Finding Text
2024-005 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting Prior Year Finding Number: 2023-003 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: 93.778 Medical Assistance Program Award Number and Year: 2405MN5ADM and 2405MN5MAP, 2024 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 the Medical Assistance Program are submitted to DHS through the DHS Income Maintenance (DHS-2550) report, the Social Service Fund Report (DHS-2556), and Local Collaborative Time Study Cost Schedule Reports (DHS-3220) on a quarterly basis. DHS provides reporting instructions, including information regarding eligible and ineligible costs. Condition: The following exceptions were noted in the sample of 40 expenditures tested for activities allowed or unallowed and allowable costs/cost principles: • Two claims were incorrectly allocated in the DHS-2550 and Public Health DHS-3220 reports, which resulted in expenditures reported in the incorrect categories. • One claim reported on the DHS-2550 report included expenditures ineligible for federal grant reimbursement. • Two claims and two timesheets for a Minnesota Department of Public Safety program were included in the DHS-2556 report as eligible expenditures but were not eligible for federal reimbursement. • For four timesheets tested, the payroll costs were incorrectly coded according to the Income Maintenance Random Moments Time Studies and Social Services Time Studies. Some of the items are included in the Child Support Services Activities Allowed and Unallowed, Allowable Costs/Cost Principles finding (2024-002) and the State Administrative Matching Grants for the Supplemental Nutrition Assistance Program Activities Allowed and Unallowed, Allowable Costs/Cost Principles finding (2024-004). In addition, the following exceptions were noted in the first and third quarter DHS reports tested for reporting: • The DHS-2550 and DHS-2556 reports improperly included interest on leased vehicles. • Depreciation expense was incorrectly reported on the DHS-2550 reports. • Payroll adjustments were made to the general ledger that were not reflected on the DHS-2550 and DHS-2556 reports. • Postage and fuel costs were not reported at the correct rates on the DHS-2550 and DHS-2556 reports. • The DHS-2556 reports incorrectly excluded Out of Home Placement Aid. • The DHS-2556 reports excluded IT costs that were eligible expenditures. Questioned Costs: Known questioned costs are $6,274; likely questioned costs are $51,942, for total questioned costs of $58,216. Known and likely questioned costs are calculated based on expenditures identified during testing that were included in the DHS reports and were either not eligible expenditures or were incorrectly allocated to the Medical Assistance Program. 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 and costs and provide detailed information necessary for maintaining proper oversight over federal programs. Total expenditures reported on the SEFA are $2,837,564, consisting of 3,561 transactions. The sample of 40 transactions total $187,658. The reporting population consisted of four quarterly DHS-2550, DHS-2556, and Public Health DHS-3220 reports; the sample was two quarterly DHS-2550, DHS-2556, and Public Health DHS-3220 reports. 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 County 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 and review 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 accurately reported to DHS in accordance with federal program guidance and DHS instructions. We also recommend the Health and Human Services correct and resubmit reports submitted with unallowable activities or costs, costs allocated incorrectly, or activity reporting incorrectly. View of Responsible Official: Acknowledge