2025 001 Activities Allowed or Unallowed and Allowable Costs/Cost Principles U.S. Department of Homeland Security, Federal Emergency Management Agency: Passed through New Jersey Department of Law and Public Safety, Office of Emergency Management: COVID 19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (ALN 97.036) Contract Number and Years: 4488DR NJ 734668; 4488DR NJ 734675; 4488DR NJ 736923 (01/20/2020 – 05/11/2023) Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample Repeat Finding: No Finding Type: Material Weakness, Material Noncompliance Criteria The terms and conditions for recipients of Disaster Grants Public Assistance (Presidentially Declared Disasters) include the following: • The funds are utilized to perform emergency work, which is defined as “Work that must be done immediately to save lives, protect improved property, protect public health and safety, or avert or lessen the threat of a major disaster.” • Federal Emergency Management Agency (FEMA) defines the eligibility of costs based on the following factors: • Directly tied to the performance of eligible work; • Adequately documented (2 CFR section 200.403 (g)); • Reduced by all applicable credits, such as insurance proceeds and salvage values (Stafford Act section 312, 42 USC section 5155, and 2 CFR section 200.406); • Authorized and not prohibited under federal, state, territorial, tribal, or local government laws or regulations; • Consistent with applicant’s internal policies, regulations, and procedures that apply uniformly to both federal awards and other activities of the applicant; and • Necessary and reasonable to accomplish the work properly and efficiently (2 CFR section 200.403) • For large projects, the subrecipient must make an accounting to the state. In submitting the accounting, the entity is required to certify that reported costs were incurred in performance of eligible work, that the approved work was completed, that the project is in compliance with the provisions of the FEMA State Agreement, all grant conditions were met, and that payments for that project were made in accordance with the applicable payment provisions. 2 CFR Section 200.406 states: Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to the Federal award as direct or indirect (F&A) costs. Examples of such transactions are: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the non Federal entity relate to allowable costs, they must be credited to the Federal award either as a cost reduction or cash refund, as appropriate. 2 CFR 200.303 requires non Federal entities receiving Federal awards to establish and maintain internal controls designed to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Condition and Context On April 28, 2025, FEMA approved and obligated the System’s three applications (734675, 734668, and 736923) totaling $986,596 in total Federal assistance under the COVID 19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (Disaster Grants). The System reported $986,596 on the schedule of expenditures of Federal awards (SEFA), as these funds were obligated by FEMA in the System’s fiscal year 2025. Subsequently, after the approval of the obligations, FEMA completed the final financial reconciliation, and in March 2026 issued a letter to the System concluding that a portion of the costs previously funded under the program had also been funded through another source, resulting in unallowable costs under Federal requirements. FEMA concluded that $480,020 of the $562,314 obligated under Obligation 734675 and $192,444 of the $384,755 obligated under Obligation 736923 were unallowable due to duplicate funding. In August 2026, the System decided to not appeal FEMA’s finding of duplication of benefits and accepted the finding. The System is responsible for establishing internal controls to ensure the accuracy of eligible expenses reported to the New Jersey Office of Emergency Management. By deciding not to appeal the finding of duplication of benefits, the System’s originally reported amount of $986,596 was reduced to $314,132 creating $672,464 of questioned costs. Cause The System’s did not establish adequate policies and procedures to identify, track, and reconcile Disaster Grants funded expenditures against insurance recoveries and other sources of disaster related funding to ensure that applicable credits were identified and offset against FEMA claims, to detect potential duplicate funding. Effect The System claimed and received reimbursement for amounts under Federal requirements because the costs had been funded from another source. This resulted in questioned costs of $672,464 and the de obligation of previously awarded Federal assistance. The noncompliance affected multiple obligations within the Disaster Grants program. Questioned Costs $672,464 Recommendation We recommend that the System strengthen its policies and procedures to ensure only allowable Disaster Grants costs are claimed for reimbursement, and prior to submission for reimbursement, such costs are reviewed to ensure there are no offsetting amounts or any duplication of benefits paid from other sources for the same disaster. View of Responsible Official Management agrees with the auditor’s finding and will strengthen its grant management and monitoring policies and procedures to ensure insurance recoveries, alternative funding sources, and other applicable credits are identified, communicated, and reconciled to Disaster Grant expenditures. Management will also enhance oversight procedures to identify and prevent potential duplication of benefits and ensure compliance with applicable Federal requirements.
