022. The Agency attempted to conduct unannounced reviews on November 8, 2023, and November 11, 2023, but the child care provider was not home. In December 2023, the Agency emailed the provider and tried contacting the provider by phone twice; however, a response was not received. No annual inspection was completed in 2023, and no inspection for 2024 has been completed as of the end of fieldwork on November 8, 2024. No disciplinary actions have been taken against the provider. • One child care center tested did not have a sanitation inspection. The Agency made a referral for a sanitation inspection on December 5, 2023; however, as of November 8, 2024, no inspection was completed. • Five of 21 child care centers tested did not have a fire inspection within the last two years: See Schedule of Findings and Questioned Costs for chart/table. Cause: Depending on the city or county, the Agency relies on local fire departments or the State Fire Marshal to conduct fire inspections for child care centers. The Agency makes a referral to the fire department when an inspection is due, but the Agency does not pay for these inspections and cannot control the timing of the inspections. Effect: Without adequate procedures to ensure health and safety requirements are met, there is an increased risk of noncompliance with Federal regulations and the possibility of children being cared for in unsafe facilities. Recommendation: We recommend the Agency implement procedures to ensure all health and safety requirements are met for child care centers. Management Response: Management partially agrees. APA Response: The Agency is the recipient of the Federal funds and is, therefore, ultimately responsible to ensure that fire and sanitation inspections are performed. Without such inspections, there is an increased risk of children being cared for in unsafe facilities.

Program: AL 93.575 and 93.596 – CCDF Cluster; AL 93.575 – COVID-19 Child Care and Development Block Grant – Allowability & Eligibility & Matching Grant Number & Year: 2301NETANF, FFY 2023; 2101NECDC6, FFY 2021; 2201NECCDD, FFY 2022; 2401NECCDF, FFY 2024; 2401NECCDM, FFY 2024; 2101NECCDF, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 98.67 (October 1, 2023) states, in part, the following: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. * * * * (c) Fiscal control and accounting procedures shall be sufficient to permit: * * * * (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. 42 USC § 9858k(b) (1992) states, “With regard to services provided to students enrolled in grades 1 through 12, no financial assistance provided under this subchapter shall be expended for— (1) any services provided to such students during the regular school day[.]” 45 CFR § 98.55 (October 1, 2023) states the following: (a) Federal matching funds are available for expenditures in a State based upon the formula specified at § 98.63(a). (b) Expenditures in a State under paragraph (a) of this section will be matched at the Federal medical assistance rate for the applicable fiscal year for allowable activities, as described in the approved State Plan, that meet the goals and purposes of the Act. To be eligible for services, 45 CFR § 98.20 (October 1, 2023) requires a child to be under 13 years of age, a citizen, and reside with a family whose income does not exceed 85% of the State’s median income.   Title 391 NAC 1-002 defines “infant” and “toddler” for child care subsidies, as follows: Ages of children: 1. Infant means a child age 6 weeks to 18 months; 2. Toddler means a child age 18 months to 3 years; 3. Preschool-age means a child age 3 or older who has not attended kindergarten; and 4. School-age means a child who attends kindergarten or above. Title 392 NAC 2-004, states, in part, the following: In order to receive Child Care Subsidy, the family must: * * * * (E) Have a child within the age limit. Child care is available for children age 12 or younger. Children who turn age 13 during their eligibility period remain eligible through the end of their eligibility period. Children age 18 or younger with special needs are eligible. The child’s age must be verified in order to qualify for assistance[.] Per Title 392 NAC 2-013.05, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Title 392 NAC 3-001.02(D) requires the recipient and child care provider to ensure that the services are delivered as authorized. Title 392 NAC 3-004.01(A) states the following: The Department pays by attendance, not enrollment. Providers do not receive payment when the provider is on vacation, is ill, or is not providing care for some reason unrelated to the child or recipient. Title 392 NAC 3-004.01(A)(i) states the following: The provider may bill the full authorized amount for times that the child is absent on a scheduled day, up to five times per month. Title 392 NAC 4-002 states, in relevant part, the following: Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards; * * * * (E) To accept a rate which is reasonable, necessary, and does not exceed the amount charged to private-paying persons; * * * * (G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims; The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, the following: You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided. You should mark “A” on the calendars for children who are absent. Up to five absent days can be billed per child per month. Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program provides guidance for 392 NAC Chapter 3-004.01(A)(i) Payment for Absences as follows, “Absent days must be billed as 1 day unit per occurrence up to the maximum of 5 occurrences per month.” Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program has the following guidance for Title 392 NAC Chapter 2-011, Categories of Eligibility Based on Income: The total amount of the sliding fee assessed will be based on 7% of the household’s gross income for all of their children enrolled in the subsidy program. It will not vary with the number of children in care, the amount of care they need, or the type of care they choose to use. The sliding fee must be paid each month to the provider before the provider bills the Department, it covers the first dollars of payment, regardless of when service begins or ends. The Child Care Subsidy Provider Handbook (June 2023 revision) requires that, for providers other than child care centers, “[P]arents/caregivers must sign the calendar at the end of the billing period.” EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that payments are in accordance with Federal and State requirements. Condition: Child care payments did not comply with Federal and State requirements. A similar finding has been noted in our previous audit reports since 2007. Repeat Finding: 2023-043 Questioned Costs: $605,874 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We noted claims that lacked support and/or did not agree to support, services billed more than authorized, and duplicate claims charged, as detailed below.   Random Sample We tested 25 child care claims paid with Federal funds. We noted 12 claims with errors. Some payments had more than one type of error. • For two claims tested, there was a family fee co-pay required of $192 and $149 per month, respectively, but no such co-pay was deducted. • For four claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 8 days and 2 partial days of child care, while the attendance sheet showed 5 days and 5 partial days of care. o One provider claimed 7 full days of care during the claim period; however, the attendance sheet provided did not detail the hours that the child was in the care of the provider. As such, the APA could not determine whether the claim was correct. o One provider billed 10 partial-days services; however, the attendance sheet showed only 4 partial-days and one full-day for this period. o One provider billed for 21 days, but the attendance sheet supported only 20 days. • For two claims tested, the providers billed for services over the authorized amount. o One provider was authorized to provide child care during the time that both the mother and father were working. The provider claimed numerous days for care provided overnight; however, no documentation was on file to support that both parents were working overnight. o One provider was authorized 20 hours of child care a week; however, per the attendance sheet, two weeks during the month had 23 service hours per week. • For six claims tested, the child care payment was incorrect because the rate was in excess of the private rates. Providers must accept a rate that is reasonable, necessary, and does not exceed the amount charged to private-paying persons. o One provider claimed $25/partial day but was only authorized to claim $18.33/partial day. o For two claims, the provider reported private rates of $75/week effective May 27, 2022, and $90/week effective May 2, 2024. Using an Agency-provided conversion table, this would result in a partial rate of $8.33-$10/partial day and $15-18/day. However, the provider was claiming $13.33/partial day and $24/day. o One provider reported a private rate of $40/day but was claiming $40.55/day, exceeding the private rate. o One provider reported its private weekly rate at $83. Using a DHHS-provided conversion table, this would result in $9.22/partial day. However, the provider was charging for $20.56/partial day. o One provider reported on its website a partial day private rate of $47 a week, which would result in a rate of $9.40/partial day. However, the provider was claiming $18 for a partial day. Federal payment errors noted for the sample tested were $1,356. The total Federal sample tested was $10,518, and total child care Federal assistance claims for the fiscal year were $83,226,143. Based on the sample tested, the case error rate was 48% (12/25). The dollar error rate for the sample was 12.89% ($1,356/10,518), which estimates the potential dollars at risk for fiscal year 2024 to be $10,727,850 (dollar error rate multiplied by the population). In addition to the $1,356 questioned costs noted on the sample items tested, we noted $2,027 of questioned costs on other line items of the claims reviewed, which resulted from missing and inaccurate documentation. Excessive Units The Nebraska Family Online Client User System (NFOCUS) application was used to automate benefit/service delivery and claim processing and payments for the Child Care program. Due to the volume of claims processed by the NFOCUS application, the Agency did not perform a review of each claim paid. Therefore, the Agency relied on edit checks within the system to review claims and deny or suspend claims that did not meet the criteria determined by the Agency. As noted in Finding 2024-015, during testing of significant edit checks within the NFOCUS application, it was noted that the “UN” edit check (“Units too high for service dates and frequency”) was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Instead of applying a logical edit check to these claims, such as not exceeding the regular number days in one month (e.g., 31 days), the system only compared the claim to the service authorization to determine if adequate units were authorized. We identified 642 claim lines paid with Federal funds, totaling $286,079, where the number of days or partial days billed exceeded the number of days in the service period. We selected 24 claim lines, totaling $33,709, for review and noted 23 claim lines with errors as follows: • The claims charged to Federal funds were “Version 1” of the claim. Sometimes an error is detected and a “Version 2” of the claim is created with an underpayment or overpayment. We noted 11 of the claim lines tested had a Version 2 and 10 of those had overpayments received or recouped. However, the overpayments collected and recouped are credited to the State General Fund, not Federal funds. The 11 claim lines totaled $16,420 and are considered Federal questioned costs. Errors noted included a claim that had 199 days billed for the month of July 2022, the overpayment was collected in December 2022 and credited to the State General Fund. In February 2024 the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. We also noted a claim that billed 100 partial days for a 19-day period. The error was discovered, and a Version 2 was created in December 2023, but in April 2024, the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. • Twelve claim lines did not agree to the attendance records. One provider billed 25 to 64 partial days for 15-day service periods. Two providers billed 40 to 95 partial days for one month service periods. Per review of the attendance records, providers were overpaid $9,182 for these 12 claim lines, which are considered questioned costs. Duplicate Claims Child care claims are initially paid from State funds. Journal entries are then performed throughout the year to transfer costs to Federal funds. A detailed listing of claims accompanies these journal entries to show which claims are included in the amounts moved from State funds to Federal funds. We reviewed the detailed claim listings for each journal entry completed during the fiscal year and found that duplicate claims were included in two journal entries completed on September 28, 2023. Both entries included 594 identical claims, totaling $141,165. These claims were charged to Federal funds twice, and $141,165 is considered questioned costs. Additionally, we compared the detail claim listing to the claims charged to Federal funds in the prior fiscal year and found 1,144 claims that were used in both fiscal year 2023 and fiscal year 2024 journal entries, totaling $297,553, which are questioned costs. Attestation Examination The APA performed an attestation examination of the Nebraska Department of Health and Human Services Child Care NFOCUS Aid Payments for the period July 1, 2023, through March 31, 2024. All claims were initially paid with State General Funds. The APA reviewed the claims with findings to determine if the claims had been transferred and charged to Federal funds. We noted numerous issues with Federal questioned costs, totaling $138,171. We noted the following related to claims paid with Federal funds: Unusual Claims and Duplicate Billings We tested a family in-home care provider that billed a high number of hours for the month. The provider did not provide the requested attendance calendar for January 2024 services. The provider billed 260 hours at a rate of $12 per hour for a total of $3,120. Child care was authorized for the client’s self-employment, up to 60 hours per week. We were unable to determine if the payment was correct because no attendance calendar was provided; therefore, the entire claim was questioned. We also noted the 60 hours per week was authorized based on the client’s declaration of working 12 hours a day, seven days a week. The client’s reported income for this timeframe was $1,500 per month, which calculates to only $4.12 per hour, which is much less than the Nebraska minimum wage rate of $12 per hour. The client’s income does not appear to meet the self-sufficiency requirement. Federal questioned costs totaled $3,120. We noted overlapping of services as follows: Three children were authorized child care for a maximum of 50 hours per week while the parent was working at U-Stop and participating with Employment First. Child care was authorized with two providers. The attendance calendars for both providers showed no overlapping hours; however, the providers exceeded the authorized 50 hours per week for four weeks in September 2023. The secondary provider billed times from 8:30 a.m. to 3:00 p.m. or 4:00 p.m., and the primary provider billed evening and some overnight hours. A comparison of attendance calendars revealed that the total hours between the two providers exceeded the authorization by 6 to 23.5 hours each week. Federal questioned costs totaled $1,027. See the following chart: See Schedule of Findings and Questioned Costs for chart/table. We analyzed the NFOCUS claims paid during the period from July 1, 2023, through March 31, 2024. During this analysis, we identified several claims where the provider appeared to double bill child care services for the same child during the same time period. The providers were able to double bill when two service authorizations for the child were open at the same time and by changing the rate of the service. There were also multiple instances where the provider billed for duplicate services by changing the rate billed. For example, one provider, Tender Loving Tots, billed services three times for the same child for the same time period. A child was authorized for preschool care at the daily rate of $46.51. Tender Loving Tots billed four daily units at the authorized daily rate of $46.51 for service dates of July 11, 2023, through July 14, 2023, for this child on claim 32347682. The provider also billed four daily units at $46.50 per daily unit on claim 83255070, line 2. Tender Loving Tots billed a third time for this child for the same period on the same claim. On line 5 of claim 83255070, the provider billed four days at $45 per daily unit. As long as the billed rate was lower than the authorized rate, NFOCUS did not reject the claim for double billing. See Schedule of Findings and Questioned Costs for chart/table. The following chart shows the number of duplicate claims reviewed and Federal questioned costs by provider: See Schedule of Findings and Questioned Costs for chart/table. Incorrect Age Group We reviewed the claims for family home providers and child care centers for infant care services for children over the age of 18 months. We noted children over the age of 18 months with services paid at the infant rate. We also reviewed the claims for child care centers for toddler care services for children over the age of 36 months. We noted children over the age of 36 months with services paid at the toddler rate. As the rates for infants are higher than toddler rates, and toddler rates are higher than preschool rates, it is important that services be paid at the proper rate based on a child’s age. The following are a few examples that we noted: • A child who turned 19 months on September 18, 2023, continued to be paid at the infant rate for services through February 2024, resulting in questioned costs of $574. • A child who turned 36 months on March 8, 2023, was paid at the infant rate for services from August 16, 2023, through December 2, 2023, and should have been paid at the preschool rate, resulting in overpayments of $538. • A child over age five was paid at the toddler rate for services from June 16, 2023, through November 30, 2023, and should have been paid at the preschool rate, resulting in overpayments of $349. • A child who turned 36 months on October 5, 2023, was paid at the toddler rate for February 2024 services and should have been paid at the preschool rate, resulting in an overpayment of $105. Other Issues We selected six licensed family home providers and six child care centers and requested all attendance records for one month. We noted claims not agreeing with attendance records; attendance records not being provided; billings at an improper rate; services billed in excess of services authorized; overlapping services; and parents’ employment that did not appear to meet the requirement for self-sufficiency. 1. One family home provider billed full days for one child but should have billed partial days because the attendance record showed services from 4:00 p.m. to 6:00 p.m. (2 hours) each day, resulting in $66 questioned costs. 2. Next Generation Child Care and Preschool was paid $94,405 for February 2024 services. For one child, the attendance record showed service from 6:15 a.m. to 8:30 a.m. Per the parent, however, school began at 7:40 a.m., so it appears the time out of 8:30 a.m. is not accurate, resulting in $48 questioned costs. 3. Little Blazers Academy, located on North 61st Street in Omaha, Nebraska, and Little Blazers Academy II, located on West Dodge in Omaha, Nebraska, have the same owner. We question Federal costs of $2,703 for December 2023 services. • Services were billed for 18 children at both locations. For six of these children, the centers were billing partial days at each location when the total hours were less than five hours. For example, on multiple days, one child was claimed from 4:00 p.m. to 5:00 p.m. at one location and then from 5:30 p.m. to 6:30 p.m. at the second location. Each location billed for a partial day; however, only two hours of service were provided each day; therefore, it does not appear reasonable to bill for more than one partial day each day. • The attendance records for December, the month tested, were not provided for eight children, four of whom were paid with Federal funds. The attendance records provided were for September, not December, and were signed September 30, 2023. Also, the service authorization was exceeded for one child; for two children, the claim did not agree to the attendance records. 4. Sprouting Minds Childcare was paid $41,053 for November 2023 services, and we questioned costs of $14,133 – of which $4,309 was paid with Federal funds. We noted the following: • 19 children were billed and paid as an “absent” day on Thanksgiving and the Friday after Thanksgiving, even though the center was closed, and no children attended. • Attendance records were not provided for five children, and time records did not agree to the services billed for an additional five children. • Services claimed exceeded service authorizations for 13 children. • One child was billed both as a toddler and an infant for the same period and should have been billed only as a toddler. 5. International Day Care was paid $173,260 for November 2023 services – of which $132,328 was charged to Federal funds – and we question $111,609, an 84% dollar error rate. We noted the following: • 191 children were billed and paid as an “absent” day on Thanksgiving even though the center was closed, and no children attended. • One child billed was over age 13 and not eligible for services. • One child was billed as a toddler but was over the age of three at the time of service and should have been billed at the preschool rate. • One child was billed as an infant but was 35 months old at the time of service and should have been billed as a toddler. • Four families authorized for child care while a parent was working at the center billed for days after the parent was no longer working at the center. During our review of service authorizations, moreover, we noted that several children had a parent working at the daycare while the children attended. This is allowable if the parent is not working in the same room. However, of the 222 children paid for the month tested, 201 had a parent working at the daycare, and only 21 children did not. The 222 children were from 53 families, and 44 of those families had a parent working at the daycare. We asked the daycare to provide us with employment records for those parents. Most of the parents had income from International Day Care that was far less than the subsidies paid for child care services. For example, for one family, the parent earned $1,452 for the month, but child care payments totaled $6,353. Title 392 NAC 2-013.05 provides, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Based on a comparison of wages to child care subsidies, however, the employment with the daycare does not appear to have that potential. For the families with a parent working at the daycare, there was a total of $154,326 in child care payments, but the parents’ gross salary from the daycare totaled only $64,163 – a discrepancy hardly reflective of employment arrangements conducive to economic autonomy. Many of these families had additional income from sources other than the daycare; however, child care subsidies still appeared unreasonable. In these cases, as illustrated by the examples below, parents working at the daycare in a capacity that failed to produce even the potential to “achieve or maintain economic self-sufficiency,” contrary to the explicit regulatory language cited above, actually resulted in far greater child care costs than would have occurred had those working parents stayed at home and cared for the children themselves. The following cases are representative of why subsidies are not available for jobs that prove ultimately counterproductive in terms of the relatively low wages received in comparison to the resultant child care expenses to the State: • One family with seven children had child care subsidies for the month of $5,945 plus paid a family fee of $465 per month, for total daycare costs of $6,410. This was a two-parent household, and one parent worked at the daycare and earned $1,386 for the month. The total gross income for the household was $6,647.97, which exceeds the cost of child care, but if the family was responsible for all daycare costs, it would leave less than $250 per month for rent, food, utilities, and other expenses. It would cost the family over $5,000 each month to have a parent working at the daycare; therefore, the employment does not appear to have the potential for self-sufficiency. • Another family had child care subsidies for the month of $5,610, and the parent who worked at the daycare earned $1,323. The family had total gross monthly income of $4,192.16, which is still $1,417.84 less than child care costs, and if the family was responsible for all child care costs, it would cost the family $4,287 each month to have the parent working at the daycare. Therefore, the employment does not appear to have the potential for self-sufficiency. It was also noted that seven families were receiving Temporary Assistance to Needy Families (TANF) and were required to work as a condition of that assistance. These seven families received child care subsidies of $24,850 for the month and were paid wages of $10,456 by the daycare. However, we did not question these costs because the individuals were required to work as a condition of receiving TANF. Excluding the TANF recipients, we questioned all other child care payments for families whose parents’ wages from the child care center were less than the child care payments. Market Rate Survey and Subsidy Rates The 2023 child care subsidy rates, which became effective July 1, 2023, were established following a Market Rate Survey issued in June 2022 by the Buffet Institute at the University of Nebraska (Institute). This market rate survey was commissioned by the Agency pursuant to Neb. Rev. Stat. § 43-536 (Cum. Supp. 2022). The results of the survey were based on a provider response rate of 32.9% (946 providers); however, in calculating the half-day and full-day rates, the Institute used rate information from only 21% of respondents who indicated that they had a part-time and full-time rate schedule similar to the guidelines set by the Agency (partial day for 0 to 4 hours and 59 minutes and full-time for 5 hours to 9 hours and 59 minutes). As such, the rates were established based on rate information provided by only 6.9% of Nebraska’s child care providers. The percentage of providers factored into the benefit calculation is so low because many providers responded that they did not have an equivalent half-day or full-day rate structure. Therefore, we question the reasonableness of the rates established pursuant to the market rate survey and whether it provides a clear picture of private market rates in the State. Additionally, Nebraska regulations require that providers have an established private rate prior to receiving any subsidy payments. This is because the subsidy payment is not allowed to exceed the provider’s private rate. However, as shown in the market survey results, many providers do not have such a rate structure and, therefore, do not have established half-day and full-day rates. In many cases, providers have a weekly rate. The Agency stated that it utilizes a weekly rate to daily/partial day rate conversion table, which was provided by the Institute. However, while this table is used to determine the equivalent rates, there is no written policy or guidance on when or how the table should be implemented, and no mention is made of these conversion tables in the market survey report. State Matching Claims States are required to match the Federal funds spent with the Federal Matching grant with State funded expenditures at the Federal Medical Assistance Percentage (FMAP) rate for the applicable fiscal year. Those State funding expenditures must be an eligible and allowable activity per the State Plan. The Agency periodically performs journal entries to move child care claims to the applicable business unit to identify and track the State matching expenditures. During the fiscal year, the Agency moved $10,737,243 of child care claims paid with State General funds to the business units for State matching expenditures. We tested 25 child care claims paid with State matching funds. We noted 10 claims with errors. Some payments had more than one type of error. • For one claim tested, there was a family fee co-pay required of $203, but no such co-pay was deducted. • For two claims tested, the attendance records were not provided. • For five claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 4 full days and 25.25 hours of child care, while the attendance sheet showed 0 days and 18.75 hours of care. o One provider billed 13 partial days of service; however, the attendance sheet showed only 10 partial days. o Two providers billed an additional day compared to the attendance record. o One provider recorded full days of service from 6:00 a.m. to 9:00 a.m. and 4:00 p.m. to 6:00 p.m., for five hours of service. However, per the school calendar, classes began at 8:50 a.m. and ended at 4:05 p.m. The attendance sheet did not appear reasonable, as the child would still be at the child care provider when school started. If services were from 6:00 a.m. to 8:50 a.m. and 4:05 p.m. to 6:00 p.m., the provider would only be allowed partial days of service. • For one claim tested, the provider billed care over the authorized amount. The provider was authorized 39 hours of child care a week; however, per the attendance sheet, the child received 43 hours for one week tested. • For one claim tested, the attendance record was not signed by the parent, as required. Payment errors noted for the sample tested were $1,397. The total sample tested was $9,396, and total child care matching claims for the fiscal year were $10,737,243. Based on the sample tested, the case error rate was 40% (10/25). The dollar error rate for the sample was 14.87% ($1,397/9,396), which estimates the potential dollars at risk for fiscal year 2024 to be $1,596,628 (dollar error rate multiplied by the population). Cause: Ineffective review. The Agency does not have automated procedures to ensure attendance records agree to billing documents, service authorizations are not exceeded, and claims are in accordance with regulations. The edit check “Units too high for service dates and frequency” was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Effect: Ineffective review of claims increases the risk for errors, fraud, and misuse of State and Federal funds.   Recommendation: We recommend the Agency implement procedures to ensure payments are allowable, adequately supported, and in accordance with State and Federal regulations. We further recommend the Agency ensure billing documents agree with attendance sheets, and services are only authorized as needed and only if the parents’ employment has the potential for economic self-sufficiency. We also recommend the Agency implement procedures to ensure journal entries do not charge duplicate claims. Finally, we recommend the Agency take the necessary action to recover the overpayments. Management Response: Management agrees.

Program: AL 93.575 – COVID-19 Child Care and Development Block Grant – Period of Performance Grant Number & Year: 2101NECDC6, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 98.60(d) (October 1, 2023): The following obligation and liquidation provisions apply to States and Territories: (1) Discretionary Fund allotments shall be obligated in the fiscal year in which funds are awarded or in the succeeding fiscal year. Unliquidated obligations as of the end of the succeeding fiscal year shall be liquidated within one year. Per the Federal Notice of Award for 2101NECDC6, “ARP CCDF Discretionary funds must be obligated by September 30, 2023, and liquidated by September 30, 2024.” According to 45 CFR § 75.511(a) (October 1, 2023), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) provides, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” A good internal control plan requires procedures to ensure compliance with Federal regulations. Condition: Expenditures were charged to the American Rescue Plan Act (ARPA) grant after the period of performance. A similar finding was noted in the prior audit. The Summary Schedule of Prior Findings lists the status as complete. Repeat Finding: 2023-045 Questioned Costs: $9,321,777 known Statistical Sample: No Context: ARPA Child Care and Development Fund (CCDF) Discretionary funds must be obligated by September 30, 2023, and liquidated by September 30, 2024. Expenditures for the ARPA grant included two journal entries for claims originally paid with State funds from October 2023 through March 2024, which is after the obligation period. See Schedule of Findings and Questioned Costs for chart/table. During our random sample of child care claims, we tested two claims charged to the ARPA grant per the Journal Entry dated June 3, 2024. The eligibility period, service dates, and original paid date for those two claims are as follows: See Schedule of Findings and Questioned Costs for chart/table. Clearly, there was no obligation to pay these claims as of September 30, 2023, as services had not been provided, and the family had not been determined eligible for those service dates. Cause: The Agency had verbal discussions with the Federal grantor and believed, based on those discussions, that the expenditures were allowable. Effect: Noncompliance with Federal regulations. Recommendation: We recommend the Agency improve procedures to ensure expenditures charged are within the allowed time period. Management Response: Management partially agrees. The Agency has worked with Federal Partners on period of performance and were in agreeance with them on what is allowable. We understand that most conversations were verbal, however, the Federal Partners did not see any issues with our definition of obligations, which some of these claims fall into.

Program: AL 93.575 – COVID-19 Child Care and Development Block Grant – Allowability & Period of Performance Grant Number & Year: 2101NECCC5, FFY 2021; 2101NECDC6, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 98.67 (October 1, 2023) states, in part, the following: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. * * * * (c) Fiscal control and accounting procedures shall be sufficient to permit: * * * * (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The Frequently Asked Questions (FAQs) for the Business and Child Care Partnership Grant Program (https://dhhs.ne.gov/Documents/BCCG-FAQs.pdf ) includes, in part, the following: I. 1. The goal of the Business and Child Care Partnership grant program is to increase child care capacity throughout the state of Nebraska. * * * * II. 12. Applicants must expend grant funds by July 31, 2023. * * * * II. 14. [N]ew child care programs need to be licensed and operating by December 31, 2023. * * * * II. 15. Grant recipients are required to remain open and caring for children for three (3) years after their awarded date or from the date of license, whichever is later. Closing the business before three years have passed may require the grant recipient to pay back all or a prorated portion of their award. * * * * III. 4. To be eligible to apply, you will need to be increasing your license capacity . . . * * * * IV. 2. Note that projects must be completed by December 31, 2023. Per the Federal Notice of Award for 2101NECCC5, “CRRSA funds must be obligated by September 30, 2022, and liquidated by September 30, 2023.” Per the Federal Notice of Award for 2101NECDC6, “ARP CCDF Discretionary funds must be obligated by September 30, 2023, and liquidated by September 30, 2024.” The Child Care Stabilization Program Frequently Asked Questions (FAQs) for Round 3 (https://dhhs.ne.gov/Documents/CCSG-FAQ-English.pdf) includes, in part, the following: 4. A licensed child care provider (CCC, FCCHI, FCCHII, PRE, and SAOC) is considered eligible to apply if they became licensed between May 10, 2022 and April 21, 2023 OR has been funded in a previous stabilization grant round and has expanded their current license capacity since previous award . . . . Applicants who, at the time of submission of application, are not trained in Prepare to Care, certified in pediatric first aid and CPR . . . will have 60 days to submit proof of training[.] * * * * 34. Providers who accept the Stabilization Grant payment agree to stay licensed, opened, and actively watching children for a minimum of 12 months from the issue date of the payment. The Grant Payment Survey Frequently Asked Questions for the Inflation Remittance Support payments (https://dhhs.ne.gov/Child%20Care%20Documents/Grant%20Payment%20Survey%20FAQs_Aug_2023.pdf) states, in part, the following: 5. If you do not complete the Grant Payment Survey by September 30, 2023, you will not be eligible to receive the funding. * * * * 9. You agree to stay licensed, open, operational and actively caring for children for a minimum of 12 months from the issue date of the grant payment. Good internal control requires procedures to ensure that State and Federal requirements are met. Good internal control also requires procedures to ensure amounts awarded are adequately supported. Condition: The Agency did not have adequate procedures to ensure that funds paid to child care providers were spent properly and complied with State and Federal requirements. In addition, payments were charged after the period of performance. A similar finding was noted in the prior audit. Repeat Finding: 2023-046 Questioned Costs: $5,185,690 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: The Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act (Public Law 116-260), signed into law on December 27, 2020, and the American Rescue Plan Act (ARPA) of 2021 provided states with supplemental child care funds to build the supply of child care, retain a skilled work force, and support the stability of the child care sector. Business and Child Care Partnership Grants The Agency awarded various grants to child care providers, including the Business and Child Care Partnership Grant (BCC). The purpose of the BCC grants was to help individuals and organizations create new child care programs and enable existing licensed child care programs to increase their license capacity. During fiscal year 2023, a total of $23,303,985 in BCC grants were paid to 125 recipients. Payments were made to grant recipients beginning in March 2023. The Agency paid 19 additional facilities $3,397,763 in BCC grants during fiscal year 2024. Recipients had until December 31, 2023, to spend the funds. Additionally, new child care programs needed to be licensed and operating by December 31, 2023, and projects to increase capacity by existing child care programs were to be completed by December 31, 2023. On October 30, 2024, after our request, the Agency provided a listing of BCC grant recipients that had not increased their licensed capacity as of December 31, 2023. The Agency stated it was working with providers that did not meet the December 31, 2023, requirement on a case-by-case basis. The Agency had not requested any funds to be returned by noncompliant providers as of October 30, 2024. We reviewed the listing and identified 21 child care providers that had not increased their capacity or were not licensed and operating as of November 20, 2024. These providers were paid $3,892,270 in BCC grant payments. This included $2,646,489 in fiscal year 2023 payments made from March 2023 through June 2023 and $1,245,781 in payments made during fiscal year 2024 in August 2023. All of these payments are questioned. See Schedule of Findings and Questioned Costs for chart/table. Additionally, grant recipients were required to remain open for three years after the grant award date or from the date of the licenses, whichever was later. Three of these recipients closed their facilities well before the required three-year deadline. As stated above, the Agency has not requested the providers to return all or any portion of the BCC grant. Additional details on the three grant recipients are below: • J’s Nest Childcare is owned by Jordan Wintz. Wintz received a Provisional Family Child Care Home I license on November 1, 2022. Per court records, a complaint was filed on February 2, 2023, against Jordan Wintz for a Class IIA Felony of Theft by Deception. On January 1, 2024, the charge was amended to Unauthorized Use of a Financial Transaction Device, also a Class IIA Felony. On March 1, 2024, Wintz was found guilty of the amended charge and, on May 17, 2024, she was sentenced to 48 months of probation, 48 days in jail, and restitution of $27,217 to Midwest Bank, which was paid in full as of May 17, 2024. J’s Nest Childcare’s license was revoked on November 7, 2024. • Two providers requested their license be closed. Aleah’s Childcare’s license was closed on November 4, 2024, and the license for Blessed Are They Learning Center was closed on November 8, 2024. Additionally, we tested payments to five facilities, totaling $1,414,825, which received payments during fiscal year 2024. We requested the application, award notification, spending reports, and supporting documentation for expenditures. We noted the following: • Four of the facilities tested had the same owner. None of the four facilities increased capacity by December 31, 2023, and had still not increased capacity as of November 20, 2024. None of the spending reports provided agreed to the grant award. For example, the spending reports included thousands of dollars for staff wages even though the Agency did not award any funds for staff wages. We further noted only $27,585 expenditures of the $773,581 awarded were adequately supported. Copies of checks were provided for several expenditures, but no invoice or contract was provided to support what the expenditure was for, or that it was allowable for the grant. In addition, several amounts were not supported at all. All four facilities tested had an application dated in May 2023, which is after the period of performance for the Federal grant. The Federal grant was required to be obligated by September 30, 2022. All payments for these facilities are questioned in the table above, as obligated after the period of performance, capacity not increased, and inadequate support for expenditures. See Schedule of Findings and Questioned Costs for chart/table. • We also tested one facility that was paid $641,244. Sufficient documentation was on file to support the expenditures; however, the Agency was unable to provide the award notification. This was a new program that was not licensed by December 31, 2023; but a provisional license was issued on May 14, 2024. The recipient had an application that was dated May 4, 2023, which is after the period of performance for the Federal grant. The Federal grant was required to be obligated by September 30, 2022. Therefore, we question $641,244. We tested two additional providers listed as increased capacity and reviewed the applications and documentation of how the grant funds were spent. As a result, we question an additional $479,438, as follows: Kids Express LLC Kids Express LLC (Kids Express) received a BCC grant of $54,186 on August 14, 2023. The application for Kids Express was completed on July 8, 2023, which is after the period of performance for the Federal grant. The Federal grant was required to be obligated by September 30, 2022. The $54,186 payment is questioned. We also identified several additional issues with the application, grant award and expenditures, as follows. • The BCC application provided the address of 7410 Mercy Road in Omaha as the physical address for the new child care program. The center was projected to be licensed and operating by October 15, 2023. Kids Express did not receive a license for this location but received a provisional license at 5352 South 136th Street in Omaha. • The grant was awarded based on quotes and estimates provided for the location of 7410 Mercy Road; however, the expenses were for the 5352 South 136th Street location. Therefore, the expenses did not agree to the grant award notification, as follows. See Schedule of Findings and Questioned Costs for chart/table. • The Agency previously performed an audit of the expenses to support the full grant payment. Based on the audit, the Agency allowed $56,885 in expenses, which covered the full grant award amount. We also completed an analysis of the expenses identified above and determined that the invoices provided by Kids Express did not adequately support $27,046 of the grant funds spent. For example, a $10,490 invoice for playground equipment included the total only and no description of what equipment was purchased. Two invoices for a washer and dryer, and signage, totaling $7,714, did not include the vendor’s name, date purchased, or any payment information. Additional support for expenses appeared to be an estimate or quote and not the actual paid invoice. There were several Walmart receipts that did not include the date of purchase or payment method, and some of these receipts included the purchase of cat litter and groceries; however, the center was not operating when the groceries were purchased. • Kids Express was issued a Provisional Child Care Center license at the 5352 South 136th Street location on November 1, 2023. The center was licensed for 76 kids. Per a local news report from April 15, 2024, Kids Express was not yet open, but should begin accepting children in two weeks, April 29, 2024. Kids Express was not operational by the December 31, 2023, deadline. • Kids Express did not remain open for three years after the license was issued on November 1, 2023. Subsequent to the audit period on August 5, 2024, the property owner of the space leased by Kids Express filed a complaint in District Court. Per the complaint, the parties entered into a lease agreement on August 16, 2023, and Kids Express failed to pay monthly installments or rent and other amounts due under the lease. As of July 30, 2024, there was a total outstanding amount due of at least $65,421. Kids Express owed monthly rent and operating expenses for November 1, 2023, through August 1, 2024. On August 19, 2024, an Order of Restitution granted the property owner immediate possession and restitution of the premises at 5352 South 136th Street. On November 25, 2024, an Order for Default Judgment was filed in the sum of $78,754 plus interest. The Agency noted the provider closed due to not obtaining enough children to care for and other personal issues. The Agency did not request the center return all or a portion of the grant funds. Subsequent to the audit period, Kids Express was paid $37,422 on August 30, 2024, for a Targeted Workforce Supplemental (TWS) payment. Providers who received the BCC grant were eligible to apply for this subgrant and were required to complete a TWS survey by September 30, 2023. Grant amounts were determined based on the number of new child care slots the child care program created. Kids Express was no longer operating the center at the time of payment. Patty’s Child Care Center Inc. Patty’s Child Care Center received payments for two locations. One was an existing center at 4102 South 13th Street in Omaha (Patty’s Child Care Center 2) and the other was a new center to be opened at 4110 South 13th Street in Omaha. We requested support for the funds spent at both locations. We noted the following: 4102 South 13th Street: On May 5, 2023, Patty’s Child Care Center 2 was awarded $709,205 to increase the center’s capacity from 100 to 120 by December 31, 2023. The center did not increase capacity until June 28, 2024, when the license was increased to 110. We requested documentation of expenses made to support the $548,020 awarded for the funding category of minor repairs and renovations. Invoices provided did not support the full amount awarded. The center provided invoices for only $449,720 of the $548,020 grant award. Of the $449,720 expended for minor repairs and renovations, we determined only $122,768 of expenses were allowable, resulting in $425,252 in questioned costs. In addition to the $98,300 support not provided, see examples below of other questioned items: • The grant award allowed $24,200 for the repair of sidewalks and steps; however, the invoice for concrete totaled $100,045 and was for the playground area and did not include sidewalks or steps. • An estimate for updates to the inside of the daycare was provided by a vendor dated May 15, 2023. It included plumbing, electrical updates, patching drywall, painting, window replacement, floor replacement, updates to the HVAC system, replacement of tile in the bathroom and kitchen, door hardware, and ceiling tile replacement. However, the invoices provided for these items were from a different vendor. There was a total of 16 invoices, totaling, $186,475, from the vendor. The invoices included a total price for the service, but there was no itemized breakdown of materials or labor, and no cancelled check or proof of payment for the invoices was provided. • An estimate was provided by a vendor for purchasing and installing turf. The estimate was for $80,163, and the Agency approved this amount as part of the grant award. The invoice from the vendor dated July 1, 2023, was for $120,595. Not only did the square footage of the turf increase, but the costs to install also increased. 4110 South 13th Street: Patty’s Child Care Center owns a building at 4110 South 13th Street, where it wanted to open a new facility with a proposed license capacity of 186. Patty’s Child Care Center was awarded a BCC grant for this location, totaling $677,900. This included $450,000 awarded for the Program Supplies funding category. We requested documentation to support the expense made for this funding category. Patty’s Child Care Center provided invoices for program supplies, totaling $465,590. These invoices included $52,537 for concrete work and $30,356 for turf installation that were not included in the grant application and were not approved as part of the grant award. Additionally, a playground quote dated April 3, 2023, was from one vendor, and the invoice provided for the expense was from a different vendor. No license has been issued for this location, and the entire BCC grant award amount was questioned, as noted in the chart above. Stabilization Grants Section 2201 of the American Rescue Plan Act (ARPA) of 2021 provided states supplemental discretionary Federal funding to help more families afford child care and to improve the quality of child care for all children. The Agency paid $575,572 in Round 3 stabilization subgrants to eligible child care providers during fiscal year 2024. We tested one Round 3 payment, totaling $167,738, to Kiddie Academy of Gretna. To be eligible for the Round 3 payment, the provider had to have become licensed between May 10, 2022, and April 21, 2023, and had to be trained in the Agency’s Prepare to Care program and be certified in pediatric first aid and CPR. Additionally, the provider was obligated to stay licensed, open, and actively watching children for a minimum of 12 months from the issue date of the payment. The payment amount was determined by the Agency’s grant funding formula. The funding formula included a base amount awarded to providers based on their licensed capacity, as well as additional funding for those providers who served children from families with low incomes. We found several issues with this aid payment. • The Agency could not provide documentation to verify that the provider completed the Prepare to Care training and was certified in pediatric first aid and CPR. • We were unable to recalculate the payment amount using the Agency’s funding formula, and the Agency was unable to provide support on how the payment amount was determined. • Kiddie Academy of Gretna did not remain licensed and open for 12 months after the payment date. The payment was issued on July 5, 2023, and the provider’s license was closed on April 29, 2024. The payment of $167,738 is questioned. In response to our inquiry about the provider closing, the Agency stated it would send a letter to the provider asking how the funds were spent and the reason why it closed. Inflation Remittance Support The Agency also offered an Inflation Remittance Support Payment to child care providers who were previously awarded a child care stabilization grant. The Agency provided eligible providers instructions on how to apply and a link to complete the grant survey, which had to be completed by September 30, 2023. The providers certified that the program maintained the same license number submitted at the time of their initial application, and the program must have been open and actively caring for children at the time the survey was submitted and at the time of payment. Providers were also required to stay licensed, open, operational, and actively caring for children for a minimum of 12 months from the date of the grant payment. Two grant payments tested did not follow these requirements. • A Family Child Care Home II provider received a $2,500 grant payment on March 5, 2024; however, the program did not stay open for the required 12 months, as it closed on August 9, 2024. The $2,500 payment is questioned. Per the Agency, a letter was sent to the provider asking for a receipt of all expenses and an explanation for why the program closed. • For another payment, the survey was submitted by the provider on October 10, 2023, after the September 30, 2023, deadline. Per the Agency, the survey instructions and link were sent to the wrong address; therefore, it gave the provider extra time to complete the survey. The ARP CCDF Discretionary funds must be obligated by September 30, 2023. The $2,500 grant payment is questioned. Federal payment errors noted for the Inflation Remittance Support sample tested were $5,000. The total sample tested was $32,500, and the total Inflation payments for the fiscal year were $7,072,500. The Inflation payment dollar error rate for the sample was 15.38% ($5,000/$32,500), which estimates the potential dollars at risk for fiscal year 2024 to be $1,087,851 (dollar error rate multiplied by the population). Cause: Inadequate control procedures. Effect: Noncompliance with Federal regulations. Additionally, a lack of adequate supporting documentation increases risk of payments not being made in accordance with State and Federal requirements, leading to a loss of Federal funds. Recommendation: We recommend the Agency implement procedures to ensure that payments are adequately supported and in accordance with State and Federal requirements. We further recommend the Agency take steps to recover funding that was not spent properly or granted to providers whose capacity did not increase or did not remain open, as required. Management Response: Management agrees.

