Internal Control over Compliance and Compliance with Cash Management Requirements
See Schedule of Findings and Questioned Costs for chart/table.
Criteria or Specific Requirement: In accordance with §200.305, Federal Payment, for non-Federal entities other than states, payment methods must minimize the time elapsing between the transfer of funds from the United States Treasury or the pass-through entity and the disbursement by the non-Federal entity whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means. Specifically, §200.305(b)(1), Federal Payment, indicates: Advance payments to a non-Federal entity must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the non-Federal entity in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the non-Federal entity for direct program or project costs and the proportionate share of any allowable indirect costs.
Also in accordance with §200.305(b)(9), Federal Payment, interest earned on amounts up to $500 per year may be retained by the non-Federal entity for administrative purposes. Any additional interest earned on Federal advance payments deposited in interest-bearing accounts must be remitted annually to the Department of Health and Human Services Payment Management System (PMS).
In accordance with the 2023 OMB Compliance Supplement, when the reimbursement payment method is used, program costs must be incurred before submitting a payment request to the federal awarding agency.
Condition: During our testing of compliance, we identified the following matters:
During our testing of advance payments received for major program AL# 98.001, for awards 7200AA20CA00007 and 72061220CA00003, management did not minimize the amount of time between the Federal advance payments and the actual disbursements for direct program expenditures and related indirect costs.
For AL# 98.001 award 7200AA20CA00007, PSI requested an advance payment in January 2023 of $594,800; however $3,631,387 remained available from a previous cash advance. Additionally, in February 2023, PSI requested an additional advance payment of $765,200 when an outstanding advance of $3,277,442 existed. As of December 31, 2023, PSI had $1,079,614 in cash available from advance payments for this award with no disbursements for direct expenditures.
For AL# 98.001 award 72061220CA00003, PSI requested an advance payment in September 2023 of $571,066; however $409,058 remained available from the prior cash advance. In October 2023, PSI returned funding of $140,764 but an outstanding advance of $701,690 still remained for this award. As of December 31, 2023, PSI had $136,124 in cash available from advance payments with no disbursements for direct expenditures.
Further, we noted PSI does maintain advance payments of Federal awards in interest-bearing accounts. However, PSI does not track the interest earned on those funds in order to remit interest earned in excess of $500 annually to the Department of Health and Human Services Payment Management System. As PSI earned approximately $5,040 of interest during the year ended December 31, 2023 on cash advances, PSI owed the United States Government $4,540 of interest.
During our cash management testing of awards under the cost reimbursement method, we identified instances where PSI requested reimbursement in excess of costs incurred:
• For AL# 12.350 award N00244-20-1-0007, in one instance of 13 samples tested, PSI requested reimbursement of $162,020 in April 2023 which exceed amount of expenses incurred by $77,369.
Questioned Costs: There are no questioned costs related to this finding.
Context: This is a condition based on testing of PSI’s compliance with specified requirements. The prevalence of these findings is detailed in the condition section above. The samples were selected using a non-statistical method.
Cause: For the advance payments for Award NU2GGH002005, PSI’s programmatic and finance team did not adequately monitor remaining budget and projected expenditures at the end of the period of performance of the award resulting in PSI requesting and receiving funds that were not able to be liquidated timely enough. Furthermore, the PSI management team did not have a sufficient review process to calculate the interest earned on cash advances to remit to the U.S. Government at the end of the year.
In relation to both the findings identified whereby expenses were paid after the invoice to the federal government was submitted for reimbursement, PSI personnel did not comply with the documented review and approval policies to ensure timely payment of local office expenditures incurred prior to drawdowns.
Effect: Failure to perform cash management procedures in accordance with PSI’s documented policies could result in obtaining funds from the U.S. Government in advance of actual expenditures incurred thus resulting in non-compliance with contractual agreements.
Repeat Finding: This is a repeat finding and was reported as finding 2022-004 in the 2022 schedule of findings and questioned costs.
Recommendation: We recommend management review all deferred revenue balances monthly for federal programs where advance funds are received in sufficient detail to determine whether expenses will be available in the immediate near term to spend down federal advances. We also recommend management ensure the compliance cash management policies that align to U.S. Government funding requirements.
Views of Responsible Officials: PSI management agrees with the finding and recommendations set forth within and will refine its method for calculating drawdowns on federal awards. Refer to management’s corrective action plan for additional information.