2022-043 Oregon Health Authority Implement controls to ensure subrecipients are appropriately identified and monitored Federal Awarding Agency: U.S. Department of Health and Human Services Assistance Listing Number and Name: 93.958 Block Grants for Community Mental Health Services; 93.959 Block G...
2022-043 Oregon Health Authority Implement controls to ensure subrecipients are appropriately identified and monitored Federal Awarding Agency: U.S. Department of Health and Human Services Assistance Listing Number and Name: 93.958 Block Grants for Community Mental Health Services; 93.959 Block Grants for Prevention and Treatment of Substance Abuse Federal Award Numbers and Years: 93.958: 1B09SM082625, 2020; 1B09SM083823, 2021; 1B09SM086032, 2022; 93.959: 1B08TI083068, 2020; 6B08TI083472, 2021; 6B08TI084667, 2022 Compliance Requirement: Subrecipient Monitoring Type of Finding: Material Weakness; Material Noncompliance Prior Year Finding: N/A Questioned Costs: N/A Criteria: 2 CFR 200.331; 45 CFR 75.352(b); 45 CFR 75.352(d) Federal regulations require pass-through entities to determine if the recipients of disbursements of federal funds are subrecipients or contractors. The subrecipient and contractor determination will impact which federal compliance requirements recipients are subject to and how program expenditures are reported on the Schedule of Expenditures of Federal Awards (SEFA). For recipients meeting the definition of a subrecipient, federal regulations require pass-through entities to evaluate each subrecipient?s risk of noncompliance with federal statutes, regulations, and the terms and conditions of the subaward for the purpose of determining appropriate subrecipient monitoring activities. Monitoring activities should be completed based on the results of the subrecipient?s determined risk to ensure subawards are used appropriately. We reviewed the department?s classification of a sample of eight of 40 Mental Health Block Grant (MHBG) and 11 of 76 Substance Abuse Block Grant (SABG) recipients of federal funds. We judgmentally selected an additional 11 MHBG and 30 SABG recipients for review after our review of the initial sample of recipients identified inconsistencies in the classification of recipients. Based on the following inconsistencies identified in our review, it is unclear if the department correctly classified recipients as subrecipients or contractors and the related expenditures are reported accordingly. As a result, the SEFA may incorrectly report pass-through or direct expenditures. One recipient of MHBG funds and 13 recipients of SABG funds were classified as contractors by the department; however, other recipients providing the same services were classified as subrecipients. As they were identified as contractors, a SEFA correction of $1.4 million was made to report as direct expenditures rather than pass-through expenditures. Three recipients of MHBG funds and one recipient of SABG funds were classified as subrecipients by the department, but it was unclear if each met the definition of a subrecipient. One recipient of MHBG funds was classified as a contractor and appeared to meet the definition of a contractor; however, payments made to this recipient were recorded as pass-through expenditures. A SEFA correction of $329 thousand was made to report as direct expenditures rather than pass-through expenditures. One recipient of SABG funds was classified as neither contractor nor subrecipient. A SEFA correction of $215 thousand was made to report as direct expenditures rather than pass-through expenditures. We also inquired of the department?s risk assessment and monitoring activities for subrecipients. Based on our inquiries, the department does not have a formal implemented process for performing risk assessments to determine appropriate monitoring activities. Moreover, the department has not implemented a formal process to ensure subrecipients comply with federal regulations, terms and conditions of the subaward, and that subaward performance goals are achieved. If subrecipient monitoring is not performed and documented, subawards could be used for unauthorized purposes and performance goals not met. We recommend department management ensure recipients of federal funds are appropriately identified as subrecipients or contractors and the corresponding disbursement of federal funds are appropriately reported as direct or pass-through expenditures. We further recommend department management comply with subrecipient monitoring requirements, develop and implement internal controls to ensure risk assessments are performed and documented for each subrecipient, and monitoring activities are completed and documented according to risk assessment results. MANAGEMENT RESPONSE: We agree with this recommendation. HSD Contracts team has already implemented additional checklists to ensure subrecipients and vendors are identified and coded properly. We will be making the checklist automated through our grant management process and fully implemented by this fall. Anticipated Completion Date: November 30, 2023 Contact: Sarah Adelhart, Interim Manager