Program: AL 93.575 and 93.596 – CCDF Cluster; AL 93.575 – COVID-19 Child Care and Development Block Grant – Allowability & Eligibility & Matching Grant Number & Year: 2301NETANF, FFY 2023; 2101NECDC6, FFY 2021; 2201NECCDD, FFY 2022; 2401NECCDF, FFY 2024; 2401NECCDM, FFY 2024; 2101NECCDF, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 98.67 (October 1, 2023) states, in part, the following: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. * * * * (c) Fiscal control and accounting procedures shall be sufficient to permit: * * * * (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. 42 USC § 9858k(b) (1992) states, “With regard to services provided to students enrolled in grades 1 through 12, no financial assistance provided under this subchapter shall be expended for— (1) any services provided to such students during the regular school day[.]” 45 CFR § 98.55 (October 1, 2023) states the following: (a) Federal matching funds are available for expenditures in a State based upon the formula specified at § 98.63(a). (b) Expenditures in a State under paragraph (a) of this section will be matched at the Federal medical assistance rate for the applicable fiscal year for allowable activities, as described in the approved State Plan, that meet the goals and purposes of the Act. To be eligible for services, 45 CFR § 98.20 (October 1, 2023) requires a child to be under 13 years of age, a citizen, and reside with a family whose income does not exceed 85% of the State’s median income.   Title 391 NAC 1-002 defines “infant” and “toddler” for child care subsidies, as follows: Ages of children: 1. Infant means a child age 6 weeks to 18 months; 2. Toddler means a child age 18 months to 3 years; 3. Preschool-age means a child age 3 or older who has not attended kindergarten; and 4. School-age means a child who attends kindergarten or above. Title 392 NAC 2-004, states, in part, the following: In order to receive Child Care Subsidy, the family must: * * * * (E) Have a child within the age limit. Child care is available for children age 12 or younger. Children who turn age 13 during their eligibility period remain eligible through the end of their eligibility period. Children age 18 or younger with special needs are eligible. The child’s age must be verified in order to qualify for assistance[.] Per Title 392 NAC 2-013.05, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Title 392 NAC 3-001.02(D) requires the recipient and child care provider to ensure that the services are delivered as authorized. Title 392 NAC 3-004.01(A) states the following: The Department pays by attendance, not enrollment. Providers do not receive payment when the provider is on vacation, is ill, or is not providing care for some reason unrelated to the child or recipient. Title 392 NAC 3-004.01(A)(i) states the following: The provider may bill the full authorized amount for times that the child is absent on a scheduled day, up to five times per month. Title 392 NAC 4-002 states, in relevant part, the following: Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards; * * * * (E) To accept a rate which is reasonable, necessary, and does not exceed the amount charged to private-paying persons; * * * * (G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims; The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, the following: You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided. You should mark “A” on the calendars for children who are absent. Up to five absent days can be billed per child per month. Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program provides guidance for 392 NAC Chapter 3-004.01(A)(i) Payment for Absences as follows, “Absent days must be billed as 1 day unit per occurrence up to the maximum of 5 occurrences per month.” Nebraska Department of Health and Human Services’ Guidance Document for the Child Care Subsidy Program has the following guidance for Title 392 NAC Chapter 2-011, Categories of Eligibility Based on Income: The total amount of the sliding fee assessed will be based on 7% of the household’s gross income for all of their children enrolled in the subsidy program. It will not vary with the number of children in care, the amount of care they need, or the type of care they choose to use. The sliding fee must be paid each month to the provider before the provider bills the Department, it covers the first dollars of payment, regardless of when service begins or ends. The Child Care Subsidy Provider Handbook (June 2023 revision) requires that, for providers other than child care centers, “[P]arents/caregivers must sign the calendar at the end of the billing period.” EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that payments are in accordance with Federal and State requirements. Condition: Child care payments did not comply with Federal and State requirements. A similar finding has been noted in our previous audit reports since 2007. Repeat Finding: 2023-043 Questioned Costs: $605,874 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We noted claims that lacked support and/or did not agree to support, services billed more than authorized, and duplicate claims charged, as detailed below.   Random Sample We tested 25 child care claims paid with Federal funds. We noted 12 claims with errors. Some payments had more than one type of error. • For two claims tested, there was a family fee co-pay required of $192 and $149 per month, respectively, but no such co-pay was deducted. • For four claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 8 days and 2 partial days of child care, while the attendance sheet showed 5 days and 5 partial days of care. o One provider claimed 7 full days of care during the claim period; however, the attendance sheet provided did not detail the hours that the child was in the care of the provider. As such, the APA could not determine whether the claim was correct. o One provider billed 10 partial-days services; however, the attendance sheet showed only 4 partial-days and one full-day for this period. o One provider billed for 21 days, but the attendance sheet supported only 20 days. • For two claims tested, the providers billed for services over the authorized amount. o One provider was authorized to provide child care during the time that both the mother and father were working. The provider claimed numerous days for care provided overnight; however, no documentation was on file to support that both parents were working overnight. o One provider was authorized 20 hours of child care a week; however, per the attendance sheet, two weeks during the month had 23 service hours per week. • For six claims tested, the child care payment was incorrect because the rate was in excess of the private rates. Providers must accept a rate that is reasonable, necessary, and does not exceed the amount charged to private-paying persons. o One provider claimed $25/partial day but was only authorized to claim $18.33/partial day. o For two claims, the provider reported private rates of $75/week effective May 27, 2022, and $90/week effective May 2, 2024. Using an Agency-provided conversion table, this would result in a partial rate of $8.33-$10/partial day and $15-18/day. However, the provider was claiming $13.33/partial day and $24/day. o One provider reported a private rate of $40/day but was claiming $40.55/day, exceeding the private rate. o One provider reported its private weekly rate at $83. Using a DHHS-provided conversion table, this would result in $9.22/partial day. However, the provider was charging for $20.56/partial day. o One provider reported on its website a partial day private rate of $47 a week, which would result in a rate of $9.40/partial day. However, the provider was claiming $18 for a partial day. Federal payment errors noted for the sample tested were $1,356. The total Federal sample tested was $10,518, and total child care Federal assistance claims for the fiscal year were $83,226,143. Based on the sample tested, the case error rate was 48% (12/25). The dollar error rate for the sample was 12.89% ($1,356/10,518), which estimates the potential dollars at risk for fiscal year 2024 to be $10,727,850 (dollar error rate multiplied by the population). In addition to the $1,356 questioned costs noted on the sample items tested, we noted $2,027 of questioned costs on other line items of the claims reviewed, which resulted from missing and inaccurate documentation. Excessive Units The Nebraska Family Online Client User System (NFOCUS) application was used to automate benefit/service delivery and claim processing and payments for the Child Care program. Due to the volume of claims processed by the NFOCUS application, the Agency did not perform a review of each claim paid. Therefore, the Agency relied on edit checks within the system to review claims and deny or suspend claims that did not meet the criteria determined by the Agency. As noted in Finding 2024-015, during testing of significant edit checks within the NFOCUS application, it was noted that the “UN” edit check (“Units too high for service dates and frequency”) was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Instead of applying a logical edit check to these claims, such as not exceeding the regular number days in one month (e.g., 31 days), the system only compared the claim to the service authorization to determine if adequate units were authorized. We identified 642 claim lines paid with Federal funds, totaling $286,079, where the number of days or partial days billed exceeded the number of days in the service period. We selected 24 claim lines, totaling $33,709, for review and noted 23 claim lines with errors as follows: • The claims charged to Federal funds were “Version 1” of the claim. Sometimes an error is detected and a “Version 2” of the claim is created with an underpayment or overpayment. We noted 11 of the claim lines tested had a Version 2 and 10 of those had overpayments received or recouped. However, the overpayments collected and recouped are credited to the State General Fund, not Federal funds. The 11 claim lines totaled $16,420 and are considered Federal questioned costs. Errors noted included a claim that had 199 days billed for the month of July 2022, the overpayment was collected in December 2022 and credited to the State General Fund. In February 2024 the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. We also noted a claim that billed 100 partial days for a 19-day period. The error was discovered, and a Version 2 was created in December 2023, but in April 2024, the Agency moved the Version 1 claim to Federal funds, resulting in the Federal grant being overcharged. • Twelve claim lines did not agree to the attendance records. One provider billed 25 to 64 partial days for 15-day service periods. Two providers billed 40 to 95 partial days for one month service periods. Per review of the attendance records, providers were overpaid $9,182 for these 12 claim lines, which are considered questioned costs. Duplicate Claims Child care claims are initially paid from State funds. Journal entries are then performed throughout the year to transfer costs to Federal funds. A detailed listing of claims accompanies these journal entries to show which claims are included in the amounts moved from State funds to Federal funds. We reviewed the detailed claim listings for each journal entry completed during the fiscal year and found that duplicate claims were included in two journal entries completed on September 28, 2023. Both entries included 594 identical claims, totaling $141,165. These claims were charged to Federal funds twice, and $141,165 is considered questioned costs. Additionally, we compared the detail claim listing to the claims charged to Federal funds in the prior fiscal year and found 1,144 claims that were used in both fiscal year 2023 and fiscal year 2024 journal entries, totaling $297,553, which are questioned costs. Attestation Examination The APA performed an attestation examination of the Nebraska Department of Health and Human Services Child Care NFOCUS Aid Payments for the period July 1, 2023, through March 31, 2024. All claims were initially paid with State General Funds. The APA reviewed the claims with findings to determine if the claims had been transferred and charged to Federal funds. We noted numerous issues with Federal questioned costs, totaling $138,171. We noted the following related to claims paid with Federal funds: Unusual Claims and Duplicate Billings We tested a family in-home care provider that billed a high number of hours for the month. The provider did not provide the requested attendance calendar for January 2024 services. The provider billed 260 hours at a rate of $12 per hour for a total of $3,120. Child care was authorized for the client’s self-employment, up to 60 hours per week. We were unable to determine if the payment was correct because no attendance calendar was provided; therefore, the entire claim was questioned. We also noted the 60 hours per week was authorized based on the client’s declaration of working 12 hours a day, seven days a week. The client’s reported income for this timeframe was $1,500 per month, which calculates to only $4.12 per hour, which is much less than the Nebraska minimum wage rate of $12 per hour. The client’s income does not appear to meet the self-sufficiency requirement. Federal questioned costs totaled $3,120. We noted overlapping of services as follows: Three children were authorized child care for a maximum of 50 hours per week while the parent was working at U-Stop and participating with Employment First. Child care was authorized with two providers. The attendance calendars for both providers showed no overlapping hours; however, the providers exceeded the authorized 50 hours per week for four weeks in September 2023. The secondary provider billed times from 8:30 a.m. to 3:00 p.m. or 4:00 p.m., and the primary provider billed evening and some overnight hours. A comparison of attendance calendars revealed that the total hours between the two providers exceeded the authorization by 6 to 23.5 hours each week. Federal questioned costs totaled $1,027. See the following chart: See Schedule of Findings and Questioned Costs for chart/table. We analyzed the NFOCUS claims paid during the period from July 1, 2023, through March 31, 2024. During this analysis, we identified several claims where the provider appeared to double bill child care services for the same child during the same time period. The providers were able to double bill when two service authorizations for the child were open at the same time and by changing the rate of the service. There were also multiple instances where the provider billed for duplicate services by changing the rate billed. For example, one provider, Tender Loving Tots, billed services three times for the same child for the same time period. A child was authorized for preschool care at the daily rate of $46.51. Tender Loving Tots billed four daily units at the authorized daily rate of $46.51 for service dates of July 11, 2023, through July 14, 2023, for this child on claim 32347682. The provider also billed four daily units at $46.50 per daily unit on claim 83255070, line 2. Tender Loving Tots billed a third time for this child for the same period on the same claim. On line 5 of claim 83255070, the provider billed four days at $45 per daily unit. As long as the billed rate was lower than the authorized rate, NFOCUS did not reject the claim for double billing. See Schedule of Findings and Questioned Costs for chart/table. The following chart shows the number of duplicate claims reviewed and Federal questioned costs by provider: See Schedule of Findings and Questioned Costs for chart/table. Incorrect Age Group We reviewed the claims for family home providers and child care centers for infant care services for children over the age of 18 months. We noted children over the age of 18 months with services paid at the infant rate. We also reviewed the claims for child care centers for toddler care services for children over the age of 36 months. We noted children over the age of 36 months with services paid at the toddler rate. As the rates for infants are higher than toddler rates, and toddler rates are higher than preschool rates, it is important that services be paid at the proper rate based on a child’s age. The following are a few examples that we noted: • A child who turned 19 months on September 18, 2023, continued to be paid at the infant rate for services through February 2024, resulting in questioned costs of $574. • A child who turned 36 months on March 8, 2023, was paid at the infant rate for services from August 16, 2023, through December 2, 2023, and should have been paid at the preschool rate, resulting in overpayments of $538. • A child over age five was paid at the toddler rate for services from June 16, 2023, through November 30, 2023, and should have been paid at the preschool rate, resulting in overpayments of $349. • A child who turned 36 months on October 5, 2023, was paid at the toddler rate for February 2024 services and should have been paid at the preschool rate, resulting in an overpayment of $105. Other Issues We selected six licensed family home providers and six child care centers and requested all attendance records for one month. We noted claims not agreeing with attendance records; attendance records not being provided; billings at an improper rate; services billed in excess of services authorized; overlapping services; and parents’ employment that did not appear to meet the requirement for self-sufficiency. 1. One family home provider billed full days for one child but should have billed partial days because the attendance record showed services from 4:00 p.m. to 6:00 p.m. (2 hours) each day, resulting in $66 questioned costs. 2. Next Generation Child Care and Preschool was paid $94,405 for February 2024 services. For one child, the attendance record showed service from 6:15 a.m. to 8:30 a.m. Per the parent, however, school began at 7:40 a.m., so it appears the time out of 8:30 a.m. is not accurate, resulting in $48 questioned costs. 3. Little Blazers Academy, located on North 61st Street in Omaha, Nebraska, and Little Blazers Academy II, located on West Dodge in Omaha, Nebraska, have the same owner. We question Federal costs of $2,703 for December 2023 services. • Services were billed for 18 children at both locations. For six of these children, the centers were billing partial days at each location when the total hours were less than five hours. For example, on multiple days, one child was claimed from 4:00 p.m. to 5:00 p.m. at one location and then from 5:30 p.m. to 6:30 p.m. at the second location. Each location billed for a partial day; however, only two hours of service were provided each day; therefore, it does not appear reasonable to bill for more than one partial day each day. • The attendance records for December, the month tested, were not provided for eight children, four of whom were paid with Federal funds. The attendance records provided were for September, not December, and were signed September 30, 2023. Also, the service authorization was exceeded for one child; for two children, the claim did not agree to the attendance records. 4. Sprouting Minds Childcare was paid $41,053 for November 2023 services, and we questioned costs of $14,133 – of which $4,309 was paid with Federal funds. We noted the following: • 19 children were billed and paid as an “absent” day on Thanksgiving and the Friday after Thanksgiving, even though the center was closed, and no children attended. • Attendance records were not provided for five children, and time records did not agree to the services billed for an additional five children. • Services claimed exceeded service authorizations for 13 children. • One child was billed both as a toddler and an infant for the same period and should have been billed only as a toddler. 5. International Day Care was paid $173,260 for November 2023 services – of which $132,328 was charged to Federal funds – and we question $111,609, an 84% dollar error rate. We noted the following: • 191 children were billed and paid as an “absent” day on Thanksgiving even though the center was closed, and no children attended. • One child billed was over age 13 and not eligible for services. • One child was billed as a toddler but was over the age of three at the time of service and should have been billed at the preschool rate. • One child was billed as an infant but was 35 months old at the time of service and should have been billed as a toddler. • Four families authorized for child care while a parent was working at the center billed for days after the parent was no longer working at the center. During our review of service authorizations, moreover, we noted that several children had a parent working at the daycare while the children attended. This is allowable if the parent is not working in the same room. However, of the 222 children paid for the month tested, 201 had a parent working at the daycare, and only 21 children did not. The 222 children were from 53 families, and 44 of those families had a parent working at the daycare. We asked the daycare to provide us with employment records for those parents. Most of the parents had income from International Day Care that was far less than the subsidies paid for child care services. For example, for one family, the parent earned $1,452 for the month, but child care payments totaled $6,353. Title 392 NAC 2-013.05 provides, “If the individual is requesting child care for employment, the employment must have the potential to allow the individual to achieve or maintain economic self-sufficiency.” Based on a comparison of wages to child care subsidies, however, the employment with the daycare does not appear to have that potential. For the families with a parent working at the daycare, there was a total of $154,326 in child care payments, but the parents’ gross salary from the daycare totaled only $64,163 – a discrepancy hardly reflective of employment arrangements conducive to economic autonomy. Many of these families had additional income from sources other than the daycare; however, child care subsidies still appeared unreasonable. In these cases, as illustrated by the examples below, parents working at the daycare in a capacity that failed to produce even the potential to “achieve or maintain economic self-sufficiency,” contrary to the explicit regulatory language cited above, actually resulted in far greater child care costs than would have occurred had those working parents stayed at home and cared for the children themselves. The following cases are representative of why subsidies are not available for jobs that prove ultimately counterproductive in terms of the relatively low wages received in comparison to the resultant child care expenses to the State: • One family with seven children had child care subsidies for the month of $5,945 plus paid a family fee of $465 per month, for total daycare costs of $6,410. This was a two-parent household, and one parent worked at the daycare and earned $1,386 for the month. The total gross income for the household was $6,647.97, which exceeds the cost of child care, but if the family was responsible for all daycare costs, it would leave less than $250 per month for rent, food, utilities, and other expenses. It would cost the family over $5,000 each month to have a parent working at the daycare; therefore, the employment does not appear to have the potential for self-sufficiency. • Another family had child care subsidies for the month of $5,610, and the parent who worked at the daycare earned $1,323. The family had total gross monthly income of $4,192.16, which is still $1,417.84 less than child care costs, and if the family was responsible for all child care costs, it would cost the family $4,287 each month to have the parent working at the daycare. Therefore, the employment does not appear to have the potential for self-sufficiency. It was also noted that seven families were receiving Temporary Assistance to Needy Families (TANF) and were required to work as a condition of that assistance. These seven families received child care subsidies of $24,850 for the month and were paid wages of $10,456 by the daycare. However, we did not question these costs because the individuals were required to work as a condition of receiving TANF. Excluding the TANF recipients, we questioned all other child care payments for families whose parents’ wages from the child care center were less than the child care payments. Market Rate Survey and Subsidy Rates The 2023 child care subsidy rates, which became effective July 1, 2023, were established following a Market Rate Survey issued in June 2022 by the Buffet Institute at the University of Nebraska (Institute). This market rate survey was commissioned by the Agency pursuant to Neb. Rev. Stat. § 43-536 (Cum. Supp. 2022). The results of the survey were based on a provider response rate of 32.9% (946 providers); however, in calculating the half-day and full-day rates, the Institute used rate information from only 21% of respondents who indicated that they had a part-time and full-time rate schedule similar to the guidelines set by the Agency (partial day for 0 to 4 hours and 59 minutes and full-time for 5 hours to 9 hours and 59 minutes). As such, the rates were established based on rate information provided by only 6.9% of Nebraska’s child care providers. The percentage of providers factored into the benefit calculation is so low because many providers responded that they did not have an equivalent half-day or full-day rate structure. Therefore, we question the reasonableness of the rates established pursuant to the market rate survey and whether it provides a clear picture of private market rates in the State. Additionally, Nebraska regulations require that providers have an established private rate prior to receiving any subsidy payments. This is because the subsidy payment is not allowed to exceed the provider’s private rate. However, as shown in the market survey results, many providers do not have such a rate structure and, therefore, do not have established half-day and full-day rates. In many cases, providers have a weekly rate. The Agency stated that it utilizes a weekly rate to daily/partial day rate conversion table, which was provided by the Institute. However, while this table is used to determine the equivalent rates, there is no written policy or guidance on when or how the table should be implemented, and no mention is made of these conversion tables in the market survey report. State Matching Claims States are required to match the Federal funds spent with the Federal Matching grant with State funded expenditures at the Federal Medical Assistance Percentage (FMAP) rate for the applicable fiscal year. Those State funding expenditures must be an eligible and allowable activity per the State Plan. The Agency periodically performs journal entries to move child care claims to the applicable business unit to identify and track the State matching expenditures. During the fiscal year, the Agency moved $10,737,243 of child care claims paid with State General funds to the business units for State matching expenditures. We tested 25 child care claims paid with State matching funds. We noted 10 claims with errors. Some payments had more than one type of error. • For one claim tested, there was a family fee co-pay required of $203, but no such co-pay was deducted. • For two claims tested, the attendance records were not provided. • For five claims tested, the providers billed for more hours and/or days than what was recorded on the child’s attendance sheet: o One provider billed for 4 full days and 25.25 hours of child care, while the attendance sheet showed 0 days and 18.75 hours of care. o One provider billed 13 partial days of service; however, the attendance sheet showed only 10 partial days. o Two providers billed an additional day compared to the attendance record. o One provider recorded full days of service from 6:00 a.m. to 9:00 a.m. and 4:00 p.m. to 6:00 p.m., for five hours of service. However, per the school calendar, classes began at 8:50 a.m. and ended at 4:05 p.m. The attendance sheet did not appear reasonable, as the child would still be at the child care provider when school started. If services were from 6:00 a.m. to 8:50 a.m. and 4:05 p.m. to 6:00 p.m., the provider would only be allowed partial days of service. • For one claim tested, the provider billed care over the authorized amount. The provider was authorized 39 hours of child care a week; however, per the attendance sheet, the child received 43 hours for one week tested. • For one claim tested, the attendance record was not signed by the parent, as required. Payment errors noted for the sample tested were $1,397. The total sample tested was $9,396, and total child care matching claims for the fiscal year were $10,737,243. Based on the sample tested, the case error rate was 40% (10/25). The dollar error rate for the sample was 14.87% ($1,397/9,396), which estimates the potential dollars at risk for fiscal year 2024 to be $1,596,628 (dollar error rate multiplied by the population). Cause: Ineffective review. The Agency does not have automated procedures to ensure attendance records agree to billing documents, service authorizations are not exceeded, and claims are in accordance with regulations. The edit check “Units too high for service dates and frequency” was incorrectly bypassed on claims submitted and interfaced through the Child and Family Services Provider online claims portal. Effect: Ineffective review of claims increases the risk for errors, fraud, and misuse of State and Federal funds.   Recommendation: We recommend the Agency implement procedures to ensure payments are allowable, adequately supported, and in accordance with State and Federal regulations. We further recommend the Agency ensure billing documents agree with attendance sheets, and services are only authorized as needed and only if the parents’ employment has the potential for economic self-sufficiency. We also recommend the Agency implement procedures to ensure journal entries do not charge duplicate claims. Finally, we recommend the Agency take the necessary action to recover the overpayments. Management Response: Management agrees.

Program: AL 93.575 and 93.596 – CCDF Cluster – Special Tests and Provisions Grant Number & Year: Various, including 2401NECCDF, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 98.41 (October 1, 2023), the State must have requirements to protect the health and safety of children, including the prevention and control of infectious diseases, building and physical premises safety, and health and safety training. Per 391 NAC 3-005.09A and NAC 4-005.09A: The Department will make a fire inspection referral when: . . . 2. Every two years following the initial fire inspection[.] Per 391 NAC 3-005.09B: The Department will make a sanitation inspection referral when: . . . 2. Every two years following the initial sanitation inspection . . . [.] 391 NAC 1-005.02 provides the following: The Department will conduct an unannounced inspection each year to assess compliance with licensing regulations. A good internal control plan requires adequate documentation to be maintained to support compliance with health and safety requirements. Condition: The Agency did not have adequate procedures in place to ensure health and safety requirements were met for child care providers. A similar finding has been noted in prior audits since 2017. Repeat Finding: 2023-044 Questioned Costs: Unknown Statistical Sample: No Context: Child care centers and family child care homes are subject to health and safety requirements. Each type of provider is subject to separate but similar State regulations. We tested 26 child care providers subject to health and safety requirements. We noted the following: • One family home child care provider did not have the required annual inspection completed. The last annual inspection was performed on February 25, 2022. The Agency attempted to conduct unannounced reviews on November 8, 2023, and November 11, 2023, but the child care provider was not home. In December 2023, the Agency emailed the provider and tried contacting the provider by phone twice; however, a response was not received. No annual inspection was completed in 2023, and no inspection for 2024 has been completed as of the end of fieldwork on November 8, 2024. No disciplinary actions have been taken against the provider. • One child care center tested did not have a sanitation inspection. The Agency made a referral for a sanitation inspection on December 5, 2023; however, as of November 8, 2024, no inspection was completed. • Five of 21 child care centers tested did not have a fire inspection within the last two years: See Schedule of Findings and Questioned Costs for chart/table. Cause: Depending on the city or county, the Agency relies on local fire departments or the State Fire Marshal to conduct fire inspections for child care centers. The Agency makes a referral to the fire department when an inspection is due, but the Agency does not pay for these inspections and cannot control the timing of the inspections. Effect: Without adequate procedures to ensure health and safety requirements are met, there is an increased risk of noncompliance with Federal regulations and the possibility of children being cared for in unsafe facilities. Recommendation: We recommend the Agency implement procedures to ensure all health and safety requirements are met for child care centers. Management Response: Management partially agrees. APA Response: The Agency is the recipient of the Federal funds and is, therefore, ultimately responsible to ensure that fire and sanitation inspections are performed. Without such inspections, there is an increased risk of children being cared for in unsafe facilities.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.658 – Foster Care Title IV-E – Allowable Costs/Cost Principles Grant Number & Year: 2401NEFOST, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 45 CFR § 75.405(a) (October 1, 2023) states, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) provides the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023): 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. Per the CAP’s RMTS Time Study Design/Coding Structure: [P]articipants are asked whether they are working on an activity that is client related. If they select “Yes” to this question, they are asked to identify the Case ID and type of case . . . . Per the CAP’s RMTS Survey Validation: The contractor and the NE DHHS staff review subsample responses to ensure the activity selected matches the description provided. If the activity and description do not match, the participant is notified and the moment is considered invalid. Title 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) require the auditee to prepare a summary schedule of prior audit findings. Subsection (b)(2) of both regulations provides the following, as is relevant: When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken. Good internal control and sound accounting practices require procedures to ensure that staff know how to complete accurate random moment time studies, which are used to allocate costs to Federal programs. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-032 Questioned Costs: $25,554 known Statistical Sample: No Context: The Random Moment Time Study (RMTS) is conducted on an ongoing basis to provide data for the allocations of direct and indirect costs to various programs. The objective is to identify employee efforts directly related to programs administered by the Agency. We tested 40 validated RMTS surveys and noted that inadequate documentation was provided on 5 of 6 surveys charged to Foster Care IV-E (Federally funded). Due to findings noted for the Foster Care program, we tested four additional RMTS surveys coded to Foster Care IV-E cases. We noted inadequate documentation was available for two Foster Care IV-E surveys. For 7 of 10 surveys tested, the workers erroneously reported working on a Foster Care IV-E case when the survey should have been reported as Foster Care Non IV-E; therefore, Foster Care IV-E was overcharged. Total known Federal payment errors, amount tested, error rate (amount of errors/amount tested), total dollars charged via RMTS, and potential dollars at risk (dollar rate multiplied by the population total dollars charged) are summarized below: See Schedule of Findings and Questioned Costs for chart/table. Cause: The Agency’s training of staff and supervisor reviews of RMTS surveys were not sufficient to ensure the surveys were accurately completed. Effect: Random moment sampling is based on the laws of probability, which state, in essence, that there is a high probability that a relatively small number of random surveys will yield an accurate depiction of the overall characteristics of the population for which the sample was taken. If RMTS surveys are not accurate, there is an increased risk costs will be allocated incorrectly between programs. Recommendation: We recommend the Agency improve procedures to ensure that random moment surveys are accurate and adequately reviewed. Management Response: Agency agrees.

