Criteria – Federally funded entities must establish and maintain effective internal control procedures to ensure compliance Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). These requirements mandate that direct charges to federal awards be for allowable costs and activities be supported by appropriate documentation, even when such transactions are maintained and processed under a contract with a third party administrator (TPA). Condition and context – The Tribe contracted with a TPA to manage and disburse assistance payments to tribal members. During the audit period, the Tribe implemented a new program funded by the Tribal Broadband Connectivity Program, designed to reimburse tribal members for internet service expenses. The Tribe conducted a survey of members to identify those interested in receiving reimbursement. After reviewing the survey responses, the Tribe provided the TPA with a list of eligible members. Tribal members then accessed the TPA’s system to attest to their need for reimbursement, after which the TPA processed the payments. The Tribe reconciled monthly invoices, monthly reports, and project close out reports provided by the TPA to the Tribe’s records. Through this reconciliation the Tribe identified irregularities in payment records and reports submitted by the TPA, raising concerns of potential vendor irregularities. These concerns were reported to the funding agency. Although the Tribe has initiated an investigation to assess the extent of the suspected vendor irregularities and has since assumed responsibility for processing all payment previously handled by the TPA, the TPA did not provide complete documentation supporting compliance with program requirements in a timely manner. Additionally, the TPA did not provide the Tribe a report on internal controls (SOC 1 Type 2 Report) in the current audit year. This limited the auditor’s ability to test controls or verify expenditures and compliance, resulting in a scope limitation. Cause – The Tribe may have had difficulties in determining the nature and extent of the irregularities because the reports provided by the TPA may have contained incomplete or inaccurate information. Questioned costs – Due to the scope limitation, the auditor was unable to determine whether the $411,596 in broadband reimbursement assistance and related processing expenses, were allowable, reasonable, and properly allocated to the federal program. Consequently, these costs are unknown. Effect – The scope limitation impeded the auditor’s ability to obtain sufficient appropriate evidence to confirm that funds disbursed by the TPA were used in accordance with federal program requirements. This raises the risk of unallowable expenditures and noncompliance with federal regulation. Repeat finding – This is not a repeat finding. Recommendation – The Tribe should continue to report to the funding agency the progress of their investigation. Additionally, the Tribe should enhance its oversight and monitoring of all TPAs based on comprehensive risk assessments. For TPAs that do not provide a current internal controls report (e.g., SOC-1 Type 2 or equivalent), the Tribe should implement heightened oversight measures, such as more frequent reviews, audits, or requiring additional documentation, to ensure compliance an mitigate risk. Views of Responsible Officials – This matter remains subject to Tribal and Federal law enforcement investigations through the Federal Bureaus of Investigations (FBI), the Cowlitz Police Department (CPD) and internal as well as external auditors. While this matter remains the subject of active criminal investigations, further comment is inappropriate.
Criteria – According to the Uniform Guidance, Title 2 U.S. Code of Federal Regulations Part 200.414, indirect costs must be allocated using the federally approved indirect cost rate agreement. Costs charged using a rate different from the approved rate are unallowable. Condition and context – As part of the Medicaid Administrative Claiming (MAC) Random Moment Time Study (RMTS) program administered by the Washington State Health Care Authority (HCA) and passed through to the Tribe, the Tribe provides HCA with its federally approved indirect cost rate. HCA then uses this rate to calculate the Tribe’s allowable quarterly claim amount. During the audit period, the Tribe negotiated two indirect cost rates with the U.S. Department of the Interior, Interior Business Center: a 58.73% rate for Indian Health Services Public Law 93-638 (IHS P.L. 638) programs, and a 31.31% rate for all other programs. The Tribe provided the higher IHS P.L. 638 indirect cost rate to HCA for use in RMTS claims. However, the MAC RMTS program does not operate under IHS P.L. 638, making the use of this rate incorrect for the program. The application of the incorrect indirect cost rate resulted in overpayments totaling approximately $103,000 during the audit period. Cause – This was the Tribe’s first year operating under two separate federal approved indirect cost rates. The Tribe misunderstood which rate should be used for the MAC RMTS program. Because most participants in the RMTS are primarily funded through the Tribe’s Indian Health Services