Finding Text
2025-005 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting Prior Year Finding Number: 2024-005 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 Grants to States for Medicaid Award Number and Year: 2505MN5ADM and 2505MN5MAP, 2025 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, document, 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 Grants to States for Medicaid 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 42 expenditures tested: • One claim included activity that was allocated on an incorrect full-time equivalent (FTE) split. • One claim was paid to an incorrect vendor and the correct vendor in the same period. Both claims were included in the quarterly report. • One claim was included on the incorrect report. The items noted above are included in the State Administrative Matching Grants for the Supplemental Nutrition Assistance Program Activities Allowed and Unallowed, Allowable Costs/Cost Principles finding (2025-001) and the Child Support Services Activities Allowed and Unallowed, Allowable Costs/Cost Principles finding (2025-004). In addition, the following exceptions were noted in the second and fourth quarter DHS reports tested: • The DHS-2556 reports excluded $27,318 to be reported as Direct Materials and Supplies. • The DHS-3220 reports included amounts allocated at an incorrect rate for payroll. Payroll expenditures were overstated in the second quarter by $7,016 and by $16,883 in the fourth quarter. • The DHS-3220 reports improperly included payroll amounts for two staff not eligible for reimbursement resulting in expenditures being overstated by $65,654. Questioned Costs: $121,945. $5,074 known questioned costs were determined based on exceptions noted from a sample of transactions tested, and $116,871 known questioned costs were determined based on the exceptions noted in the DHS-2556 and DHS-3220 reports tested. 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 $2,653,443, consisting of 6,791 transactions. A sample of 40 expenditures was selected for testing and was then expanded to include two Grants to States for Medicaid expenditures included in Child Support Services testing. The sample of 42 transactions totaled $130,315. The reporting population consisted of four quarterly DHS-2550, four quarterly DHS-2556, and four quarterly Public Health DHS-3220 reports; the sample was two quarterly DHS-2550, two quarterly DHS-2556, and two quarterly Public Health DHS-3220 reports. The sample sizes were based on guidance from Chapter 11 of the AICPA Audit Guide, Government Auditing Standards and Single Audits, and subsequently expanded. 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 Health 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 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: Concur