Finding 1218940 (2025-003)

2025-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting Prior Year Finding Number: N/A Year of Finding Origination: 2025 Type of Finding: Internal Control Over Compliance and Compliance Severity of Deficiency: Significant Deficiency and Other Matter Federal Agency: U.S. Department of Health and Human Services Programs: 93.658 Foster Care Title IV-E 93.778 Grants to States for Medicaid Award Number and Year: 2501MNFOST; 2025 2505MN5ADM; 2025 Pass-Through Agency: Minnesota Department of Human Services and Minnesota Department of Children, Youth, and Families 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 are submitted to the Minnesota Department of Human Services (DHS) on a quarterly basis through the DHS Income Maintenance report (DHS-2550) for the Grants to States for Medicaid program and through the DHS Social Service Fund Report (DHS-2556) for the Foster Care Title IV-E program and Grants to States for Medicaid program. DHS provides reporting instructions, including information regarding eligible and ineligible costs. Condition: The following exceptions was noted in expenditures tested for activities allowed or unallowed and allowable costs/cost principles: • Capital outlay expenditures were incorrectly coded as services and charges. In addition, the following exceptions were noted in the second and third quarter DHS reports tested: • An entry to remove ineligible expenditures was incorrectly recorded twice on the third quarter DHS-2550 report. • Amortization expense was not reported on the DHS-2550 and DHS-2556 reports. • MAXIS certified mail costs were incorrectly reported on the DHS-2550 reports. • Capital outlay expenditures were incorrectly reported on the DHS-2550 reports. Questioned Costs: $149,357 related to Grants to States for Medicaid; known questioned costs were determined by the calculation of quarterly amortization expense on subscription-based information technology arrangements not recorded of $148,944 and $413 of journal entries identified during review of the general ledger. Context: DHS relies on accurate identification and reporting of program costs to ensure grant funds paid to the County are for allowable federal program activities and costs and provide detailed information necessary for maintaining proper oversight over federal programs. Total Grants to States for Medicaid expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) are $16,891,964, consisting of 33,059 transactions. The sample of 40 transactions total $306,970. Total Foster Care Title IV-E expenditures reported on the SEFA are $1,964,642, consisting of 29,676 transactions. The sample of 41 Foster Care Title IV-E transactions total $115,349. The reporting population consisted of four quarterly DHS-2550 and DHS-2556. The sample was two quarterly DHS-2550 and DHS-2556 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 County Human Services Division’s controls over the identification of allowable activities and costs and preparation and review of the quarterly reports were not sufficient to identify these errors. Additionally, staff were unaware of the impact of subscription-based information technology arrangements and related amortization. Recommendation: We recommend the Human Services Division 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 Human Services Division correct and resubmit reports submitted with unallowable activities or costs, costs allocated incorrectly, or activity reported incorrectly. View of Responsible Official: Concur