Audit 411282

Finding Number: 2024-003 – Material Weakness – Compliance and Internal Control over Compliance Finding over Activities Allowed or Unallowed, and Allowable Costs/Cost Principles Federal Award: No. 93.778 U.S. Department of Health and Human Services – Grants to States for Medicaid Federal Agency: U.S. Department of Health and Human Services Pass-Through Entity: County of Monterey, California Repeat Finding: No Criteria or Specific Requirement: 2 CFR section §200.405, Allowable costs, states this standard is met if the cost is incurred specifically for the Federal award and can be distributed in proportions that may be approximated using reasonable methods. Further, if costs benefit two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined, the costs must be allocated on any reasonable documented basis. 2 CFR section 200.430(i) Standards for Documentation of Personnel Expenses states charges to Federal awards for salaries must be based on records that accurately reflect the work performed and these records must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated, support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award and non-Federal award and charges for the salaries and wages of nonexempt employees must be supported by records indicating the total number of hours worked each day. Condition: The Organization did not maintain contemporaneous time records, personnel activity reports, original program budgets or other verifiable documentation to support the actual time and effort devoted by employees to ensure costs incurred for expenditures charged to the program were in accordance with contract requirements and applicable cost principles. The method for allocation of payroll and non-payroll expenditures between federally funded programs and other programs was based on management's budgeted estimates, and assumptions and may differ from allocations that would have resulted from documented employee activities and resource usage. Cause: Factors beyond the control of current management, including poorly designed policies and procedures and lack of understanding of Federal award requirements and training, as key members of the accounting department left the Organization before appropriately transferring knowledge and records related to the Federal awards. Effect or Potential Effect: Potential for noncompliance of direct and material audit requirements. Questioned Costs: Related questioned costs are unknown. Context: The Organization was not able to retain or replace personnel with the appropriate skills and knowledge to implement appropriate procedures and controls. Recommendation: The Organization should develop a comprehensive internal control policy for allocation methods that includes training staff on the policy, ensuring proper implementation of procedures, and regular review to ensure allocations remain appropriate and reasonable. View of Responsible Officials: Valley Health Associates management understands the severity of this finding and will work to collect as per the recommendation' Management will work with knowledgeable staff to ensure federal award requirements are met in a consistent manner.

Finding Number: 2024-004 Material Weakness – Compliance and Internal Control over Compliance Finding over Schedule of Expenditures of Federal Awards Federal Award: No. 93.778 U.S. Department of Health and Human Services – Grants to States for Medicaid Federal Agency: U.S. Department of Health and Human Services Pass-Through Entity: County of Monterey, California Repeat Finding: No Criteria or Specific Requirement: Under 2 CFR §200.501, Audit Requirements, a Non-Federal entity that expends $750,000 or more in federal awards during its fiscal year (June 30, 2024) is required to obtain a Single Audit. Management is responsible for establishing and maintaining internal controls to identify, track, and monitor federal expenditure throughout the fiscal year to ensure compliance with federal requirements, including determining whether a Single Audit is required. Condition: The Organization did not maintain a process to track cumulative federal expenditures during the fiscal year. As a result, management was unaware that federal expenditures exceeded the Single Audit threshold and did not timely identify the requirements to undergo a Single Audit. The Organization was unable to accurately monitor federal expenditures throughout the year and did not compile the complete Schedule of Expenditures of Federal Awards (SEFA) until after year-end. Cause: Management had not implemented adequate internal controls or procedures to identify, accumulate, and monitor federal expenditures from all federal funding sources. Additionally, personnel responsible for financial reporting were not sufficiently familiar with federal audit requirements under Uniform Guidance, including the annual assessment of Single Audit applicability. Effect: The Organization did not timely comply with federal audit requirements and may be at increased risk of noncompliance with other federal requirements due to inadequate monitoring of the federal awards. Failure to identify federal expenditures throughout the year also increased the risk of incomplete or inaccurate reporting of federal awards and delayed the completion of the required Single Audit. Questioned Costs: None Context: The Organization was not able to retain or replace personnel with the appropriate skills and knowledge to implement appropriate procedures and controls. Recommendation: We recommend that management establish formal policies and procedures to identify, track, and monitor federal awards and expenditures on an ongoing basis. These procedures should include recording and tracking expenditures, Assistance Listing Numbers and federal programs. A periodic review of cumulative federal expenditure should be performed during the fiscal year. Providing training to accounting and financial personnel regarding Uniform Guidance requirements, including Single Audit thresholds and reporting obligations. View of Responsible Officials: Valley Health Associates management understands the severity of this finding and will work to correct as per the recommendation. Management will work with knowledgeable staff to ensure the SEFA report is updated in a timely manner and deadlines are not missed.

Finding Number: 2024-005 Material Weakness – Compliance and Internal Control over Compliance Finding over Data Collection Form Federal Award: No. 93.778 U.S. Department of Health and Human Services – Grants to States for Medicaid Federal Agency: U.S. Department of Health and Human Services Pass-Through Entity: County of Monterey, California Repeat Finding: No Criteria or Specific Requirement: Under 2 CFR §200.512, Report Submission, single audit submissions, including the data collection form, are required to be filed within nine months after fiscal year-end. Condition: The single audit submission was not completed and not filed within nine months of year-end. Cause: Factors beyond the control of current management, including poorly designed policies and procedures to ensure audit was completed timely, as key members of the accounting department left the Organization before appropriately transferring knowledge and records related to the Federal awards. Effect or Potential Effect: Noncompliance with Uniform Guidance. Questioned Costs: None Context: The Organization was not able to retain or replace personnel with the appropriate skills and knowledge to implement appropriate procedures and controls. Recommendation: Policies and procedures should be designed and implemented to ensure compliance with Uniform Guidance . View of Responsible Officials: Valley Health Associates management understands the severity of this finding and will work to correct as per the recommendation. Management will ensure the reporting is filed in a timely manner for FY year ended June 2025.