Program: AL 93.658 – Foster Care Title IV-E – Allowability Grant Number & Year: 2201NEFOST, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Good internal control requires procedures to ensure journal entries are reasonable, accurate, and not duplicated. 45 CFR § 75.403 (October 1, 2023) provides the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. 45 CFR § 75.303 (October 1, 2023) states, in part, the following: 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. Condition: The Agency did not have adequate procedures to ensure journal entries were proper. Repeat Finding: No Questioned Costs: $1,003,954 known Statistical Sample: No Context: During our review of journal entries, we tested a transaction dated June 21, 2024, that included $1,003,954 in Federal charges to the 2022 grant related to a prior-period adjustment. However, these costs had previously been charged to the grant on a journal entry dated September 22, 2022. As a result, the costs were charged twice, and we question the $1,003,954 in Federal charges. Cause: Inadequate review procedures. The Agency attempted to reconcile the grant costs reported to the accounting system but missed that a journal entry had already been completed for one of the adjustments. Effect: Increased risk for errors to occur and not be detected. Recommendation: We recommend the Agency improve procedures to ensure transactions are proper. Management Response: The agency agrees with the finding.

Program: AL 93.658 – Foster Care Title IV-E; AL 93.658 – COVID-19 Foster Care Tile IV-E – Allowability & Eligibility Grant Number & Year: 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.403 (October 1, 2023), costs must be necessary, reasonable, and adequately documented.   Per 45 CFR § 75.303(a) (October 1, 2023), the Agency must do the following: 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. 45 CFR § 75.302(a) (October 1, 2023) states the following: Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. In addition, the state’s and the other non- Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. Per 42 USC § 671(a)(20)(A), for a state to be eligible for adoption assistance, the state must have a plan that “provides procedures for criminal records checks, including fingerprint-based checks of national crime information databases (as defined in section 534(f)(3)(A) of title 28), for any prospective foster or adoptive parent before the foster or adoptive parent may be finally approved for placement of a child[.]” Title 395 NAC 3-003.08(A)(iv) (Eff. 6/29/2022) states, in relevant part, the following: The applicant and all other members of the household 18 years of age and older will submit background checks prior to licensing. Each individual living in the home on whom a background check will be performed will sign the authorization form granting the Licensing Agent permission to perform the background checks and obtain the results. The authorization must include all previous known names, including maiden names and aliases . . . The following background checks will be conducted: * * * * (5) State-level criminal history; and (6) Fingerprint-based National Criminal History Check. Title 392 NAC 4-002 (Eff. 9/15/2020) states, in relevant part, “Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards;” and “(G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims[.]” The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, “You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided.” (pg. 32) Title 45 CFR § 75.511(a) (October 1, 2023) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The Agency did not have adequate documentation on file to support that payments were in accordance with Federal and State regulations. The Summary Schedule of Prior Audit Findings states the corrective action is completed. Repeat Finding: 2023-048 Questioned Costs: $681 known (2301NEFOST, $352; 2301NEFOST-COVID-19, $9; 2401NEFOST, $319; 2401NEFOST-COVID-19, $1) Statistical Sample: No Context: We tested 25 Foster Care claims for maintenance. Foster Care maintenance payments include payments to foster parents and payments to licensed child care providers for child care when work responsibilities preclude foster parents from being at home. We noted the following: • For two claims tested, the Agency was unable to obtain the child care attendance calendars from the providers. With no attendance calendars, we were unable to verify that the payment amounts were accurate, resulting in questioned costs of $657. • For one claim tested, the provider billed 12 days of child care, while the attendance calendar for the child showed only 11 days of child care. Also, the provider was authorized to provide 40 hours of child care per week, but one week billed 55 hours of care. We questioned costs of $24. • For one claim, there was no documentation of a fingerprint-based background check performed for an adult residing in the foster care household. Federal payment errors noted in the sample were $681. The Federal sample tested was $10,391, and the total Federal maintenance payments during the year were $5,998,283. Based on the sample tested, the dollar error rate was 6.55% ($681/10,391), which estimates the potential dollars at risk for fiscal year 2024 to be $392,888 (dollar error rate multiplied by population). Cause: Employee oversight; inadequate procedures to ensure documentation was on file. Effect: When adequate support is not on file, there is an increased risk of both noncompliance with State and Federal requirements and improper payments. Recommendation: We recommend the Agency implement procedures to ensure that adequate documentation is maintained to support that expenditures are allowable and in accordance with State and Federal regulations. Management Response: The agency agrees with this finding. Bullet Point 3: The department reached out to the home to get a fingerprint check completed but learned that the individual in question had already moved out on 1/16/25. The department is unable to complete the check now.

Program: AL 93.658 – Foster Care Title IV-E; AL 93.658 – COVID-19 Foster Care Tile IV-E – Allowability & Eligibility Grant Number & Year: 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.403 (October 1, 2023), costs must be necessary, reasonable, and adequately documented.   Per 45 CFR § 75.303(a) (October 1, 2023), the Agency must do the following: 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. 45 CFR § 75.302(a) (October 1, 2023) states the following: Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. In addition, the state’s and the other non- Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. Per 42 USC § 671(a)(20)(A), for a state to be eligible for adoption assistance, the state must have a plan that “provides procedures for criminal records checks, including fingerprint-based checks of national crime information databases (as defined in section 534(f)(3)(A) of title 28), for any prospective foster or adoptive parent before the foster or adoptive parent may be finally approved for placement of a child[.]” Title 395 NAC 3-003.08(A)(iv) (Eff. 6/29/2022) states, in relevant part, the following: The applicant and all other members of the household 18 years of age and older will submit background checks prior to licensing. Each individual living in the home on whom a background check will be performed will sign the authorization form granting the Licensing Agent permission to perform the background checks and obtain the results. The authorization must include all previous known names, including maiden names and aliases . . . The following background checks will be conducted: * * * * (5) State-level criminal history; and (6) Fingerprint-based National Criminal History Check. Title 392 NAC 4-002 (Eff. 9/15/2020) states, in relevant part, “Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards;” and “(G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims[.]” The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, “You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided.” (pg. 32) Title 45 CFR § 75.511(a) (October 1, 2023) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The Agency did not have adequate documentation on file to support that payments were in accordance with Federal and State regulations. The Summary Schedule of Prior Audit Findings states the corrective action is completed. Repeat Finding: 2023-048 Questioned Costs: $681 known (2301NEFOST, $352; 2301NEFOST-COVID-19, $9; 2401NEFOST, $319; 2401NEFOST-COVID-19, $1) Statistical Sample: No Context: We tested 25 Foster Care claims for maintenance. Foster Care maintenance payments include payments to foster parents and payments to licensed child care providers for child care when work responsibilities preclude foster parents from being at home. We noted the following: • For two claims tested, the Agency was unable to obtain the child care attendance calendars from the providers. With no attendance calendars, we were unable to verify that the payment amounts were accurate, resulting in questioned costs of $657. • For one claim tested, the provider billed 12 days of child care, while the attendance calendar for the child showed only 11 days of child care. Also, the provider was authorized to provide 40 hours of child care per week, but one week billed 55 hours of care. We questioned costs of $24. • For one claim, there was no documentation of a fingerprint-based background check performed for an adult residing in the foster care household. Federal payment errors noted in the sample were $681. The Federal sample tested was $10,391, and the total Federal maintenance payments during the year were $5,998,283. Based on the sample tested, the dollar error rate was 6.55% ($681/10,391), which estimates the potential dollars at risk for fiscal year 2024 to be $392,888 (dollar error rate multiplied by population). Cause: Employee oversight; inadequate procedures to ensure documentation was on file. Effect: When adequate support is not on file, there is an increased risk of both noncompliance with State and Federal requirements and improper payments. Recommendation: We recommend the Agency implement procedures to ensure that adequate documentation is maintained to support that expenditures are allowable and in accordance with State and Federal regulations. Management Response: The agency agrees with this finding. Bullet Point 3: The department reached out to the home to get a fingerprint check completed but learned that the individual in question had already moved out on 1/16/25. The department is unable to complete the check now.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.659 – Adoption Assistance – Allowability & Eligibility Grant Number & Year: 2401NEADPT, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.403 (October 1, 2023), costs must be necessary, reasonable, and adequately documented. Per 45 CFR § 75.303(a) (October 1, 2023), the Agency must do the following: 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. 45 CFR § 75.302(a) (October 1, 2023) states the following: Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. In addition, the state’s and the other non- Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. Title 392 NAC 4-002 (Eff. 9/15/2020) states, in relevant part, “Before furnishing any service, each provider must sign an enrollment form agreeing: (A) No payments will be made for child care provided to a child before the service authorization date; (B) To provide service only as authorized, in accordance with the Department’s standards;” and “(G) To retain authorizations, billing documents, and attendance records for four years to support and document all claims[.]” The Child Care Subsidy Provider Handbook (June 2023 revision), Section 5 (“Financial Matters”), states, in relevant part, “You must complete an attendance calendar to accurately reflect the dates on which child care services were provided, as well as the exact number of hours of service provided.” (pg. 32) Condition: The Agency did not have adequate documentation on file to support that Adoption Assistance payments were in accordance with Federal and State regulations. Repeat Finding: No Questioned Costs: $350 known Statistical Sample: No Context: We tested 25 assistance claims and noted the following: • For one claim, the Agency was unable to obtain the child care attendance calendar from the provider. With no attendance calendar, we were unable to verify that the payment amount was accurate, resulting in questioned costs of $105. • For one claim, the provider billed 22 days of child care, while the attendance calendar for the child showed only 11 days, resulting in questioned costs of $245. Federal payment errors noted in the sample were $350. The Federal sample tested was $9,968, and the total Federal assistance payments during the year were $27,200,378. The dollar error rate was 3.51% ($350/9,968), which estimates the potential dollars at risk for fiscal year 2024 to be $954,733 (dollar error rate multiplied by population). Cause: Employee oversight; inadequate procedures to ensure documentation was on file. Effect: When adequate support is not on file, there is an increased risk of both noncompliance with State and Federal requirements and improper payments. Recommendation: We recommend the Agency implement procedures to ensure that adequate documentation is maintained to support that expenditures are allowable and in accordance with State and Federal regulations. Management Response: The agency agrees with this finding.

Program: AL 93.659 – Adoption Assistance – Level-of-Effort & Reporting Grant Number & Year: 2301NEADPT, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: A good internal control plan requires procedures to ensure reports are accurate and complete and reconcile to the accounting system. EnterpriseOne is the official accounting system of the State. 45 CFR § 75.302 (October 1, 2023) states, in part, the following: (a) Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state's own funds. In addition, the state’s and the other non- Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. See also §75.450. (b) The financial management system of each non-Federal entity must provide for . . . (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements . . . . Per Instructions for Completion of Form CB – 496: Line 10. Reporting Period - Expenditures of Adoption Savings On Post-Adoption or Post-Guardianship Services (from line 8 amount) – This line consists of the actual title IV-E agency expenditures (without federal matching funds) of calculated cumulative adoption savings for the purposes of providing post-adoption or post-guardianship services. . . . Line 11. Reporting Period - Expenditures of Adoption Savings On Services for Children At Risk of Foster Care (from line 8 amount) – This line consists of the actual title IV-E agency expenditures (without federal matching funds) of calculated cumulative adoption savings for the purposes of providing services to support positive permanent outcomes for children at risk of entering foster care. . . . Line 12. Reporting Period - Expenditures of Adoption Savings On Other Title IV-B or Title IV-E Allowable Services (from line 8 amount) – This line consists of the actual title IV-E agency expenditures (without federal matching funds) of calculated cumulative adoption savings for the purposes of providing title IV-B or title IV-E allowable services other than those specified for reporting on lines 10 and 11 of this Part. . . . Title IV-E agencies are required to enter into an adoption assistance agreement with the prospective adoptive parents of any child who meets specified criteria by applying differing, and less restrictive, program eligibility criteria. This results in some number of children who, under previously applied program eligibility criteria, would not have been determined as Title IV-E eligible, but who will now be determined as Title IV-E eligible for adoption assistance. Each Title IV-E agency is required to calculate and spend an amount equal to any savings in Title IV-E agency expenditures as a result of applying the differing program eligibility criteria for a Federal fiscal year for services permitted under Title IV-B or IV-E. These non-Federal funds are referred to as “adoption savings.” The State is required to spend an amount equal to any adoption savings in State expenditures for a fiscal year for any services that may be provided under Title IV-B or IV-E. Per 42 USC § 673(a)(8)(D)(ii), “Any State spending required under clause (i) shall be used to supplement, and not supplant, any Federal or non-Federal funds used to provide any service under part B or this part.” Title 45 CFR § 75.511(a) (October 1, 2023) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The Agency did not have adequate procedures to ensure Federal Financial Reports (FFRs) were accurate. Adoption Savings reported were not in accordance with Level-of-Effort requirements. The Summary Schedule of Prior Audit Findings states the corrective action is completed. Repeat Finding: 2023-049 Questioned Costs: Unknown Statistical Sample: No Context: We tested the FFRs for the quarters ended December 2023 and June 2024. We also tested Part 4 of the September 2023 report for the Annual Adoption Savings Calculation and Accounting Report. We noted the following: • Line 10 Expenditures of Adoption Savings on Post-Adoption or Post-Guardianship Services was reported as $9,684,007 but only had support for $9,555,098. • Line 12 Expenditures of Adoption Savings on Other Title IV-B or IV-E Allowable Services reported $638,161, but $470,913 of these expenditures should not have been included. These expenditures were paid with Federal funds and State matching funds and, therefore, are not allowable uses of Adoption Savings. • Line 11 Expenditures for Children at Risk of Foster Care was reported as $1,078,475 but was overstated $136,305 due to including expenditures paid with Federal funds. • Line 13 Total Expenditures of Calculated Adoption Savings was overstated by $736,127 due to the errors noted on Lines 10-12. Cause: Inadequate review. Effect: Increased risk for errors and noncompliance with Federal requirements. Recommendation: We recommend the Agency implement procedures to ensure Federal reports are accurate and reconcile to the accounting system. Management Response: The agency agrees with this finding.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024; 2405NE5021, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per Title 42 CFR § 455.104(b)(4) (October 1, 2023), the State Medicaid Agency must require the disclosing entity to provide the following disclosures: The name, address, date of birth, and Social Security Number of any managing employee of the disclosing entity (or fiscal agent or managed care entity). Per 42 CFR § 455.101 (October 1, 2023): Managing employee means a general manager, business manager, administrator, director, or other individual who exercises operational or managerial control over, or who directly or indirectly conducts the day-to-day operation of an institution, organization, or agency[.] Per the Medicaid Provider Enrollment Compendium (MPEC) (3/22/21) Section 1.4.1C: There are not exceptions to the managing employee disclosure requirement. To the extent any individual meets the definition of “managing employee” under §455.101, their information is required to be disclosed. MPEC Section 1.4.1C states further the following: However, if a non-profit entity has managing employees, to the extent these individuals meet the definition of “managing employee” under § 455.101; they would have to be disclosed as such. In addition, as discussed further below, entities, including non-profit entities, that are organized as corporations must provide disclosures regarding their officers and directors . . . . If a corporation has, for instance, a Director of Finance who is not a member of the board of directors, he/she would not need to be disclosed as a director/board member. However, as discussed in section C., below, to the extent he/she meets the definition of “managing employee” under § 455.101; he/she would have to be disclosed as a “managing employee.” Per 42 CFR § 455.436 (October 1, 2023), the State Medicaid Agency must do the following: (a) Confirm the identity and determine the exclusion status of providers and any person with an ownership or control interest or who is an agent or managing employee of the provider through routine checks of Federal databases. (b) Check the Social Security Administration’s Death Master File, the National Plan and Provider Enumeration System (NPPES), the List of Excluded Individuals/Entities (LEIE), the Excluded Parties List System (EPLS), and any such other databases as the Secretary may prescribe. (c)(1) Consult appropriate databases to confirm identity upon enrollment and reenrollment; and (2) Check the LEIE and EPLS no less frequently than monthly. 45 CFR § 75.303(a) (October 1, 2023) requires the Agency to “[e]stablish 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.” Good internal control requires procedures to ensure that all required disclosures are provided. Condition: Four of 25 providers tested did not include disclosure requirements for managing employees. A similar finding was noted in the prior audit. Repeat Finding: 2023-053 Questioned Costs: Unknown Statistical Sample: No Context: We tested screening and enrollment for 25 Medicaid/CHIP providers. We noted four providers failed to disclose any managing employee. Therefore, no screenings for managing employees were performed for these four providers. Cause: The Agency relies on each provider’s disclosure to be complete, true, and accurate. The provider is allowed to complete the enrollment process even if an owner or managing employee is not disclosed. Effect: Without adequate procedures to ensure providers are screened, and disclosures are complete, there is an increased risk of provider ineligibility, which could result in unallowable costs or potential harm to patients. Recommendation: We recommend the Agency obtain disclosures and screen providers as required by Federal regulations. Management Response: Management agrees. Starting in January of 2024, the Department has received reports from Maximus that lists the agency, owner(s), and managing employee(s) that were listed in PDMS. On July 1, 2024, a ticket was deployed in the enrollment system that would require an owner (when applicable) and managing employee on the application to move forward with the enrollment. It was set to have a “hard stop” which would prevent enrollment without the required information in the enrollment/revalidation process if not completed. If a provider were to attempt to leave both owners and managing employees blank: a message will pop up that says “Ownership or control interest in the disclosing entity or in any subcontractor in which the disclosing entity has direct or indirect ownership of 5% or more is required when applicable. You are required to supply your managing employees.” If a provider lists managing employees but no owners: there is a notice that pops up saying “You have indicated there are no Owners of this provider entity associated with your enrollment, please verify this is correct before continuing.” They will keep the option to move forward with no owners. If they list owners but not a managing employee, the provider will receive the message “Managing Employees are required”. They can only cancel and remain on the page. They must supply a managing employee or cancel their enrollment/revalidation. If the provider supplies a minimum of one owner and one managing employee, they will not get an error or pop up and they will be able to continue. This ticket was deployed within the enrollment system on July 1, 2024. Not knowing the entities that did not have managing employees listed, we are unable to determine if they were providers that had not gone through their revalidation this year, or prior to the release of that ticket. However, no providers will have been able to complete the enrollment process without listing an owner and/or managing employee since July 1, 2024.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024; 2405NE5021, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 42 CFR § 438.3(m) (October 1, 2023): The contract must require MCOs [managed care organizations], PIHPs [prepaid inpatient health plans], and PAHPs [prepaid ambulatory health plans] to submit audited financial reports specific to the Medicaid contract on an annual basis. The audit must be conducted in accordance with generally accepted accounting principles and generally accepted auditing standards. A good internal control plan requires policies and procedures to ensure that mandatory financial audits are completed in accordance with Federal regulations. Condition: The MCO and PAHP audited financial reports for year ended December 31, 2023, were not conducted in accordance with generally accepted accounting principles (GAAP). A similar finding was noted in the prior audit. Repeat Finding: 2023-054 Questioned Costs: Unknown Statistical Sample: No Context: Nebraska Total Care, Inc., Community Care Health Plan of Nebraska, Inc., United Healthcare of the Midlands, Inc., and MCNA Insurance Company had audits performed in accordance with generally accepted auditing standards; however, the financial statements were not in accordance with GAAP. The financial statements for the MCOs were prepared using “accounting practices prescribed or permitted by the Nebraska Department of Insurance, which is a basis of accounting other than U.S. generally accepted accounting principles.” The PAHP audit was prepared using “accounting practices prescribed or permitted by the Texas Department of Insurance . . . .” The Department of Insurance has adopted the Statement of Statutory Accounting Principles (SSAP) found in the National Association of Insurance Commissioners’ (NAIC) manual. Cause: The MCO and PAHP audited financial reports were completed for the Nebraska Department of Insurance, which did not require the audit to be conducted in accordance with GAAP. Amendments to the contract effective January 1, 2024, now require the financial audits to be conducted in accordance with GAAP. Effect: When the financial audits completed by the MCOs and PAHP are not conducted according to GAAP, the Agency is not in compliance with Federal regulations, and there is an increased risk for fraud or errors. Recommendation: We recommend the Agency require the MCO and PAHP financial audits to be conducted in accordance with GAAP. Management Response: Management agrees. As part of a prior year finding, we amended MCO contracts to require GAAP (generally accepted accounting principles) Audits to be performed beginning with contract period CY24 forward.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Allowability & Eligibility Grant Number & Year: 2305NE5MAP, FFY 2023; 2405NE5MAP, FFY 2024; 2305NE3002, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 42 CFR § 435.1009(a) (October 1, 2023) states, in part, the following: FFP is not available in expenditures for services provided to— (1) Individuals who are inmates of public institutions as defined in § 435.1010[.] Per NE DHHS Medicaid Eligibility 477-000-002 (03/07/2023): A redetermination of eligibility for continued Medicaid benefits must be completed every twelve (12) months. * * * * The completed renewal form and necessary verifications shall be returned within thirty (30) days of the date the renewal form was sent. 477 Nebraska Administrative Code (NAC) 19.004(E) states the following: Children age 18 or younger who do not meet income limits for Medicaid are eligible for Children’s Health Insurance Program (CHIP) if their household income is equal to or less than 213% of the Federal Poverty Level (FPL) and the children are not covered by creditable health insurance[.] 477 NAC 3-007.01 states, in part, “The completed renewal form and necessary verifications shall be returned within 30 days of the date the renewal form was sent.” 482 NAC 1-002.36 (July 29, 2020) defines a Managed Care Organization (MCO) as an “organization that has or is seeking to qualify for a comprehensive risk contract to provide services to managed care enrollees.” 42 CFR § 438.806(c) (October 1, 2023) states, in part, “FFP is not available in an MCO contract that does not have prior approval from CMS . . . .” 42 CFR § 438.3(a) (October 1, 2023) states, in part, “CMS must review and approve all MCO, PIHP, and PAHP contracts, including those risk and nonrisk contracts . . . .” 42 CFR § 438.4(b) (October 1, 2023) requires, “Capitation rates for MCOs, PIHPs, and PAHPs must be reviewed and approved by CMS as actuarially sound.” Good internal control requires policies and procedures to ensure that recipients meet eligibility requirements, and reviews are completed in accordance with State and Federal regulations. Good internal control also requires contracts and rates to be approved before implemented. Condition: Managed care capitation rates were implemented prior to Federal approval. In addition, procedures should be improved to ensure payments for managed care are allowable, and recipients are eligible. Repeat Finding: No Questioned Costs: $10,777 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 40 Medicaid managed care claims and 25 CHIP managed care claims. We noted the following: Unapproved Rates Managed care claims tested for April 2024 services used calendar year 2024 contract rates prior to the required Federal approval. Upon further review, it was noted that all payments for services starting with January 2024 were made using the unapproved 2024 rates. Per support from the Agency, certified actuarial letters dated September 29, 2023, and other documentation required to be submitted to CMS for approval was submitted in an email dated December 21, 2023, 10 days prior to the beginning effective date of the MCO contracts and 83 days after actuarial rates were certified. Managed Care payments from January 2024 through June 2024 using unapproved rates totaled $1.29 billion. See Schedule of Findings and Questioned Costs for chart/table. Medicaid Three of 40 claims tested were not in compliance with regulations. • Payments were made for an incarcerated individual. A review and determination of eligibility did not occur for the Medicaid recipient, and no verifications were collected for over a 12-month period between January 2023 and April 2024. This was evidently because the recipient of the Medicaid benefits was incarcerated between January 4, 2023, and March 28, 2024, during which time no verification of household composition and living situation was verified. As a result, we question $625 for the payment tested and $8,276 for additional payments during the period of incarceration. • NFOCUS narratives showed that a renewal form was requested to be completed by the recipient on January 12, 2023; however, due to the State of Emergency declaration, the verifications and form requested due date was extended to February 11, 2024. The recipient failed to provide the renewal form or the verifications requested by the due date. The case should have been closed 30 days (March 12, 2024) after the renewal forms and verification were due, which would have been prior to the budget date of April 1, 2024. The case was not closed until June 4, 2024, resulting in questioned costs of $396 for the payment tested and additional questioned costs of $791 for May and June 2024. • One case was reviewed on July 31, 2020, and not again until September 9, 2023. This is over three years between reviews, and no redetermination of eligibility occurred in the Medicaid Program. Federal payment errors noted in the sample were $1,021. The Federal sample tested was $18,816, and the total Federal Managed Care expenditures during the fiscal year were $1,766,039,418. Based on the sample tested, the case error rate was 7.50% (3/40). The dollar error rate was 5.43% ($1,021/$18,816), which projects the potential dollars at risk for fiscal year 2024 to be $95,895,940 (dollar error rate multiplied by population). Out- of-sample questioned costs totaled $9,067. CHIP For 1 of 25 claims tested, the recipient did not meet age requirements to be eligible for the CHIP program, and the incorrect rating region was used for capitation payment rates. Additionally, Medicaid renewal/verification processes were not followed. The budget used for the Medicaid recipient was created in March 2021, when the recipient was 18 or younger. This budget was extended through June 2024 due to the State of Emergency. A renewal notice was sent to the recipient on April 10, 2024, and an incomplete renewal form was received on July 15, 2024. The case should have been closed 30 days (May 10, 2024) after the renewal forms and verification were due. Had the renewal and redetermination occurred, the recipient would have been ineligible for the CHIP program due to the recipient being over 18 years of age. However, capitation payments were made in June, July, and August 2024, for a total of $670 Federal questioned costs outside of the sample. Because of the lack of renewal verifications, the address information for the recipient was for Region 2, even though the recipient’s address information had been updated to Region 1. This resulted in a Federal overpayment of $20. Federal payment errors noted in the sample were $20. The Federal sample tested was $4,282, and the total Federal managed care expenditures during the fiscal year were $97,464,908. Based on the sample tested, the case error rate was 4% (1/25). The dollar error rate was 0.47% ($20/$4,282), which projects the potential dollars at risk for fiscal year 2024 to be $458,085 (dollar error rate multiplied by population). Out-of-sample questioned costs totaled $670. Cause: The Agency indicated that the 2024 rates were paid prior to approval, as the contract had substantive changes, and the Agency believed using the 2024 rates would result in smaller adjustments than if the 2023 rates were used. Claim errors due to inadequate review. Effect: Noncompliance with Federal regulations and increased risk for fraud or errors. Recommendation: We recommend the Agency implement MCO contracts and rate changes only after approval from the Federal grantor. We further recommend the Agency strengthen procedures to ensure recipients are eligible, and payments are proper. Management Response: Management agrees. As noted, due to significant program changes at the start of the reprocured managed care contracts January 1, 2024, such as carving in dental services, the Department made a calculated decision to pay the actuarily developed capitation rates for rate cells, prior to receiving approval from CMS. The Department otherwise follows our standard process of waiting for CMS approval prior to paying updated rates for subsequent rating periods.

Program: Various, including AL 93.778 – Medical Assistance Program (Medicaid) – Allowable Costs/Cost Principles Grant Number & Year: Various, including 2305NE5ADM, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR § 200.403 (January 1, 2024) and 45 CFR § 75.403 (October 1, 2023) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. * * * * (g) Be adequately documented. 2 CFR § 200.405(b) (January 1, 2024) and 45 CFR § 75.405(b) (October 1, 2023) state, in relevant part, the following: All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR § 200, Appendix V, Subsection (G)(2) (January 1, 2024) and 45 CFR § 75, Appendix V, Subsection (G)(2) (October 1, 2023) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR § 200, Appendix V, Subsection (G)(4) (January 1, 2024) and 45 CFR § 75, Appendix V, Subsection (G)(4) (October 1, 2023) state, in relevant part, the following: Billing rates used to change Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenues generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually, and an adjustment will be made for the difference between the revenue and the allowable costs. Neb. Rev Stat. § 81-1120.22 (Cum. Supp. 2022) provides the following: The Director of Communications shall develop a system of equitable billings and charges for communications services provided in any consolidated or joint-use system of communications. Such system of charges shall reflect, as nearly as may be practical, the actual share of costs incurred on behalf of or for services to each department, agency, or political subdivision provided communications services. Using agencies shall pay for such services out of appropriated or available funds. Beginning July 1, 2011, all payments shall be credited to the Communications Revolving Fund. Beginning July 1, 2011, all collections for payment of telephone expenses shall be credited to the Communications Revolving Fund. 2 CFR § 200.444(a) (January 1, 2024) and 45 CFR § 75.444(a) (October 1, 2023) state, in relevant part, the following: For states . . . the general costs of government are unallowable . . . . Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . [.] (2) Salaries and other expenses of a state legislature . . . [.] A good internal control plan requires: • Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure charges are appropriate for the services provided. • Maintenance of adequate documentation to support both rates charged and the approval of those rates. • Periodic review of internal service fund balances to ensure revenues are not in excess of expenses. Condition: The Agency lacked adequate documentation to support the rates charged by the Office of the Chief Information Office (OCIO). Additionally, the Agency’s Material Division lacked adequate documentation to support service rates charges for the Print Shop. Furthermore, we noted also that the Agency lacked adequate documentation to support the allocation of security costs in developing building rental rates. Lastly, the OCIO Internal Service Fund Balance was greater than 60 calendar days for cash expenses for normal operations incurred. A similar finding has been noted in prior audits since 2015. Repeat Finding: 2023-021 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Office of the Chief Information Officer (OCIO) As noted in prior audits, the OCIO lacked adequate support for service rates charged. The Agency was in the process of updating its rates through a new methodology, but no changes were made for fiscal year 2024. In that year, the OCIO receipted $26,824,419 in Federal dollars for services performed for Federal programs. Of this amount, $12,871,044 was charged to Medicaid. Print Shop As noted in prior audits, the Print Shop lacked adequate support for service rates charged. The Agency was in the process of updating its rates through a new methodology, but no changes were made for fiscal year 2024. Receipts from sales for that year totaled $3,254,109. Building Division The rental rate charged to agencies for building space includes an allocation for security costs. We noted that neither the State Capitol Building (Capitol) nor the Governor’s residence was allocated any costs for security, even though both locations have security. Because these locations were not allocated any security costs, Federal programs could be overcharged. Moreover, security costs to the Capitol and the Governor’s residence are general costs of government and, therefore, not allowable. The fiscal year 2024 indirect allocations for security totaled $1,083,488. OCIO Internal Service Fund Balance Per the Agency’s calculation, as of June 30, 2023, the OCIO Internal Service Fund Balance for allowable costs was $27.922 million; however, the allowable reserve was only $20.048 million, a difference of $7.874 million. The Agency has not completed its calculation for June 30, 2024; however, per the APA’s review of the State accounting system, the fund balance has increased by over $40 million during State fiscal year 2024 and was significantly larger than the allowable reserve at June 30, 2024. Cause: Inadequate procedures to ensure that rates are adequately supported, and the Internal Service Fund Balances do not exceed allowable thresholds. Effect: Without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs or State agencies will be overcharged for services, and the Agency’s internal service funds will exceed the allowable threshold per Federal regulations. When security costs are not allocated to all buildings in an equitable manner, moreover, the risk of Federal programs not being charged in accordance with Federal cost principles is increased. Recommendation: We recommend the Agency review its allocation of security costs to ensure that such costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. Lastly, we recommend the Agency implement procedures to ensure fund balances do not exceed the allowable threshold. Management Response: OCIO - The OCIO agrees with the finding as it is the result of rates calculated 18 months in advance of the period under review. DAS Materiel – Print Shop continues to work with software that was purchased to assist with developing rates. Work continues to capture costs and actual historical units sold. DAS Building - The methodology for the allocation for security (an Indirect Cost) is a management decision and there have been no changes in the allocation methodology. APA Response: Regardless of any management business decision, security costs to both the Capitol and the Governor’s residence remain, as noted above, general costs of government and, therefore, not allowable.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2301NERCMA, FFY 2023; 2401NERCMA, FFY 2024; 2301NELIEA, FFY 2023; 2301NECCDD, FFY 2023; 2301NEFOST, FFY 2023; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2301NESOSR, FFY 2023; 2401NESOSR, FFY 2024; 2405NE5ADM, FFY 2024; 202323S251443, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. Title 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit preparation of required reports and permit the tracing of funds to expenditures adequate to establish the use of these funds were in accordance with applicable regulations. Title 471 NAC 25, Attachment A, Claiming Issues, C. Offset of Revenues (eff. 10/4/2020), states, in part: • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs; • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. • The administrative costs incurred by DHHS to administer the School Based Admin program are: salaries, benefits, operating costs, and allocated costs (per the Nebraska Cost Allocation Plan). These costs are reported on the CMS-64.10 Base Line 29. • DHHS will refund 50% of that fee to CMS and will be reported on form CMS 64-10 Base, Line 19. • DHHS will subtract the amount received for the 3% fee from the total paid to the schools as a cost allocation adjustment and report the net amount CMS 64.10 Base form, Line 19. This will occur each quarter as part of the normal cost allocation adjustment process prior to running the final cost allocation module (distribution) in Enterprise One (NIS). Similar wording is found in the Medicaid School-Based Administrative Claiming Guide provided by the Centers for Medicare and Medicaid Services (May 2003), Section V (“Claiming Issues”), C. (“Offset Revenues”): Certain revenues must offset allocation costs in order to reduce the total amount of costs in which the federal government will participate. To the extent the funding sources have paid or would pay for the costs at issue, federal Medicaid funding is not available and the costs must be removed from total costs . . . . The following include some of the revenue offset categories which must be applied in developing the net costs: * * * * • All applicable credits must be offset against claims for Medicaid funds. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to federal awards as direct or indirect costs. • A program may not claim any federal match for administrative activities if its total cost has already been paid by the revenue sources above. A government program may not be reimbursed in excess of its actual costs, i.e., make a profit. EnterpriseOne is the official accounting system for the State of Nebraska, and all expenditures are generated from it. Good internal control requires procedures to ensure that amounts charged to Federal funds are proper. According to 45 CFR § 75.511(a) (October 1, 2023) and 2 CFR § 200.511(a) (January 1, 2024), “The auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the auditee must prepare a summary schedule of prior audit findings.” Per 45 CFR § 75.511(b) and 2 CFR § 200.511(b), “The summary schedule of prior audit findings must report the status of all audit findings included in the prior audit’s schedule of findings and questioned costs.” 45 CFR § 75.511(b)(1) and 2 CFR § 200.511(b)(1), adds, “When audit findings were fully corrected, the summary schedule need only list the audit findings and state that corrective action was taken.” Finally, 45 CFR § 75.511(b)(2) and 2 CFR § 200.511(b)(2), provide, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: Procedures to ensure journal entries and adjustments to the Public Assistance Cost Allocation Plan (PACAP) were not adequate, resulting in multiple Federal programs being overcharged. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as completed. Repeat Finding: 2023-029 Questioned Costs: $1,405,085 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We selected 10 journal entries related to the PACAP. We noted the following: • One journal entry to reconcile Supplemental Nutrition Assistance Program (SNAP) expenditures to the PACAP did not properly account for $54,344 paid to Equifax Workforce Solutions for employment verification and credit reporting services utilized by the SNAP. As a result, Federal funds were overcharged by $27,172 and are considered questioned costs. • One journal entry moved $2,900,000 in expenses from cost center 25C20990 to cost center 25C21960 and 25C23001. Cost center 25C20990 is allocated to numerous Federal and State programs using program recipient counts to split up the costs. Meanwhile, cost center 25C23001 allocates 50% of the costs directly to Medicaid, and cost center 25C21960 is allocated to Economic Assistance programs using random moment time study (RMTS) results. Moving expenses between these cost centers caused amounts considered unallowable, or unsubstantiated, to be charged to Federal programs. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. We also selected five adjustments made to the PACAP and noted the following: • One adjustment was related to the Medicaid School-based Administration program. The Agency uses a contractor to determine the allowable Medicaid activities by school district. The Agency then makes payment to the schools for the Federal share of expenses. Schools are responsible for providing matching funds. However, the Agency does not make payment for the entire Federal share due. The Agency subtracts a 3% fee for administration. The Agency then essentially pays itself through a reconciliation journal entry. Below is the adjustment performed for the quarter ended December 31, 2023: See Schedule of Findings and Questioned Costs for chart/table. Administrative costs of the Agency are distributed through the PACAP to benefitting programs, and would include charges to Medicaid; therefore, the Federal portion of the 3% administration fee should be credited back to Medicaid; but was not. Therefore, we question the Federal share of $20,407 for the quarter tested. • One adjustment was done to fix allocation errors made on the PACAP for the quarter ended September 30, 2023. There are 42 cost centers on the PACAP that are allocated each quarter based on various statistics. Of these 42 cost centers, 32 were allocated using incorrect statistics. When the Agency tried to correct these errors, multiple calculation errors were made, resulting in numerous undercharges and overcharges. As a result, the following programs were overcharged: See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that adjustments to the PACAP are proper and that journal entries are appropriate for each program. Effect: Unallowable expenditures were charged to Federal funds and an increased risk for errors, fraud, and noncompliance with Federal regulations. Recommendation: We recommend the Agency strengthen procedures to ensure adjusting entries are complete and accurate. We further recommend the Agency strengthen procedures to ensure compliance with Federal regulations. Management Response: Journal Entry out of 25C20990: Agency agrees. The repeat finding relating to the $2.9m Journal Entry is a repeat due to the JE having occurred QE 9/30/23 which is prior to the FY23 Audit Exit being distributed and prior to the corrective action plan having been completed. Corrective Action for this item was completed as part of the FY23 Corrective Action Plan in April 2024. It should be noted that the impact of this, along with most Cost Allocation impacts, also includes undercharges to Federal Grants. Net overcharge to Federal grants is approximately $300,000. Allocation Errors in the PACAP: Agency agrees. There was a systemic issue with allocations in the 9/30/23 quarter caused by the vendor that used to process the Agency’s cost allocation plan. This was the last quarter that the vendor performed services for the Agency. DHHS was in tandem setting up the new cost allocation system, which caused more constraints on staff, resulting in inadequate review of the vendor’s work. It is noted that Federal undercharges also occurred, netting to an approximately $85,000 undercharge to Federal Grants. Since the new vendor was exclusively implemented, staff no longer have time constraints which affect their ability to perform adequate vendor reviews. School-Based Admin: Agency disagrees that the Administrative Fee is being handled incorrectly, as the current process has been vetted and approved through CMS. The current process has been in effect since 2017 and has not been flagged by CMS during that time. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program. The Agency was unable to provide any documentation to support the Federal grantor approved the handling of the administrative fee.

