Finding 1073812 (2023-002)

2023-002 Activities Allowed or Unallowed and Allowable Costs/Cost Principles Prior Year Finding Number: 2022-003 Year of Finding Origination: 2022 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: 93.563 Child Support Enforcement Award Number and Year: 2301MNCEST and 2301MNCSES, 2023 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 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 Child Support Enforcement are submitted to the Minnesota Department of Human Services (DHS) through the DHS Income Maintenance DHS-2550 report on a quarterly basis. DHS provides reporting instructions, including information regarding eligible and ineligible costs. Condition: The following exceptions were noted in a sample of 40 expenditures tested: • One claim related to employee appreciation and another claim for meals at an all-staff meeting were included in the DHS-2550 report as eligible expenditures but were not eligible for federal reimbursement. • Portions of four claims that were not direct expenditures were incorrectly allocated to Child Support Enforcement. • For three timesheets tested, the payroll costs were incorrectly allocated among programs based on individual job duties rather than the full-time equivalent (FTE) allocation method described by DHS. Questioned Costs: Questioned costs identified were less than $25,000. Context: DHS relies on accurate identification and reporting of program costs to ensure grant funds paid to the Health and Human Services are for allowable federal program activities/costs and provide detailed information necessary for maintaining proper oversight over federal programs. The sample sizes were based on the 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 Heath and Human Services receiving either more or less federal funds than justified based on the actual underlying activity. Cause: The Health and Human Services’ controls over the identification of allowable activities and costs, preparation of the quarterly reports, and maintenance of payroll allocations in the accounting system were not sufficient to identify these errors. Recommendation: We recommend the Health and Human Services implement controls to ensure activities allowed and allowable costs are appropriately identified and reported to DHS in accordance with federal program guidance and DHS instructions. We also recommend reports submitted with unallowable activities or costs or costs allocated incorrectly are corrected and resubmitted. View of Responsible Official: Acknowledge