Finding Text
Finding 2023-001 Activities Allowed or Unallowed
Identification of the federal program:
Federal Grantor: United States Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA)
Assistance Listing No.: 93.498, COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution (PRF)
Period of Availability: 01/01/2020–12/31/2022 (Period 4) and 01/01/2020–06/30/2023 (Period 5)
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control:
“The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).”
The American Rescue Plan Act requires that the Recipients of Provider Relief Fund payments must agree to the Terms and Conditions specific to the distribution in which they received a payment or reimbursement, such as: Funding cannot be used where another source has reimbursed or is obligated to reimburse those expenses or losses.
Condition:
Management performed a duplication of benefits analysis to ensure expenses to be used to substantiate PRF funding received were not reimbursed or obligated to be reimbursed by another source. The methodology included the development of estimated cost reimbursement rates by location that was applied to the PRF expenditures.
During our allowable costs testing of expenditures, we noted errors in the duplication of benefits analysis and/or misapplication of the estimated cost reimbursement rates, which resulted in a net overstatement of expenses totaling $2,078,408.
In addition, we noted instances where employees’ hours reported on the timecards for substantiation of funding for the federal program were not consistently evidenced as reviewed and approved.
Cause:
Duplication of Benefits Analysis – The internal controls over management’s duplication of benefits analysis and application of the estimated cost reimbursement rates were ineffective.
Timecards – Timecards were processed without manager approval.
Effect or potential effect:
Duplication of Benefits Analysis – Mercy Health overstated expenses and is not in compliance with the terms and conditions of the federal award.
Timecards – Mercy Health may incur unallowable expenses or not be compliant with the terms and conditions of the federal program.
Questioned costs:
$2,078,408 – Assistance Listing No. 93.498 (COVID-19).
Context:
Duplication of Benefits Analysis – For four of five sampled facilities, management did not calculate overtime and contract labor expenses using the correct estimated cost reimbursement rates or did not calculate the duplication of benefits analysis accurately resulting in a net overstatement of reported expenditures of $2,078,408.
Timecards – For three (totaling $765) of 40 (totaling $16,939) (4.5%) overtime and contract labor transactions tested, Mercy Health or contracted employees’ timecards did not have evidence of review and approval by the Mercy Health or contracted employees’ manager. Total overtime and contract labor costs were $9,811,805 under Assistance Listing No. 93.498 for the year ended June 30, 2023.
Total federal expenditures for Assistance Listing No. 93.498 totaled $104,538,125 for the year ended June 30, 2023, of which $10,154,731 were expenditures.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
Duplication of Benefits Analysis – Management should design and implement effective internal controls over the review and approval of the duplication of benefits analysis and ensure the correct estimated cost reimbursement rates are being applied to the expenditures.
Timecards – Mercy Health should reinforce the importance of adhering to its internal controls over the review and approval of timecards.
Views of Responsible Officials:
Management agrees to the finding and has developed a corrective action plan. While we overstated the expenses submitted totaling $2.1 million, this was an oversight during our review process. There are additional expenditures available in excess of funding received; therefore, we believe we have incurred either lost revenues or expenditures in excess of funding received.
Mercy Health’s Finance team will continue to stress the importance of timecard approval to leadership.