Finding 2025-001 – I. Procurement Identification of the federal program: Federal Agency: U.S. Department of Health and Human Services Assistance Listing: 93.493, Congressional Directives Award Period: July 1, 2024 through June 30, 2025 Criteria or specific requirement (including statutory, regulatory or other citation): Section 200.303 of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) states the following regarding internal control: “The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).” Condition: UC Health did not appropriately design and execute internal controls over their procurement process outside of general construction costs when utilizing federal funds to ensure that all federal requirements were satisfied and documented, including retention of documentation to evidence performance of controls. Cause: The controls designed by UC Health pertaining to the procurement process outside of general construction costs did not include formal policies that outlined the required competitive solicitation process. Further, outside of procurement for general construction, controls have not been established to retain documentation over the applied procurement approach or resulting decisions made, including evidence of bids received. Effect or potential effect: The absence of controls requiring formal documentation over the procurement process resulted in expenditures made without a competitive solicitation process, which could have resulted in expenditures of federal funds that were not financially responsible. Questioned costs: $519,857 Context: From May 2024 through June 2025 $3,091,285 of costs were incurred on the federally funded project. This total was allocated between general construction costs ($2,073,952) and other expenditures ($1,017,333), with other expenditures relating to consulting services, medical equipment, non-medical equipment, and information technology hardware. The competitive bidding for the general construction costs occurred prior to the period under audit. Procurement for the other expenditures was completed in the fiscal year ended June 30, 2025. While the other expenditures related to purchases from a group of vendors that were approved internally and consistently utilized by UC Health, no formal documentation regarding bidding processes was available to validate compliance with federal requirements. The $1,017,333 total of other expenditures was multiplied by the 51.1% Federal Percentage Share computed in the grant application to arrive at the $519,857 questioned cost reported. This balance represents the full balance of the federal portion of project expenditures that did not go through the federally required bidding process. Identification as a repeat finding, if applicable: Not applicable. Recommendation: Management should establish internal control processes over the procurement process that align with the federal requirements. This includes maintenance of formal policies that align with federal requirements and that outline the procurement options and situation in which each will be applied, including explicit statement of the applicable micro-purchase threshold and simplified acquisition threshold. The internal control established should include formal documentation retention steps to evidence applied the applied procurement strategy, bids received, and rationale for vendor selection. Views of responsible officials: Management agrees with the finding and will update policies and procedures to ensure that all federal requirements around procurement approaches are satisfied and formally documented.
Finding 2025-002 – C. Cash Management, G. Matching, H. Period of Performance Identification of the federal program: Federal Agency: U.S. Department of Health and Human Services Assistance Listing: 93.493, Congressional Directives Award Period: July 1, 2024 through June 30, 2025 Criteria or specific requirement (including statutory, regulatory or other citation): Section 200.303 of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) states the following regarding internal control: “The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).” Condition: UC Health did not appropriately design and execute internal controls to verify they were eligible for the full balance of the cash draw down made during the year under audit, which ultimately resulted in an inappropriate expenditure balance reported on the original schedule of expenditures of federal awards (SEFA). Cause: The controls designed by UC Health over the reimbursement drawdown process verified that utilized expenses related to the grant project and had been incurred as of the drawdown request date. However, they were not designed sufficiently to determine if all expenses utilized were incurred during the grant period or to identify the Federal Percentage Share requirement in the Notice of Award, which stated that draw downs “should be done in the same proportion as the grant is to total project costs in the approved budget.” As a result, the SEFA originally reported an inappropriate expenditure total under the award. Effect or potential effect: The absence of control aspects to ensure all grant criteria were satisfied prior to requesting a cash draw down, including consideration of the grant period and matching requirements (such as the Federal Percentage Share), resulted in the draw down of funds for which UC Health was not yet fully eligible. This resulted in an overstatement of federal expenditures on the original SEFA.. Questioned costs: $45,910 Context: A single grant draw down was made during the year under audit. At the time of the draw down request, UC Health had incurred $2,224,794 of costs on the project for which the grant was received. As the project budget submitted in the grant application computed a 51.1% Federal Percentage Share, UC Health was eligible to drawn down just $1,136,870 at the time the request was made (computed as $2,224,794 multiplied by 51.1%). However, the drawdown was made in the amount of $1,182,779, resulting in $45,910 of funds drawn for which UC Health was not eligible as of the drawdown date, with this balance reported as questioned costs. UC Health did not identify the excess draw down or refund the excess amount during the year ended June 30, 2025. However, as of June 30, 2025, additional costs had been incurred by UC Health on the federally funded project which would have made UC Health eligible to draw down the excess $45,910, as well as additional funding in the year under audit. The draw down request also included $690,002 of expenditures incurred prior to the start of the grant period. While these expenditures were not permitted to be federally reimbursed, they were permissible to be considered as part of the non-federally funded cost incurred by UC Health. As such, these expenditures are included in the $2,224,794 of project costs incurred as of the cash draw down date and did not result in additional questioned costs. Identification as a repeat finding, if applicable: Not applicable. Recommendation: Management should enhance their internal control processes to include a complete review of grant requirements, as well as formal documentation supporting UC Health’s compliance with these requirements, in advance of requesting a cash draw down under a federal award. Views of responsible officials: Management agrees with the finding and will update policies and procedures to ensure that sufficient reviews are completed and documentation prepared prior to completed future cash draw downs under a federal award.
Finding 2025-003 – F. Equipment and Real Property Management Identification of the federal program: Federal Agency: U.S. Department of Health and Human Services Assistance Listing: 93.493, Congressional Directives Award Period: July 1, 2024 through June 30, 2025 Criteria or specific requirement (including statutory, regulatory or other citation): Section 200.303 of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) states the following regarding internal control: “The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).” Condition: UC Health did not appropriately design and execute internal controls to establish and maintain property records that included all requirements for equipment purchased under the federal grant. Cause: The controls designed by UC Health over the federal grant did not consider the property records required to be maintained for equipment purchased with federal funds. Nine specific criteria must be included in the property records of federal funded equipment (as well as a tenth that is only applicable after disposal of the equipment, which was not applicable). UC Health’s records included six of the nine applicable criteria, but did not include the source funding (including the federal award identification number), percentage of federal participation in the project costs, or use and condition of the property. Effect or potential effect: The absence of controls over the equipment property record requirements resulted in management not establishing or maintaining records that satisfied all of the federal requirements. Questioned costs: None. Context: Property records satisfying all of the federal requirements could not be provided when requested for testing. Management concludes that records containing all the necessary data fields had not been established. Expenditures under federal funded project that pertained to equipment purchases totaled $911,276, with only 51.1% of that balance attributed to federal funding. These expenditures included the purchase of medical equipment, non-medical equipment, and information technology hardware. Identification as a repeat finding, if applicable: Not applicable. Recommendation: Management should establish internal control processes over equipment purchased with federal funds that align with the federal requirements. All federal requirements regarding equipment (including not only property records, but physical inventory, safeguarding, and disposition) should be considered when designing these controls. Views of responsible officials: Management agrees with the finding and will update policies and procedures to ensure that all federal requirements around equipment are considered and satisfied.