Program: AL 93.558 – Temporary Assistance for Needy Families; AL 93.563 – Child Support Services; AL 93.566 – Refugee and Entrant Assistance; AL 93.568 – Low Income Home Energy Assistance (LIHEAP); AL 93.575 – Child Care and Development Block Grant; AL 93.658 – Foster Care Title IV-E; AL 93.659 – Adoption Assistance; AL 93.667 – Social Services Block Grant; AL 93.767 – Children’s Health Insurance Program; AL 93.778 – Medical Assistance Program; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2101NETANF, FFY 2021; 2401NESCSS, FFY 2024; 2401NERCMA, FFY 2024; 2401NELIEA, FFY 2024; 2401NECCDD, FFY 2024; 2401NEFOST, FFY 2024; 2401NEADPT, FFY 2024; 2401NESOSR, FFY 2024; 2305NE3002, FFY 2023; 2405NE5ADM, FFY 2024; 202424S251443, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024) state, in relevant part, the following: 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. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) require costs to be necessary, reasonable, and adequately documented. 45 CFR § 75.302 (October 1, 2023) and 2 CFR § 200.302 (January 1, 2024) require financial management systems of the State sufficient to permit both preparation of required reports and tracing of funds to expenditures adequate to establish that the use of those funds was in accordance with applicable regulations. 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405(a) (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) state, in relevant part, the following: (5) For states, local governments and Indian tribes, substitute processes or systems for allocating salaries and wages to Federal awards may be used in place of or in addition to the records described in paragraph (i)(1) of this section if approved by the cognizant agency for indirect cost. Such systems may include, but are not limited to, random moment sampling, “rolling” time studies, case counts, or other quantifiable measures of work performed. (i) Substitute systems which use sampling methods (primarily for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including: (A) The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in paragraph (i)(5)(iii) of this section; (B) The entire time period involved must be covered by the sample; and (C) The results must be statistically valid and applied to the period being sampled. Per the Public Assistance Cost Allocation Plan (PACAP), “Time and Effort Reporting means employee reporting of the amount of time they expend on specific programs and activities. Reporting is accomplished by coding time to specific programs or activities on the employee’s time card.” Per the State of Nebraska’s Work Instruction Document for Cost Allocation, Quarterly Statistics Gathering and Compilation, formatting the Time and Pay report used for labor hour allocations, includes, “Sort through the ‘Hours’ column removing any negative and 0 hours.” Good internal control requires procedures to ensure that amounts charged to Federal programs are proper. Condition: The Agency did not properly charge Federal programs for 21 of 28 allocations tested. A similar finding has been noted since 2013. Repeat Finding: 2023-030 Questioned Costs: $3,403,410 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 28 PACAP allocations. We noted errors for 21 of 28 allocations tested, resulting in various programs undercharged or overcharged. We consider the overcharges to be questioned costs. We noted the following: Time and Effort Report Allocations Three of three cost allocations tested based on Time and Effort reporting were incorrect, resulting in questioned costs of $904,248. • We tested the allocation of cost center 25C21940 Field Office Resource Development for the quarter ended December 31, 2023, which allocated $1,266,933 of administrative costs, based on Time & Effort reports. The statistics used to calculate this allocation were not calculated correctly by the Agency. Negative hours should have been removed, and the percentage of costs split between Medicaid and CHIP was incorrect. Additionally, the payroll costs for 74 employees were charged to the cost center; however, three of the employees’ payroll costs should not have been charged to the cost center. The three employees included two Child and Family Services Specialist Supervisors (CFSSS) and a Program Specialist. The two CFSSS employees were, at one time, Resource Developers; however, when their roles changed, their pay source was not updated. The Program Specialist has been a Program Specialist since he was hired in April 2022. Two of the employees were noted as incorrect in the prior audit, but the Agency failed to update the system. As a result of these employees being charged to the Resource Development cost center instead of their appropriate cost centers, numerous programs were not charged correctly. Because of the error in allocation and the error in employee time coding, we questioned $27,988 costs for Foster Care. • We tested the allocation of cost center 25C20680 LS [Legal and Regulatory Services] General Teams for the quarter ended June 30, 2024, which allocated $1,275,286 of administrative costs, based on Time & Effort reports. Because of the issues detailed below, we question all Federal share of costs for cost center 25C20680 and 25C20710 for the quarter, totaling $608,069. o The cost center was not allocated using the Federally approved Time and Effort method. The Agency provided, “Unfortunately, we didn't get a chance to update our PCAP to reflect the change on this allocation method. For this group, we have change [sic] the method from Time and Effort to Time Study.” o The Agency’s time study consisted of hours worked for 11 of the 52 employees coded to the cost center. The hours used were from three weeks (July 24, 2023, to August 11, 2023). This does not appear adequate, as only 11 employees for three weeks were included, and this method was not approved by the Federal grantor. A similar time study was used for cost center 25C20710 (LS Hearing Team) to allocate $263,134. o The allocation statistics the Agency calculated for cost center 25C20680 were used on cost center 25C20710, and the allocation statistics calculated for cost center 25C20710 were used on cost center 25C20680, causing major variances in how the costs were allocated. o A business unit included in cost center 25C20680 should have been coded to cost center 25C20710. o Two employees paid from cost center 25C20680 (an Internal Auditor and Office Technician) were not involved in the LS General Teams and should not have been paid from the cost center. • We tested the allocation of cost center 25C20945 IST Fiscal Projects Administration for the quarter ended December 31, 2023, which was to allocate $524,480 of administrative costs, based on “a statistical analysis activity benefiting specific programs that IST Finance is responsible for processing.” The PACAP contradicts itself, later listing the allocation method of this cost center as a “Time and Effort” statistic. During testing, we noted the cost center was using a statistic prepared by “analysis” prior to December 31, 2020, and the same numbers have been used since then. Because the statistic used is clearly outdated, we question the Federal share of the entire allocation, totaling $268,191. Questioned costs by Program for Time and Effort Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. RMTS Allocations For five of five allocations tested based on Random Moment Time Study (RMTS) observations, the RMTS Summary report was not allocated correctly to the various State and Federal programs, resulting in $104,074 in Federal questioned costs. The following RMTS allocations were tested: See Schedule of Findings and Questioned Costs for chart/table. • RMTS observations were not properly determined. We reviewed two quarters to determine if observations were correctly counted. The December quarter allocation included 3,613 activity observations, and the June quarter included 4,382 observations. We noted the following: o 23 RMTS observations were “reassigned” and coded to a response that was different from the original response. The original observation would have been charged to State funding; however, reassigning resulted in the observations being allocated to various Federal programs. o Five observations were not included on the quarterly reports because these reports were created before all observations for the quarter were submitted. o Two observations were validated by a supervisor; however, they were reassigned to a different activity. The Agency was unable to provide an explanation for why these observations were reassigned after being validated. o One observation was not included on the quarterly report. The Agency was unable to identify which response was not included or why it was not included. • The Agency did not properly allocate observations in accordance with the PACAP for 2 of the 83 activities in the quarter ended December 31, 2023, and 3 of the 76 activities in the quarter ended June 30, 2024: o One RMTS observation for the December quarter and 13 June quarter observations were to SNAP and AABD, which, per the PACAP, should be coded half to SNAP and half to State. The Agency incorrectly coded one-third to SNAP, one-third to State, and one-third to SSBG. o One June quarter observation was for TANF, Employment First, and SNAP. As this is coded to three activities, it should be split three ways, but the Agency allocated half to TANF and half to SNAP. o Per the PACAP, Child Protection Initial Assessment is allocated to Foster Care, Guardianship, and Adoption. For both quarters tested, there was an observation not split between all applicable programs. • The P&S IV-E and Non-IV-E allocation for the quarter ending December 31, 2023, included expenses from two business units, totaling $2,466,426, that should have been included in the cost center for Case Management Training. As a result, Foster Care was undercharged, and Adoption and Guardianship were overcharged. Questioned costs by Program for RMTS Allocations are as follows: See Schedule of Findings and Questioned Costs for chart/table. Labor Hours Statistics The PACAP includes 38 cost centers allocated to State and Federal programs through labor hours. Over $65 million in costs were allocated by labor hours during the 2024 State fiscal year. We tested six of these allocations, and all six allocations had errors. Below is a summary of allocations tested: See Schedule of Findings and Questioned Costs for chart/table. We noted the following issues: • The PACAP defines various labor hour (LH) statistics to be used to allocate costs. Labor hour statistics used were incorrect. o LH1 statistics should include all Agency hours worked (i.e., does not include paid leave) and exclude two-thirds of the labor hours from 24-hour facilities. The Agency did not remove negative hours and did not exclude two-thirds of the hours in the 24-hour facilities. LH1 also excluded hours from numerous cost centers that should have been included. o The LH2 statistic (LH1 hours excluding all hours worked in field offices and 24-hour facilities) incorrectly included hours from five field office cost centers, totaling 627,646 hours. Additionally, hours from two cost centers, totaling 119 hours, were improperly excluded. o The LH4 statistic (which is based on hours paid, including leave hours) did not remove negative hours and did not include leave pay type codes (such as civil leave, injury leave, and holiday leave). In addition, for one quarter tested, the Agency incorrectly applied the Medicaid match rate to the Medicaid hours, thus undercharging Medicaid and overcharging multiple Federal programs. o One cost center tested should have included labor hours for the division. The total hours used should have been 857,278, but the Agency failed to include three cost centers, totaling 10,065 hours. Additionally, one cost center with 1,036 hours was included twice. • The Agency implemented new allocation software starting with the quarter ended December 31, 2023. Two of six allocations tested were not set up properly. o Human Resource Development costs should have been allocated to 169 benefiting cost centers but were only allocated to four cost centers. o LH4 statistics were not applied properly in the cost allocation software, resulting in three unrelated cost centers being overcharged, while not charging any costs to six of the cost centers that should have been included. The errors noted above resulted in numerous misallocations, with many programs having undercharges and/or overcharges. Due to the intricacies of the PACAP allocations, we were unable to determine total questioned costs. However, we were able to identify the following overcharges that we consider to be questioned costs. See Schedule of Findings and Questioned Costs for chart/table. Direct Allocations For 1 of 10 direct allocations tested, the amount directly allocated to a final cost center or method of allocation was incorrect, based on the Federally approved Public Assistance Cost Allocation Plan (PACAP). We tested the allocation of cost center 25C21795 (Protection and Safety New Worker training) for the quarter ending December 31, 2023, in the amount of $484,991, which is directly (i.e., 100%) allocated to Foster Care. We noted four business units mapped to the wrong cost center, which resulted in $26,802 questioned costs for Adoption Assistance. Recipient Counts The PACAP includes five cost centers allocated to State and Federal programs based on recipient counts per NFOCUS and MMIS reports. NFOCUS and MMIS are applications used to manage various programs such as SNAP, Child Care, TANF, and Medicaid. Over $28 million in costs were allocated using these counts during the State fiscal year 2024. We tested the allocations for three quarters and noted all three were incorrect because the recipient counts used in the allocations did not agree to support. We noted the following: • The Agency did not maintain the detail for the recipients of Medicaid or the Children’s Health Insurance Program (CHIP). The numbers used in the allocations for Medicaid and CHIP were maintained on a summary spreadsheet. The counts used for all three allocations tested, pulled from the summary spreadsheet, did not include Medicaid Expansion recipients in the count of Medicaid recipients, thus undercharging Medicaid for all three quarters tested and overcharging all other programs included in the allocation. Furthermore, when we requested detailed reports to support the numbers on the summary spreadsheet, the Agency was unable to provide detailed reports at the time of the allocation. Instead, the reports showed recipients for Medicaid and CHIP for December 2023, March 2024, and June 2024, as of September 2024. The detailed report did not agree to the summary spreadsheets. • One cost center for the Expansion Call Center used outdated counts, dating back to at least the quarter ending December 31, 2020. • Multiple other recipient counts were off due to clerical errors: o The counts for TANF Solely State Funded Plan were wrong for each quarter tested. The December, March, and June quarter counts included 0, 1,623, and 2,072 recipients when the supported number was 1,623, 1,832, and 1,985, respectively. o The March quarter counts for SNAP included 2,000 fewer recipients than what was supported. o The March quarter counts included an additional 26 recipients in AABD – State Supplement. o The June quarter counts included an additional 19 recipients for “DD SERVICE COORDINATION – State Only” and 1 additional recipient for Child Welfare that were unsupported. We recalculated each quarter’s allocation, based on the supported recipient counts available, and have the following questioned costs: See Schedule of Findings and Questioned Costs for chart/table. Other We tested the allocation of cost center 25C23823 iServe IAPD H971 – Shared, which allocated $13,523,554 in project costs. The iServe Nebraska Portal, which is an application for Nebraskans to apply for benefits from Federal and State programs, began implementation in July 2021, and went live in October 2023, replacing ACCESSNebraska. For the implementation phase of the project, the Agency allocated costs to only the following four programs: LIHEAP, TANF, SNAP, and Medicaid. However, there are other Federal and State programs that will utilize the iServe application. We reviewed documentation obtained in the prior year, including correspondence from the Agency’s Federal contacts, which stated, “As long as SNAP, Medicaid, LIHEAP, and TANF are the only benefiting programs for the State’s iServe Nebraska Portal project, the State may just include these four programs in the development of its cost allocation plan. If/when the State decides to add other Federal programs that will benefit from enhancements to the portal, it will need to revisit and adjust its cost allocation plan.” In addition to SNAP, Medicaid, LIHEAP, and TANF, other programs went live during the fiscal year, including Child Care, SSBG, Refugee Assistance, and various State programs. We noted the following: • The SSBG program began implementation October 1, 2023, and went live April 1, 2024, but no costs were allocated to the program. • The Refugee Assistance program began implementation on March 1, 2024, but no costs were allocated to the program. • The allocation method had been updated by the Federal grantor as of October 1, 2023; however, the Budget Team was unaware of this update until our inquiry. The allocation now includes Child Care and some State-funded programs, such as Assistance to the Aged, Blind, or Disabled Program and State Disability Program. The new allocation was approved for the quarter ended December 31, 2023, and the Agency made adjustments to allocate those costs. However, the implementation date began in 2021 and, as noted in the prior audit, the Agency did not allocate any implementation costs to these programs. This does not agree with “APPENDIX D – Benefit Programs Associated With iServe Portal and iServe IBEEM Projects,” which includes more benefitting programs than the allocation method used. We were unable to determine questioned costs for the cost center. The total costs allocated from the iServe project for fiscal year 2024 are noted below. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate procedures to ensure that allocations were adequately supported and calculated correctly. Effect: Without adequate documentation to support the allocation of costs, there is increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in E1; system reports are set up correctly, and formatting instructions are followed; and costs are properly allocated and charged, based on supporting documentation. Management Response: Time and Effort: Agency partially agrees. A retroactive PACAP amendment has been submitted for the Legal cost center allocation method changes (from Time and Effort to Time Study). Note the change in allocation method is not materially different in that both methods are calculating hours spent in support of programs/activities. The time study consists of the hours of the Attorneys in each cost center (the referenced 11 staff). The additional staff that were not part of the time study are the support staff (Paralegals and admins) to the Attorneys, whose hours would be indicative of the hours spent on projects and activities by the Attorneys. The approved PACAP had already stated that the Time and Effort reporting was from the Attorneys (for Legal Hearings cost center, they are referred to as “Hearing Officers”). Federal undercharges did occur and incorporating them into the finding changes it from an overcharge of $608,000 to a net Federal overcharge of $41,000. Regarding the IST Fiscal Projects Admin cost center, Agency agrees that method was outdated and agrees to the questioned cost. RMTS Allocations: Agency agrees. It should be noted that the Agency reassigned the cases due to having the knowledge that staff incorrectly selected the state-only response “Non-DHHS Activities”, which is used for staff members who are temporarily reassigned off their current caseworker role and are performing activity unrelated to any of the work covered under the RMTS system vs. the intended “General Administration” activity. Labor Hours Statistics: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Recipient Counts: Agency Agrees. Significant Federal undercharges also occurred and will be netted with the Federal overcharges. Other: Agency will continue to update the allocation of iServe in accordance with the most recent CMS approved Advanced Planning Documents. APA Response: While the APA acknowledges that some undercharges may have occurred, it would not be appropriate to net undercharges of one program with overcharges to another program.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 93.778 – Medical Assistance Program; AL 93.778 – COVID-19 Medical Assistance Program – Allowability Grant Number & Year: 2305NE5MAP, FFY 2023; 2405NE5MAP, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.302 (October 1, 2023), each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. Per 45 CFR § 75.403 (October 1, 2023), costs must be reasonable, necessary, and adequately documented. Title 471 NAC 15-003.02(H) requires that the provider perform the personal assistance services noted on the service plan, accurately document services provided in the EVV (Electronic Visit Verification) system, and confirm that services were received as authorized according to Agency procedures. Title 471 NAC 15-005.02(A) states that the provider can provide services to only one client at a time, and services will not be paid unless performed during the actual hours noted in the EVV system. Title 471 NAC 15-005.01(A) states that the provider will comply with all EVV billing requirements. Per the “Service Definition” provided in the Personal Care Service Handbook, “Personal Care is a service of the HCBS Waiver for Aged and Adults and Children with Disabilities (AD) and Traumatic Brain Injury (TBI) which provides needed assistance with Activities of Daily Living (ADLs) health-related tasks or Instrumental Activities of Daily Living (IADLs) provided in a participant’s home and other community settings.” A good internal control plan requires procedures to ensure services provided agree to the service needs assessment or individual support plan and service authorization. Section 1903(l)(5)(A) of the Social Security Act states the following: The term “electronic visit verification system” means, with respect to personal care services or home health care services, a system under which visits conducted as part of such services are electronically verified with respect to – (i) the type of service performed; (ii) the individual receiving the service; (iii) the date of the service; (iv) the location of service delivery; (v) the individual providing the service; and (vi) the time the service begins and ends. Public Law 114-255, § 12006 (December 13, 2016) (“21st Century Cures Act”) provides, as is relevant, the following: (a) In general. Section 1903 of the Social Security Act (42 U.S.C. 1396b) is amended by inserting after subsection (k) the following new subsection: “(l)(1) Subject to paragraphs (3) and (4), with respect to any amount expended for personal care services or home health care services requiring an in-home visit by a provider that are provided under a State plan under this title (or under a waiver of the plan) and furnished in a calendar quarter beginning on or after January 1, 2019 (or, in the case of home health care services, on or after January 1, 2023), unless a State requires the use of an electronic visit verification system for such services furnished in such quarter under the plan or such waiver, the Federal medical assistance percentage shall be reduced— ‘‘(A) in the case of personal care services— “(i) for calendar quarters in 2019 and 2020, by .25 percentage points; “(ii) for calendar quarters in 2021, by .5 percentage points; “(iii) for calendar quarters in 2022, by .75 percentage points; and “(iv) for calendar quarters in 2023 and each year thereafter, by 1 percentage point[.] Neb. Rev. Stat. § 28-512 (Reissue 2016) creates the offense of “theft by deception.” That statute says the following, in relevant part: A person commits theft if he obtains property of another by deception. A person deceives if he intentionally: (1) Creates or reinforces a false impression, including false impressions as to law, value, intention, or other state of mind; but deception as to a person’s intention to perform a promise shall not be inferred from the fact alone that he did not subsequently perform the promise; or (2) Prevents another from acquiring information which would affect his judgment of a transaction; or (3) Fails to correct a false impression which the deceiver previously created or reinforced, or which the deceiver knows to be influencing another to whom he stands in a fiduciary or confidential relationship[.] Further, Neb. Rev. Stat. § 28-911 (Reissue 2016) prohibits “abuse of public records,” as follows: (1) A person commits abuse of public records, if: (a) He knowingly makes a false entry in or falsely alters any public record; or (b) Knowing he lacks the authority to do so, he intentionally destroys, mutilates, conceals, removes, or impairs the availability of any public record; or (c) Knowing he lacks the authority to retain the record, he refuses to deliver up a public record in his possession upon proper request of any person lawfully entitled to receive such record; or (d) He makes, presents, or uses any record, document, or thing, knowing it to be false, and with the intention that it be taken as a genuine part of the public record. (2) As used in this section, the term public record includes all official books, papers, or records created, received, or used by or in any governmental office or agency. (3) Abuse of public records is a Class II misdemeanor. Condition: During testing of personal assistance service (PAS) and personal care service claims, we noted the following: • Services provided lacked adequate supporting documentation. This included providers being able to submit claims without the verification of the location where the services were provided. • Services billed exceeded the number of hours authorized. • PAS and personal care services appeared to be claimed at the same time the provider was working at another job or was no longer providing services for the client, resulting in apparently fraudulent billings and payments. • The caregivers for two clients were incarcerated at the time of service and could not have provided the services. • The PAS and other employment hours exceeded 24 hours in one day for one client, which is not possible. • The PAS and personal care providers had the ability to edit the billable start and end times in the EVV system. • The Agency authorized a PAS provider to perform services for three clients, totaling up to 85 hours a week, which is unreasonable. • A PAS provider did not declare all income earned when applying for assistance. Similar findings have been noted in prior audits since 2014. Repeat Finding: 2023-050 Questioned Costs: $98,008 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: The Agency offers PAS (assistance with hygiene mobility, housekeeping, etc.) to Medicaid recipients with disabilities and chronic conditions. The services to be provided are based on individual needs and criteria that must be determined in a written service needs assessment (SNA). The Agency also offers personal care services under the Aged and Disabled (AD) Waiver to recipients with disabilities. These services enable the participants to carry out tasks that they are unable to perform because of their disabilities. The services provided are based on individual needs and criteria that are documented in the individual support plan and service authorization. The Agency implemented an electronic visit verification (EVV) system for PAS and personal care providers in January 2021, as required by Section 12006(a) of the 21st Century CURES Act, passed by Congress in 2016. The EVV system electronically captured and verified provider visit information, and providers were required to submit claims to the Agency electronically through this application. We judgmentally selected four providers and a PAS/personal care agency based on high total dollars and units for testing and two PAS providers from the prior year audit with findings who received payments during fiscal year 2024. For those providers, we selected one week of claims for testing. We also randomly selected five PAS and ten waiver payments for testing. Due to the numerous issues identified with the billings, we expanded testing for several of the providers. In addition to the billing issues identified for the weeks tested, we noted three of these providers had outside employment that conflicted with the PAS hours billed. We also identified billings submitted for two employees who no longer worked for the PAS agency. We identified $5,640 in potentially fraudulent payments made to the providers during fiscal year 2024. In addition to the potentially fraudulent payments, we noted $92,368 in Federal payment errors related to other issues, resulting in total Federal questioned costs of $98,008. See Schedule of Findings and Questioned Costs for chart/table. The Federal share of PAS and AD Waiver claims paid for the fiscal year totaled $6,282,331 and $170,743,608, respectively. Payments tested and questioned costs for each are as follows: See Schedule of Findings and Questioned Costs for chart/table. The following information describes issues noted with each provider: Provider #1 Murray’s Blessings LLC (Murray’s Blessings) is an agency that employed caregivers to provide PAS and personal care assistance for multiple clients. Murray’s Blessings received $87,857 in PAS payments and $921,160 in personal care payments during the fiscal year, for a total of $1,009,017. We initially selected one week of claims to test, from April 28, 2024, through May 4, 2024, for all clients. Six clients received PAS and 16 clients received personal care services during this week. Services for 18 of 22 clients were not completed through a device using Global Positioning System (GPS) verification. The caregiver for five of the clients was unknown because the forms listed only “Murray’s Blessings Admin” as the caregiver, and there were mileage variances for visits that were completed using GPS devices. Due to the numerous issues identified with the initial week tested, we reviewed an additional seven weeks of PAS and personal care services for the period of May 5, 2024, through June 22, 2024. We identified similar issues. The following is a summary of the issues identified for the eight-week period. Client 1 No personal care visits from April 28, 2024, through May 18, 2024, used a device with GPS verification. According to payroll records provided by Murray’s Blessings, the caregiver (caregiver A) for this client received his last check on April 30, 2024. Additionally, county court records noted that the caregiver was arrested on April 29, 2024, for possession of a firearm by a prohibited person, terroristic threats, and use of a firearm to commit a felony. The caregiver was in custody during the entire time that services for Murray’s Blessings submitted billings were supposedly provided. All visits were questioned as potential fraud, as this caregiver could not have performed these services. Previously, the caregiver served time in a Nebraska prison for State drug offenses from June 2013 through May 2019. In June 2017, while serving time for these State offenses, the caregiver was charged with committing Federal offenses. The caregiver was found guilty and on July 2, 2018, was sentenced to seven years in Federal prison for participating in a racketeering conspiracy involving acts of violence, including attempted murder and assaults, witness tampering, and drug distribution. The sentence was later reduced to 71 months. The caregiver was no longer in Federal prison as of October 5, 2023. Client 2 No PAS visits completed from April 28, 2024, through June 22, 2024, used a device with GPS verification. According to payroll records provided by Murray’s Blessings, the caregiver (caregiver B) for this client received her final paycheck on April 23, 2024, prior to these visits. Additionally, county court records noted the caregiver was in jail from June 3, 2024, until June 5, 2024, and could not have provided the services billed on June 3, 2024. All visits were questioned as potential fraud because services do not appear to have been provided by this caregiver. An arrest warrant was issued for the caregiver on May 30, 2024, for delivery of a controlled substance. The warrant was served on June 3, 2024, at the jail. The caregiver was taken into custody on June 3, 2024, for a pretrial violation in another case filed on April 11, 2024, for possession of a controlled substance. Client 3 All of the personal care visits for this caregiver had starting and ending mileage variances. Based on the GPS coordinates, the visits started at either the caregiver’s home or the home of another client receiving personal care services from another agency. All visits ended at the caregiver’s home, raising doubt that the visits were provided as billed. Additionally, the client was authorized to receive 25 hours of service per week, and the provider exceeded the service authorization all eight weeks by 0.5 to 3.75 hours. Due to these variances, all claims were questioned. Client 4 The SNA authorized 31.5 PAS hours of services each week. The provider exceeded the SNA for seven of eight weeks, ranging from 2.5 to 38.25 hours over the authorization. Four visits were not completed through a device using GPS. For the remaining visits, GPS was utilized; however, there were mileage variances for each visit, and only one visit appears to have had an end location at the client’s home. The client in this case was the caregiver’s parent. The majority of the visits started and ended at the caregiver’s home per the captured GPS coordinates. Seven visits occurred overnight. Other beginning or ending locations included a daycare center attended by the caregiver’s child and also a plasma donation center. All claims for this client are questioned due to the various issues identified. Client 5 This client was authorized to receive 70 hours of personal care each week. There were two caregivers for this client. All visits completed by Antoinette Murray, the owner of Murray’s Blessings, were from 4:00 p.m. to 12:00 a.m., and GPS verification was not used. The second caregiver used GPS; however, there were mileage variances for each visit. Per the GPS coordinates, the caregiver clocked in at her home for all visits but one. The starting location for the other visit was a retirement home that was not where the client lived. The majority of the visits ended at the caregiver’s home or at the home of the caregiver’s parents. The caregivers exceeded the service authorization for six of eight weeks, ranging from 2 to 10 hours over the authorization. All claims were questioned due to these issues.   Client 6 The client was authorized to receive 60 hours of personal care services each week between two agencies. For Murray’s Blessings, seven visits were not completed using a GPS device, and they included a duplicate claim on June 22, 2024. Due to the duplicate billing, the service authorization was exceeded by 4.5 hours. Additionally, the second agency billed 10 hours on this day – for a total of 27.5 hours of care provided in a day, which is impossible. Client 7 Six visits were completed that did not use a GPS device and, therefore, are questioned. One visit completed with a GPS device had a start time of 2:57:00 p.m. to 2:57:58 p.m. The billable start time was changed to 9:00 a.m. The client was authorized for 42 personal care hours each week. The caregiver exceeded the service authorization by 4.25 hours for one week. Other Clients For 18 additional clients (13 personal care and 5 PAS), no visits over the eight-week period were completed through a device using GPS verification. All claims were questioned. Additional billing issues were identified for these claims, as follows: • The caregiver for six personal care clients and two PAS clients was noted as “Murray’s Blessings Admin” for all or some of the visits, so the caregiver remains unknown. • Overlapping and duplicate services were paid for three personal care clients, as detailed in the following table: See Schedule of Findings and Questioned Costs for chart/table. • The caregiver for one personal care client received family support services and supervised visitation for a child who was removed from the home. Four family support visits and one visitation service overlapped with services performed by the caregiver. All personal care visits were logged from 9:00 a.m. to 4:30 p.m., and the family support and visitation services started at 4:00 p.m. Consequently, overlapping services occurred from at least 4:00 p.m. to 4:30 p.m. The following table summarizes the questioned costs for each client during the eight-week period: See Schedule of Findings and Questioned Costs for chart/table. Per the Nebraska Secretary of State’s website (https://sos.nebraska.gov/), Murray’s Blessings was established on June 1, 2022. The agreement with the Agency for the provision of PAS and personal care services began on August 5, 2022. Prior to the establishment of Murray’s Blessings, Ms. Murray was an individual PAS provider, beginning on August 13, 2013. Ms. Murray was also a license-exempt child care subsidy provider from November 13, 2015, through November 1, 2017, when her agreement was terminated for not providing attendance calendars, not billing according to service authorizations, and double billing. A $6,468 overpayment was established on October 14, 2017, due to the billing issues. A $1,617 recoupment was applied toward the balance in December 2017, and Ms. Murray made two $50 payments towards the overpayment balance in March 2018. The Agency wrote off the remaining debt of $4,751 in May 2024. The child care subsidy program did not approve another agreement with Ms. Murray due to this overpayment and her subsequent failure to make full restitution. Given her history of billing problems, as well as a substantial overpayment, the Agency’s decision to approve a Medicaid agreement with Ms. Murray appears questionable. Nevertheless, the Agency did not require Ms. Murray to repay the overpayment balance prior to consideration of a new personal care agreement. It is evident, based on the PAS and personal care findings, that billing problems have continued. Further, on August 25, 2023, the Agency met with Ms. Murray to complete the annual Medicaid provider renewal. The worker explained to Ms. Murray that the caregivers must clock in and out using the EVV system. No changes occurred, however, as the majority of the Murray’s Blessings caregivers continued to neglect using, either intentionally or otherwise, a GPS device to clock in and out. Provider #2 This provider was authorized a total of 27.75 hours of service per week for one client. For the week tested of April 14, 2024, through April 20, 2024, the provider billed 148.25 hours of service. The provider exceeded the SNA by 120.5 hours, more than four times the number of hours authorized. During this week, the provider billed multiple 24-hour visits using the GPS verification method. The provider lived with the client, making it convenient to clock in the morning of one day and then clock out the next morning and then repeat the process with no GPS mileage variances. From January 28, 2024, through April 7, 2024, the provider exceeded the SNA for an additional 11 weeks, ranging from 17.75 to 91.25 hours over the SNA. Beginning on May 6, 2024, the SNA was increased to 37 hours of service per week, and the provider continued to exceed the SNA by 0.5 to 17.75 hours per week through June 22, 2024. Not only was the number of hours billed excessive and unreasonable, but also the provider was employed full-time with a financial technology company. We obtained the provider’s employment records and compared the PAS billings to those employment records for a three-month period from February 2024 through April 2024. The provider generally worked for the other employer from 8:00 a.m. to 4:30 p.m., Monday through Friday, which conflicted with the hours being billed for personal assistance services. We identified 55 days during which PAS hours billed overlapped with times that the provider was recorded as having been working for the other employer. Based on employment records, the provider appears to have worked remotely; however, PAS hours would not be allowed during the time the provider was working another job. We questioned 338.5 hours as potential fraud, totaling $4,577 (Federal share $2,682 and State share $1,895). Below are examples of the overlapping hours identified: See Schedule of Findings and Questioned Costs for chart/table. We noted that 11 of the PAS visits from February 2024 through April 2024 were not completed using a device with GPS verification, and 30 visits were billed overnight. Due to the apparent fraudulent billings, excessive hours, visits completed overnight, and some visits not being completed using a GPS device, we questioned all claims paid from February 2024 through April 2024. This resulted in additional questioned costs of $3,506. This individual became a PAS provider on August 17, 2023, and began the outside employment on October 30, 2023. The provider had three children noted in the household and was receiving Supplemental Nutrition Assistance Program (SNAP) and Medicaid benefits at the time the PAS agreement was signed. On January 30, 2024, the provider submitted a renewal application for SNAP and declared income from only the PAS payments and reported working only 2-3 hours per week. Subsequent to the audit period, the provider applied for child care benefits on August 14, 2024, and declared only the income from the outside employer. The provider told the Agency worker that the PAS employment ended on August 20, 2024; however, the provider continued to receive PAS payments. The provider was evidently not only overbilling PAS services but also being deceitful when applying for public assistance. Provider #3 For the initial week tested, the provider was authorized a total of 38.5 hours per week for one client. The provider exceeded the SNA by 10.25 hours for the week. Additionally, from June 2, 2024, through June 8, 2024, the provider did not follow the SNA when billing for tasks provided. The SNA included some services to be provided every day of the week, but services were billed on only five days. For example, the client was authorized for meal preparation assistance for seven days, but the provider performed services on only five days. We considered the hours charged for meal preparation on two days overbilled. We also noted the provider exceeded the frequency for some services authorized. For example, the client was authorized to shop for food once a week, but the provider billed this service on five days. Additionally, we noted the client attended county court on June 6, 2024, at 10:30 a.m., and the provider billed from 8:00 a.m. – 4:00 p.m. on that day. Per Title 471 NAC 15-004.02(B)(ii), accompanying the client to court is not an allowable service for PAS. Due to the issues noted for the initial week tested, we reviewed additional weeks. From July 1, 2023, through March 1, 2024, the provider performed PAS services for three individuals. In addition to the 38.5 hours authorized for the first client, the provider was authorized to provide PAS services for two clients who lived in the same home. The SNA authorized 26 hours and 21 hours of PAS services for these two clients for a total of 85.5 hours each week for the three clients. The provider billed over the SNA for an additional 25 weeks reviewed. There were 128.5 hours overbilled. We also questioned three visits that were not completed through a GPS device. This provider not only billed over the authorization, recording up to 95 PAS hours worked in a week, but also worked full-time for a rental management company. We obtained the employment records for the provider and compared the PAS billings to those records for a three-month period from October 22, 2023, through December 16, 2023. We identified 29 days during which PAS hours billed overlapped with times that the provider was recorded as having been working at the rental management company. In determining overlapping hours, we did not factor in any travel time that may have occurred between the client homes and the provider’s place of employment; therefore, the possibility of additional fraudulent payments exist. On several days, the PAS hours and employment hours exceeded 24 hours, which is impossible. We questioned 62.75 hours of personal assistance services as potential fraud, totaling $848 ($510 Federal Share and $338 State share). The majority of the visits were completed through a device using GPS; therefore, another individual appears to have aided the provider in falsely claiming that personal assistance services were performed, as the provider could not have been in two places at once. Based on case file documentation, the first client lived with the provider, and those evening hours billed for this client overlapped with the provider’s other employment hours. The table below contains examples of the overlapping of hours: See Schedule of Findings and Questioned Costs for chart/table. Other billing issues were identified as well. On several occasions, for instance, the provider changed the start and/or end times of the visit. The claim form in the EVV system included the scheduled start time, the actual service start time, and the billable service start time. The provider was allowed to edit the billable start and end times verified through a GPS device, which resulted in duplicate billings and overlapping times billed between clients. There were other instances of the provider changing the time, so that there would be no overlapping of times between clients and the provider’s outside employment. The ability to edit the billable start and stop times recorded in the EVV system, with no secondary review, places doubt on whether the service was performed as billed. Below are some examples: See Schedule of Findings and Questioned Costs for chart/table. It is unreasonable for the Agency to authorize a provider to perform services for three clients for up to 85 hours a week. With those hours alone, the provider would have to average more than 12 hours per day for 7 days a week. After adding in the hours worked at the outside employment, the provider would have been working over 20 hours a day. We noted also that the provider received Medicaid benefits during the fiscal year. The provider signed a Medicaid renewal application on September 14, 2023, and reported only the income at the rental management company. The provider did not disclose the income made through PAS, which averaged out to be $3,186 for both July and August 2023. PAS payments made to the provider during the fiscal year totaled $52,900. The Agency had access to this information, so it is questionable how this income was not discovered and included in determining Medicaid eligibility. Additional questioned costs for the provider totaled $1,126. Provider #4 The provider double billed a service on June 17, 2024. The visit form on June 17, 2024, had a clock-in time of 1:31 p.m. and a clock-out time of 6:48 a.m. on June 18, 2024. It appears that the provider may have forgotten to clock out. Upon crossing from one day to another, the visit generated two claim forms in the EVV system. The first claim had an end time of 11:59 p.m., and the second claim form had the start time of midnight or 24:00 on the next day. In this case, the provider changed the billable start and end times for both claims and was able to double bill 4.25 hours. See Schedule of Findings and Questioned Costs for chart/table. The provider was authorized 31 hours per week for one client. The provider exceeded the SNA by three hours for the week tested. Questioned costs totaled $33. Provider #5 This provider was authorized 26.25 hours per week for one client. The provider exceeded the SNA by 25 hours for the initial week tested from April 14, 2024, through April 20, 2024. This included billing 21.75 hours on April 16, 2024. For the week tested, the provider did not follow the SNA when billing for tasks provided. The SNA included some services to be provided every day of the week, but services were billed on only five days. For example, the client was authorized for assistance with medication administration three times a day for seven days, but the provider performed services on only five days. We also noted the provider exceeded the frequency for some services. For example, the client was authorized to have cleaning done once a week, but the provider billed this service on five days. We reviewed an additional eight weeks of claims and noted the provider billed over the SNA for an additional five weeks. Hours that exceeded the SNA ranged from 1.5 to 21 hours. Questioned costs for the provider totaled $452. Provider #6 This provider was authorized a total of 66.75 hours of service per week for two clients. For the week tested of May 12, 2024, through May 18, 2024, no visits were completed using a GPS device that captured the location of the visits. We questioned the entire claim, totaling $499. This provider was tested in the prior year with similar issues. Potential fraud was also identified, as the provider billed PAS hours that overlapped with her employment hours as a student bus driver and with other court-related activities. A law enforcement raid was conducted at the provider’s home on December 2, 2022, and her child was removed after Fentanyl and firearms were discovered there. The provider’s agreement closed on June 15, 2023; however, the Agency received a referral on January 17, 2024, for the provider to perform personal assistance services for a client, and a new provider agreement was signed on January 30, 2024. The Agency was notified of the prior year billing issues on January 22, 2024. The Agency established overpayments for PAS hours billed that exceeded the service authorization; however, no PAS overpayments were established for those hours billed that overlapped with other employment hours and court-related activities. The provider began providing services again on January 30, 2024, and, according to quarterly employment records, the provider was also employed as a student bus driver. We inquired with the Agency in July 2024 to determine what action had been taken against the provider, and we were informed that preparation was underway to terminate the provider. On September 3, 2024, the Agency sent a letter to the provider terminating her from participation as a Medicaid provider due to the billing issues identified from the prior year audit. The provider appealed the termination, and on November 27, 2024, the Agency received the final order from the hearing officer affirming the Agency’s actions, and the provider’s agreement was terminated as of November 27, 2024. We obtained the provider’s timecard records from the employer and compared the employment records to the EVV visit forms for the week of May 12, 2024, through May 18, 2024. We identified four days during the week in which PAS hours billed overlapped with times the provider was working as a student bus driver. In determining overlapping hours, we did not factor in any travel time that may have occurred between the clients’ homes and the provider’s place of employment. Additionally, we compared only one week of records; therefore, the possibility of additional fraudulent payments exists. We questioned seven hours of personal assistance services as potential fraud, totaling $95 ($56 Federal share and $39 State share). It is concerning that the Agency signed a new agreement with the provider on January 30, 2024, after the potential fraud was disclosed and after the Agency had established $2,062 in overpayments for billing hours over the SNA. It is unreasonable for the Agency to have allowed the provider to submit billings that did not comply with EVV guidelines in order for the provider to “pay back” the overpayments for previous billing errors. From January 30, 2024, through June 30, 2024, the provider was paid $13,317, and payments from July 1, 2024, through December 2, 2024 totaled $21,475. See Schedule of Findings and Questioned Costs for the remainder of the text to the audit finding.

