Audit 399873

Finding 2023-001: Preparation of the Schedule of Expenditures of Federal Awards – Significant Deficiency in Internal Control Over Compliance Federal Program: Medicaid cluster (Assistance Listing No. 93.778) Federal Agency: U.S. Department of Health and Human Services Award Year: 2022-2023 Criteria: The Uniform Guidance (2 CFR 200) Section200.303(a) states that the non-federal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations, and terms and conditions of the federal award. In addition, 2 CFR 200.510 requires an auditee to prepare a schedule of expenditures of Federal awards (SEFA) for the period covered by the auditee’s financial statements that, at a minimum, lists all individual Federal programs by Federal agency and provides total Federal awards expended for each individual Federal program. In accordance with the Uniform Guidance, the Organization is required to maintain a structure of internal control to ensure compliance with applicable reporting requirements. Condition / Context: During audit procedures over expenditures of federal awards for the year ended June 30, 2025, we noted that California Advancing & Innovating Medi-Cal Providing Access and Transforming Health Initiative: Capacity and Infrastructure Transition, Expansion, and Development (PATH CITED) grant Federal funding in the amount of $1,201,928 was not included in the SEFA for the year ended June 30, 2023. The Organization did not have sufficient controls to ensure the SEFA included all expenditures that qualified as an expenditure of a federal award during the period. Cause and Effect: At the time the PATH CITED program was implemented and expenditures were incurred during fiscal year 2023, the grant agreements and publicly available documentation from the California Department of Health Care Services (DHCS) did not identify the funding as federal passthrough assistance and did not include the related Assistance Listing Number or other federal award identification elements typically required under Uniform Guidance. Based on the information available at that time, the Organization did not identify the PATH CITED program as federal funding subject to SEFA reporting requirements and reasonably treated the funding as non-federal. As a result, total expenditures of Federal awards were understated for the year ended June 30, 2023, by $1,201,928. During audit procedures over expenditures of federal awards for the year ended June 30, 2025, DHCS provided the Organization’s management with information that the PATH CITED program expenditures contained Federal awards. Management has restated the 2023 SEFA to include $1,201,928 PATH CITED expenditures for the year ended June 30, 2023. Questioned costs: $0 Repeat Finding: Not a repeat finding from FY22. Recommendation: We recommend management strengthen existing policies and procedures and improve the effectiveness of related internal controls to confirm existence of federal assistance within all contracts, and strengthen the existing periodic review throughout the year to ensure compliance with SEFA reporting requirements as outlined in the Uniform Guidance. Views of Responsible Officials and Planned Corrective Action: Management acknowledges the omission of PATH CITED expenditures from the SEFA for the year ended June 30, 2023. Management notes that the federal nature of the PATH CITED program was not identified in the original grant documentation or publicly available information provided by DHCS at the time the funding was awarded. Upon confirmation in 2025 that the program includes federal pass-through funding, the Organization worked to restate the SEFA and include the appropriate federal expenditures. To strengthen internal controls going forward, management has implemented procedures requiring review of funding agreements for federal funding indicators, maintaining a centralized register of federal awards to support SEFA preparation, and obtaining confirmation from funding agencies when the federal status of a program is unclear.

Finding 2023-002: Allocation of Payroll Costs – Significant Deficiency in Internal Control Over Compliance and Instance of Noncompliance – Allowable Costs/Cost Principles Federal Program: Medicaid cluster (Assistance Listing No. 93.778) Federal Agency: U.S. Department of Health and Human Services Award Year: 2022-2023 Criteria: 2 CFR 200. 430(g)(1)(vii)(C) states that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed and be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Condition / Context: During audit procedures over expenditures of federal awards for the year ended June 30, 2025, we noted that PATH CITED grant Federal funding in the amount of $1,201,928 was not included in the SEFA for the year ended June 30, 2023. Management has restated the SEFA to include $1,201,928 PATH CITED expenditures for the year ended June 30, 2023. As a result of restating the SEFA, payroll expenditures charged to the PATH CITED program for the year ended June 30, 2023 were subsequently subjected to audit procedures. On 15 of 37 payroll related transactions for the PATH-CITED program, we noted that there was not a policy or control in place to provide the following: 1) reasonable assurance that the amount allocated to the Federal award was accurate, allowable, properly supported and allocated; and 2) that the actual charges allocated to the Federal award were based on supervisor determination instead of supervisor approved employee time studies. Additionally, we noted that of these 15 payroll transactions, evidence of supervisor determination was not retained on five. Cause and Effect: At the time the PATH CITED program was implemented and expenditures were incurred during fiscal year 2023, the grant agreements and publicly available documentation from the DHCS did not identify the funding as federal pass-through assistance and did not include the related Assistance Listing Number or other federal award identification elements typically required under Uniform Guidance. Based on the information available at that time, the Organization reasonably concluded that the funding was not subject to Uniform Guidance requirements and therefore applied its standard operational allocation practices and as such, did not apply the Organization's Federal award payroll allocation policy of performing time studies. Payroll costs were allocated based on milestone progress, program involvement, and supervisor-approved amounts, which management believes reasonably reflected the work performed, but did not have a process in place to ensure that the payroll related expenditures were updated to provide reasonable assurance of activity performed and that documentation of supervisor approval was retained. Questioned costs: $0 Repeat Finding: Not a repeat finding from FY22. Recommendation: We recommend management strengthen existing policies and procedures and improve the effectiveness of related internal controls over payroll related expenditures to ensure that reasonable assurance of activity performed are charged to the Federal award and that documentation of supervisor approval is retained. Views of Responsible Officials and Planned Corrective Action: Management acknowledges that documentation supporting payroll allocations for PATH CITED-related activities did not fully align with Uniform Guidance expectations for federal awards. However, similar to Finding 2023-001, the Organization was not aware that PATH CITED funding constituted federal assistance during FY2023 due to the absence of federal identifiers in grant documentation and related communications from DHCS. As such, payroll costs were managed under the Organization’s standard operational practices rather than federal compliance-specific requirements. The Organization applied a reasonable and consistent allocation methodology based on supervisory oversight and expected levels of effort, which management believes appropriately reflected the work performed, given the nature of the program at that time. Upon confirmation of the federal nature of the funding, management will take the following corrective actions which includes enhancing a time attestation/time studies process for personnel working on federal awards and strengthening policies requiring periodic after-the-fact review of payroll allocations and documentation retention requirements for supervisory approvals.