Finding 2024-001 Program Name: Disaster Grants – Public Assistance (Presidentially Declared Disasters) Federal Department/Agency: U.S. Department of Homeland Security, Federal Emergency Management Agency Assistance Listing Number: 97.036 Federal Award Year: January 1, 2024 December 31, 2024 Grant Number and Years: 694036 (COVID 19 Temporary Agency Nurses 1 1 21 to 7 1 22) Compliance Requirements: Activities Allowed or Unallowed/Allowable Costs/Cost Principles Criteria In accordance with the Federal Emergency Management Agency (FEMA) Public Assistance Program and Policy Guide, Version 2.1, Chapter 2, costs are not eligible for reimbursement if the applicant received funding from another source (e.g., patient revenue or insurance) for the same work funded by FEMA. FEMA refers to this as a duplication of benefits. On February 15, 2023, FEMA issued a memorandum titled Hypothetical Reasonable Applicant Methods, which outlines the basic elements for estimating duplication of benefits within net patient service revenue. The Department of Homeland Security (DHS) also engaged the RAND Corporation’s Homeland Security Research Division, through the Homeland Security Operational Analysis Center (HSOAC), to assist with the administration of disaster grants to health care providers related to COVID 19. In December 2024, HSOAC published Methods of Assessing Duplication of Benefits with Patient Care Revenue, as applied by FEMA to Health Care Provider’s Public Assistance Claims During the COVID 19 Emergency. This publication describes FEMA’s Standard Method for estimating duplication of benefits, as well as alternative methodologies, and states that applicants using an alternative methodology are expected to document the methodology and calculations used. Condition and Context On October 3, 2024, FEMA obligated Project #726840 for $21.3 million and, on July 2, 2024, FEMA obligated Project #694036 for $28.3 million. During 2024, a total of $87.1 million of Public Assistance projects were obligated by FEMA. Prior to filing all FEMA Public Assistance claims, Kaleida performed a detailed analysis to determine eligible project costs. The costs for substantially all projects primarily related to temporary agency nurse labor incurred during portions of 2021, 2022, and 2023. To determine eligible project costs, Kaleida utilized an alternative methodology to estimate potential duplication of benefits with patient care revenue, relying on guidance from HSOAC, other FEMA guidance, and coordination with FEMA and the New York State Division of Homeland Security and Emergency Services. Consistent with HSOAC guidance, Kaleida documented the alternative methodology and related calculations in memoranda submitted with each project application. The alternative methodology documentation for Kaleida’s FEMA projects was reviewed by Kaleida’s Chief Financial Officer. In November 2024, HSOAC issued an Applicant Review Memo indicating that they had evaluated the claimed costs for potential duplication of benefits by applying FEMA’s Standard Method and recommended approximately $23.4 million of reductions, for Project #726840. The Standard Method uses an applicant’s base year revenue and expense data to establish a cost ceiling that is compared to claimed project costs to prevent duplication of benefits. In July 2025, FEMA issued its own Applicant Review Memo, which also identified potential duplication of benefits by applying the Standard Method to reassess previously obligated costs. However, FEMA found no duplication of benefits for Project #726840, contrary to HSOAC’s Applicant Review Memo. Instead, FEMA identified Project #694036 as having a high likelihood of duplication of benefits and recommended a $5.0 million reduction, of previously obligated costs for Project #694036. Kaleida asserts that it properly applied an allowable alternative methodology consistent with FEMA guidance. Specifically, for Project #694036, Kaleida’s methodology compared temporary agency nurse rates to full time nurse wages and benefits funded by patient care revenue in order to isolate incremental labor costs attributable to the COVID 19 emergency. Management also stated its methodology and supporting calculations were reviewed with New York State Division of Homeland Security and Emergency Services and FEMA personnel periodically from approximately March 2023 through the project obligation date, and the project was later closed in May 2025, all of which was prior to the FEMA Applicant Review in July 2025. In September 2025, Kaleida filed a formal appeal of FEMA’s recommended $5.0 million reduction for Project #694036. As of the date of this report, the appeal remains unresolved; therefore, the amount of questioned costs cannot be determined. Questioned costs Cannot be determined. Statistical Sample Not applicable Repeat Finding A similar finding was not reported in the prior year audit. Recommendation We recommend Kaleida continue to work with FEMA through the designated appeal process.