2025 002 Reporting and Procurement U.S. Department of the Treasury: Passed through State of New Jersey Department of Community Affairs: COVID 19 Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027) Contract Number and Years: G2022 09 (03/02/2021 – 12/31/2026) Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample Repeat Finding: Yes (2024 001) Finding Type: Material Weakness, Material Noncompliance Criteria Reporting Per 2 CFR 200.502, the determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs. Generally, the activity pertains to events that require the non Federal statutes, regulations and the terms and conditions of Federal awards, such as: expenditures/expense transactions associated with awards including grants. Further, the Uniform Guidance compliance supplement notes, each recipient must report program outlays and program income on a cash or accrual basis, as prescribed by the Federal awarding agency. In accordance with the grant agreement and the reporting requirements for the State of New Jersey Department of Community Affairs, direct grants and pass through funds are fulfilled utilizing an advanced payment method and tracking reports. The grantee shall submit quarterly financial reports, in a format to be provided by the Department, and including the number of government full time employees responding to COVID 19 as supported by this funding. The reports are prepared and submitted to allow for relevant and reliable information to be provided to the Federal government or State of New Jersey for tracking purposes. The reports are the source documents for the grantee to prepare a schedule of expenditures of Federal awards (SEFA) for the period covered by the grantee’s financial statements in accordance with 2 CFR 200.502, Basis for determining Federal awards expended, for the SEFA. Procurement Non Federal entities other than states, including those operating Federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.327. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable Federal statutes and the procurement requirements identified in 2 CFR Part 200. A non Federal entity must: 1. Meet the general procurement standards in 2 CFR section 200.318, which include oversight of contractors’ performance, maintaining written standards of conduct for employees involved in contracting, awarding contracts only to responsible contractors, and maintaining records to document history of procurements. 2. Conduct all procurement transactions in a manner providing full and open competition, in accordance with 2 CFR section 200.319. 3. Use the micro purchase and small purchase methods only for procurements that meet the applicable criteria under 2 CFR sections 200.320(a) (1) and (2). Under the micro purchase method, the aggregate dollar amount does not exceed $50,000 ($2,000 in the case of acquisition for construction subject to the Wage Rate Requirements (Davis Bacon Act)). Small purchase procedures are used for purchases that exceed the micro purchase amount but do not exceed the simplified acquisition threshold ($250,000). Micro purchases may be awarded without soliciting competitive quotations if the non Federal entity considers the price to be reasonable (2 CFR 200.320(a)(1)(ii)). If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources (2 CFR 200.320(a)(2)(i)). In accordance with the grant agreement and the reporting requirements for the State of New Jersey Department of Community Affairs, recipients may use award funds to enter into contracts to procure goods and services necessary to implement one or more of the eligible purposes outlined in sections 602(c) and 603(c) of the Act and Treasury’s Interim Final Rule and Final Rule. As such, recipients are expected to have procurement policies and procedures in place that comply with the procurement standards outlined in the Uniform Guidance. Under the program, St. Joseph’s Health, Inc. must follow the procurement standards in 2 CFR sections 200.318 through 200.327, including ensuring that the procurement method used for the contracts are appropriate based on the dollar amount and conditions specified in 2 CFR section 200.320. Internal Control 2 CFR 200.303 requires non Federal entities receiving Federal awards to establish and maintain internal controls designed to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Condition and Context Reporting On a quarterly basis, St. Joseph’s Health, Inc. (the System) prepares and reports to New Jersey Department of Community Affairs (the Department) the program expenditures for Federal funding amounts on the tracking report of expenditures, which are then used to prepare the annual SEFA in conjunction with the general ledger detail at the end of the fiscal year. While expenditures per the SEFA as prepared by the System were accurate and the quarterly reporting was accepted by the State, the System’s expenditures per the report of expenditures continue to be based upon purchase order amounts, which include expenditures that were incurred subsequent to year end. Procurement Further, the System engaged multiple vendors for several projects under the G2022 09 grant that were above the $50K micro purchase threshold, but below the simplified acquisition threshold. However, the System did not obtain multiple quotes from different vendors to encourage fair competition in the market. The System’s policies and procedures to ensure compliance with the above compliance requirements did not include certain internal controls that were designed properly and operating effectively to ensure that the System properly reported costs on the report of expenditures or obtained the necessary quotes from potential bidders for procurements over the micro purchase threshold. Cause Management did not properly design adequate review procedures to ensure that expenditures reported on financial reports to the Department were reconciled to the System’s accounting records and reflected expenditures incurred. Consequently, purchase order commitments were reported in lieu of incurred expenditures, resulting in a variance of approximately $1.9 million between amounts reported on financial reports to the Department and amounts reported on the SEFA. We noted, however, that this variance did not represent any unallowable costs. Additionally, Management did not retain or obtain the required documentation indicating quotes from multiple vendors were obtained for the ongoing construction projects under the grant. Effect The System had a material variance in the amount of expenditures reported on financial reports to the Department as compared to the SEFA and did not obtain multiple quotations from vendors when making selections for various projects ongoing under the Federal program. Questioned Costs None Recommendation Reporting We recommend that the System strengthen its processes and internal controls to ensure that only allowable and incurred expenditures and not purchase order amounts, are reported on the financial reports submitted to the Department in the applicable period in which they were incurred. Procurement We recommend that the System strengthen its processes and internal controls to ensure that all procurement related transactions are supported by the appropriate bidding documentation as required by the Uniform Guidance for each respective bidding threshold. View of Responsible Official Management agrees with the auditor’s finding and will strengthen its processes and internal controls to ensure the report of expenditures provided to the Department has a reconciliation of the amount of expenditures incurred in the period compared to the purchase order balances and all procurement transactions contain the required bidding documentation for each bidding threshold in accordance with the Uniform Guidance.