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.
Finding 2025-001: Significant Deficiency – Unallowable Cost Included in Indirect Cost Pool Agency: Department of Defense Federal Program: Research & Development Cluster Assistance Listing Number: 12.630, Award Number: W911NF-16-2-0092 U.S. Army Research Institute - Basic, Applied and Advanced Research in Science and Engineering Assistance Listing Number: 12.300, Award Number: FA8650-13-2-6366 U.S. Air Force/Air Force Materiel Command - Basic and Applied Scientific Research Grant Year: 2025 Criteria: Per 2 CFR § 200.411 and § 200.414(e), indirect cost rates must be developed using only allowable costs. Unallowable costs must be excluded from the indirect cost pool, and if included, the rates must be adjusted or refunds issued to the Federal Government. Per 2 CFR § 200.411 Each cost incurred for the same purpose in like circumstances must be treated consistently either as a direct or an indirect cost to avoid possible double-charging of Federal awards. Condition: During our testing of the indirect cost pool, we noted inclusion of bad debt expense. Bad debt is explicitly addressed at §200.426 of 2 CFR Part 200 and identified as an unallowable cost. In addition, we noted that rent expense for leased space was charged directly as well as being included in the indirect cost pool, thus causing it to be double-counted. Context: The bad debt and duplicative rent included in the indirect cost pool totaled $52,400. We observed that the indirect rates for these awards were capped at a lower rate than the Consortium’s negotiated indirect rate, resulting in a portion of allowable indirect costs incurred not being charged to the grant in amounts greater than the error. Effect: Including unallowable costs in the indirect cost pool resulted in an inflated indirect cost rate, however, the approved rates used for the awards was less than the actual negotiated rate and therefore, not all possible allowable indirect was passed through to the government agency. Cause: The inclusion of bad debt and duplicative rent expense in the indirect cost pool appears to be due to a lack of adequate internal controls regarding review of the preparation of the Indirect Cost Rate Proposal and review of cost classifications against Uniform Guidance requirements. Questioned costs: No questioned costs. Perspective: Statistical sampling was not used, however, samples were determined using AICPA approved guidelines. Repeat finding: This is not a repeat finding. Recommendation: The Consortium should remove the bad debt and duplicative rent expense from the indirect cost pool, recalculate their indirect rate based on the adjusted indirect cost pool and implement a stronger review for any unallowable costs in alignment with the Cost Principles as outlined in the Uniform Guidance when preparing the incurred cost submission. Management’s response (unaudited): See Management’s Corrective Action Plan.
FINDING 2025-004 – Payroll Allocations Federal Program: Continuum of Care Program Federal Identifying Number: Direct funding grants - IL0395L5T102214, IL0395L5T102315, IL0184L5T102316, IL0184L5T102417, IL1790H5T102200, IL1791H5T102200, IL1792H5T102200; Passed- through grants -IL1759D5T102201, IL1878D5T102300, IL1759D5T102202, and 8567-D Federal Assistance Listing Number: 14.267 Passed Through: All Chicago Making Homeless History and Aids Foundation of Chicago Federal Agency: U.S. Department of Housing and Urban Development Criteria/Specific Requirement: A. The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) require Inner Voice, Inc. to ensure federal expenditures to be consistent with the standards set forth in the Uniform Guidance at 2 CFR part 200, subpart E. B. The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) section 200.430(g)(1)(i) Standards for Documentation of Personnel Expenses states the following, “Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated. C. The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) section 200.303 Internal Controls states the following, “The non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Condition: Our audit procedures over expenditures revealed the following: 1) For one (1) of forty (40) expenditure transactions tested, The Inner Voice, Inc. did not adequately track or review time and effort documentation for accuracy. For this selection, the time study applied to allocate salary and actual hours reported and paid did not agree. Questioned Costs: None. Context: The Inner Voice, Inc. expended a total of $5,207,762 of federal awards in fiscal year 2025. The Inner Voice, Inc. expended a total of $3,992,341 of federal awards in fiscal year 2025 under the Continuum of Care program. Effect: The Inner Voice, Inc. is not in compliance with Title 2 of the Code of Federal Regulations (CFR) Part 200.426 as it relates to activities allowed or unallowed and allowable costs/cost principles requirements. Additionally, the effect of noncompliance can result in questioned costs. Cause: The Inner Voice, Inc.’s implementation of internal controls is inconsistent in the 1) review of time study against payment and 2) review and approval of payroll salaries transactions. Recommendation: We recommend that The Inner Voice, Inc. establish and maintain effective internal control over federal awards to ensure expenditures are supported as required by 2 CFR 200.430(g)(1)(i). This includes: a. Conducting a formal time and effort study to support payroll allocations; b. Enhancing policies and procedures surrounding time and effort documentation and review and approval of payroll expenditures. Management’s Response: See Corrective Action Plan.
Allowable Costs and Cost Principles U.S. Department of Public Health ALN: 93.696, The Central Montana CCBHC Improvement and Advancement Project Criteria: Entities receiving federal awards shall establish and maintain internal control over the federal awards that provide reasonable assurance that the entity is managing the federal awards in compliance with federal statutes, regulations, and terms and conditions of the federal award. he award budget permits the allocation of shared direct costs based on estimated allocations in accordance with the Center's direct cost allocation plan. In addition, bad debts, including losses arising from uncollectible accounts and other claims, are unallowable under 2 CFR 200.426. Condition: The Center included unallowable bad debt expenses totaling ($429,010) in the shared direct cost allocation calculation. In addition, overhead costs totaling $332,910 were included in the calculation. The combined net effect of these two items was $96,100, of which 10 percent ($9,610) was allocated as shared direct costs. Context: Bad debt expenses were included in the shared direct cost calculation for May and June 2025. Overhead costs were also included in the June 2025 shared direct cost calculation. Effect: The combined effect for these two months totaled $9,610 more in federal funding that could have been requested and drawn. Questioned Costs: There were no questioned costs identified. Cause: The errors resulted from inaccuracies in the shared direct cost calculation for May and June 2025. Management indicated that the calculation will be corrected beginning in the next grant year. Auditor Recommendation: We recommend that the Center strengthen its internal controls over the preparation and review of the shared direct cost allocation calculation to reduce the risk of similar errors occurring in the future. Organization Response: This error resulted from staff turnover and transition of the draw process to new accounting personnel. We will review the allocation of allowable costs and strengthen controls to ensure accurate cost accounting for future submissions. The error will be corrected in the August 2026 draw submission. The Controller and CFO are responsible for implementing and monitoring these corrective actions.