Finding 2022-001: Internal control deficiency and noncompliance over activities allowed or unallowed, allowable costs/cost principles, period of performance, and special tests and provisions related to amounts reimbursed for the project worksheet. Identification of the federal program: Assistance Listing Number 97.036: ? COVID-19 ? Disaster Grants ? Public Assistance (Presidentially Declared Disasters) ? U.S. Department of Homeland Security ? Federal award identification number: o Application title ? 549687 ? Sutter Health Materials Northern California o Application number ? PA-09-CA-4482-PW-01727(0) ? Federal award year ? January 20, 2020 to July 1, 2022 ? Pass-through entity ? California Governor?s Office of Emergency Services Criteria or specific requirement (including statutory, regulatory or other citation): Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.303 ? Internal controls. 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). 2 CFR, Part 200, Section 200.84 ? Questioned costs states a questioned cost as either (a) which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (b) where the costs, at the time of the audit, are not supported by adequate documentation; or (c) where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. 2 CFR, Part 200, Section 200.403 ? Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: ? (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles ? (g) Be adequately documented The Office of Management and Budget Compliance Supplement states the Federal Emergency Management Agency (FEMA) evaluates the eligibility of all costs claimed by the applicant. Not all costs incurred as a result of the incident are eligible. Costs must be: ? Directly tied to the performance of eligible work ? Adequately documented ? Reduced by all applicable credits ? Authorized and not prohibited under federal, state, territorial, tribal, or local government laws or regulations ? Consistent with applicant?s internal policies, regulations, and procedures that apply uniformly to both federal awards and other activities of the applicant ? Necessary and reasonable to accomplish the work properly and efficiently The Office of Management and Budget Compliance Supplement states the entity is required to certify that reported costs were incurred in performance of eligible work, that the approved work was completed, that the project is in compliance with the provisions of the FEMA-State Agreement, all grant conditions were met, and that payments for that project were made in accordance with the applicable payment provisions. Condition: During our testing over activities allowed or unallowed, allowable costs/cost principles, period of performance, and special tests and provisions, we observed management did not have effective internal controls in place to ensure expenditures reported for reimbursement in the FEMA project worksheet were actual paid expenditures. This resulted in an overstatement of the amount reimbursed by FEMA. Cause: Management did not have effective internal controls in place to ensure expenditures reported for reimbursement in the FEMA project worksheet were based on actual paid expenditures. Effect or potential effect: Management was reimbursed by FEMA for expenditures that were not based on the final paid expenditure. Questioned costs: $904,020 ? Assistance Listing Number 97.036 ? Federal award identification number: o Application title ? 549687 ? Sutter Health Materials Northern California o Application number ? PA-09-CA-4482-PW-01727(0) The questioned costs were computed by calculating the difference between the expenditures submitted to FEMA in the amount of $70,825,974 and the actual paid expenditures in the amount of $69,921,954 resulting in $904,020. Context: During our testing over activities allowed or unallowed, allowable costs/cost principles, period of performance, and special tests and provisions, we obtained a listing of expenditures submitted for reimbursement to FEMA for the tested project worksheet and observed 561,641 expenditures in the listing for a total value of $70,825,974. We selected a sample of 40 for testing over activities allowed or unallowed and allowable costs/cost principals, a sample of 80 for testing over period of performance, and 1 project worksheet for testing over all compliance requirements. There were 12 out of 120 selections where the expenditures submitted to FEMA were not based on the actual paid expenditures. Management performed an analysis of all expenditures submitted to FEMA and determined the actual paid expenditures amounted to $69,921,954 compared to the expenditures submitted to FEMA in the amount of $70,825,974 resulting in an overstatement of the amount reimbursed by FEMA of $904,020. Management?s control regarding the review of the project worksheet did not identify these expenditures that were not based on actual paid expenditures. Identification as a repeat finding, if applicable: No. Recommendation: Management should develop and implement effective internal controls to ensure expenditures reported for reimbursement in FEMA project worksheets are based on actual paid expenditures. Management should refund the questioned costs to FEMA and work with FEMA to determine the extent of additional courses of action. Management should ensure this is performed through the closeout process of the project worksheet with FEMA. Views of responsible officials: Management will develop and implement an additional layer of review in future FEMA project worksheet submissions to ensure expenditures reported for reimbursement are based on actual paid expenditures. Management will work with FEMA to refund the total overpayment of $904,020 and discuss the extent of additional courses of action. Management will ensure this is performed through the closeout process of the project worksheet with FEMA.