2025-001 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting Prior Year Finding Number: 2024-001 Year of Finding Origination: 2023 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, document, 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 for Grants to States for Medicaid 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). DHS provides reporting instructions, including information regarding eligible and ineligible costs. Condition: The following exceptions were noted in the sample of 40 expenditures tested: • One claim included activity that was not allocated based on the full-time equivalent (FTE) split. • Two timesheets tested included payroll costs that were incorrectly reported as Social Service Time Studies (SSTS) participants payroll expense. In addition, the following exception was noted during testing of the second and fourth quarter DHS reports: • The fourth quarter DHS-2556 report had $67,721 of revenue reported on line 8 – revenue offsets section 1, which should have been reported in the revenue lines under that same section, resulting in an understatement of total expenditures. Questioned Costs: $73,831. $6,110 known questioned costs were determined based on exceptions noted from a sample of transactions tested, and $67,721 known questioned costs were determined based on the exceptions noted in the 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 $781,844, consisting of 1,417 transactions. The sample of 40 transactions totaled $244,550. The reporting population consisted of four quarterly DHS-2550 and four quarterly DHS-2556 reports; the sample was two quarterly DHS-2550 and two quarterly DHS-2556 reports. The sample sizes were based on 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, preparation and review of the quarterly reports, and maintenance of payroll allocations in the accounting system were not sufficient to identify these errors. Recommendation: We recommend the County implement controls to ensure activities allowed and 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 reporting incorrectly. View of Responsible Official: Acknowledge