Program: AL 93.778 – Medical Assistance Program – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Title 42 CFR § 447.253(b)(1)(i) (October 1, 2023) provides the following: The Medicaid agency pays for inpatient hospital services and long-term care facility services through the use of rates that are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards. According to 42 CFR § 447.253(g) (October 1, 2023), “The Medicaid agency must provide for periodic audits of the financial and statistical records of participating providers.” The Nebraska Medicaid State Plan, Attachment 4.19-D (Audits), says the following: The Department will perform at least one initial desk audit and may perform subsequent desk audits and/or a periodic field audit of each cost report. Selection of subsequent desk audits and field audits will be made as determined necessary by the Department to maintain the integrity of the Nebraska Medicaid. The Department may retain an outside independent public accounting firm, licensed to do business in Nebraska or the state where the financial records are maintained, to perform the audits. Audit reports must be completed on all field audits and desk audits. American Institute of Certified Public Accountants (AICPA) Professional Standards AU-C Section 520.07 states, “If analytical procedures performed in accordance with this section identify fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount, the auditor should investigate such differences by a. inquiring of management and obtaining appropriate audit evidence relevant to management’s responses and b. performing other audit procedures as necessary in the circumstances.” A good internal control plan requires desk audits to include a testing sample of expenses to supporting documentation. Condition: Desk audit procedures could be improved. A similar finding was noted in the prior audit. Repeat Finding: 2023-052 Questioned Costs: Unknown Statistical Sample: No Context: The APA selected 21 of 201 facilities to review desk audits of the fiscal year 2023 cost reports. Seven of 21 desk audits tested did not have adequate support to verify large variances. The contractor compared costs from the prior year to the current year and did request verbal explanations; however, appropriate audit evidence was not obtained to verify the explanations. For example: • For one facility, Total Nursing Services Direct Care Costs increased by 35% from $1,100,667 to $1,478,888. The facility explained that all employees received a cost-of-living increase of 5% and a yearly raise increase. The explanation was accepted with no support obtained. However, this does not satisfactorily explain a 35% increase in costs. • For another facility, Nursing Purchased Services – Direct Care increased by $1,961,780 (156%), and Total Nursing Direct Care Costs increased by $1,933,563 (57%). The provider explanation was that the increase in purchased services is supported by a corresponding net decrease in Direct Care nursing services. However, Direct Care nursing decreased by only $45,675. Also, Plant Costs salaries increased by $139,181 (62%), and the provider’s explanation for that increase was not supported. In neither example did the contractor obtain any underlying invoices to determine if the increased costs for supplies and services were accurate, nor any documentation to support that the number of direct staff had decreased. Additionally, looking at variances alone would not support that expenses are accurate and not misstated from year to year. The total Federal share of nursing facility expenditures during fiscal year 2024 was over $290 million. Cause: The contract does not require the accounting firm to obtain underlying support for expenses. Effect: When facilities do not have adequate desk audits performed, there is an increased risk for submitted cost reports to contain errors or fraud. Recommendation: We recommend the Agency ensure desk audits provide reasonable assurance that nursing facility cost reports are accurate. Management Response: Management agrees. In a previous audit finding of the FY2022 Cost Reports, it was determined that the Department should require more information for the Desk Review process. The Department started requiring nursing facilities to include the General Ledger reports along with the Cost Reports and additional documentation; however, by this time the FY2023 Cost Reports had already been completed – therefore, there was insufficient time between the prior finding and completion of the FY2023 cost reports to incorporate the Desk Review process change. Facilities were required to provide the General Ledger reports for the FY2024 Cost Report. Additionally, the Department intends to expand its testing for large variances and to obtain supporting materials from the facilities.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024; 2405NE5021, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per Title 42 CFR § 455.104(b)(4) (October 1, 2023), the State Medicaid Agency must require the disclosing entity to provide the following disclosures: The name, address, date of birth, and Social Security Number of any managing employee of the disclosing entity (or fiscal agent or managed care entity). Per 42 CFR § 455.101 (October 1, 2023): Managing employee means a general manager, business manager, administrator, director, or other individual who exercises operational or managerial control over, or who directly or indirectly conducts the day-to-day operation of an institution, organization, or agency[.] Per the Medicaid Provider Enrollment Compendium (MPEC) (3/22/21) Section 1.4.1C: There are not exceptions to the managing employee disclosure requirement. To the extent any individual meets the definition of “managing employee” under §455.101, their information is required to be disclosed. MPEC Section 1.4.1C states further the following: However, if a non-profit entity has managing employees, to the extent these individuals meet the definition of “managing employee” under § 455.101; they would have to be disclosed as such. In addition, as discussed further below, entities, including non-profit entities, that are organized as corporations must provide disclosures regarding their officers and directors . . . . If a corporation has, for instance, a Director of Finance who is not a member of the board of directors, he/she would not need to be disclosed as a director/board member. However, as discussed in section C., below, to the extent he/she meets the definition of “managing employee” under § 455.101; he/she would have to be disclosed as a “managing employee.” Per 42 CFR § 455.436 (October 1, 2023), the State Medicaid Agency must do the following: (a) Confirm the identity and determine the exclusion status of providers and any person with an ownership or control interest or who is an agent or managing employee of the provider through routine checks of Federal databases. (b) Check the Social Security Administration’s Death Master File, the National Plan and Provider Enumeration System (NPPES), the List of Excluded Individuals/Entities (LEIE), the Excluded Parties List System (EPLS), and any such other databases as the Secretary may prescribe. (c)(1) Consult appropriate databases to confirm identity upon enrollment and reenrollment; and (2) Check the LEIE and EPLS no less frequently than monthly. 45 CFR § 75.303(a) (October 1, 2023) requires the Agency to “[e]stablish 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.” Good internal control requires procedures to ensure that all required disclosures are provided. Condition: Four of 25 providers tested did not include disclosure requirements for managing employees. A similar finding was noted in the prior audit. Repeat Finding: 2023-053 Questioned Costs: Unknown Statistical Sample: No Context: We tested screening and enrollment for 25 Medicaid/CHIP providers. We noted four providers failed to disclose any managing employee. Therefore, no screenings for managing employees were performed for these four providers. Cause: The Agency relies on each provider’s disclosure to be complete, true, and accurate. The provider is allowed to complete the enrollment process even if an owner or managing employee is not disclosed. Effect: Without adequate procedures to ensure providers are screened, and disclosures are complete, there is an increased risk of provider ineligibility, which could result in unallowable costs or potential harm to patients. Recommendation: We recommend the Agency obtain disclosures and screen providers as required by Federal regulations. Management Response: Management agrees. Starting in January of 2024, the Department has received reports from Maximus that lists the agency, owner(s), and managing employee(s) that were listed in PDMS. On July 1, 2024, a ticket was deployed in the enrollment system that would require an owner (when applicable) and managing employee on the application to move forward with the enrollment. It was set to have a “hard stop” which would prevent enrollment without the required information in the enrollment/revalidation process if not completed. If a provider were to attempt to leave both owners and managing employees blank: a message will pop up that says “Ownership or control interest in the disclosing entity or in any subcontractor in which the disclosing entity has direct or indirect ownership of 5% or more is required when applicable. You are required to supply your managing employees.” If a provider lists managing employees but no owners: there is a notice that pops up saying “You have indicated there are no Owners of this provider entity associated with your enrollment, please verify this is correct before continuing.” They will keep the option to move forward with no owners. If they list owners but not a managing employee, the provider will receive the message “Managing Employees are required”. They can only cancel and remain on the page. They must supply a managing employee or cancel their enrollment/revalidation. If the provider supplies a minimum of one owner and one managing employee, they will not get an error or pop up and they will be able to continue. This ticket was deployed within the enrollment system on July 1, 2024. Not knowing the entities that did not have managing employees listed, we are unable to determine if they were providers that had not gone through their revalidation this year, or prior to the release of that ticket. However, no providers will have been able to complete the enrollment process without listing an owner and/or managing employee since July 1, 2024.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Special Tests and Provisions Grant Number & Year: All open, including 2405NE5MAP, FFY 2024; 2405NE5021, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 42 CFR § 438.3(m) (October 1, 2023): The contract must require MCOs [managed care organizations], PIHPs [prepaid inpatient health plans], and PAHPs [prepaid ambulatory health plans] to submit audited financial reports specific to the Medicaid contract on an annual basis. The audit must be conducted in accordance with generally accepted accounting principles and generally accepted auditing standards. A good internal control plan requires policies and procedures to ensure that mandatory financial audits are completed in accordance with Federal regulations. Condition: The MCO and PAHP audited financial reports for year ended December 31, 2023, were not conducted in accordance with generally accepted accounting principles (GAAP). A similar finding was noted in the prior audit. Repeat Finding: 2023-054 Questioned Costs: Unknown Statistical Sample: No Context: Nebraska Total Care, Inc., Community Care Health Plan of Nebraska, Inc., United Healthcare of the Midlands, Inc., and MCNA Insurance Company had audits performed in accordance with generally accepted auditing standards; however, the financial statements were not in accordance with GAAP. The financial statements for the MCOs were prepared using “accounting practices prescribed or permitted by the Nebraska Department of Insurance, which is a basis of accounting other than U.S. generally accepted accounting principles.” The PAHP audit was prepared using “accounting practices prescribed or permitted by the Texas Department of Insurance . . . .” The Department of Insurance has adopted the Statement of Statutory Accounting Principles (SSAP) found in the National Association of Insurance Commissioners’ (NAIC) manual. Cause: The MCO and PAHP audited financial reports were completed for the Nebraska Department of Insurance, which did not require the audit to be conducted in accordance with GAAP. Amendments to the contract effective January 1, 2024, now require the financial audits to be conducted in accordance with GAAP. Effect: When the financial audits completed by the MCOs and PAHP are not conducted according to GAAP, the Agency is not in compliance with Federal regulations, and there is an increased risk for fraud or errors. Recommendation: We recommend the Agency require the MCO and PAHP financial audits to be conducted in accordance with GAAP. Management Response: Management agrees. As part of a prior year finding, we amended MCO contracts to require GAAP (generally accepted accounting principles) Audits to be performed beginning with contract period CY24 forward.

Program: AL 93.778 – Medical Assistance Program – Special Tests and Provisions Grant Number & Year: 2405NE5MAP, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Title 42 CFR § 455.1 (October 1, 2023) sets forth requirements for a State fraud detection and investigation program, including a method to verify whether services reimbursed by Medicaid were actually furnished to beneficiaries. The Agency’s Program Integrity (PI) and Special Investigations Units (SIU) perform these functions. Per 42 CFR § 455.14 (October 1, 2023): If the agency receives a complaint of Medicaid fraud or abuse from any source or identifies any questionable practices, it must conduct a preliminary investigation to determine whether there is sufficient basis to warrant a full investigation. The Nebraska Medicaid State Plan, Section 4.5 (Medicaid Agency Fraud Detection and Investigation Program), states, “The Medicaid agency has established and will maintain methods, criteria and procedures that meet all requirements of 42 CFR 455.13 through 455.21 and 455.23 for prevention and control of program fraud and abuse.” Under PI’s Policies and Procedures: Full investigations • Each month, investigators will review their cases and use their professional judgment to determine the prioritization of their active cases. The following guidelines will be considered in this review: o The investigation of a provider for termination due to a finding on annual or monthly screening is a HIGH priority o Client health & safety influences the priority of a case o Definitive interpretation of regulations influences the priority of a case o Cases in the preliminary investigation phase are of a moderate priority PI’s Policies and Procedures also include the following under the Surveillance and Utilization Review Subsystem (SURS) Quarterly Sample Selection & Review Procedures: At the end of each calendar quarter, [a contractor] runs the Advantage Suite SURS reports . . . Effective with the reports received in January 2008, a minimum of three provider and three recipient cases will be opened from the SURS Ranking Reports sometime during the calendar quarter of January 1, 2008 – March 31, 2008 and for each quarter thereafter unless notified otherwise. Per Section V.O. (“Program Integrity”) of the contract between the State of Nebraska and each of the three Heritage Health Managed Care Organizations (MCOs): O.2. The MCO must pursue the recovery of overpayments identified as FWA after receiving permission from NMPI and reflect the recovery on the encounter record and other reports used for rate setting. In the event that the MCO does not pursue all recoveries, MLTC will pursue them and collect the money. A good internal control plan requires procedures to ensure that cases are reviewed, and adequately collected on, and appropriate dispositions are made in a timely manner. Title 42 CFR § 433.320(a)(1) (October 1, 2023) states the following: (1) The agency must refund the Federal share of overpayments that are subject to recovery to CMS through a credit on its Quarterly Statement of Expenditures (Form CMS-64). Title 45 CFR § 75.511(a) (October 1, 2023) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: For 2 of the 20 PI cases tested, there was a lack of documentation to support that the cases were being worked timely. Additionally, policies and procedures to identify potential cases are not being followed, and an overpayment was not properly reported. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings listed the status as completed. Repeat Finding: 2023-055 Questioned Costs: $23,120 known Statistical Sample: No Context: PI is tasked with, among other things, investigating cases of potential provider fraud in the Medicaid Program. Cases received are delegated to investigators who track their activity notes and documentation in one central Investigative Case Management system (ICM). Substantial cases with a large amount of money that may be due back will be referred to the Attorney General’s Medicaid Fraud and Patient Abuse Unit (MFPAU). In cases that are not referred and accepted by MFPAU, PI can sanction a provider, request a refund, provide education, and/or terminate the provider from the Medicaid Program. We tested 20 PI cases and noted the following: • One case opened in April 2023 was referred by a Managed Care Organization (MCO) for a provider potentially overbilling for Mental Health services and other “red flags,” including possible billing for therapy services provided to a household member, providing services through an unregistered business, not following proper diagnostic methods, and not complying with other required services through provider agreement with local Drug Court. The first investigator ran a background check on the provider and contacted the Nebraska Department of Labor, which stated there were no records of the provider using the social security number provided. That investigator left in October 2023, and the case was reassigned. The second investigator was contacted by the MCO in December 2023, requesting the provider to be removed from the network. From January 2024 to July 2024, the only updates on the case were notes indicating that the investigation was ongoing. The Agency could not provide support to show what the investigator had done in those six months to further the case. Communication was made to the other two MCOs in July 2024, requesting any additional information they may have on the provider. As of October 2024, at the time of field work, the case was still open, and the investigator was waiting for guidance on what to do next. • A case was referred to PI in November 2023 by a Managed Care Organization (MCO) for a provider potentially overbilling for medical services. The MCO’s investigative team found claims were not supported due to upcoding of the evaluation and management services, duplicate claims, and no records being provided for 69 claim lines. The MCO identified an overpayment, totaling $15,491, and requested approval to seek reimbursement. The MCO cannot seek reimbursement without State approval, as it could interfere with other investigations that may be occurring. From January 2024 to October 2024 (at the time of field work), the only actions taken on the case were background checks on the providers and searches for other businesses owned by the providers. We asked the Agency if any other documentation was available to show what actions had been taken on the case. The Agency indicated there was no other information on the case, and there is “no standard timing for requesting vetting information from the other two MCOs when a case originates with an MCO.” Furthermore, we noted that PI was not following current policies and procedures for identifying potential fraud, waste, and abuse. Its policies and procedures indicated it would review the statewide SURS report quarterly and “a minimum of three provider and three recipient cases will be opened from the SURS Ranking Reports.” Beginning January 2023, no cases were opened from the SURS report. This was noted in our prior audit, and the Agency indicated it would be updating its policies and procedures; however, this was not completed as of June 2024. The Agency noted during our current audit that the SURS reporting mechanism was not functioning as designed, so it will be searching for a replacement fraud abuse detection system and will use other methods to identify potential fraud, waste, and abuse. In addition, we noted one of four overpayments tested was not properly reported. • In November 2020, PI started a project to analyze the MCO for dental services for excessive reimbursements. The initial overpayment was calculated at $237,633; however, in July 2023, a settlement was reached between PI and the MCO for $52,308. It was noted in the case that this amount was all Federal dollars and should be returned as such. The refund was received in August 2023 and reported on the quarter ended September 30, 2023, CMS-64 report. However, the refund was reported as $23,120 State and $29,188 Federal funds. The $23,120 not included in the Federal portion is considered questioned costs. Cause: The Agency did not follow proper procedures, including supervisor reviews of cases, to ensure Medicaid cases were properly and timely worked. The PI unit is understaffed. Clerical error by Finance staff in reporting overpayment. Effect: When potential fraud cases are not adequately and timely pursued, there is an increased risk for misuse of funds and potential harm to individuals receiving services. Recommendation: We recommend the Agency strengthen procedures to ensure cases are properly and timely reviewed, and appropriate dispositions are made. We further recommend the Agency strengthen procedures to ensure overpayments are accurately reported. Management Response: Management partially agrees. For the two cases listed, these cases should have been worked in a timelier manner. For the reporting of cases using exception reporting, the reports developed by the Department’s contractor for Fraud Abuse Detection reporting were consistently found to be inaccurate. Program Integrity leadership found that the reports were presenting false positives for cases. During this time frame, the Program Integrity team was addressing cases identified through the previous findings related to EVV and was working on other ways to identify providers that were different from their peers. APA Response: No cases were opened from the exception reports, and the Agency did not have alternate policies in place during the fiscal year.

Program: AL 93.778 – Medical Assistance Program; AL 93.767 – Children’s Health Insurance Program (CHIP) – Allowability & Eligibility Grant Number & Year: 2305NE5MAP, FFY 2023; 2405NE5MAP, FFY 2024; 2305NE3002, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 42 CFR § 435.1009(a) (October 1, 2023) states, in part, the following: FFP is not available in expenditures for services provided to— (1) Individuals who are inmates of public institutions as defined in § 435.1010[.] Per NE DHHS Medicaid Eligibility 477-000-002 (03/07/2023): A redetermination of eligibility for continued Medicaid benefits must be completed every twelve (12) months. * * * * The completed renewal form and necessary verifications shall be returned within thirty (30) days of the date the renewal form was sent. 477 Nebraska Administrative Code (NAC) 19.004(E) states the following: Children age 18 or younger who do not meet income limits for Medicaid are eligible for Children’s Health Insurance Program (CHIP) if their household income is equal to or less than 213% of the Federal Poverty Level (FPL) and the children are not covered by creditable health insurance[.] 477 NAC 3-007.01 states, in part, “The completed renewal form and necessary verifications shall be returned within 30 days of the date the renewal form was sent.” 482 NAC 1-002.36 (July 29, 2020) defines a Managed Care Organization (MCO) as an “organization that has or is seeking to qualify for a comprehensive risk contract to provide services to managed care enrollees.” 42 CFR § 438.806(c) (October 1, 2023) states, in part, “FFP is not available in an MCO contract that does not have prior approval from CMS . . . .” 42 CFR § 438.3(a) (October 1, 2023) states, in part, “CMS must review and approve all MCO, PIHP, and PAHP contracts, including those risk and nonrisk contracts . . . .” 42 CFR § 438.4(b) (October 1, 2023) requires, “Capitation rates for MCOs, PIHPs, and PAHPs must be reviewed and approved by CMS as actuarially sound.” Good internal control requires policies and procedures to ensure that recipients meet eligibility requirements, and reviews are completed in accordance with State and Federal regulations. Good internal control also requires contracts and rates to be approved before implemented. Condition: Managed care capitation rates were implemented prior to Federal approval. In addition, procedures should be improved to ensure payments for managed care are allowable, and recipients are eligible. Repeat Finding: No Questioned Costs: $10,777 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 40 Medicaid managed care claims and 25 CHIP managed care claims. We noted the following: Unapproved Rates Managed care claims tested for April 2024 services used calendar year 2024 contract rates prior to the required Federal approval. Upon further review, it was noted that all payments for services starting with January 2024 were made using the unapproved 2024 rates. Per support from the Agency, certified actuarial letters dated September 29, 2023, and other documentation required to be submitted to CMS for approval was submitted in an email dated December 21, 2023, 10 days prior to the beginning effective date of the MCO contracts and 83 days after actuarial rates were certified. Managed Care payments from January 2024 through June 2024 using unapproved rates totaled $1.29 billion. See Schedule of Findings and Questioned Costs for chart/table. Medicaid Three of 40 claims tested were not in compliance with regulations. • Payments were made for an incarcerated individual. A review and determination of eligibility did not occur for the Medicaid recipient, and no verifications were collected for over a 12-month period between January 2023 and April 2024. This was evidently because the recipient of the Medicaid benefits was incarcerated between January 4, 2023, and March 28, 2024, during which time no verification of household composition and living situation was verified. As a result, we question $625 for the payment tested and $8,276 for additional payments during the period of incarceration. • NFOCUS narratives showed that a renewal form was requested to be completed by the recipient on January 12, 2023; however, due to the State of Emergency declaration, the verifications and form requested due date was extended to February 11, 2024. The recipient failed to provide the renewal form or the verifications requested by the due date. The case should have been closed 30 days (March 12, 2024) after the renewal forms and verification were due, which would have been prior to the budget date of April 1, 2024. The case was not closed until June 4, 2024, resulting in questioned costs of $396 for the payment tested and additional questioned costs of $791 for May and June 2024. • One case was reviewed on July 31, 2020, and not again until September 9, 2023. This is over three years between reviews, and no redetermination of eligibility occurred in the Medicaid Program. Federal payment errors noted in the sample were $1,021. The Federal sample tested was $18,816, and the total Federal Managed Care expenditures during the fiscal year were $1,766,039,418. Based on the sample tested, the case error rate was 7.50% (3/40). The dollar error rate was 5.43% ($1,021/$18,816), which projects the potential dollars at risk for fiscal year 2024 to be $95,895,940 (dollar error rate multiplied by population). Out- of-sample questioned costs totaled $9,067. CHIP For 1 of 25 claims tested, the recipient did not meet age requirements to be eligible for the CHIP program, and the incorrect rating region was used for capitation payment rates. Additionally, Medicaid renewal/verification processes were not followed. The budget used for the Medicaid recipient was created in March 2021, when the recipient was 18 or younger. This budget was extended through June 2024 due to the State of Emergency. A renewal notice was sent to the recipient on April 10, 2024, and an incomplete renewal form was received on July 15, 2024. The case should have been closed 30 days (May 10, 2024) after the renewal forms and verification were due. Had the renewal and redetermination occurred, the recipient would have been ineligible for the CHIP program due to the recipient being over 18 years of age. However, capitation payments were made in June, July, and August 2024, for a total of $670 Federal questioned costs outside of the sample. Because of the lack of renewal verifications, the address information for the recipient was for Region 2, even though the recipient’s address information had been updated to Region 1. This resulted in a Federal overpayment of $20. Federal payment errors noted in the sample were $20. The Federal sample tested was $4,282, and the total Federal managed care expenditures during the fiscal year were $97,464,908. Based on the sample tested, the case error rate was 4% (1/25). The dollar error rate was 0.47% ($20/$4,282), which projects the potential dollars at risk for fiscal year 2024 to be $458,085 (dollar error rate multiplied by population). Out-of-sample questioned costs totaled $670. Cause: The Agency indicated that the 2024 rates were paid prior to approval, as the contract had substantive changes, and the Agency believed using the 2024 rates would result in smaller adjustments than if the 2023 rates were used. Claim errors due to inadequate review. Effect: Noncompliance with Federal regulations and increased risk for fraud or errors. Recommendation: We recommend the Agency implement MCO contracts and rate changes only after approval from the Federal grantor. We further recommend the Agency strengthen procedures to ensure recipients are eligible, and payments are proper. Management Response: Management agrees. As noted, due to significant program changes at the start of the reprocured managed care contracts January 1, 2024, such as carving in dental services, the Department made a calculated decision to pay the actuarily developed capitation rates for rate cells, prior to receiving approval from CMS. The Department otherwise follows our standard process of waiting for CMS approval prior to paying updated rates for subsequent rating periods.

