Program: Indian Health Service Behavioral Health Programs Assistance Listing No.: 93.654 Federal Agency: U.S. Department of Health and Human Services, Indian Health Service Pass-Through Agency: N/A Federal Award Year: FY23-24 Compliance Requirement: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Procurement and Suspension and Debarment; and Reporting. Questioned Cost: $224,506 Repeat Finding: No Condition: BAIHP recorded $224,506 of estimated project costs as federal expenditures before the related costs were incurred and without sufficient documentation supporting the nature, amount, timing, allowability, and allocation of the costs. The estimated amounts were included in the SEFA for the year ended December 31, 2024. BAIHP did not reconcile these estimated amounts to actual costs subsequently incurred and could not provide a complete audit trail between the amounts recorded, underlying source documentation, and amounts reported on the SEFA. BAIHP also had not established written procurement policies incorporating the applicable federal procurement requirements. Documentation was not retained to demonstrate that purchases were procured in accordance with applicable federal requirements and BAIHP’s established purchasing procedures. In addition, financial reports submitted to the federal agency included amounts that could not be traced to or reconciled with the accounting records and supporting documentation. Required financial reports were submitted after the deadlines established by the federal award. Criteria: Federal awards may only be used for costs that are allowable, allocable, reasonable, necessary, and adequately documented in accordance with applicable federal cost principles and the terms and conditions of the federal award. Records supporting expenditures charged to a federal award should be sufficient to demonstrate the nature, amount, and timing of the costs and permit the costs to be traced to the underlying accounting records. Non-Federal entities must establish and maintain effective internal controls over federal awards and must maintain and use documented procurement procedures that comply with applicable federal requirements. Procurement transactions must be conducted in a manner consistent with applicable federal procurement standards and an entity's established procedures.Recipients are also required to submit complete, accurate, and timely financial reports in accordance with applicable federal requirements and the terms and conditions of the federal award. Reported amounts should be supported by underlying accounting records and other appropriate documentation. Cause: BAIHP did not have adequate controls over the recording, review, and reporting of federal award expenditures. Specifically, procedures were not in place to ensure that expenditures were recorded based on actual costs incurred and supported by appropriate documentation before being charged to the federal award. Additionally, BAIHP had not established procurement policies and procedures that incorporated applicable federal procurement requirements and did not maintain sufficient documentation to demonstrate compliance with its internal purchasing procedures. BAIHP also lacked adequate procedures for reconciling amounts reported to the federal agency to underlying accounting records and for ensuring required reports were submitted by the applicable deadlines.Effect: BAIHP reported federal expenditures before the related costs were incurred and could not demonstrate that certain expenditures were allowable, allocable, adequately supported, and incurred within the applicable period of performance. BAIHP also could not demonstrate compliance with applicable procurement requirements for certain purchases. Certain financial reports could not be reconciled to the accounting records and supporting documentation, and required reports were not submitted by the established deadlines. These conditions resulted in material noncompliance with the affected compliance requirements and were the basis for the adverse opinion on compliance for the Indian Health Service Behavioral Health Programs. Known questioned costs of $224,506 were identified under Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Because BAIHP did not maintain sufficient documentation for the remaining affected expenditures, additional questioned costs may exist, but their amount could not be determined. Recommendation: Management should strengthen its internal controls over federal award expenditures from the initial purchasing and recording of costs through the reporting of those costs to the federal agency. Management should discontinue the practice of recording estimated expenditures to federal awards and record expenditures only when allowable costs have been incurred and can be adequately supported. Supporting documentation should demonstrate the nature, amount, purpose, and timing of each expenditure and should be maintained in a manner that allows the expenditure to be readily traced to the general ledger and underlying source documentation. Management should establish and implement written policies and procedures that are consistent with applicable federal procurement requirements and clearly define the procurement methods, approval requirements, documentation, and monitoring procedures applicable to federally funded purchases. Management should also retain sufficient documentation to demonstrate compliance with both federal procurement requirements and internally established purchasing procedures. Management should also establish procedures requiring federal financial reports to be reconciled to the underlying accounting records and supporting documentation before submission. Such procedures should include documented supervisory review to verify the accuracy and completeness of reported amounts and to ensure reports are submitted by the deadlines established by the federal award or grant agreement. Questioned Costs: Known questioned costs of $224,506 were identified under Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Additional questioned costs may exist; however, their amount could not be determined because sufficient supporting documentation was not available. Management's Response: See Corrective Action Plan.