Audit 412335

Finding COVID-19 – 2025-001 Allowable Costs/Cost Principles Identification of the federal program: Federal agency: U.S. Department of Homeland Security Pass-through program from: State of New York Division of Homeland Security and Emergency Services Federal Assistance Listing Number: 97.036 COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Contract/pass-through entity identifying number: 140215 Award period of performance: January 20, 2020 – July 1, 2022 Criteria or specified requirement (including statutory, regulatory, or other citation): 2 CFR section 200.303 of the Uniform Guidance requires that non-federal entities receiving federal awards establish, document and maintain internal control over the federal awards that provides reasonable assurance that the non-federal entity is managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. The 2 CFR section 200.303 indicates that the internal controls required to be established by a non-federal entity receiving federal awards 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. Section III – Federal Award Findings and Questioned Costs (continued) 2 CFR section 200.403 states the following: “Costs must meet the following criteria to be allowable under Federal awards: (a) be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles; (b) conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items; (c) be consistent with policies and procedures that apply uniformly to both federally- financed and other activities of the non-Federal entity; (d) be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost; (e) be determined in accordance with generally accepted accounting principles; (f) not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period; (g) be adequately documented; and (h) administrative closeout costs may be incurred until the due date of the final report(s), liquidated prior to the due date of the final report(s) and charged to the final budget period of the award unless otherwise specified by the Federal agency. All other costs must be incurred during the approved budget period.” Condition: The New York and Presbyterian Hospital (the Hospital) has processes and internal controls in place to ensure that costs submitted to the Federal Emergency Management Agency (FEMA) in relation to the Disaster Grants – Public Assistance program were eligible under FEMA’s provisions and were allowable COVID-19-related expenses. These internal controls include ensuring completeness and accuracy of the costs to ensure the costs comply with the terms and conditions of the award. However, the Hospital’s internal controls did not identify that management inadvertently included certain pharmacy costs under project number 140215 that were not paid by the Hospital. Cause: Pharmacy costs include a very high volume of primarily low cost items and, as a result, a separate process was developed by the Hospital for accumulating such activity as compared to other costs that were submitted to FEMA for reimbursement. When compiling pharmacy costs for project number 140215, management utilized the pharmacy cost information derived from a report from its materials management system detailing purchase orders that were placed by the Hospital with its primary vendor for medications and supplies used in the treatment of patients during the COVID-19 pandemic. In the normal course of business, the pharmacy vendor may modify the fulfillment of purchase orders for medications and supplies that are not available or are available at different quantities than requested in the purchase order. The Hospital’s internal controls specific to this pharmacy activity did not include a step for management to verify that the costs derived from the report detailing purchase orders placed (which were submitted for FEMA reimbursement) were actually paid. Effect or potential effect: Due to the above, the Hospital included certain costs under project number 140215 that were not paid. Accordingly, there is an overstatement of the total pharmacy costs reported in project number 140215, and the Hospital was reimbursed by FEMA for certain costs that it did not incur, resulting in questioned costs. Questioned costs: Known questioned costs observed in the audit sample selections totaled $235. This amount represents the difference between the amount reimbursed by FEMA and the amount paid by the Hospital for certain pharmacy costs to the specific vendor. Based on the audit procedures performed, likely questioned costs exceed $25,000. Context: During our testing of expenditures underlying FEMA project number 140215, we selected a random sample of 60 expenditures and 5 key item expenditures from the project period (activity during 2020 – 2022) related to FEMA obligations that were approved in calendar year 2025. In our tests of compliance and internal controls over compliance, we identified certain expenditures for activity with the specific pharmacy vendor that were included under project number 140215 (and subsequently paid to the Hospital by FEMA) that were not incurred and expended by the Hospital. For 4 of the sample items tested, the amount reimbursed exceeded the actual amount paid by approximately $235. The terms and conditions of the FEMA award require recipients to submit eligible costs incurred and paid, thus this issue results in questioned costs and a control deficiency. The total FEMA expenditures for project number 140215 reported on the Hospital’s Schedule of Expenditures of Federal Awards for the year ended December 31, 2025 is $340,396,170, which includes approximately $12.5 million of total costs submitted related to the specific pharmacy vendor referred to above. Management performed a further review of pharmacy cost activity for the specific vendor as a result of this issue and determined that likely questioned costs for certain items that were submitted exceed $25,000. Management also informed us that they identified certain eligible costs from the applicable period that were not submitted for FEMA reimbursement and therefore were not reimbursed. Identification as a repeat finding, if applicable: The finding is not a repeat finding. Recommendation: Management should consider the control deficiency described above to the extent there is applicability to other FEMA submissions or other federal programs in the future. Additionally, management should address with FEMA and remediate as appropriate the noncompliance for reimbursed amounts that were not expended by the Hospital. View of responsible officials: Management agrees with the finding.