Audit 358146

2024-002: Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Community Mental Health Services Assistance Listing Number: 93.958 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B09SM090319, 6B09SM085337 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of period of performance. The County should have internal controls designed to ensure that expenditures are recorded within the period of performance. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County incorrectly included payroll costs for the payroll period ended June 30, 2023, which were incurred before the period of performance. Questioned costs: $1,144 known questioned costs, plus $48,543 of likely questioned costs based on the likely assumption that all expenditures for the payroll period ended June 30, 2023, included on the general ledger of expenditures for the program, would all be found to have occurred prior to the period of performance if tested. Context: This condition was on 1 of 40 samples. Cause: The compilation of expenditures reported was based on the system date for when expenditures were recorded in the system instead of when the expenditures were incurred. Effect: Expenditures recorded to the grant may have been recorded outside of the grant’s period of performance. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-006. Recommendation: We recommend the County conduct training with its various departments to instruct them on how to compile expenditures based on the accrual basis of accounting (when the expenditures were incurred). Views of responsible officials: The County concurs with the finding.

2024-002: Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Community Mental Health Services Assistance Listing Number: 93.958 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B09SM090319, 6B09SM085337 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of period of performance. The County should have internal controls designed to ensure that expenditures are recorded within the period of performance. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County incorrectly included payroll costs for the payroll period ended June 30, 2023, which were incurred before the period of performance. Questioned costs: $1,144 known questioned costs, plus $48,543 of likely questioned costs based on the likely assumption that all expenditures for the payroll period ended June 30, 2023, included on the general ledger of expenditures for the program, would all be found to have occurred prior to the period of performance if tested. Context: This condition was on 1 of 40 samples. Cause: The compilation of expenditures reported was based on the system date for when expenditures were recorded in the system instead of when the expenditures were incurred. Effect: Expenditures recorded to the grant may have been recorded outside of the grant’s period of performance. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-006. Recommendation: We recommend the County conduct training with its various departments to instruct them on how to compile expenditures based on the accrual basis of accounting (when the expenditures were incurred). Views of responsible officials: The County concurs with the finding.

2024-003: Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Number: 93.959 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B08TI087026-01,1B08TI083929-01 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of period of performance. The County should have internal controls designed to ensure that expenditures are recorded within the period of performance. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County incorrectly included a portion of nonpayroll costs which were predominantly incurred before the period of performance. Questioned costs: $2,414 known questioned cost, plus $110,850 of likely questioned costs based on an extrapolation of the known error identified within the population tested. Context: This condition was identified on 5 of 10 samples testing during the first month of the period of performance. Cause: The compilation of expenditures reported was based on the system date for when expenditures were recorded in the system instead of when the expenditures were incurred. Effect: Expenditures recorded to the grant may have been recorded outside of the grant’s period of performance. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-007. Recommendation: We recommend the County conduct training with its various departments to instruct them on how to compile expenditures based on the accrual basis of accounting (when the expenditures were incurred). Views of responsible officials: The County concurs with the finding.

2024-003: Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Number: 93.959 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B08TI087026-01,1B08TI083929-01 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of period of performance. The County should have internal controls designed to ensure that expenditures are recorded within the period of performance. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County incorrectly included a portion of nonpayroll costs which were predominantly incurred before the period of performance. Questioned costs: $2,414 known questioned cost, plus $110,850 of likely questioned costs based on an extrapolation of the known error identified within the population tested. Context: This condition was identified on 5 of 10 samples testing during the first month of the period of performance. Cause: The compilation of expenditures reported was based on the system date for when expenditures were recorded in the system instead of when the expenditures were incurred. Effect: Expenditures recorded to the grant may have been recorded outside of the grant’s period of performance. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-007. Recommendation: We recommend the County conduct training with its various departments to instruct them on how to compile expenditures based on the accrual basis of accounting (when the expenditures were incurred). Views of responsible officials: The County concurs with the finding.

