Finding 497371 (2023-003)

2023-003 Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting Prior Year Finding Number: 2022-003 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 Medical Assistance Program Award Number and Year: 2305MN5ADM and 2305MN5MAP, 2023 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 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 the Medical Assistance Program are submitted to DHS through the DHS Income Maintenance (DHS-2550) report, the Social Service Fund Report (DHS-2556), and the Local Collaborative Time Study Cost Schedule Report (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 40 expenditures tested for activities allowed or unallowed and allowable costs/cost principles, which resulted in the overstatement or understatement of expenditures reported: • One claim related to employee appreciation and another claim for meals at an all-staff meeting were included in the DHS-2550 and DHS-2556 reports as eligible expenditures but were not eligible for federal reimbursement. • Three claims were incorrectly allocated in the DHS-2550 report, which resulted in an understatement of Income Maintenance Administrative Overhead expense. • One claim included costs eligible for reimbursement, but the Health and Human Services did not include the costs in the DHS-2550 or DHS-2556 reports. • For two timesheets tested, the payroll costs were incorrectly allocated among programs based on individual job duties rather than the FTE allocation method described by DHS. In addition, the following exceptions were noted in the DHS reports tested for reporting: • The second and fourth quarter DHS-2550 reports were submitted with expenditures reported in incorrect reporting sections, incorrect categories of expenditures (including those that distinguish between eligible and not eligible expenditures), and payroll expenditures that should have been reported in the subsequent quarterly report. • The second and fourth quarter DHS-2556 reports were submitted with overstated revenues due to an ineligible investment revenue, expenditures reported in the incorrect category of expenditures, and expenditures that should have been reported in the previous quarterly report. • The fourth quarter DHS-3220 report excluded direct charges that were eligible expenditures. Questioned Costs: Questioned costs identified were less than $25,000. 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/costs and provide detailed information necessary for maintaining proper oversight over federal programs. 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 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 reports submitted with unallowable activities or costs, costs allocated incorrectly, or activity reported incorrectly are corrected and resubmitted. View of Responsible Official: Acknowledge