Program, the Tribe assumed that the IHS P.L. 638 indirect cost rate was applicable to the MAC RMTS program as well. The Tribe did not recognize that this rate was limited to only Indian Health Service funded programs and did not identify the use of the incorrect rate in reports from HCA, leading to the submission of claims using the incorrect indirect cost rate. Questioned costs – None. The Tribe has worked with HCA to adjust the quarterly claims amounts accordingly. All past overpayments will be reimbursed to HCA subsequent to audit issuance. Additionally, the Tribe has recorded an adjustment to reduce the expenditures reported in the financial statements and recognized a corresponding liability for the overpaid funds. Furthermore, the Tribe reimbursed the IHS P.L. 638 indirect cost pool for the portion of funds received related to the individuals in that cost pool. As a result, there are no questioned costs associated with other programs related to this finding. Effect – The Tribe received funds in excess of the amount earned under the correct indirect cost rate, resulting in temporary overpayments. Repeat finding – This is not a repeat finding. Recommendation –Tribe should strengthen controls to ensure the correct federally approved indirect cost rate is identified and applied to each federal program. This is particularly important for programs where the indirect cost rate is calculated or applied by external entities. Specifically, all supporting RMTS reports should be submitted to the Accounting Department along with reimbursement requests. This will enable an independent review by Accounting personnel to verify the indirect cost rate used and confirm its accuracy before recorded and submission. Views of Responsible Officials – This is the first year of dual indirect cost rates. Management agrees with this finding and will implement a corrective action plan.
Criteria – The Tribe participates in the Medicaid Administrative Claiming (MAC) Random Moment Time Study (RMTS) administered by the Washington State Health Care Authority (HCA) and authorized by the Centers for Medicare and Medicaid Services. According to Title 45 U.S. Code of Federal Regulations Part 75.430(i)(5), a RMTS is a type of “substitute system” used for determining and documenting time spent on, and therefore the costs of, Medicaid administrative and direct service activities. The grant terms and conditions specify that eligible participants in the RMTS must be, among other things, employees whose positions are reasonably expected to perform MAC activities and are not included in an approved Indirect Rate. To support compliance, HCA publishes a MAC RMTS Coordinator Manual, which outlines required quarterly activities, which includes activating and deactivating participants as necessary. Condition and context – As part of the MAC RMTS, enrolled participants respond to random moment polls during their standard workday. The study administrator processes the poll results to quantify time spent on MAC activities and calculate the allowable quarterly claim amount. During the audit period the Tribe negotiated two indirect cost rates with the U.S. Department of the Interior, Interior Business Center: one for Indian Health Services Public Law 93-638 (IHS P.L. 638) programs, and another for all other programs. Several employees included in the indirect cost pool for the IHS P.L. 638 rate regularly perform MAC activities and have historically participated in the MAC RMTS. However, the inclusion of these employees in the new IHS P.L. 638 indirect cost pool, preclude them from continued participation in the MAC RMTS. The participation of these employees in the MAC RMTS resulted in overpayments totaling approximately $50,000 during the audit period. Cause – This was the Tribe’s first year operating with two separate federal approved indirect cost rates pools. The Tribe did not assess the impact of the newly negotiated IHS P.L. 638 indirect cost rate on RMTS participant eligibility. Consequently, employees included in the IHS P.L. 638 indirect cost rate pool were not deactivated from the MAC RMTS as required. Questioned costs – None. The Tribe has worked with HCA to adjust the quarterly claims amounts accordingly. All past overpayments will be reimbursed to HCA subsequent to audit issuance. Additionally, the Tribe has recorded an adjustment to reduce the expenditures reported in the financial statements and recognized a corresponding liability for the overpaid funds. Effect – Inclusion of ineligible participants creates uncertainty regarding the accuracy of RMTS claims and resulted in unallowable costs charged to the MAC RMTS program. Repeat finding – This is not a repeat finding. Recommendation – The Tribe should strengthen internal controls over the MAC RMTS participant review process. Specifically, it should implement a quarterly review to ensure that all employees enrolled in the RMTS are eligible and not included in any approved indirect cost rate pools that would disqualify them from participation. Views of Responsible Officials – This is the first year of dual indirect cost rates. Management agrees with this finding and will implement a corrective action plan.