Program: AL 93.778 – Medical Assistance Program; AL 93.778 – COVID-19 Medical Assistance Program – Allowability Grant Number & Year: 2305NE5MAP, FFY 2023; 2405NE5MAP, FFY 2024 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Per 45 CFR § 75.302 (October 1, 2023), each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state’s own funds. Per 45 CFR § 75.403 (October 1, 2023), costs must be reasonable, necessary, and adequately documented. Title 471 NAC 15-003.02(H) requires that the provider perform the personal assistance services noted on the service plan, accurately document services provided in the EVV (Electronic Visit Verification) system, and confirm that services were received as authorized according to Agency procedures. Title 471 NAC 15-005.02(A) states that the provider can provide services to only one client at a time, and services will not be paid unless performed during the actual hours noted in the EVV system. Title 471 NAC 15-005.01(A) states that the provider will comply with all EVV billing requirements. Per the “Service Definition” provided in the Personal Care Service Handbook, “Personal Care is a service of the HCBS Waiver for Aged and Adults and Children with Disabilities (AD) and Traumatic Brain Injury (TBI) which provides needed assistance with Activities of Daily Living (ADLs) health-related tasks or Instrumental Activities of Daily Living (IADLs) provided in a participant’s home and other community settings.” A good internal control plan requires procedures to ensure services provided agree to the service needs assessment or individual support plan and service authorization. Section 1903(l)(5)(A) of the Social Security Act states the following: The term “electronic visit verification system” means, with respect to personal care services or home health care services, a system under which visits conducted as part of such services are electronically verified with respect to – (i) the type of service performed; (ii) the individual receiving the service; (iii) the date of the service; (iv) the location of service delivery; (v) the individual providing the service; and (vi) the time the service begins and ends. Public Law 114-255, § 12006 (December 13, 2016) (“21st Century Cures Act”) provides, as is relevant, the following: (a) In general. Section 1903 of the Social Security Act (42 U.S.C. 1396b) is amended by inserting after subsection (k) the following new subsection: “(l)(1) Subject to paragraphs (3) and (4), with respect to any amount expended for personal care services or home health care services requiring an in-home visit by a provider that are provided under a State plan under this title (or under a waiver of the plan) and furnished in a calendar quarter beginning on or after January 1, 2019 (or, in the case of home health care services, on or after January 1, 2023), unless a State requires the use of an electronic visit verification system for such services furnished in such quarter under the plan or such waiver, the Federal medical assistance percentage shall be reduced— ‘‘(A) in the case of personal care services— “(i) for calendar quarters in 2019 and 2020, by .25 percentage points; “(ii) for calendar quarters in 2021, by .5 percentage points; “(iii) for calendar quarters in 2022, by .75 percentage points; and “(iv) for calendar quarters in 2023 and each year thereafter, by 1 percentage point[.] Neb. Rev. Stat. § 28-512 (Reissue 2016) creates the offense of “theft by deception.” That statute says the following, in relevant part: A person commits theft if he obtains property of another by deception. A person deceives if he intentionally: (1) Creates or reinforces a false impression, including false impressions as to law, value, intention, or other state of mind; but deception as to a person’s intention to perform a promise shall not be inferred from the fact alone that he did not subsequently perform the promise; or (2) Prevents another from acquiring information which would affect his judgment of a transaction; or (3) Fails to correct a false impression which the deceiver previously created or reinforced, or which the deceiver knows to be influencing another to whom he stands in a fiduciary or confidential relationship[.] Further, Neb. Rev. Stat. § 28-911 (Reissue 2016) prohibits “abuse of public records,” as follows: (1) A person commits abuse of public records, if: (a) He knowingly makes a false entry in or falsely alters any public record; or (b) Knowing he lacks the authority to do so, he intentionally destroys, mutilates, conceals, removes, or impairs the availability of any public record; or (c) Knowing he lacks the authority to retain the record, he refuses to deliver up a public record in his possession upon proper request of any person lawfully entitled to receive such record; or (d) He makes, presents, or uses any record, document, or thing, knowing it to be false, and with the intention that it be taken as a genuine part of the public record. (2) As used in this section, the term public record includes all official books, papers, or records created, received, or used by or in any governmental office or agency. (3) Abuse of public records is a Class II misdemeanor. Condition: During testing of personal assistance service (PAS) and personal care service claims, we noted the following: • Services provided lacked adequate supporting documentation. This included providers being able to submit claims without the verification of the location where the services were provided. • Services billed exceeded the number of hours authorized. • PAS and personal care services appeared to be claimed at the same time the provider was working at another job or was no longer providing services for the client, resulting in apparently fraudulent billings and payments. • The caregivers for two clients were incarcerated at the time of service and could not have provided the services. • The PAS and other employment hours exceeded 24 hours in one day for one client, which is not possible. • The PAS and personal care providers had the ability to edit the billable start and end times in the EVV system. • The Agency authorized a PAS provider to perform services for three clients, totaling up to 85 hours a week, which is unreasonable. • A PAS provider did not declare all income earned when applying for assistance. Similar findings have been noted in prior audits since 2014. Repeat Finding: 2023-050 Questioned Costs: $98,008 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: The Agency offers PAS (assistance with hygiene mobility, housekeeping, etc.) to Medicaid recipients with disabilities and chronic conditions. The services to be provided are based on individual needs and criteria that must be determined in a written service needs assessment (SNA). The Agency also offers personal care services under the Aged and Disabled (AD) Waiver to recipients with disabilities. These services enable the participants to carry out tasks that they are unable to perform because of their disabilities. The services provided are based on individual needs and criteria that are documented in the individual support plan and service authorization. The Agency implemented an electronic visit verification (EVV) system for PAS and personal care providers in January 2021, as required by Section 12006(a) of the 21st Century CURES Act, passed by Congress in 2016. The EVV system electronically captured and verified provider visit information, and providers were required to submit claims to the Agency electronically through this application. We judgmentally selected four providers and a PAS/personal care agency based on high total dollars and units for testing and two PAS providers from the prior year audit with findings who received payments during fiscal year 2024. For those providers, we selected one week of claims for testing. We also randomly selected five PAS and ten waiver payments for testing. Due to the numerous issues identified with the billings, we expanded testing for several of the providers. In addition to the billing issues identified for the weeks tested, we noted three of these providers had outside employment that conflicted with the PAS hours billed. We also identified billings submitted for two employees who no longer worked for the PAS agency. We identified $5,640 in potentially fraudulent payments made to the providers during fiscal year 2024. In addition to the potentially fraudulent payments, we noted $92,368 in Federal payment errors related to other issues, resulting in total Federal questioned costs of $98,008. See Schedule of Findings and Questioned Costs for chart/table. The Federal share of PAS and AD Waiver claims paid for the fiscal year totaled $6,282,331 and $170,743,608, respectively. Payments tested and questioned costs for each are as follows: See Schedule of Findings and Questioned Costs for chart/table. The following information describes issues noted with each provider: Provider #1 Murray’s Blessings LLC (Murray’s Blessings) is an agency that employed caregivers to provide PAS and personal care assistance for multiple clients. Murray’s Blessings received $87,857 in PAS payments and $921,160 in personal care payments during the fiscal year, for a total of $1,009,017. We initially selected one week of claims to test, from April 28, 2024, through May 4, 2024, for all clients. Six clients received PAS and 16 clients received personal care services during this week. Services for 18 of 22 clients were not completed through a device using Global Positioning System (GPS) verification. The caregiver for five of the clients was unknown because the forms listed only “Murray’s Blessings Admin” as the caregiver, and there were mileage variances for visits that were completed using GPS devices. Due to the numerous issues identified with the initial week tested, we reviewed an additional seven weeks of PAS and personal care services for the period of May 5, 2024, through June 22, 2024. We identified similar issues. The following is a summary of the issues identified for the eight-week period. Client 1 No personal care visits from April 28, 2024, through May 18, 2024, used a device with GPS verification. According to payroll records provided by Murray’s Blessings, the caregiver (caregiver A) for this client received his last check on April 30, 2024. Additionally, county court records noted that the caregiver was arrested on April 29, 2024, for possession of a firearm by a prohibited person, terroristic threats, and use of a firearm to commit a felony. The caregiver was in custody during the entire time that services for Murray’s Blessings submitted billings were supposedly provided. All visits were questioned as potential fraud, as this caregiver could not have performed these services. Previously, the caregiver served time in a Nebraska prison for State drug offenses from June 2013 through May 2019. In June 2017, while serving time for these State offenses, the caregiver was charged with committing Federal offenses. The caregiver was found guilty and on July 2, 2018, was sentenced to seven years in Federal prison for participating in a racketeering conspiracy involving acts of violence, including attempted murder and assaults, witness tampering, and drug distribution. The sentence was later reduced to 71 months. The caregiver was no longer in Federal prison as of October 5, 2023. Client 2 No PAS visits completed from April 28, 2024, through June 22, 2024, used a device with GPS verification. According to payroll records provided by Murray’s Blessings, the caregiver (caregiver B) for this client received her final paycheck on April 23, 2024, prior to these visits. Additionally, county court records noted the caregiver was in jail from June 3, 2024, until June 5, 2024, and could not have provided the services billed on June 3, 2024. All visits were questioned as potential fraud because services do not appear to have been provided by this caregiver. An arrest warrant was issued for the caregiver on May 30, 2024, for delivery of a controlled substance. The warrant was served on June 3, 2024, at the jail. The caregiver was taken into custody on June 3, 2024, for a pretrial violation in another case filed on April 11, 2024, for possession of a controlled substance. Client 3 All of the personal care visits for this caregiver had starting and ending mileage variances. Based on the GPS coordinates, the visits started at either the caregiver’s home or the home of another client receiving personal care services from another agency. All visits ended at the caregiver’s home, raising doubt that the visits were provided as billed. Additionally, the client was authorized to receive 25 hours of service per week, and the provider exceeded the service authorization all eight weeks by 0.5 to 3.75 hours. Due to these variances, all claims were questioned. Client 4 The SNA authorized 31.5 PAS hours of services each week. The provider exceeded the SNA for seven of eight weeks, ranging from 2.5 to 38.25 hours over the authorization. Four visits were not completed through a device using GPS. For the remaining visits, GPS was utilized; however, there were mileage variances for each visit, and only one visit appears to have had an end location at the client’s home. The client in this case was the caregiver’s parent. The majority of the visits started and ended at the caregiver’s home per the captured GPS coordinates. Seven visits occurred overnight. Other beginning or ending locations included a daycare center attended by the caregiver’s child and also a plasma donation center. All claims for this client are questioned due to the various issues identified. Client 5 This client was authorized to receive 70 hours of personal care each week. There were two caregivers for this client. All visits completed by Antoinette Murray, the owner of Murray’s Blessings, were from 4:00 p.m. to 12:00 a.m., and GPS verification was not used. The second caregiver used GPS; however, there were mileage variances for each visit. Per the GPS coordinates, the caregiver clocked in at her home for all visits but one. The starting location for the other visit was a retirement home that was not where the client lived. The majority of the visits ended at the caregiver’s home or at the home of the caregiver’s parents. The caregivers exceeded the service authorization for six of eight weeks, ranging from 2 to 10 hours over the authorization. All claims were questioned due to these issues.   Client 6 The client was authorized to receive 60 hours of personal care services each week between two agencies. For Murray’s Blessings, seven visits were not completed using a GPS device, and they included a duplicate claim on June 22, 2024. Due to the duplicate billing, the service authorization was exceeded by 4.5 hours. Additionally, the second agency billed 10 hours on this day – for a total of 27.5 hours of care provided in a day, which is impossible. Client 7 Six visits were completed that did not use a GPS device and, therefore, are questioned. One visit completed with a GPS device had a start time of 2:57:00 p.m. to 2:57:58 p.m. The billable start time was changed to 9:00 a.m. The client was authorized for 42 personal care hours each week. The caregiver exceeded the service authorization by 4.25 hours for one week. Other Clients For 18 additional clients (13 personal care and 5 PAS), no visits over the eight-week period were completed through a device using GPS verification. All claims were questioned. Additional billing issues were identified for these claims, as follows: • The caregiver for six personal care clients and two PAS clients was noted as “Murray’s Blessings Admin” for all or some of the visits, so the caregiver remains unknown. • Overlapping and duplicate services were paid for three personal care clients, as detailed in the following table: See Schedule of Findings and Questioned Costs for chart/table. • The caregiver for one personal care client received family support services and supervised visitation for a child who was removed from the home. Four family support visits and one visitation service overlapped with services performed by the caregiver. All personal care visits were logged from 9:00 a.m. to 4:30 p.m., and the family support and visitation services started at 4:00 p.m. Consequently, overlapping services occurred from at least 4:00 p.m. to 4:30 p.m. The following table summarizes the questioned costs for each client during the eight-week period: See Schedule of Findings and Questioned Costs for chart/table. Per the Nebraska Secretary of State’s website (https://sos.nebraska.gov/), Murray’s Blessings was established on June 1, 2022. The agreement with the Agency for the provision of PAS and personal care services began on August 5, 2022. Prior to the establishment of Murray’s Blessings, Ms. Murray was an individual PAS provider, beginning on August 13, 2013. Ms. Murray was also a license-exempt child care subsidy provider from November 13, 2015, through November 1, 2017, when her agreement was terminated for not providing attendance calendars, not billing according to service authorizations, and double billing. A $6,468 overpayment was established on October 14, 2017, due to the billing issues. A $1,617 recoupment was applied toward the balance in December 2017, and Ms. Murray made two $50 payments towards the overpayment balance in March 2018. The Agency wrote off the remaining debt of $4,751 in May 2024. The child care subsidy program did not approve another agreement with Ms. Murray due to this overpayment and her subsequent failure to make full restitution. Given her history of billing problems, as well as a substantial overpayment, the Agency’s decision to approve a Medicaid agreement with Ms. Murray appears questionable. Nevertheless, the Agency did not require Ms. Murray to repay the overpayment balance prior to consideration of a new personal care agreement. It is evident, based on the PAS and personal care findings, that billing problems have continued. Further, on August 25, 2023, the Agency met with Ms. Murray to complete the annual Medicaid provider renewal. The worker explained to Ms. Murray that the caregivers must clock in and out using the EVV system. No changes occurred, however, as the majority of the Murray’s Blessings caregivers continued to neglect using, either intentionally or otherwise, a GPS device to clock in and out. Provider #2 This provider was authorized a total of 27.75 hours of service per week for one client. For the week tested of April 14, 2024, through April 20, 2024, the provider billed 148.25 hours of service. The provider exceeded the SNA by 120.5 hours, more than four times the number of hours authorized. During this week, the provider billed multiple 24-hour visits using the GPS verification method. The provider lived with the client, making it convenient to clock in the morning of one day and then clock out the next morning and then repeat the process with no GPS mileage variances. From January 28, 2024, through April 7, 2024, the provider exceeded the SNA for an additional 11 weeks, ranging from 17.75 to 91.25 hours over the SNA. Beginning on May 6, 2024, the SNA was increased to 37 hours of service per week, and the provider continued to exceed the SNA by 0.5 to 17.75 hours per week through June 22, 2024. Not only was the number of hours billed excessive and unreasonable, but also the provider was employed full-time with a financial technology company. We obtained the provider’s employment records and compared the PAS billings to those employment records for a three-month period from February 2024 through April 2024. The provider generally worked for the other employer from 8:00 a.m. to 4:30 p.m., Monday through Friday, which conflicted with the hours being billed for personal assistance services. We identified 55 days during which PAS hours billed overlapped with times that the provider was recorded as having been working for the other employer. Based on employment records, the provider appears to have worked remotely; however, PAS hours would not be allowed during the time the provider was working another job. We questioned 338.5 hours as potential fraud, totaling $4,577 (Federal share $2,682 and State share $1,895). Below are examples of the overlapping hours identified: See Schedule of Findings and Questioned Costs for chart/table. We noted that 11 of the PAS visits from February 2024 through April 2024 were not completed using a device with GPS verification, and 30 visits were billed overnight. Due to the apparent fraudulent billings, excessive hours, visits completed overnight, and some visits not being completed using a GPS device, we questioned all claims paid from February 2024 through April 2024. This resulted in additional questioned costs of $3,506. This individual became a PAS provider on August 17, 2023, and began the outside employment on October 30, 2023. The provider had three children noted in the household and was receiving Supplemental Nutrition Assistance Program (SNAP) and Medicaid benefits at the time the PAS agreement was signed. On January 30, 2024, the provider submitted a renewal application for SNAP and declared income from only the PAS payments and reported working only 2-3 hours per week. Subsequent to the audit period, the provider applied for child care benefits on August 14, 2024, and declared only the income from the outside employer. The provider told the Agency worker that the PAS employment ended on August 20, 2024; however, the provider continued to receive PAS payments. The provider was evidently not only overbilling PAS services but also being deceitful when applying for public assistance. Provider #3 For the initial week tested, the provider was authorized a total of 38.5 hours per week for one client. The provider exceeded the SNA by 10.25 hours for the week. Additionally, from June 2, 2024, through June 8, 2024, the provider did not follow the SNA when billing for tasks provided. The SNA included some services to be provided every day of the week, but services were billed on only five days. For example, the client was authorized for meal preparation assistance for seven days, but the provider performed services on only five days. We considered the hours charged for meal preparation on two days overbilled. We also noted the provider exceeded the frequency for some services authorized. For example, the client was authorized to shop for food once a week, but the provider billed this service on five days. Additionally, we noted the client attended county court on June 6, 2024, at 10:30 a.m., and the provider billed from 8:00 a.m. – 4:00 p.m. on that day. Per Title 471 NAC 15-004.02(B)(ii), accompanying the client to court is not an allowable service for PAS. Due to the issues noted for the initial week tested, we reviewed additional weeks. From July 1, 2023, through March 1, 2024, the provider performed PAS services for three individuals. In addition to the 38.5 hours authorized for the first client, the provider was authorized to provide PAS services for two clients who lived in the same home. The SNA authorized 26 hours and 21 hours of PAS services for these two clients for a total of 85.5 hours each week for the three clients. The provider billed over the SNA for an additional 25 weeks reviewed. There were 128.5 hours overbilled. We also questioned three visits that were not completed through a GPS device. This provider not only billed over the authorization, recording up to 95 PAS hours worked in a week, but also worked full-time for a rental management company. We obtained the employment records for the provider and compared the PAS billings to those records for a three-month period from October 22, 2023, through December 16, 2023. We identified 29 days during which PAS hours billed overlapped with times that the provider was recorded as having been working at the rental management company. In determining overlapping hours, we did not factor in any travel time that may have occurred between the client homes and the provider’s place of employment; therefore, the possibility of additional fraudulent payments exist. On several days, the PAS hours and employment hours exceeded 24 hours, which is impossible. We questioned 62.75 hours of personal assistance services as potential fraud, totaling $848 ($510 Federal Share and $338 State share). The majority of the visits were completed through a device using GPS; therefore, another individual appears to have aided the provider in falsely claiming that personal assistance services were performed, as the provider could not have been in two places at once. Based on case file documentation, the first client lived with the provider, and those evening hours billed for this client overlapped with the provider’s other employment hours. The table below contains examples of the overlapping of hours: See Schedule of Findings and Questioned Costs for chart/table. Other billing issues were identified as well. On several occasions, for instance, the provider changed the start and/or end times of the visit. The claim form in the EVV system included the scheduled start time, the actual service start time, and the billable service start time. The provider was allowed to edit the billable start and end times verified through a GPS device, which resulted in duplicate billings and overlapping times billed between clients. There were other instances of the provider changing the time, so that there would be no overlapping of times between clients and the provider’s outside employment. The ability to edit the billable start and stop times recorded in the EVV system, with no secondary review, places doubt on whether the service was performed as billed. Below are some examples: See Schedule of Findings and Questioned Costs for chart/table. It is unreasonable for the Agency to authorize a provider to perform services for three clients for up to 85 hours a week. With those hours alone, the provider would have to average more than 12 hours per day for 7 days a week. After adding in the hours worked at the outside employment, the provider would have been working over 20 hours a day. We noted also that the provider received Medicaid benefits during the fiscal year. The provider signed a Medicaid renewal application on September 14, 2023, and reported only the income at the rental management company. The provider did not disclose the income made through PAS, which averaged out to be $3,186 for both July and August 2023. PAS payments made to the provider during the fiscal year totaled $52,900. The Agency had access to this information, so it is questionable how this income was not discovered and included in determining Medicaid eligibility. Additional questioned costs for the provider totaled $1,126. Provider #4 The provider double billed a service on June 17, 2024. The visit form on June 17, 2024, had a clock-in time of 1:31 p.m. and a clock-out time of 6:48 a.m. on June 18, 2024. It appears that the provider may have forgotten to clock out. Upon crossing from one day to another, the visit generated two claim forms in the EVV system. The first claim had an end time of 11:59 p.m., and the second claim form had the start time of midnight or 24:00 on the next day. In this case, the provider changed the billable start and end times for both claims and was able to double bill 4.25 hours. See Schedule of Findings and Questioned Costs for chart/table. The provider was authorized 31 hours per week for one client. The provider exceeded the SNA by three hours for the week tested. Questioned costs totaled $33. Provider #5 This provider was authorized 26.25 hours per week for one client. The provider exceeded the SNA by 25 hours for the initial week tested from April 14, 2024, through April 20, 2024. This included billing 21.75 hours on April 16, 2024. For the week tested, the provider did not follow the SNA when billing for tasks provided. The SNA included some services to be provided every day of the week, but services were billed on only five days. For example, the client was authorized for assistance with medication administration three times a day for seven days, but the provider performed services on only five days. We also noted the provider exceeded the frequency for some services. For example, the client was authorized to have cleaning done once a week, but the provider billed this service on five days. We reviewed an additional eight weeks of claims and noted the provider billed over the SNA for an additional five weeks. Hours that exceeded the SNA ranged from 1.5 to 21 hours. Questioned costs for the provider totaled $452. Provider #6 This provider was authorized a total of 66.75 hours of service per week for two clients. For the week tested of May 12, 2024, through May 18, 2024, no visits were completed using a GPS device that captured the location of the visits. We questioned the entire claim, totaling $499. This provider was tested in the prior year with similar issues. Potential fraud was also identified, as the provider billed PAS hours that overlapped with her employment hours as a student bus driver and with other court-related activities. A law enforcement raid was conducted at the provider’s home on December 2, 2022, and her child was removed after Fentanyl and firearms were discovered there. The provider’s agreement closed on June 15, 2023; however, the Agency received a referral on January 17, 2024, for the provider to perform personal assistance services for a client, and a new provider agreement was signed on January 30, 2024. The Agency was notified of the prior year billing issues on January 22, 2024. The Agency established overpayments for PAS hours billed that exceeded the service authorization; however, no PAS overpayments were established for those hours billed that overlapped with other employment hours and court-related activities. The provider began providing services again on January 30, 2024, and, according to quarterly employment records, the provider was also employed as a student bus driver. We inquired with the Agency in July 2024 to determine what action had been taken against the provider, and we were informed that preparation was underway to terminate the provider. On September 3, 2024, the Agency sent a letter to the provider terminating her from participation as a Medicaid provider due to the billing issues identified from the prior year audit. The provider appealed the termination, and on November 27, 2024, the Agency received the final order from the hearing officer affirming the Agency’s actions, and the provider’s agreement was terminated as of November 27, 2024. We obtained the provider’s timecard records from the employer and compared the employment records to the EVV visit forms for the week of May 12, 2024, through May 18, 2024. We identified four days during the week in which PAS hours billed overlapped with times the provider was working as a student bus driver. In determining overlapping hours, we did not factor in any travel time that may have occurred between the clients’ homes and the provider’s place of employment. Additionally, we compared only one week of records; therefore, the possibility of additional fraudulent payments exists. We questioned seven hours of personal assistance services as potential fraud, totaling $95 ($56 Federal share and $39 State share). It is concerning that the Agency signed a new agreement with the provider on January 30, 2024, after the potential fraud was disclosed and after the Agency had established $2,062 in overpayments for billing hours over the SNA. It is unreasonable for the Agency to have allowed the provider to submit billings that did not comply with EVV guidelines in order for the provider to “pay back” the overpayments for previous billing errors. From January 30, 2024, through June 30, 2024, the provider was paid $13,317, and payments from July 1, 2024, through December 2, 2024 totaled $21,475. See Schedule of Findings and Questioned Costs for the remainder of the text to the audit finding.

Program: AL 93.778 - Medical Assistance Program; AL 93.959 - Block Grants for Prevention and Treatment of Substance Abuse; AL 93.767 - Children’s Health Insurance Program; AL 93.575 – Child Care and Development Block Grant; AL 10.561 – State Administrative Matching Grants for the Supplemental Nutrition Assistance Program – Allowable Costs/Cost Principles Grant Number & Year: 2405NE5ADM, FFY 2024; 2305NE5ADM, FFY 2023; 23B1NESAPT, FFY 2023; 20242S251443, FFY 2024; 2301NECCDD; FFY 2023; 52305NE3002; FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services and U.S. Department of Agriculture Criteria: 45 CFR § 75.405(a) (October 1, 2023) and 2 CFR § 200.405 (January 1, 2024) state, in part, the following: A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. 45 CFR § 75.403 (October 1, 2023) and 2 CFR § 200.403 (January 1, 2024) provide the following, in relevant part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. * * * * (g) Be adequately documented. See also §§ 75.300 through 75.309. Per 45 CFR § 75.303 (October 1, 2023) and 2 CFR § 200.303 (January 1, 2024): 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. 45 CFR § 75.430(i) (October 1, 2023) and 2 CFR § 200.430(i) (January 1, 2024) require payroll expenses charged to Federal awards to be based on official records that accurately reflect the work performed. Good internal control and sound accounting practices require policies and procedures to ensure that all payroll costs are properly recorded within the State accounting system and allocated to the proper funding source for activities performed. Condition: The Agency did not have adequate procedures to ensure payroll charges were proper. A similar finding was noted in the prior audit. We also noted no attempt was made to recover apparently fraudulent payroll expenses. Repeat Finding: 2023-031 Questioned Costs: $11,866 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: We tested 25 employee paychecks paid with Federal funds. Five of the 25 employees tested had payroll charged to the Substance Abuse and Prevention Block Grant (SAPTBG). We tested the May 1, 2024, paycheck for an Administrator. Payroll expenses were allocated 100% to the SAPTBG. However, the Agency could not provide documentation to show that 100% of the Administrator’s time was working on projects related to the SAPTBG. Based on some of the job duties of the employee, it appeared some time could have been coded to the Community Mental Health Services grant. All payroll for the period was questioned. Federal SAPTBG payroll charges tested totaled $6,908, and we noted $2,963 in sampled questioned costs. Federal payroll charges for SAPTBG totaled $473,739. We tested the January 24, 2024, paycheck for an IT Business Systems Analyst and noted the initial payroll expenses were split among several Economic and Assistance programs based on a time study that was effective during fiscal year 2022. Per the Fiscal Project Analyst, an updated study had not been done and should be done annually. The payroll expenses charged to the cost center were then allocated based on a time and effort study that had not been updated since at least September 2020. Payroll expenses charged to the Federal programs were questioned, and potential dollars at risk totaled over $5,000,000. See Schedule of Findings and Questioned Costs for chart/table. Additionally, we reviewed the disciplinary actions against employees during the fiscal year. One employee tested was terminated on September 26, 2023, for falsifying the number of overtime hours worked. While working remotely on Saturday and Sundays, the employee would work only 30-60 minutes; however, he would then claim 10 hours of overtime for both of those days. The Agency reviewed the employee’s overtime hours reported to the supervisor, the KRONOS timecards, and time stamps of the work completed outside the employee’s scheduled shifts for the timeframe of May 7, 2023, through August 11, 2023. The employee reported and was paid for 469.5 overtime hours; however, the Agency determined the employee worked only 34.5 hours of overtime, a difference of 435 hours. The employee was paid $17,052 for overtime hours that were never worked in just a three-month timeframe. During fiscal year 2024, the Medicaid grant was overcharged $7,780 in apparently fraudulent payroll expenses for this employee. The employee was terminated, but no further action was taken against him. Moreover, no attempt was made to recover the amounts paid to the employee for the falsification of hours worked. Cause: Inadequate policies and procedures for review and documentation of payroll expenses. Effect: Without adequate documentation to support the allocation of costs, there is an increased risk of programs not being charged the proper amounts. Recommendation: We recommend the Agency improve procedures to ensure that employee pay is recorded correctly in the State accounting system, and those costs are properly allocated and charged. Management Response: Agency agrees.

Program: AL 93.959 – Block Grants for Prevention and Treatment of Substance Abuse – Level of Effort Grant Number & Year: B08TI084658, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Good internal control requires procedures to ensure Maintenance of Effort (MOE) requirements are met. 45 CFR § 96.30(a) (October 1, 2023) requires the following: Except where otherwise required by Federal law or regulation, a State shall obligate and expend block grant funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds. Fiscal control and accounting procedures must be sufficient to (a) permit preparation of reports required by the statute authorizing the block grant and (b) permit the tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of the statute authorizing the block grant. 45 CFR § 96.134(a) (October 1, 2023) states the following: With respect to the principal agency of a State for carrying out authorized activities, the agency shall for each fiscal year maintain aggregate State expenditures by the principal agency for authorized activities at a level that is not less than the average level of such expenditures maintained by the State for the two year period preceding the fiscal year for which the State is applying for the grant. The Block Grant shall not be used to supplant State funding of alcohol and other drug prevention and treatment programs. 45 CFR § 96.124(c) (October 1, 2023) requires the State to expend the Block Grant on treatment services for pregnant women and women with dependent children no less than an amount equal to the amount expended by the State for fiscal year 1994. “A Primer on Maintenance of Effort Requirements” (2020), issued by the Substance Abuse and Mental Health Services Administration (SAMHSA), states the following, as is relevant: A state MUST provide accurate MOE figures every year. Otherwise, it risks a reduction in its award following the period of noncompliance. * * * * States must use a consistent methodology to calculate spending in base and subsequent years so that the expenditure data reflect the same fund sources from year to year. States must use generally accepted accounting principles. * * * * Examples of state fund sources that can be included in the SABG state MOE calculations are: * * * * Medicaid match funds (the state’s share of covered services in state Medicaid programs; this does not include the federal share of covered services) Condition: The Agency lacked adequate documentation to support that Maintenance of Effort (MOE) requirements were met. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: We tested the State MOE and the MOE for Expenditures for Services to Pregnant Women and Women with Dependent Children (Women’s Set-Aside) for State fiscal year 2023, which was reported on December 1, 2023. The required State MOE was $24,756,036, and the Agency reported $31,213,508 of expenditures. Included in reported expenditures was $7,004,989 of Medicaid Matching funds. The detail of Medicaid Matching provided totaled only $6,552,612. In addition, the detail provided was not expenditures paid directly from the State accounting system and did not agree to the State’s financial report. Nebraska operates a managed care program for Medicaid, and the State pays a per-member, per-month capitation fee to the managed care contractor. The Agency performed a query of substance use disorder services paid by the managed care contractors and estimated the State General funded portion based on the beneficiary’s enrollment information at the time of service. The Agency believes that, since the capitation payments are determined by an actuarial model that has a basis in paid claims experience, the method used is a reasonable proximation. Although this method appears consistent with the prior year, it was not described in the report and did not have formal, written approval from the Federal grantor. The required Women’s Set-Aside was $753,713, and the Agency reported $2,038,637. We noted the following issues: • The expenditures reported included $1,669,738 of Medicaid funds, which, as noted above, are not expenditures paid directly by the State. • The Medicaid expenditures included both State and Federal Medicaid funds, but Federal Medicaid funds are not an allowable source of funds to include. • The Agency used alcohol/drug services by providers that served exclusively women; however, the Agency did not ensure those women were either pregnant or had dependent children. We selected 10 individuals included in the detail of claims, and 6 of those were neither pregnant nor had dependent children. Given the inadequate support for the Medicaid dollars used, the Agency appears to have failed to maintain expenditures at the base amount for Women’s Set-Aside services. Cause: Inadequate procedures and employee turnover. Effect: Without adequate procedures, there is an increased risk for errors or unallowable expenditures to be reported. Recommendation: We recommend the Agency obtain written approval from the Federal grantor for the methodology used to report MOE expenditures. We further recommend the Agency ensure that MOE requirements are both met and accurately reported, and only allowable categories of expenditures are utilized. Management Response: Management agrees.

Program: AL 93.959 – Block Grants for Prevention and Treatment of Substance Abuse – Allowability & Subrecipient Monitoring Grant Number & Year: B08TI085820, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: Good internal control requires procedures to ensure costs are reasonable, necessary, allowable, and in accordance with Federal requirements. 45 CFR § 75.352(d) (October 1, 2023) requires the Agency to do the following: 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. 45 CFR § 96.30(a) (October 1, 2023) states the following: Except where otherwise required by Federal law or regulation, a State shall obligate and expend block grant funds in accordance with the laws and procedures applicable to the obligation and expenditure of its own funds. Fiscal control and accounting procedures must be sufficient to (a) permit preparation of reports required by the statute authorizing the block grant and (b) permit the tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of the statute authorizing the block grant. Condition: Subrecipient monitoring procedures should be improved. Repeat Finding: No Questioned Costs: $9,141 known Statistical Sample: No Context: The Agency paid 10 subrecipients a total of $7,089,404 during the fiscal year. We tested one payment to each of the seven largest subrecipients and noted the following: Region IV Behavioral Health System was paid $647,025 during the fiscal year, and we selected a payment for $42,625. Of this amount, $9,141 was for services provided by Region IV, and $33,484 was for services provided by contractors of Region IV. The Agency performed a sampling of expenditures for Region IV; however, documentation was inadequate to support that personnel costs were related to the grant or prevention activities or women’s set-aside activities. Timesheets did not indicate the grant or activities upon which the employees worked. In addition, indirect costs were reimbursed, but the subaward agreement did not allow indirect costs. The Agency provided a spreadsheet to indicate how the Region allocated personnel time, but documentation was inadequate to support that the allocations were appropriate and in accordance with the time study results and methodology. In addition, the time study results provided were from July 2022, and the Region utilized an even earlier time study to allocate the costs. As a result, we question costs of $9,141. Cause: Inadequate procedures and employee turnover. Effect: Without adequate procedures, there is an increased risk for errors or fraud to occur and not be detected. Recommendation: We recommend the Agency improve subrecipient monitoring procedures to ensure that costs are allowable and in accordance with the grant and subaward terms and conditions. Management Response: Management agrees.