2024-004: Allowable Costs – Indirect Costs Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Number: 93.959 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B08TI087026-01,1B08TI083929-01 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of direct and indirect costs. The County should have internal controls designed to ensure administrative and other costs that cannot be identified specifically with a particular Federal award as a final cost objective are not recorded as direct costs to the program. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County recorded administrative and other indirect costs as direct costs to the Federal award. Questioned costs: None. Context: For a sample of 60 payroll and nonpayroll expenditures, 13 items tested were indirect costs in nature yet recorded as direct costs. Cause: The cost allocation program used by the Behavioral Health and Recovery Services (BHRS) department, to allocate costs to various Federal awards and other funding sources, included a blend of expenses that are both direct and indirect in nature as allocated direct costs. Effect: Reported program cost may not accurately reflect a correct allocation of indirect costs for the program. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-008. While the conditions causing expenses that are both direct and indirect in nature to be allocated as direct costs have not been corrected, segments of these costs included in the prior year’s reporting were sufficiently excluded from the current year’s reporting of program expenses that it was unlikely that indirect cost reported would exceed the program’s approved indirect cost rate. Recommendation: We recommend the County review the cost allocation process of the BHRS department to correctly classify costs between direct and indirect costs. Views of responsible officials: The County concurs with the finding.

2024-004: Allowable Costs – Indirect Costs Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Number: 93.959 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B08TI087026-01,1B08TI083929-01 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of direct and indirect costs. The County should have internal controls designed to ensure administrative and other costs that cannot be identified specifically with a particular Federal award as a final cost objective are not recorded as direct costs to the program. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County recorded administrative and other indirect costs as direct costs to the Federal award. Questioned costs: None. Context: For a sample of 60 payroll and nonpayroll expenditures, 13 items tested were indirect costs in nature yet recorded as direct costs. Cause: The cost allocation program used by the Behavioral Health and Recovery Services (BHRS) department, to allocate costs to various Federal awards and other funding sources, included a blend of expenses that are both direct and indirect in nature as allocated direct costs. Effect: Reported program cost may not accurately reflect a correct allocation of indirect costs for the program. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-008. While the conditions causing expenses that are both direct and indirect in nature to be allocated as direct costs have not been corrected, segments of these costs included in the prior year’s reporting were sufficiently excluded from the current year’s reporting of program expenses that it was unlikely that indirect cost reported would exceed the program’s approved indirect cost rate. Recommendation: We recommend the County review the cost allocation process of the BHRS department to correctly classify costs between direct and indirect costs. Views of responsible officials: The County concurs with the finding.

2024-002: Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Community Mental Health Services Assistance Listing Number: 93.958 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B09SM090319, 6B09SM085337 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of period of performance. The County should have internal controls designed to ensure that expenditures are recorded within the period of performance. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County incorrectly included payroll costs for the payroll period ended June 30, 2023, which were incurred before the period of performance. Questioned costs: $1,144 known questioned costs, plus $48,543 of likely questioned costs based on the likely assumption that all expenditures for the payroll period ended June 30, 2023, included on the general ledger of expenditures for the program, would all be found to have occurred prior to the period of performance if tested. Context: This condition was on 1 of 40 samples. Cause: The compilation of expenditures reported was based on the system date for when expenditures were recorded in the system instead of when the expenditures were incurred. Effect: Expenditures recorded to the grant may have been recorded outside of the grant’s period of performance. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-006. Recommendation: We recommend the County conduct training with its various departments to instruct them on how to compile expenditures based on the accrual basis of accounting (when the expenditures were incurred). Views of responsible officials: The County concurs with the finding.

2024-002: Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Community Mental Health Services Assistance Listing Number: 93.958 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B09SM090319, 6B09SM085337 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of period of performance. The County should have internal controls designed to ensure that expenditures are recorded within the period of performance. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County incorrectly included payroll costs for the payroll period ended June 30, 2023, which were incurred before the period of performance. Questioned costs: $1,144 known questioned costs, plus $48,543 of likely questioned costs based on the likely assumption that all expenditures for the payroll period ended June 30, 2023, included on the general ledger of expenditures for the program, would all be found to have occurred prior to the period of performance if tested. Context: This condition was on 1 of 40 samples. Cause: The compilation of expenditures reported was based on the system date for when expenditures were recorded in the system instead of when the expenditures were incurred. Effect: Expenditures recorded to the grant may have been recorded outside of the grant’s period of performance. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-006. Recommendation: We recommend the County conduct training with its various departments to instruct them on how to compile expenditures based on the accrual basis of accounting (when the expenditures were incurred). Views of responsible officials: The County concurs with the finding.

