Audit 413106

2025-001 Activities Allowed or Unallowed and Allowable Costs / Cost Principles (Allowability) U.S. Department of Health and Human Services, Passed through County of Hudson, Department of Health and Human Services: HIV Emergency Relief Project Grants (93.914) Federal Grant Numbers and Years: H89HA00010- Medical Case Management (1/1/2025-12/31/2025) and H89HA00010- Minority Health Initiative (1/1/2025-12/31/2025) Statistically Valid Sample: No, and it was not intended to be Prior Year Finding: Not a repeat finding Finding Type: Significant Deficiency and Noncompliance Criteria: Under the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200, Subpart E - Cost Principles): • 2 CFR § 200.403 (Factors affecting allowability of costs): Costs must be necessary and reasonable for the performance of the federal award and be allocable thereto under these principles, and also must be documented adequately and conform to any limitations or exclusions set forth in these principles or in the federal award as to types or amounts of cost items. • 2 CFR § 200.426: Bad Debts, defined as debts determined to be uncollectible, including losses (whether actual or estimated) arising from uncollectible accounts and other claims are unallowable under federal cost principles. • 2 CFR § 200.303: Non-federal entities receiving federal awards must establish and maintain internal controls designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. Effective internal controls should include procedures to ensure federal expenditures are accurately reported on the Schedule of Expenditures of Federal Awards (SEFA) and information provided for audit purposes is complete and accurate. Condition and Context: RWJ Barnabas Heath, Inc. (RWJBH) administers a component of the HIV Emergency Relief Project Grants (Ryan White Part A) (the Program) through its Jersey City Medical Center (JCMC) facility. During our testing of other than personal services (OTPS) expenditures at JCMC, we identified through our initial sample selection that JCMC submitted and received federal reimbursement of approximately $620 for patient laboratory costs under the Program for both Medical Case Management and Minority Health Initiative grants. We noted that these specific clinical laboratory tests were recorded as bad debt expense in RWJBH’s consolidated financial statements. Because bad debt and losses arising from uncollectible accounts are explicitly unallowable under Uniform Guidance cost principles, these expenditures should not have been charged to the federal grant. A further evaluation of the full population identified a total of $121,358 in patient clinical laboratory costs recorded as bad debt that were improperly approved and submitted for federal grant reimbursement that are also deemed unallowable under 2 CFR § 200.426. Cause: There was no automated or manual interface or screening rule within the enterprise resource planning or laboratory information management systems to flag and block patient accounts classified as bad debt or uncollectible balances from having their clinical costs allocated to federal grant cost centers. Additionally, management did not perform effective manual reviews or reconciliations prior to requesting reimbursement to identify and exclude bad debt expenses from OTPS expenditure reimbursement requests under the Program. Effect: Unallowable bad debt costs under 2 CFR § 200.403 and 2 CFR § 200.426 were approved and submitted for federal reimbursement. Questioned costs: $121,358 ($104,164 for Medical Case Management and $17,194 for the Minority Health Initiative). Recommendation: We recommend that RWJ Barnabas Health, Inc. strengthen its current processes and internal controls to ensure that all clinical laboratory costs being submitted for reimbursement are deemed allowable in accordance with the Uniform Guidance cost principles and have not been recorded as bad debt. Views of Responsible Official: Management concurs with the finding. Due to an administrative error, JCMC included certain ineligible patient clinical laboratory testing costs, recorded as bad debt expense, in federal grant expenditures. Although management consulted with the Program administrator, the County of Hudson, prior to seeking reimbursement and received approval to include these costs, JCMC acknowledges its responsibility to ensure federal funds are not used to reimburse unallowable services. Going forward, JCMC will strengthen its review process to exclude unallowable bad debt costs from grant expenditures. Management has reviewed the applicable Uniform Guidance cost principles with Program grant personnel and supporting analysts to reinforce compliance.