Program: AL 97.036 – Disaster Grants – Public Assistance (Presidentially Declared Disasters) – Subrecipient Monitoring Grant Number & Year: 4616-DR-NE, declared September 6, 2021; 4420-DR-NE, declared March 21, 2019; 4641-DR-NE, declared February 23, 2022; 4662-DR-NE, declared July 27, 2022; 4521-DR-NE, declared April 4, 2020 Federal Grantor Agency: U.S. Department of Homeland Security Criteria: 2 CFR § 200.332 (January 1, 2024) states, in relevant part, the following: All pass-through entities must: * * * * (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. 2 CFR § 200.501(b) (January 1, 2024) states, in relevant part, the following, “A non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single audit conducted in accordance with § 200.514 . . . .” A good internal control plan includes procedures to ensure subrecipient audits are reviewed timely. Condition: The Agency did not ensure subrecipients obtained Single audits. A similar finding was noted in the prior audit. Repeat Finding: 2023-063 Questioned Costs: None Statistical Sample: No Context: We selected three subrecipients for testing that would have required a Single audit based on the amount of funds received from the Agency during the subrecipient’s previous fiscal year. One of the three subrecipients received $12,604,747 in disaster grant funds passed through the Agency during the subrecipient’s fiscal year 2023, but did not submit a Single audit and the Agency had not followed up with the subrecipient. Cause: Employee oversight. The subrecipient returned a certification stating that they did not require a Single audit, and the Agency failed to verify the certification was proper. Effect: Without adequate monitoring procedures, there is an increased risk that Federal awards could be used for unallowable costs. Recommendation: We recommend the Agency implement procedures to ensure subrecipient audits are obtained and reviewed timely. Management Response: Military (NEMA) agrees with the finding and has implemented the corrective action plan.

Program: AL 15.611 – Wildlife Restoration and Basic Hunter Education and Safety – Allowability & Subrecipient Monitoring Grant Number & Year: F22AF01344-00, July 1, 2022, through June 30, 2025 Federal Grantor Agency: U.S. Department of the Interior Criteria: For the Wildlife Restoration program, Title 50 CFR § 80.50(a)(6)(iii) (October 1, 2023) states, in part, “Grantees and subgrantees must follow the requirements at 2 CFR part 200 when acquiring equipment, goods, and services under an award[.]” 2 CFR § 200.332(d) (January 1, 2024) requires a pass-through entity to do the following: 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[.] 2 CFR § 200.403 (January 1, 2024) requires costs to be necessary, reasonable, and adequately documented. 2 CFR § 200.430(i) (January 1, 2024) provides the following, in relevant part: (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE’s definition of IBS); * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that: * * * * (C) The non-Federal entity’s system of internal controls includes processes to review after-the-fact interim charges made to a Federal award based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated. 2 CFR § 200.431(b) (January 1, 2024) states, in relevant part: The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave, and other similar benefits, are allowable if all of the following criteria are met: (1) They are provided under established written leave policies; (2) The costs are equitably allocated to all related activities, including Federal awards; and, (3) The accounting basis (cash or accrual) selected for costing each type of leave is consistently followed by the non-Federal entity or specified grouping of employees. (i) When a non-Federal entity uses the cash basis of accounting, the cost of leave is recognized in the period that the leave is taken and paid for. Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment. (ii) The accrual basis may be only used for those types of leave for which a liability as defined by GAAP exists when the leave is earned. When a non-Federal entity uses the accrual basis of accounting, allowable leave costs are the lesser of the amount accrued or funded. 2 CFR § 200.431(c) (January 1, 2024) states the following: The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker’s compensation insurance (except as indicated in §200.447); pension plan costs (see paragraph (i) of this section); and other similar benefits are allowable, provided such benefits are granted under established written policies. Such benefits, must be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities, and charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. A good internal control plan requires procedures to ensure that salaries and wages, as well as other costs charged to subawards, are documented properly. Condition: Adequate documentation was not on file to support a payment to a subrecipient. Repeat Finding: No Questioned Costs: $1,697 known Statistical Sample: No Context: We randomly selected 16 non-payroll documents to test. Our sample population included operating expenditures, capital outlay expenditures, and subrecipient reimbursements. One of 16 documents tested lacked adequate documentation to support that the costs were in accordance with Federal cost principles. The Agency paid $17,268 to a subrecipient that submitted an invoice for lodging and travel costs, payroll, and indirect costs for one employee. The employee’s base rate of $35.82 per hour for 378.5 hours worked on the grant was calculated according to the following: a pay rate of $24.76 per hour; a charge of 18% for paid time off; 22.6% for employer taxes and benefits; and 26.2% for indirect costs. However, the subrecipient provided no documentation, such as payroll records or bank statements, to support the payroll costs, totaling $17,110. After the APA requested support, the Agency provided paystubs and detailed payroll records from the subrecipient’s accounting system; however, based on the support provided, the wages, benefits, taxes, and indirect costs allocable to the grant totaled $15,413. As a result, we questioned the variance of $1,697 between the support provided and the amount charged to the grant for the payroll costs. Federal payment errors noted for the sample tested were $1,697. The total Federal sample tested was $300,860, and the total sample population was $10,649,122. Based on the sample tested, the case error rate was 6.25% (1/16). The dollar error rate was 0.56% ($1,697/$300,860), which estimates the potential dollars at risk for fiscal year 2024 to be $59,635 (dollar error rate multiplied by the population). Cause: Inadequate subrecipient monitoring procedures. Effect: Without adequate subrecipient monitoring procedures and supporting documentation on file, there is an increased risk for not only misuse of Federal funds but also payments not complying with State and Federal requirements. Recommendation: We recommend the Agency improve subrecipient monitoring to ensure both the allowability of costs and adherence to Federal regulations. Management Response: NGPC disagrees with the questioned costs identified by the APA. Our subrecipient policy includes the ability to ask for detailed records for any expense at any time. Accounting records, invoices, and paystubs were provided to substantiate the total invoice amount. The subrecipient has been audited and there were no issues with their financial systems. Explanations and calculations were provided to include the benefits and taxes paid out by the subrecipient, which matched the accounting records. Per their latest audit, these expenses are allocated on the basis of time and effort which complies with 2 CFR § 200.431(c). Performance reports were received and activity monitored by NGPC staff. NGPC works closely with the subrecipient which is considered a low-risk entity as demonstrated by the information provided for the audit. APA Response: Documentation provided to the auditors was inadequate to support the full amount charged to the grant. Documentation was not provided to support that the paid time off charged to the grant was reasonable, and no support was provided for Federal and State unemployment taxes, workers’ compensation costs, retirement plan fees, and other benefit costs.

Program: AL 17.225 – Unemployment Insurance (UI) – State – Allowability & Eligibility Grant Number & Year: N/A Federal Grantor Agency: U.S. Department of Labor Repeat Finding: 2023-056 Questioned Costs: $40,983 known Statistical Sample: No Summary: Audit Finding 2024-021, included in Part II of this report, relates to both the financial statements and Federal awards. The APA performed a random sample of benefit payments and tested payments to State employees, individuals with high wages, and other payments. Our procedures revealed adjudication issues, improper payments to claimants, and other issues. The APA randomly selected 40 claimant benefit payments. The total sample tested was $17,624, and questioned costs for payments tested were $2,983. Total benefit payments for the fiscal year ended June 30, 2024, were $87,552,659. Based on the sample tested, the dollar error rate for the sample was 16.93% ($2,983/$17,624), which estimates the potential dollars at risk for fiscal year 2024 to be $14,822,665 (dollar error rate multiplied by population). We noted additional questioned costs during testing, totaling $38,000. A similar finding was noted in the prior audit. Recommendation: We recommend the Agency implement procedures to prevent the payment of improper UI benefits by ensuring compliance with applicable State and Federal requirements. At a minimum, those procedures should ensure the following: 1) proper adjudication actions – including wage crossmatches, investigations into suspect separation from employment information, and separation information requests being sent to employers – are undertaken; and 2) neither ineligible State employees nor other ineligible claimants receive benefit payments. Management Response: As part of our ongoing commitment to the accuracy of benefit payments, we plan to take additional steps in our effort to reduce improper payments. We will continue refining our processes to reduce errors. We acknowledge that there are areas where continued improvement is necessary, and we are committed to working to address these issues. We will also continue to monitor performance and make adjustments as needed. NDOL stressed the importance of quality this year and has been making changes to its review process to catch and prevent errors earlier.

Program: AL 17.225 – Unemployment Insurance (UI) – State – Reporting Grant Number & Year: N/A Federal Grantor Agency: U.S. Department of Labor Criteria: Per 2 CFR § 2900.4 (January 1, 2024), the U.S. Department of Labor adopted the OMB Uniform Guidance as its policies and procedures for financial assistance administration. Per 2 CFR § 200.302(a) (January 1, 2024): [T]he state’s and the other non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. The ETA Handbook 401 (5th Edition) (August 16, 2017) states the following, in relevant part: c. Line 12. Penalty/Interest. Enter in columns C and D the net collections of penalty, interest, and fines deposited during the month if transferred to the UTF. * * * * g. Line 36. FECA Net Federal Benefits – UCX. Enter in columns C and F the net Federal portion of unemployment compensation paid to former members of the armed services from funds in the benefit payment account. The total payments should be adjusted for refunds deposited during the month, credits and recharges, and cancellations and reissuances and exclude EUC08 benefits. Report in column F all benefits paid, including amounts transferred to the IRS for Federal income tax withholding, regardless whether paid from the state account in the UTF or the state benefit payment account. * * * * s. Line 46. FECA Net Benefit Payments-UCFE. Enter in columns C and F net benefit payments made during the month to former Federal civilian (including postal) employees, excluding EUC 2008, with funds from the FEC account. Report in column F all benefits paid, including amounts transferred to the IRS for Federal income tax withholding, regardless whether paid from the state account in the UTF or the state benefit payment account. Good internal control requires adequate procedures to ensure reports are complete and accurate. Condition: During testing of the ETA 2112 reports, we noted the following: • For three reports tested, a reconciliation of the ending balance per the report to the bank statement for each account was not completed. • For two reports tested, amounts reported either could not be traced to supporting documentation or used the inaccurate amounts from the supporting documentation provided. Repeat Finding: No Questioned Costs: None Statistical Sample: No  Context: The ETA 2112 Report is a monthly summary of transactions in the State unemployment insurance fund, which consists of the Clearing Account, Unemployment Trust Fund (UTF) Account, and Benefit Payment Account. Agency controls over the ETA 2112 report include completing a reconciliation of the ending balance per the report to the bank statement for each account. For the three months the APA tested, a reconciliation was completed by the Agency; however, the ending balances per the report did not agree to the reconciled bank account balances. See the table below for a summary of the variances noted. After this issue was brought to the Agency’s attention, the Agency restated all 12 reports for fiscal year 2024. See Schedule of Findings and Questioned Costs for chart/table. In addition to testing the Agency’s reconciliations, the APA performed detailed testing of two monthly ETA 2112 reports. During this review, the following issues were noted: October 2023 • The beginning benefit account balance did not agree to the ending benefit account balance from the September 2023 report, resulting in the beginning balance being overstated by $39,217. • Total benefit disbursements and Net UI Benefit disbursements were understated by $37,168, as the Agency had backed out re-issued payments for the month. • The ending benefit account balance did not agree to the reconciled ending benefit bank account balance, due to the issues noted above, resulting in the ending balance being overstated by $76,385. • Clearing account Penalty/Interest deposits reported were amounts charged during the month, not amounts collected. This resulted in Penalty/Interest deposits being understated by $13,747 and Net UI Contributions being overstated by $13,747. The first three errors noted were corrected by the Agency with a reissued report on July 12, 2024, after we questioned the Agency about the amounts reported. The fourth error noted was not corrected. February 2024 • The beginning benefit account balance did not agree to the ending benefit account balance from the January 2024 report, resulting in the beginning balance being overstated by $140,808. • Total benefit disbursements and Net UI Benefit disbursements were understated by $33,826, as the Agency had backed out re-issued payments for the month. Additionally, these items were overstated by $85, as the Agency had manually adjusted February 2024 outstanding checks in order to have the ending balance agree to their reporting software. • The ending benefit account balance did not agree to the reconciled ending benefit bank account balance, due to the issues noted above, resulting in the ending balance being overstated by $174,549. • UCX and UCFE benefit disbursements were reported net of Federal and State withholdings when these amounts should have been included. This resulted in UCX disbursements being understated by $1,006, UCFE disbursements being understated by $2,495, and Net UI Benefit disbursements being overstated by $3,501. • January 2024 outstanding checks were not adjusted for January 2024 activity on the benefit account reconciliation, resulting in the beginning balance being understated by $13,209 and Net UI Benefits disbursements being overstated by $13,209. This error was not corrected by the Agency when the reports were reissued. The first three errors noted were corrected by the Agency with a reissued report on July 12, 2024, after we questioned the Agency about the amounts reported. The fourth and fifth errors noted were not corrected. Additionally, for both months tested, it was noted that the Daily Payment Register Summary was used to report the amount of disbursements by program. However, the Daily Payment Register Summary does not account for cancellations, which caused certain program disbursements to be overstated, such as UCFE, and Net UI Benefits to be understated. Cause: Inadequate review and reporting procedures. Effect: Without adequate procedures, there is an increased risk of inaccurate amounts being reported for unemployment insurance programs. Recommendation: We recommend the Agency implement procedures to ensure that amounts reported for unemployment insurance programs are accurate. These procedures should ensure the following: 1) accurate reconciliations between the ending balances on the reports and supporting documentation are completed; 2) duplicate payments for the various programs are accounted for to ensure proper reporting; 3) amounts reported on the 2112 report can be traced to supporting documentation; and 4) amounts reported on the 2112 report are in line with Federal and State guidelines. Management Response: NDOL agrees that incorrect values were taken from reports, and that the reconciliation and review process was not sufficient.

Program: AL 17.225 – Unemployment Insurance (UI) – State – Special Tests Grant Number & Year: N/A Federal Grantor Agency: U.S. Department of Labor Criteria: Per 2 CFR § 2900.4 (January 1, 2024), the U.S. Department of Labor adopted the OMB Uniform Guidance as its policies and procedures for financial assistance administration. 20 CFR § 616.8(f)(2) (April 1, 2024) states the following: Except as provided in paragraphs (c)(2), (f)(3), and (f)(5) of this section, each such charge shall bear the same ratio to the total benefits paid to the Combined-Wage Claimant by the paying State as the claimant’s wages transferred by the transferring State bear to the total wages used in such determination. Each such ratio shall be computed as a percentage, to three or more decimal places. Neb. Rev. Stat. § 48-652 (Cum. Supp. 2024) states the following: (3)(a) Each experience account shall be charged only for benefits based upon wages paid by such employer. No benefits shall be charged to the experience account of any employer if: (i) Such benefits were paid on the basis of a period of employment from which the claimant (A) left work voluntarily without good cause, (B) left work voluntarily due to a nonwork-connected illness or injury, (C) left work voluntarily with good cause to escape abuse as defined in section 42-903 between household members as provided in subdivision (1) of section 48-628.13, (D) left work from which he or she was discharged for misconduct connected with his or her work, (E) left work voluntarily and is entitled to unemployment benefits without disqualification in accordance with subdivision (3), (5), or (11) of section 48-628.13, or (F) was involuntarily separated from employment and such benefits were paid pursuant to section 48-628.17[.] Good internal controls require procedures to ensure that employers are properly charged, or not charged, for benefit payments made to claimants that have separated from them. Condition: For two claims tested, the base period employers on the claims were not properly charged according to State statute or Federal regulation. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: For Claim #1, the claimant was originally found to have been discharged for misconduct from the base period employer. This ruling was subsequently reversed upon appeal by the claimant. The Agency failed to charge the employer for $12,850 of benefit payments on the claim, until notified by the APA, at which time the employer was correctly charged. For Claim #2, the claim was a Combined Wage Claim (CWC), in which there were base period employers from Nebraska and Texas. On a CWC, employers are to be charged proportionately to wages paid in the base period by the employers from each state. In the claim tested, the Nebraska employer had paid 48.38% of the base period wages, while the Texas employer had paid 51.62%. It was found that the employers were not charged proportionately to the wages paid in the base period and that the total charges on the claim did not agree to total payments on the claim. This resulted in the Nebraska employer being overcharged by $991 and the Texas employer being undercharged by $1,409. See Schedule of Findings and Questioned Costs for chart/table. Cause: Adjudication errors, and the system was not set up properly to charge employers correctly for Combined Wage Claims. Effect: When adjudication errors are made and system errors occur, there is an increased risk of benefit payments being incorrectly charged, or not charged, to the base period employers. Recommendation: We recommend the Agency implement procedures to ensure that employer charging is correctly updated subsequent to appeal determinations and that the Agency corrects known system issues. Management Response: We understand the importance of ensuring that employer charging is correctly updated following appeal determinations. We are committed to improving the accuracy and timeliness of these updates. We are actively working with the vendor to prioritize the required system updates, and in the interim, we will continue to monitor and adjust our processes to minimize any impact on employer charging accuracy.

Program: AL 17.225 – Unemployment Insurance (UI) – State – Special Tests Grant Number & Year: N/A Federal Grantor Agency: U.S. Department of Labor Criteria: Neb. Rev. Stat. § 48-652 (Supp. 2023) states, in relevant part, the following: (3)(a) Each experience account shall be charged only for benefits based upon wages paid by such employer. No benefits shall be charged to the experience account of any employer if: (i) Such benefits were paid on the basis of a period of employment from which the claimant (A) left work voluntarily without good cause, (B) left work voluntarily due to a nonwork-connected illness or injury, (C) left work voluntarily with good cause to escape abuse as defined in section 42-903 between household members as provided in subdivision (1) of section 48-628.13, (D) left work from which he or she was discharged for misconduct connected with his or her work, (E) left work voluntarily and is entitled to unemployment benefits without disqualification in accordance with subdivision (3), (5), or (11) of section 48-628.13, or (F) was involuntarily separated from employment and such benefits were paid pursuant to section 48-628.17[.] * * * * (d) Benefits paid to an eligible individual shall be charged against the account of his or her most recent employers within his or her base period[.] (Emphasis added.) Neb. Rev. Stat. § 48-664 (Reissue 2021) provides the following: Any employer, whether or not subject to the Employment Security Law, or any officer or agent of such an employer or any other person who makes a false statement or representation knowing it to be false, or who knowingly fails to disclose a material fact, to prevent or reduce the payment of benefits to any individual entitled thereto, to obtain benefits for an individual not entitled thereto, to avoid becoming or remaining subject to such law, or to avoid or reduce any contribution or other payment required from an employer under sections 48-648 and 48-649 to 48-649.04, or who willfully fails or refuses to make any such contributions or other payment or to furnish any reports required under the Employment Security Law or to produce or permit the inspection or copying of records as required under such law, shall be guilty of a Class III misdemeanor. . . . When an unemployment benefit overpayment occurs, in whole or in part, as the result of a violation of this section by an employer, the amount of the overpayment recovered shall not be credited back to such employer's experience account. Title 221 NAC Chapter 3-004 provides that employers have 10 days to respond to the Separation Information Request. Title 219 NAC Chapter 15-001 provides the following: Pursuant to Neb. Rev. Stat. §48-631 and §48-607, the Commissioner or the Commissioner’s designee may redetermine a previous monetary or non-monetary determination if (1) there is an error in computation or identity, (2) pertinent wages not previously considered have been newly discovered, or (3) benefits have been allowed or denied or the amount fixed based upon misrepresentations of fact. When deciding if a redetermination should be made, the following definitions shall provide guidelines: A. “Error in computation”. Erroneous information based on omission, misconception, or mathematical error with a resultant consequence of altering claimant eligibility. B. “Error in identity”. The identity of a specific individual or employer as claimed or asserted which does not meet the condition of being the same as described. C. “Newly discovered wages”. Wages for an individual relevant to their eligibility which have not been previously known or incorrectly reported and documented. D. “Misrepresentation of fact”. An indication by words or other conduct by a person(s) to another that, under the circumstances, amounts to an assertion by words or other conduct not in accordance with the facts, and that if accepted leads the mind of the person relying thereon to an understanding other and different from that which actually exists. Misrepresentation can occur either ignorantly or intentionally[.] Good internal controls require procedures to ensure the following: 1) employers are properly charged, or credited, for unemployment benefits; 2) overpayments are established according to State statute and Federal regulation; and 3) overpayments are established in a timely manner by Agency staff after discovery by the Benefit Accuracy Management (BAM) team. Condition: During our testing, we noted the following issues regarding overpayments: • For seven overpayments established, the employers on the claim were not properly charged or relieved of charging for benefits overpaid to claimants. • For three overpayments, the overpayments were not established consistent with written procedures in statute and regulations. • One overpayment was not established in a timely manner after discovery by BAM staff. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: The table below outlines the overpayments tested, the amount of each overpayment, the week endings during which the overpayments occurred, the amount each employer was charged for these weeks, and the amounts credited to their accounts after the overpayments were established. In each case, we noted that the amount credited to the employer’s account was incorrect based on the amount overpaid and State statute. See Schedule of Findings and Questioned Costs for chart/table. For overpayments #1 through #6, the overpayment amount should have been credited to the employers’ accounts. However, the credits were not appropriately applied to the employers’ accounts due to system and employee errors when applying the credits. For overpayment #7, the employer’s account should not have been credited as the overpayment was due to the employer’s untimely response to the separation information request. However, the Agency still credited the employer’s account. Additionally, we noted the following regarding improper credits to employer accounts. Overpayment #1 was established in conjunction with two other overpayments, one for week ended (W.E.) April 29, 2023, for $73 and another for W.E. May 27, 2023, for $514. Employer #1 was originally charged a total of $721 for W.E.s April 29, 2023, and May 20, 2023, and received a full credit for these charges, when only a $73 credit was received. Thus, Employer #1 was improperly credited an additional $319. Employer #2 should have received total credits of $552 but was instead charged an additional $207 during these weeks. Therefore, along with the amount in the table, an additional $392 was charged improperly. For Overpayment #2, the APA noted that Employer #3 was also credited for all additional payments made on the claim, not merely for the W.E.s put into overpayment. This resulted in an additional $9,252 that was incorrectly credited to the employer’s account. On Overpayment #4, Employer #6 was credited all charges that had been made against the account for the claim, a $8,997 total. The amount credited was greater than total overpayments established on the claim of $906. Due to this, Employer #6 incorrectly received additional credits of $7,376. For Overpayment #6, all payments on the claim had previously been credited to the employer’s account due to the claimant’s base period being incorrect. Due to this, Employer #8 had already received the $31 credit due to them by the overpayment tested. In addition to the incorrect employer charging errors, the following three overpayments were incorrectly established by the Agency. See Schedule of Findings and Questioned Costs for chart/table. In addition to the charging errors noted above for Overpayment #2, it was noted that the overpayment established by the Agency was incorrect. The Agency did not correctly consider the wage amounts reported by the claimant’s employer, resulting in the overpayment established being understated by $199. Overpayment #8 was established by the Agency on November 7, 2023. This had occurred because the claimant’s base period wages were redetermined after an earlier overpayment was established on the claim due to the claimant not reporting all wages earned to the Agency. When asked by the APA why the claimant’s base period wages were redetermined, the Agency stated that the earlier overpayment was caused by fraud; thus, the wages were cancelled in the base period. This was incorrect as, per 219 NAC 15, a claimant’s base period may only be redetermined if there is evidence to show that the initial base period was incorrect. As no evidence of this could be provided, the claimant’s base period should not have been redetermined, and Overpayment #8 should not have been established. Overpayment #9 was established after the Agency received a wage audit from the claimant’s employer on July 12, 2021, that stated the claimant earned $431 in wages during the period. However, the Agency had also received a separate wage audit from the same employer on July 6, 2021, which stated the claimant only earned $162 during the period. There was no documentation available to support how the Agency determined which wage amount was the correct one to consider when establishing the overpayment. Additionally, when sent a notice of the overpayment establishment on November 18, 2021, the claimant responded to the Agency on November 22, 2021, claiming not to have worked for this employer during that period. The Agency did not consider the claimant’s response when establishing the overpayment. Finally, during testing of the Benefits Accuracy Measurement (BAM) Investigations completed in fiscal year 2024, it was noted that the BAM investigator had obtained documentation showing the claimant was overpaid $980 for weeks ending February 17, 2024, and March 2, 2024. BAM completed review of the claim on May 6, 2024, and communicated the overpayment to the Benefits team to establish the overpayment. As of testing on August 9, 2024, an overpayment has yet to be established for this issue. Cause: Adjudication errors and the system not properly set up to charge employers correctly. Effect: Without adequate procedures to ensure employer charging is correct, and overpayments are established in a timely manner or properly according to written procedures, there is an increased risk of not only benefit payments being incorrectly charged, or not charged, to the base period employers but also noncompliance with Federal and State regulations. Recommendation: We recommend the Agency implement procedures to ensure the following: 1) employer accounts are properly charged or relieved of charges when overpayments are established; 2) overpayments are established in compliance with Federal and State regulations; and 3) overpayments are established in a timely manner after discovery by the BAM team. Management Response: We are committed to ensuring that employer accounts are properly charged or relieved of charges when overpayments are identified. We recognize the importance of addressing overpayments promptly to maintain the integrity of the UI system. We have established procedures to address the timely establishment of overpayment and their impact on charging.

Program: AL 17.225 – Unemployment Insurance (UI) – Admin – Allowability Grant Number & Year: UI347272055A31, grant period 4/1/2020 to 6/30/2024; UI370762155A31, grant period 9/1/2021 to 8/31/2024; UI386582255A31, grant period 4/1/2022 to 3/31/2024; UI393342355A31, grant period 10/1/2022 to 12/31/2025; UI395462355A31, grant period 1/1/2023 to 9/30/2024; 23A60UR000043, grant period 1/1/2023 to 9/30/2024 Federal Grantor Agency: U.S. Department of Labor Criteria: Per 2 CFR § 2900.4 (January 1, 2024), the U.S. Department of Labor adopted the OMB Uniform Guidance as its policies and procedures for financial assistance administration. 2 CFR § 200.405 (January 1, 2024) states the following, in relevant part: a) A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. * * * * d) Direct cost allocation principles: If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, notwithstanding paragraph (c) of this section, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis. 2 CFR § 200, Appendix VII, subsection (E)(1) (January 1, 2024), states the following: Indirect cost rates will be reviewed, negotiated, and approved by the cognizant agency on a timely basis. Once a rate has been agreed upon, it will be accepted and used by all Federal agencies unless prohibited or limited by statute. 2 CFR § 200, Appendix VII, subsection (F)(3) (January 1, 2024), states the following: In certain situations, governmental departments or agencies (components of the governmental unit), because of the nature of their Federal awards, may be required to develop a cost allocation plan that distributes indirect (and, in some cases, direct) costs to the specific funding sources. In these cases, a narrative cost allocation methodology should be developed, documented, maintained for audit, or submitted, as appropriate, to the cognizant agency for indirect costs for review, negotiation, and approval. Sound accounting practices require the indirect costs to be allocated based on a reasonable basis and, when required, per an approved cost allocation plan. Condition: The Agency did not allocate indirect costs in accordance with its approved cost allocation plan. Repeat Finding: No Questioned Costs: $26,393 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: Per the Agency’s indirect cost allocation plan, which was approved for the period July 1, 2021, to June 30, 2022, and provisionally approved through June 30, 2024, indirect costs were to be allocated based on direct labor hours allocated monthly. For the State fiscal year ended June 30, 2024, the Agency planned to submit an indirect cost allocation plan where each month’s costs would first be allocated to each Federal program Assistance Listing by the prior year’s total direct expenses, and then be allocated within each Federal program Assistance Listing by direct labor hours to each Federal grant. However, as this indirect cost allocation plan had not yet been approved, the Agency should have continued to allocate costs based on the plan that was provisionally approved and adjusted once the plan had been approved. Additionally, the Agency’s plan to allocate costs based on prior year expenses does not appear reasonable, and using a basis that considers more current information would be more reasonable. During the fiscal year, the Agency charged $3,099,014 to Unemployment Insurance from allocated indirect costs. We tested an entry that allocated $194,430 to the Unemployment Insurance program. Based on our recalculation, we determined that only $168,037 should have been allocated to the Unemployment Insurance program, a variance of $26,393. Cause: The Agency developed and used a new cost allocation plan for State fiscal year 2024 without approval from its cognizant Federal agency. Effect: When costs are not allocated based on the approved indirect cost allocation plan, Federal programs will not be allocated correctly, which could result in improper payments. Recommendation: We recommend the Agency allocate costs in accordance with its approved cost allocation plan. Management Response: NDOL agrees that the cost allocation plan requires approval from the Federal authority. The process as described in the finding was designed to establish a weighted factor to prevent over allocation of indirect costs to smaller federal grant programs. The factor was supposed to be updated every month rather than determined and set for an entire year.

Program: AL 20.509 – Formula Grants for Rural Areas – Allowability & Subrecipient Monitoring Grant Number & Year: NE-2021-11-00, Performance End FFY 2024; NE-2023-030-00, Performance End October 30, 2025; NE-2024-006-00, Performance End December 31, 2026 Federal Grantor Agency: U.S. Department of Transportation Criteria: Per 2 CFR § 1201.1 (January 1, 2024), the U.S. Department of Transportation adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth at Title 2 CFR part 200. 2 CFR § 200.403 (January 1, 2024) requires costs to be reasonable, necessary, and adequately documented. A good internal control plan requires procedures to be in place to ensure compliance with Federal and State requirements. 2 CFR § 200.332(d) (January 1, 2024) requires the pass-through entity to do the following: 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. 2 CFR § 200.430(i)(1) (January 1, 2024) states the following, in relevant part: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards . . . . Per 2 CFR § 200.405(a) (January 1, 2024), “A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received.” 2 CFR § 200.442(a) (January 1, 2024) states the following: Costs of organized fund raising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions, are unallowable. Fund raising costs for the purposes of meeting the Federal program objectives are allowable with the prior written approval of the Federal agency. Condition: The Agency lacked adequate documentation to support that payments were for allowable activities and in accordance with allowable cost principles. A similar finding was noted in the prior audit. Repeat Finding: 2023-065 Questioned Costs: $4,905 known See Schedule of Findings and Questioned Costs for chart/table. Statistical Sample: No Context: During the fiscal year, the Agency paid 64 subrecipients a total of $12,622,391. We selected five payments to subrecipients for testing. The Agency performed financial reviews for subrecipients; however, the reviews tested did not always include all necessary supporting documentation. When additional documentation was needed, we provided the Agency with the opportunity to obtain additional support from the subrecipient; however, adequate support was not always obtained or able to be provided. See Schedule of Findings and Questioned Costs for chart/table. We noted the following: • Two subrecipients tested did not have adequate support for all personnel charges. One individual tested was reimbursed at the non-operating rate but should have been reimbursed at the operating rate. Another individual’s personnel costs were based on budgeted amounts. • Fuel costs for one subrecipient did not agree with invoices. • One subrecipient did not properly report revenues collected, resulting in an overcharge of the Federal reimbursement. • All five subrecipients tested had capital or non-operating costs that were not adequately supported. Costs allocated between programs were not adequately supported, travel costs did not appear reasonable, and fundraising costs of $100 were charged. Cause: Procedures were not adequate to ensure costs were in accordance with Federal requirements. Effect: Increased risk for errors or misuse of funds. Recommendation: We recommend the Agency improve procedures to ensure expenditures are allowable and in accordance with Federal regulations. Management Response: NDOT acknowledges the audit findings related to subrecipient monitoring and cost allowability under the grant funding. We will continue to ensure compliance with regulations and are committed to improving our internal controls to prevent recurrence of similar findings.

