2025-001 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting Prior Year Finding Number: N/A Year of Finding Origination: 2025 Type of Finding: Internal Control Over Compliance and Compliance Severity of Deficiency: Material Weakness and Modified Opinion Federal Agency: U.S. Department of Health and Human Services Program: 93.778 Grants to States for Medicaid Award Number and Year: 2505MN5ADM; 2025 Pass-Through Agency: Minnesota Department of Human Services Criteria: Title 2 U.S. Code of Federal Regulations § 200.303 states that the auditee must establish and maintain effective internal control over the federal award that provides reasonable assurance that the auditee is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Administrative program costs are submitted to the Minnesota Department of Human Services (DHS) on a quarterly basis through the DHS Income Maintenance report (DHS-2550) and DHS Social Service Fund Report (DHS-2556) for the Grants to States for Medicaid program. DHS provides reporting instructions, including information regarding eligible and ineligible costs. Condition: The following exceptions were noted in expenditures tested: • One timesheet tested included payroll costs that were incorrectly reported as Income Maintenance Random Moments Time Studies participants payroll expense. • One timesheet tested included payroll costs that were incorrectly reported as Social Service Time Studies (SSTS) participants payroll expense. In addition, the following exceptions were noted in the first and third quarter DHS reports tested: • Payroll expenditures of $16,135 were reported twice in the first quarter DHS-2550 report. • SSTS direct federal expenses were overstated by $14,373. Questioned Costs: $37,548. $7,040 known questioned costs were determined based on exceptions related to incorrectly reported payroll costs noted in testing, and $30,508 known questioned costs were determined based on the exceptions noted in the DHS-2550 and DHS-2556 reports tested. Context: DHS relies on accurate identification and reporting of program costs to ensure grant funds paid to the County are for allowable federal program activities and costs and provide detailed information necessary for maintaining proper oversight over federal programs. Total Grants to States for Medicaid expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) are $1,771,099, consisting of 3,945 transactions. The sample of 40 transactions totaled $176,432. The reporting population consisted of four quarterly DHS-2550 and DHS-2556 reports. The sample was two quarterly DHS-2550 and DHS-2556 reports. The sample sizes were based on the guidance from Chapter 11 of the AICPA Audit Guide, Government Auditing Standards and Single Audits. Effect: Errors in the identification and reporting of costs on the quarterly reports can impair DHS’ ability to provide required oversight over federal programs and result in the County receiving either more or less federal funds than justified based on the actual underlying activity. Cause: The County’s controls over the identification of allowable activities and costs and preparation and review of quarterly reports were not sufficient to identify these errors. Recommendation: We recommend the County implement controls to ensure activities allowed or allowable costs are appropriately identified and accurately reported to DHS in accordance with federal program guidance and DHS instructions. We also recommend the County correct and resubmit reports submitted with unallowable activities or costs, costs allocated incorrectly, or activity reported incorrectly. View of Responsible Official: Acknowledge