2024-003: Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Number: 93.959 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B08TI087026-01,1B08TI083929-01 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of period of performance. The County should have internal controls designed to ensure that expenditures are recorded within the period of performance. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County incorrectly included a portion of nonpayroll costs which were predominantly incurred before the period of performance. Questioned costs: $2,414 known questioned cost, plus $110,850 of likely questioned costs based on an extrapolation of the known error identified within the population tested. Context: This condition was identified on 5 of 10 samples testing during the first month of the period of performance. Cause: The compilation of expenditures reported was based on the system date for when expenditures were recorded in the system instead of when the expenditures were incurred. Effect: Expenditures recorded to the grant may have been recorded outside of the grant’s period of performance. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-007. Recommendation: We recommend the County conduct training with its various departments to instruct them on how to compile expenditures based on the accrual basis of accounting (when the expenditures were incurred). Views of responsible officials: The County concurs with the finding.

2024-003: Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Number: 93.959 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B08TI087026-01,1B08TI083929-01 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of period of performance. The County should have internal controls designed to ensure that expenditures are recorded within the period of performance. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County incorrectly included a portion of nonpayroll costs which were predominantly incurred before the period of performance. Questioned costs: $2,414 known questioned cost, plus $110,850 of likely questioned costs based on an extrapolation of the known error identified within the population tested. Context: This condition was identified on 5 of 10 samples testing during the first month of the period of performance. Cause: The compilation of expenditures reported was based on the system date for when expenditures were recorded in the system instead of when the expenditures were incurred. Effect: Expenditures recorded to the grant may have been recorded outside of the grant’s period of performance. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-007. Recommendation: We recommend the County conduct training with its various departments to instruct them on how to compile expenditures based on the accrual basis of accounting (when the expenditures were incurred). Views of responsible officials: The County concurs with the finding.

2024-004: Allowable Costs – Indirect Costs Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Number: 93.959 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B08TI087026-01,1B08TI083929-01 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of direct and indirect costs. The County should have internal controls designed to ensure administrative and other costs that cannot be identified specifically with a particular Federal award as a final cost objective are not recorded as direct costs to the program. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County recorded administrative and other indirect costs as direct costs to the Federal award. Questioned costs: None. Context: For a sample of 60 payroll and nonpayroll expenditures, 13 items tested were indirect costs in nature yet recorded as direct costs. Cause: The cost allocation program used by the Behavioral Health and Recovery Services (BHRS) department, to allocate costs to various Federal awards and other funding sources, included a blend of expenses that are both direct and indirect in nature as allocated direct costs. Effect: Reported program cost may not accurately reflect a correct allocation of indirect costs for the program. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-008. While the conditions causing expenses that are both direct and indirect in nature to be allocated as direct costs have not been corrected, segments of these costs included in the prior year’s reporting were sufficiently excluded from the current year’s reporting of program expenses that it was unlikely that indirect cost reported would exceed the program’s approved indirect cost rate. Recommendation: We recommend the County review the cost allocation process of the BHRS department to correctly classify costs between direct and indirect costs. Views of responsible officials: The County concurs with the finding.

2024-004: Allowable Costs – Indirect Costs Federal Agency: U.S. Department of Health and Human Services Federal Program Name: Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Number: 93.959 Pass-Through Agency: California Department of Health Care Services Award ID and Period: 1B08TI087026-01,1B08TI083929-01 and July 01, 2023, through June 2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance and Other Matter Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of direct and indirect costs. The County should have internal controls designed to ensure administrative and other costs that cannot be identified specifically with a particular Federal award as a final cost objective are not recorded as direct costs to the program. Additionally, 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award section 200.303 requires that entities establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our testing of Allowable Costs, we noted that the County recorded administrative and other indirect costs as direct costs to the Federal award. Questioned costs: None. Context: For a sample of 60 payroll and nonpayroll expenditures, 13 items tested were indirect costs in nature yet recorded as direct costs. Cause: The cost allocation program used by the Behavioral Health and Recovery Services (BHRS) department, to allocate costs to various Federal awards and other funding sources, included a blend of expenses that are both direct and indirect in nature as allocated direct costs. Effect: Reported program cost may not accurately reflect a correct allocation of indirect costs for the program. Repeat finding: Yes, the same issue was noted in the prior year under finding No. 2023-008. While the conditions causing expenses that are both direct and indirect in nature to be allocated as direct costs have not been corrected, segments of these costs included in the prior year’s reporting were sufficiently excluded from the current year’s reporting of program expenses that it was unlikely that indirect cost reported would exceed the program’s approved indirect cost rate. Recommendation: We recommend the County review the cost allocation process of the BHRS department to correctly classify costs between direct and indirect costs. Views of responsible officials: The County concurs with the finding.