Program: AL 21.023 – COVID-19 Emergency Rental Assistance – Allowability & Eligibility Grant Number & Year: ERAE1185, grant period ending 9/30/2025 Federal Grantor Agency: U.S. Department of the Treasury Criteria: Title III, Subtitle B, Section 3201(f)(2), of the American Rescue Plan Act, 2021, Pub. L. No. 117-2 (March 11, 2021) states the following: ELIGIBLE HOUSEHOLD. – The term ‘‘eligible household’’ means a household of 1 or more individuals who are obligated to pay rent on a residential dwelling and with respect to which the eligible grantee involved determines that— (A) 1 or more individuals within the household has-- (i) qualified for unemployment benefits; or (ii) experienced a reduction in household income, incurred significant costs, or experienced other financial hardship during or due, directly or indirectly, to the coronavirus pandemic; (B) 1 or more individuals within the household can demonstrate a risk of experiencing homelessness or housing instability; and (C) the household is a low-income family (as such term is defined in section 3(b) of the United States Housing Act of 1937 (42 U.S.C. 1437a(b)). Low-income family is defined in 42 U.S.C. § 1437a(b)(2)(A) as follows: [F]amilies whose incomes do not exceed 80 per centum of the median income for the area, as determined by the Secretary with adjustments for smaller and larger families . . . . Per 2 CFR § 1000.10 (January 1, 2024), the U.S. Department of the Treasury adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth in 2 CFR part 200. Per 2 CFR § 200.303 (January 1, 2024): 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. Question 4 of the Frequently Asked Questions (FAQ) guidance document (Revised March 5, 2024), issued by the U.S. Department of the Treasury, for the Emergency Rental Assistance program, states, in relevant part, the following: If a written attestation without further verification is relied on to document the majority of the applicant’s income, the grantee must reassess the household’s income every three months, by obtaining appropriate documentation or a new self-attestation. Question 5 of the FAQ guidance document states, in relevant part, the following: Grantees must obtain, if available, a current lease, signed by the applicant and the landlord or sublessor, that identifies the unit where the applicant resides and establishes the rental payment amount. If a household does not have a signed lease, documentation of residence may include evidence of paying utilities for the residential unit, an attestation by a landlord who can be identified as the verified owner or management agent of the unit, or other reasonable documentation as determined by the grantee. In the absence of a signed lease, evidence of the amount of a rental payment may include bank statements, check stubs, or other documentation that reasonably establishes a pattern of paying rent, a written attestation by a landlord who can be verified as the legitimate owner or management agent of the unit, or other reasonable documentation as defined by the grantee in its policies and procedures. Question 7 of the FAQ guidance document states, in relevant part, the following: For both ERA1 and ERA2, other expenses related to housing include relocation expenses (including prospective relocation expenses), such as rental security deposits, and rental fees, which may include application or screening fees. It can also include reasonable accrued late fees (if not included in rental or utility arrears), and Internet service provided to the rental unit . . . . All payments for housing-related expenses must be supported by documentary evidence such as a bill, invoice, or evidence of payment to the provider of the service. Good internal control requires procedures to ensure that adequate supporting documentation is obtained and utilized during the application review process. Good internal control also requires procedures to ensure compliance with Federal regulations. Condition: Procedures were inadequate to ensure that households were eligible and that the payment amounts were correct. A similar finding was noted in the prior audit. Repeat Finding: 2023-058 Questioned Costs: $12,343 known Statistical Sample: No Context: We tested 27 assistance payments. We noted the following: • For four payments, adequate income verification was not performed. o For one payment, the application stated that there was only one adult in the household. However, a second adult was included on the lease agreement. The Agency failed to verify whether a second adult was included in the household; thus, income verification was also not performed on the second adult. This resulted in questioned costs of $2,730. o For two payments, at least one member from each household attested on the application that the household member did not have income. Subsequent payments were made for rent three months after the attestation. The Agency did not reassess the household’s income, nor obtain a new self-attestation as required per the FAQ. This resulted in questioned costs of $3,525. o For one payment, the applicant was married but did not include the spouse on the application. The Agency considered only the applicant’s income when determining eligibility. However, income documentation on file for both the applicant and the spouse would result in the applicant being ineligible. The Agency did not verify whether the spouse should have been included in the household. This resulted in questioned costs of $3,540. • For 10 payments, the payment amount was incorrect. o For one payment, the Agency calculated a payment amount of $1,285; however, after reviewing the lease, we calculated an amount of $1,161, a difference of $123. o For eight payments, we did not agree with the amount paid for late fees. For rent paid for future months, it was the Agency’s policy to pay the late fee if the payment was approved after the 15th of the previous month. For example, if the Agency approved a rental payment for the month of May 2024 on April 16, 2024, the Agency would also pay a late fee for May 2024. However, per review of the actual date paid, the late fees paid were either excessive or should not have been paid at all. Additionally, in some cases, the Agency calculated the late fee by taking the monthly rent amount multiplied by 10%. However, this also resulted in the amount of late fees paid being excessive per the lease agreement. In total, we questioned $425 in excessive late fees. o For one payment, the Agency paid future rent for three months, totaling $3,000, on May 7, 2024. However, the tenant moved after the first month. The Agency did not start to attempt to collect the overpayment of $2,000 until January 10, 2025. The $2,000 overpayment is considered questioned costs. Federal payment errors for the sample tested were $12,343. The total sample tested was $68,482, and assistance payments for the fiscal year totaled $11,541,538. Based on the sample tested, the dollar error rate for the sample was 18.02% ($12,343/$68,482), which estimated the potential dollars at risk for fiscal year 2024 to be $2,079,785 (dollar error rate multiplied by the population). Cause: Inadequate procedures to ensure all income was verified, and self-attestations of income were obtained every three months. Inadequate procedures to ensure the payment amount was correct. Effect: Increased risk of loss or misuse of funds and noncompliance with Federal guidelines. Recommendation: We recommend the Agency strengthen policies and procedures to ensure applicants are eligible for assistance, and payment amounts are reasonable and proper. Management Response: NEMA will work with NIFA to strengthen policies and procedures and provide additional guidance to Nelnet agents to ensure applicants are eligible for assistance and payment amounts are reasonable and proper. Regarding late fees, we will consider a change to the existing policy and review recommended changes.

Program: AL 21.023 – COVID-19 Emergency Rental Assistance – Reporting Grant Number & Year: ERAE1185, grant period ending 9/30/2025 Federal Grantor Agency: U.S. Department of the Treasury Criteria: Per 2 CFR § 1000.10 (January 1, 2024), the U.S. Department of the Treasury adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth in 2 CFR part 200. 2 CFR § 200.302(a) (January 1, 2024) states, in relevant part, the following: [T]he state’s and the other non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.   The Emergency Rental Assistance Program (ERA 2) Reporting Guidance (Revised January 3, 2024), issued by the U.S. Department of the Treasury, states, in part, the following: Each ERA2 Recipient must report the cumulative number of unique ERA2 participant households that were paid any dollar amount for at least one of the following: rent, rental arrears, utilities/home energy costs, utility/home energy arrears, or other expenses related to housing, between the date of receipt of the ERA2 award and the end of the current reporting period, by the following ranges of household income levels: i. Less than 30% of area median income (#) ii. Between 30% and 50% of area median income (#) iii. Between 50% and 80% of area median income (#) A good internal control plan requires procedures to ensure that all required information is reported accurately and supported by underlying data. Condition: For two of two quarterly reports tested, figures reported for unique participant households at certain income levels did not agree to supporting documentation. Repeat Finding: No Questioned Costs: None Statistical Sample: No Context: For the quarters ended March 31, 2024, and June 30, 2024, ERA 2 quarterly compliance reports, the Agency reported a cumulative number of unique households of 862 and 1,940, respectively. We noted during testing that the cumulative number of unique households, once split between different ranges of household income levels, did not agree with the Agency’s supporting documentation. The tables below show the differences between the reported households and the actual households. See Schedule of Findings and Questioned Costs for chart/table. Cause: Inadequate review of supporting documentation. Effect: Without adequate procedures to ensure reports contain accurate information, there is increased risk of noncompliance with Federal regulations. Recommendation: We recommend the Agency implement procedures to ensure figures reported in the ERA 2 quarterly compliance reports are accurate and agree to supporting documentation. Management Response: A vendor supplied report was found to contain an error in the way summary AMI data was accumulated.

Program: AL 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds – Allowability Grant Number & Year: SLFRP1965, March 3, 2021, through December 31, 2024 Federal Grantor Agency: U.S. Department of the Treasury Criteria: 31 CFR § 35.6(b) (July 1, 2023) states, in relevant part, the following: A recipient may use funds to respond to the public health emergency or its negative economic impacts if the use meets the criteria provided in paragraph (b)(1) of this section or is enumerated in paragraph (b)(3) of this section; provided that, in case of a use of funds for a capital expenditure under paragraph (b)(1) or (b)(3) of this section, the use of funds must also meet the criteria provided in paragraph (b)(4) of this section. Treasury may also articulate additional eligible programs, services, or capital expenditures from time to time that satisfy the eligibility criteria of this paragraph (b), which shall be eligible under this paragraph (b). (1) Identifying eligible responses to the public health emergency or its negative economic impacts. (i) A program, service, or capital expenditure is eligible under this paragraph (b)(1) if a recipient identifies a harm or impact to a beneficiary or class of beneficiaries caused or exacerbated by the public health emergency or its negative economic impacts and the program, service, or capital expenditure responds to such harm. (ii) A program, service, or capital expenditure responds to a harm or impact experienced by an identified beneficiary or class of beneficiaries if it is reasonably designed to benefit the beneficiary or class of beneficiaries that experienced the harm or impact and is related and reasonably proportional to the extent and type of harm or impact experienced. * * * * (3) Enumerated eligible uses: Responses presumed reasonably proportional. A recipient may use funds to respond to the public health emergency or its negative economic impacts on a beneficiary or class of beneficiaries for one or more of the following purposes unless such use is grossly disproportionate to the harm caused or exacerbated by the public health emergency or its negative economic impacts: * * * * (ii) Responding to the negative economic impacts of the public health emergency for purposes including: * * * * (D) Assistance to tourism, travel, hospitality, and other impacted industries for programs, services, or capital expenditures, including support for payroll costs and covered benefits for employees, compensating returning employees, support for operations and maintenance of existing equipment and facilities, and technical assistance[.] 31 CFR § 35.6(c) (July 1, 2023) states the following: Providing premium pay to eligible workers. A recipient may use funds to provide premium pay to eligible workers of the recipient who perform essential work or to provide grants to eligible employers that have eligible workers who perform essential work, provided that any premium pay or grants provided under this paragraph (c) must respond to eligible workers performing essential work during the COVID–19 public health emergency. A recipient uses premium pay or grants provided under this paragraph (c) to respond to eligible workers performing essential work during the COVID–19 public health emergency if: (1) The eligible worker’s total wages and remuneration, including the premium pay, is less than or equal to 150 percent of the greater of such eligible worker’s residing State’s or county’s average annual wage for all occupations as defined by the Bureau of Labor Statistics’ Occupational Employment and Wage Statistics; (2) The eligible worker is not exempt from the Fair Labor Standards Act overtime provisions (29 U.S.C. 207); or (3) The recipient has submitted to the Secretary a written justification that explains how providing premium pay to the eligible worker is responsive to the eligible worker performing essential work during the COVID–19 public health emergency (such as a description of the eligible workers’ duties, health, or financial risks faced due to COVID–19, and why the recipient determined that the premium pay was responsive despite the worker’s higher income). [Emphasis added] 31 CFR § 35.3 (July 1, 2023) defines “premium pay,” in relevant part, as follows: Premium pay means an amount of up to $13 per hour that is paid to an eligible worker, in addition to wages or remuneration the eligible worker otherwise receives, for all work performed by the eligible worker during the COVID–19 public health emergency. Such amount may not exceed $25,000 in total over the period of performance with respect to any single eligible worker. H.J. Res 7 (2023) states the following: Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That, pursuant to section 202 of the National Emergencies Act (50 U.S.C. 1622), the national emergency declared by the finding of the President on March 13, 2020, in Proclamation 9994 (85 Fed. Reg. 15337) is hereby terminated. Approved April 10, 2023. Additionally, the “Final Rule” was released by the U.S. Department of the Treasury on January 6, 2022. The Final Rule, Section II. Eligible Uses, A. Public Health and Negative Economic Impacts, 1. General Provisions: Structure and Standards, a. Standards for Identifying a Public Health or Negative Economic Impact, Standards: Designating a Negative Economic Impact, states the following, in relevant part: (Page 4344) First, there must be a negative economic impact, or an economic harm, experienced by an individual or a class. The recipient should assess whether, and the extent to which, there has been an economic harm, such as loss of earnings or revenue, that resulted from the COVID-19 public health emergency. A recipient should first consider whether an economic harm exists and then whether this harm was caused or made worse by the COVID-19 public health emergency. * * * * Second, the response must be designated to address the identified economic harm or impact resulting from or exacerbated by the public health emergency. In selecting responses, the recipient must assess whether, and the extent to which, the use would respond to or address this harm or impact. * * * * Responses must be reasonably designed to benefit the individual or class that experienced the negative economic impact or harm. Uses of funds should be assessed based on their responsiveness to their intended beneficiary and the ability of the response to address the impact or harm experienced by that beneficiary. Responses must also be related and reasonably proportional to the extent and type of harm experienced. The Final Rule, Section II. Eligible Uses, A. Public Health and Negative Economic Impacts, 4. General Provisions: Other, a. Public Sector Capacity and Workforce, states the following, in relevant part: (Page 4386) The final rule allows for an expanded set of eligible uses to restore and support public sector employment. Eligible uses include hiring up to a pre-pandemic baseline that is adjusted for historic underinvestment in the public sector, providing additional funds for employees who experienced pay cuts or were furloughed, avoiding layoffs, providing worker retention incentives, and paying for ancillary administrative costs related to hiring. * * * * The final rule provides two options to restore pre-pandemic employment, depending on recipient’s needs. Under the first and simpler option, recipients may use SLFRF funds to rehire staff for pre-pandemic positions that were unfilled or were eliminated due the pandemic without undergoing further analysis. Under the second option, the final rule provides recipients an option to hire above the pre-pandemic baseline, by adjusting the pre-pandemic baseline for historical growth in public sector employment over time, as well as flexibility on roles for hire. * * * * To pursue the second option, recipients should undergo the analysis provided below. In short, this option allows recipients to pay for payroll and covered benefits associated with the recipient increasing its number of budgeted full-time equivalent employees (FTEs) up to 7.5 percent above its pre-pandemic employment baseline, which adjusts for the continued underinvestment in state and local governments since the Great Recession. * * * * Funds may be used to maintain current compensation levels, with adjustments for inflation, in order to prevent layoffs that would otherwise be necessary. Recipients must be able to substantiate that layoffs were likely in the absence of SLFRF funds and would be substantially due to the public health emergency or its negative economic impacts (e.g., fiscal pressures on state and local budgets) and should document their assessment. * * * * Funds may be used to provide worker retention incentives, which are designed to persuade employees to remain with the employer as compared to other employment options. Recipients must be able to substantiate that the employees were likely to leave employment in the absence of the retention incentive and should document their assessment. * * * * All worker retention incentives must be narrowly tailored to need and should not exceed incentives traditionally offered by the recipient or compensation that alternative employers may offer to compete for the employees. Further, because retention incentives are intended to provide additional incentive to remain with the employer, they must be entirely additive to an employee’s regular rate of wages and other remuneration and may not be used to reduce or substitute for an employee’s normal earnings. Treasury will presume that retention incentives that are less than 25 percent of the rate of base pay for an individual employee or 10 percent for a group or category of employees are reasonably proportional to the need to retain employees, as long as the other requirements are met. The Final Rule, Footnote 230 states the following, in relevant part: (Page 4379) Ultimately, recipients must comply with the eligible use requirements and any other applicable laws or requirements and are responsible for the actions of their subrecipients or beneficiaries. Per 2 CFR § 1000.10 (January 1, 2024), “[T]he Department of the Treasury adopts the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, set forth at 2 CFR part 200.” 2 CFR § 200.303 (January 1, 2024) states, in relevant part, the following: 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. Per 2 CFR § 200.403 (January 1, 2024), costs must be necessary and reasonable for the performance of the Federal award. Costs must also be adequately documented. Good internal control and sound business practices require procedures for ensuring that: 1) grants issued to beneficiaries are reasonable and proportional to the harm identified; 2) premium pay is paid to only eligible individuals; 3) expenditures are adequately supported; and 4) all expenditures are for allowable purposes. 2 CFR § 200.511(a) (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The State lacked procedures to ensure that: • Grants issued to beneficiaries for worker retention and incentives were used for such purposes. • Premium pay paid to eligible individuals was for work performed during the COVID-19 public health emergency. • Grants to beneficiaries were proportional to the negative economic harm incurred. • Funds used for behavioral healthcare programs were adequately documented. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as complete. Repeat Finding: 2023-061 Questioned Costs: $512,698 known Statistical Sample: No Context: We randomly selected 40 payments to test. We also judgmentally selected 16 payments and 10 journal entries to test. We noted the following: Payments to Nursing Facilities and Assisted-Living for Employee Retention and Recruitment Nebraska Legislative Bill (LB) 1014 (2022), section 28, appropriated $15,000,000 from the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) grant to the Department of Health and Human Services (DHHS) for State fiscal year 2024 to be paid out to Medicaid-certified nursing facilities. The funds were to be used to provide supplemental incentive payments for direct care staff members employed at the nursing facilities. DHHS paid out $15,000,000 to Medicaid-certified nursing facilities during State fiscal year 2024. LB 1412 (2024), section 24, appropriated $1,499,657 in CSLFRF funds to DHHS to be used to issue payments to rural assisted-living facilities. Per DHHS, these funds were intended to be used for employee retention and recruitment programs at the facilities. DHHS paid out $1,499,657 to assisted-living facilities during State fiscal year 2024. During testing of a random sample of 40 CSLFRF expenditures, we tested four payments made to Medicaid-certified nursing facilities, totaling $383,409. We asked for documentation of how DHHS ensured that the payments were used for allowable employee retention and recruitment programs, and for any documented assessments that were required by the Final Rule for worker incentive programs. According to DHHS, the funds were paid out in accordance with the requirements of LB 1014. Additionally, DHHS obtained signed attestations from all nursing facilities that received funds in which the facility attested that it is aware that funds provided can only be used to enhance employee recruitment and retention and that funds were used for said purpose. No other procedures were performed by DHHS to ensure that the nursing facilities were using the funds for eligible recruitment and retention purposes and DHHS failed to provide documentation supporting any of the assessments required by the CSLFRF Final Rule. Given the lack of procedures to support that funds were being used for allowable purposes, all four payments of the $383,409 tested are considered questioned costs. Additionally, we judgmentally selected one payment to an assisted living facility pursuant to LB 1412, section 24, totaling $54,464. Similar to the nursing facility payments tested, DHHS intends to have each assisted-living facility sign an affidavit attesting that the assisted-living facility is aware that funds provided can only be used to enhance employee recruitment and retention and that funds were used for said purpose. No other procedures were performed or planned to be performed. Therefore, the $54,464 payment tested is considered a questioned cost. We also noted that one nursing facility did not receive its proportional allocation of $131,839. Instead, that amount was split among the other nursing facilities that received payments. Assistance to the State Fair LB 1014, section 52, appropriated $20,000,000 to the Department of Environment and Energy (DEE) from the CSLFRF grant to be used to provide wastewater and drainage system updates at the State fairgrounds. The State Fair Board received a grant of $20,000,000, and we judgmentally selected one payment to the State Fair Board, totaling $798,092. Of the $20,000,000 grant, $14,705,610 was for stormwater and sewer infrastructure, and $5,294,390 was for aid to tourism due to experiencing negative economic harm due to the COVID-19 public health emergency. Of the $5,249,390, however, the documentation on file only supported negative economic harm experienced of $4,539,525. Therefore, the grant award is not proportional to the harm experienced. As of June 30, 2024, only $1,396,267 of the portion for aid to tourism had been paid to the State Fair Board; therefore, we did not question costs. Payments to Schools, Child Care Providers, and Health Care Providers for Employee Premium Pay LB 1014, section 15, appropriated $10,000,000 to the Nebraska Department of Labor (NDOL) to be administered and distributed by NDOL through the recommendation of the Nebraska Worker Training Board. A portion of the $10,000,000 was being used for premium pay to teachers, child care providers, and nurses. NDOL paid out $5,277,250 to recipients for premium pay during the fiscal year. During our testing of a random sample of 40 CSLFRF payments, we tested four payments to recipients for premium pay, totaling $669,500. As part of NDOL’s procedures for reviewing requests for premium pay, NDOL had the entity provide the details of the employees that the premium pay was meant to benefit including name, hire date, and pay rate. NDOL had no procedures to verify the information submitted by the recipients to ensure that the employees met the eligibility requirements of 31 CFR § 35.6. Additionally, we noted that NDOL did not have any procedures in place after payments were issued to recipients to ensure that the premium pay was actually paid out to the employees they were intended to benefit. We asked NDOL to reach out to the recipients and subsequently provide us with underlying documentation for a selection of employees from the recipient. We noted that the employee information provided by the recipient was sufficient to determine eligibility and verify that individual employees received the premium pay that NDOL approved for them. However, for the four payments tested, we noted that premium pay was paid to 44 employees that were not hired until after the COVID-19 public health emergency ended or a few days prior to when the public health emergency ended on April 10, 2023. Premium pay paid to these individuals totaled $71,500, of which $70,250 was in-sample, and $1,250 was out-of-sample. The $71,500 is considered questioned costs. Behavioral Healthcare Programs LB 1014, section 24, appropriated $10,000,000 to DHHS to be distributed to local health departments for one-time infrastructure needs and any other costs including testing, personal protective equipment, and other preventative measures to combat the COVID-19 virus. We judgmentally selected one payment made pursuant to this purpose, totaling $367,699. Of the $367,699 tested, $3,325 was for backstage passes and zoo memberships purchased from the Henry Doorly Zoo. Per DHHS, these passes and memberships were used by program participants and employees of the local health department to facilitate non-traditional therapy methods, such as animal therapy and physical activity for the program participants. DHHS provided a list of 11 participants that supposedly used the passes and memberships; however, adequate documentation was not provided to support that those were the individuals that actually used the passes and memberships. We consider the $3,325 to be questioned costs. Total questioned costs from the random sample were $453,659. The total sample tested was $15,192,612, and the total sample population was $186,386,848. Based on the sample tested, the dollar error rate for the sample was 2.99% ($453,659/$15,192,612), which estimates the potential dollars at risk for fiscal year 2024 to be $5,572,967 (dollar error rate multiplied by the population). Cause: Inadequate procedures to ensure that grants to nursing and assisted-living facilities were used for allowable purposes, to ensure that premium pay was only paid to individuals employed during the COVID-19 public health emergency, and to obtain adequate documentation to verify that grants made were reasonably proportional to the negative economic harm experienced. Effect: Without adequate supporting documentation and review procedures, there is an increased risk that Federal awards could be used for unallowable costs. Recommendation: We recommend the State strengthen procedures for ensuring that all Federal funds are used for intended and allowable purposes. Management Response: Department of Health and Human Services DHHS agrees with the finding regarding payments to nursing facilities and assisted-living for employee retention and recruitment. DHHS does not disagree with APA’s characterization of the Behavioral Health Care program administered by Douglas County Health Department. However, DHHS provided the membership IDs purchased and contact details, including name, phone, email, and address, for every parent or guardian and the age of their minor children who participated in this behavioral health program. To the Department’s knowledge, APA did not follow up with any of these contacts. Department of Environment and Energy NDEE management in coordination/conjunction with the Department of Administrative Services Budget Team revisited the State Fair Board tourism loss calculation, taking the APA’s assessment into consideration. We agree with the APA’s assessment and recalculation of tourism loss in the amount of $4,539,525. Department of Labor Premium pay is additional hourly compensation paid to eligible workers in addition to their regular hourly wages for the heightened risk they faced during the COVID-19 pandemic as defined under the CSLFRF. It may be called “Premium Pay” in the NDOL Guidance document, but the payments were for “recruitment and retention” of workers which are not subject to the time restrictions of the declaration of the COVID-19 emergency. The 12-31-2024 obligation date applies to recruitment and retention grants. Teacher Recruitment and Retention Grant (“TRRG”) awards will fund premium pay as part of a strategy to support recruitment and retention of educators in high-demand positions. Nursing Recruitment and Retention Grant (“NRRG”) awards will fund premium pay as part of a strategy to support recruitment and retention of healthcare workers in high-demand positions. Premium pay will target registered nurses (RNs), licensed practical nurses (LPNs), and certified nursing assistants (CNAs) working in eligible practice settings. NRRG award recipients will be healthcare institutions and healthcare systems, and these recipients will commit to provide training and professional development to support the retention of the healthcare workers eligible for premium pay. NRRG funds will be used to make lump sum payments of premium pay wages of $2,500.00 to RNs, $1500 to LPNs, and $1000 to CNAs in eligible positions who remain employed as of January 9, 2024. APA Response: The health department is a subrecipient of DHHS. It is DHHS’s responsibility to ensure that subrecipients comply with the requirements of the Federal program. Adequate documentation, such as attestation forms or sign-in sheets, were not provided to support that the zoo memberships and passes were actually used by those individuals for the behavioral health program. The guidance document that the NDOL provided to the APA referred to these payments as “premium pay.” Under the CSLFRF Final Rule, the use of CSLFRF funds for the purposes of employee retention and recruitment requires, among other things, the recipient to be able to substantiate that employees were likely to leave in the absence of the retention incentive or that funds were used only to rehire roles that became vacant due to the COVID-19 pandemic or up to an adjustment pre-pandemic baseline. No documentation of such an analysis was provided to the APA.

Program: AL 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds – Reporting Grant Number & Year: SLFRP1965, March 3, 2021, through December 31, 2024 Federal Grantor Agency: U.S. Department of the Treasury Criteria: 31 CFR § 35.3 (July 1, 2023) defines “obligation” as the following: [A]n order placed for property and services and entering into contracts, subawards, and similar transactions that require payment. 31 CFR § 35.6(b)(4) (July 1, 2023) states, in relevant part, the following: A recipient, other than a Tribal government, must prepare a written justification for certain capital expenditures according to Table 1 to paragraph (b)(4) of this section. Such written justification must include the following elements: (i) Describe the harm or need to be addressed; (ii) Explain why a capital expenditure is appropriate; and (iii) Compare the proposed capital expenditure to at least two alternative capital expenditures and demonstrate why the proposed capital expenditure is superior. See Schedule of Findings and Questioned Costs for chart/table. 2 CFR § 200.302(a) (January 1, 2024) states, in relevant part, the following: [T]he state’s and the other non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions[.] Good internal control and sound business practices require policies and procedures to ensure that all Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) reporting requirements are met, including the maintenance of written justification on file for projects with expected capital expenditures of more than $1 million and that written justification is submitted to the Treasury, as required, for projects with expected capital expenditures of $10 million or more. 2 CFR § 200.511(a) (January 1, 2024) requires the auditee to prepare a summary schedule of prior audit findings. Per subsection (b)(2) of that same regulation, “When audit findings were not corrected or were only partially corrected, the summary schedule must describe the reasons for the finding’s recurrence and planned corrective action, and any partial corrective action taken.” Condition: The Department of Administrative Services (DAS) was responsible for preparing the Quarterly Project and Expenditure Reports. DAS lacked procedures to ensure that CSLFRF obligations and expenditures were reported accurately on the Quarterly Project and Expenditure Reports, or written justification was accurately submitted or on file for projects with expected capital expenditures. A similar finding was noted in the prior audit. The Summary Schedule of Prior Audit Findings lists the status as complete. Repeat Finding: 2023-062 Questioned Costs: None Statistical Sample: No Context: We tested the quarters ended December 31, 2023, and June 30, 2024, Project and Expenditure reports. We selected 10 of 93 projects from the quarter ended December 31, 2023, report and 10 of 96 projects from the quarter ended June 30, 2024, report to test. We noted the following: Current and Cumulative Obligations Reported Nine of the projects tested did not have current obligations or cumulative obligations reported correctly, as shown in the following table. See Schedule of Findings and Questioned Costs for chart/table. For the Nursing Scholarships and Private Reverse Osmosis projects, the obligations consisted of multiple different awards to individuals. When testing some of the awards, we noted that the date the State was reporting the awards as obligated did not agree to the date that the awards were signed. For example, one award tested was reported as obligated in December 2023, but it was not actually signed until January 2024. Therefore, we were unable to determine the amount that should have been reported as obligations. During testing of the projects above, we also noted the following errors in the obligations reported. See Schedule of Findings and Questioned Costs for chart/table. Additionally, the PH EMS Ambulance project reported $0 in current period obligations on the quarter ended September 30, 2023, report. However, we reviewed two awards that were reported as obligated in April 2023 but were not actually signed until July 2023. Therefore, the current period obligations for September 2023 were understated. Current and Cumulative Expenditures Reported Three of the projects tested did not have cumulative or current period expenditures reported correctly. See Schedule of Findings and Questioned Costs for chart/table. For the Loan Repayment for Healthcare Workers project, $53,802 should have been reported under the ARPA Administration project, of which $23,709 was current period expenditures. Additionally, during our testing of the projects above, we noted that the cumulative expenditures reported for projects administered by the State Colleges System were overstated by $6,999 as of June 30, 2024. Capital Expenditures Four projects either did not properly report expected capital expenditures, or the required written justification was not on file. • Long-Term Housing Security – Affordable Housing – The State reported expected capital expenditures of $750,000 as of June 30, 2024, for this project and included no written justification in the quarterly report. Per the Department of Economic Development (DED), the State agency administering the project, all $39.4 million of CSLFRF funds obligated under the project are expected to be used for capital expenditures. Based on this valuation, written justification would have been required to be submitted to the Treasury and kept on file. Per DED, no written justification had been completed for the project, and nothing was submitted to the Treasury. • PH EMS Ambulance – The State reported no expected capital expenditures for this project. The project uses CSLFRF grant funds to reimburse licensed EMS services for partial costs of acquiring new ambulances. Per discussion with DHHS, all costs recorded under this project should be expected capital expenditures. DHHS treated each subaward under the project separately when determining if written justification was required. As no single subaward was for $1 million or more, DHHS had not documented any written justification. • Medical Facilities for Disproportionately Impacted Communities – The State reported no expected capital expenditures for this project, which is solely for the design and construction of a new clinic. Per discussion with DED, the agency administering the project, the project should have had $2,000,000 of expected capital expenditures. DED also stated that no written justification had been completed for the project. • New Law Enforcement Training Center – The State reported expected capital expenditures of $47,000,000 for this project. The written justification was submitted with the quarterly report; however, the written justification did not include a comparison of the proposed capital expenditure to at least two alternatives and demonstrate why the proposed expenditure was superior, as required by Federal regulations. • Additionally, during testing we noted that the Food Security project reported expected capital expenditures of $3,967,469; however, no written justification was on file for the project. DHHS treated each subaward under the project separately when determining if written justification was required. As no single subaward was for $1 million or more, DHHS had not documented any written justification. Cause: Individual agencies were responsible for reporting to DAS what should be reported on the Quarterly Project and Expenditure Report. Not all information reported by the agencies was accurate, and the State was not determining obligations in accordance with Federal definitions in several instances. Effect: Without adequate procedures, there is increased risk that the quarterly project and expenditure reports will be materially misstated, and required written justification will not be on file. Recommendation: We recommend the Agency strengthen procedures to ensure that all quarterly project and expenditure reports are complete and accurate, and any required written justification is maintained on file or submitted to the Treasury as required. Management Response: Each quarter DAS pulls actual expenditures during the reporting period and sends to each agency for their reconciliation. Each agency submits its obligations and reconciled expenditures which are inputted into the US Treasury portal. DAS is working with agencies to ensure all funds are obligated as of December 31, 2024.

Program: AL 21.029 – COVID-19 Coronavirus Capital Projects Fund – Subrecipient Monitoring Grant Number & Year: CPFFN0183, grant period ending December 31, 2026 Federal Grantor Agency: U.S. Department of the Treasury Criteria: Per 2 CFR § 1000.10 (January 1, 2024), the U.S. Department of the Treasury adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth at 2 CFR part 200. 2 CFR § 200.201(b)(1) (January 1, 2024) states the following, in relevant part: The Federal awarding agency or pass-through entity may use fixed amount awards if the project scope has measurable goals and objectives and if adequate cost, historical, or unit pricing data is available to establish a fixed amount award based on a reasonable estimate of actual cost. On May 17, 2023, the U.S. Department of the Treasury issued the SLFRF and CPF Supplementary Broadband Guidance, which states the following, in relevant part: Treasury further clarifies that a subaward that otherwise meets the requirements of 2 CFR 200.201(b) may be considered a fixed amount subaward even if: 1) the recipient uses its discretion to impose a cost-sharing or match requirement on the subrecipient; or 2) the recipient requires ISPs to submit evidence of costs. More specifically, subawards that provide for a maximum payment amount that is calculated based on a reasonable estimate of actual cost (see 2 CFR 200.201(b)(1)) will be considered fixed amount subawards even if the subaward agreement also provides that payments to the ISP subrecipient will be limited to actual costs after review of evidence of costs. Good internal controls require procedures to ensure that fixed amount subawards are based on a reasonable estimate of actual costs. This would include tracing budgeted costs to historical costs for similar projects, unit pricing data, or other documentation. Condition: For all four subrecipients tested, the Agency did not obtain adequate documentation to support that the subrecipients’ fixed amount subawards were based on a reasonable estimate of actual costs. Repeat Finding: No Questioned Costs: Unknown Statistical Sample: No Context: The Agency awarded an initial amount of $61,345,287 to 18 subrecipients for broadband infrastructure projects. The Agency considered the subawards to be fixed amount subawards. We tested all the subawards issued to four subrecipients, which totaled $12,774,913. The Agency did not have adequate documentation on file to support that the fixed amount of the subaward was based on a reasonable estimate of actual costs. Documentation on file included a project budget, business plan, technical capability, and a funding breakdown. However, none of the costs included in this documentation was traced to historical costs for similar projects, unit pricing data, or other documentation. The Agency’s procedures include obtaining documentation for all costs actually incurred by the subrecipients when the project is completed. However, none of the projects were completed as of June 30, 2024, so the Agency had not yet obtained additional documentation. Total payments to subrecipients during the fiscal year ended June 30, 2024, were $24,426,287. Cause: Inadequate procedures to verify that the amount of the subaward was based on a reasonable estimate of actual costs. Effect: Without procedures in place to ensure the fixed amount of the subaward is based on a reasonable estimate of actual costs, there is an increased risk Federal funds disbursed could exceed a justifiable amount. Recommendation: We recommend the Agency improve its procedures to include tracing estimated costs of a project to historical costs for similar projects, unit pricing data, or other documentation. Management Response: As a threshold issue, we would note that the referenced supplemental guidance issued by the Treasury on May 17, 2023, stating that these should be considered fixed priced awards even though there is a review of actual costs prior to full reimbursement, came after our first round of applications were filed, budgets reviewed, and applications cured. Modified procedures were put into place for the second round of applications, which occurred after the supplemental guidance was issued. However, we feel the review of submitted budgets for the first round of applications that was conducted by PSC staff, assessed the reasonableness of costs presented using historical experience based on the scope of the project, geography/terrain, and type of technology used for deployment. Applicants based their budgets on prior experience with broadband deployments in similar project areas, which relied on practical knowledge and reasonable estimates. In cases where costs appeared to be outliers, staff would inquire for further explanations and justifications. This process reflects our commitment to ensuring that the funding requests were based on reasonable estimates of actual costs in that first round of applications. We concede that portion of review was not initially fully documented, however we have already implemented processes to better document this going forward. Additionally, we would mention with traditional Fixed Price Awards, awardees are paid the original budget amount with no reconciliation to actual costs. The Treasury nontraditional fixed price awards allow for reimbursements to not exceed actual costs, which we feel eliminates any opportunity for unjust enrichment. There is a complete review of actual costs done at project completion and subrecipients will only be reimbursed for allowable, actual incurred costs up to the award amount. In the unlikely event that support already advanced exceeds the final review of actual costs, awardees are required to repay those amounts as outlined in the grant agreement. APA Response: The U.S. Department of the Treasury requires recipients to follow Uniform Guidance, which requires fixed amount subawards to be based on adequate cost, historical, or unit pricing data. The U.S. Department of the Treasury further clarified in its supplemental guidance dated May 17, 2023, that subawards can be considered fixed amount subawards if the subaward otherwise met the requirements of 2 CFR § 200.201(b). Documentation was not provided to support that the subawards met those requirements.