HRSA’s Top 5 Most Common Audit Findings Presented by: Jason Mastrangelo and Stephanie Sowalsky Office of Federal Assistance Management (OFAM) Health Resources and Services Administration (HRSA) U.S. Department of Health and Human Services (HHS)

Agenda Overview Top 5 Most Common Audit Findings - HRSA grants Define the finding Why it occurred How to resolve the finding How to prevent findings in the future Real-world examples Q & A Sessions Both during and after presentation Closing Remarks

Overview Per Uniform Guidance 2 CFR Part 200 (f), formerly OMB Circular A-133, if an entity expends (or draws down) $750,000 or more in federal funds, it is required to receive a Single Audit. (Codified for HHS at 45 CFR Part at 45 CFR 75.500) During those audits, it is the responsibility of the auditor to identify weaknesses and develop findings which show areas of non-compliance.

Where do Audits come from? CPA firm uploads audit to the Federal Audit Clearinghouse (FAC). DHHS/OIG/NEAR transmits audits with HRSA findings to DFI FAC transmits DHHS audits with findings to DHHS/OIG/NEAR. NEAR also sends a letter to the grantee asking them to respond to HRSA regarding the findings.

Overview (cont’d) Why are audit findings important? Why it is important to us? Responsible to ensure tax payer dollars go towards the intended use. OFAM is responsible for ensuring findings from your audit reports are resolved. Why its important to you, as the recipient of a Federal award? Ensure quality of care and access to care is not compromised. Future federal funding will not be in jeopardy. *Adverse findings may lead to us asking for the money back, or even the termination of a grant!

Overview (cont’d) Why are we doing this? Program Integrity Initiative Information Sharing *By identifying these key issues, we can raise awareness to prevent future occurrences of non-compliance.

Top 5 Most Common Findings

#5 - Cash Management 20% of audits received Cash Management (CM) covers the actual management, or handling, of funds pertaining to a Federal program, specifically on how Federal assistance (or a grant) is distributed to recipients and how recipients manage the funds until disbursement. Typical Types of CM findings include: Advance Drawdown/Drawdown exceeds need Deferred Revenue Segregation of Duties

Cash Management Continued Sample Audit Finding Criteria Description of finding Recommendation Corrective Action

Cash Management Continued Best Practices Reimbursements, or claimed expenditures, are properly supported by adequate documentation. Advance payments are properly managed. Interest earned on advance payments is inconsequential (minimal). Internal controls are in place over cash receipts and cash disbursements , as well as, the safeguarding of assets. *If you are engaging in these types of activities, then you are practicing effective cash management.

Cash Management Q & A session focusing cash management

#4 – Program Income 25% of audits received Program income, as defined at 45 CFR Parts 74.2 and 92.25, includes several different categories of income. Program income includes income resulting from fees for services performed or the sale of commodities or items produced as part of project activities; income earned from the use or rental of property acquired under a grant; and license fees and royalties on patents and copyrights; and Principle and Interest on Loans made with federal awards.

Program Income Continued Common occurrences seen at HRSA categorized under Program Income: Sliding Fee Not properly recorded Excess of $500

Program Income Continued Auditors are looking at key areas for the treatment of program income: Was it properly calculated, typically by sliding fee schedule – income based? Did grantee demonstrate that all program income that should’ve been received was received? Were proper alternatives were used?

Program Income Continued Treatment of Program Income – Alternatives Deductive alternative – under this alternative, program income is deducted from total allowable project/program costs to determine the net allowable costs on which the Federal share of costs is based. This is similar to an applicable credit being applied to reduce the amount of the Federal award. For most HRSA grants (and all non-research grants) Deductive is the default alternative.

Program Income Continued Additive Alternative – Under this alternative, program income is added to the funds committed to the project or program and is used to further eligible project/program objectives. This alternative must be pre-approved. Awarding agency may, on a case-by-case basis, allow the use of program income for eligible costs of the project that might not otherwise be expressly allowable under the terms and conditions of the award. Under the additive alternative, non-federal entities must expend program income before requesting additional Federal payments.

Program Income Continued Cost Sharing or Matching Alternative Awareness Sample Audit Finding Criteria Description of finding Recommendation

Program Income Continued Best Practices It is policy that grantees be encouraged to earn program income and to maximize such income, consistent with the purpose and nature of the grant or activities carried out under the grant. However, HHS policy does not require use of any particular program income alternatives. Regardless of the alternative(s) applied, program income may be used only for eligible costs, in accordance with the governing statue, any program regulations, cost principles, and the terms and conditions of the award.

Program Income Q & A session focusing program income

#3 – Special Tests and Provisions 26% of audits received Vary and are unique to each federal program. (Ryan White, MIECHV, CIP, etc.)

Bonus Material – Subrecipient Monitoring 9% of audits received In accordance with 2 CFR 200.93 (also 75 CFR75.2) Subrecipient means a non-Federal entity that receives a subaward from a pass-through entity to carry out part of a Federal program; but not include an individual that is a beneficiary of such program. A subreciprient may also be a recipient of other Federal awards directly from a Federal awarding agency.

Subrecipient Monitoring Continued What makes me responsible? Determines who is eligible to receive what Federal assistance Have performance measured in relation to whether objectives of a Federal program were met Have responsibility for programmatic decision making Are responsible for adherence to applicable Federal program requirements specified in the Federal award Use the Federal funds to carry out a program for a public purpose specified in authorizing statute * The non-federal entity of record is responsible!

Subrecipient Monitoring Continued Examples of non-compliance regarding subrecipients: Pass-through agencies do not provide applicable oversight resulting in subrecipients: not following laws, regulations and provisions of the grant and performance goals. not providing required reports. not performing yearly audits to provide to the pass-through non-Federal entity. providing Federal benefits to ineligible clients in accordance with Federal eligibility requirements.

Subrecipient Monitoring Continued Sample Audit Finding Criteria Description of finding Recommendation

Subrecipient Monitoring Continued Best Practices Implement policies and procedures addressing oversight and monitoring of subrecipients. These activities can include: review of subrecipient’s eligibility procedures. review subrecipient’s financial and performance reports. Review subrecipient’s internal controls/policies and procedures currently in place. Perform site visits of subrecpient. Maintain continuous discussions and contact with the subrecipient.

Subrecipient Monitoring Q & A session focusing subrecipient monitoring

#2 – Allowable Costs/Cost Principles 32% of audits received In accordance with the 2 CFR Part 200 (e), in order for costs to be allowable they must: Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items.

Allowable Costs/Cost Principles Continued Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. Be accorded consistent treatment. Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. Not be included a costs or used to meet cost sharing or matching requirements of any other federally-financed program either current or a prior period. Be adequately documented.

Allowable Costs/Cost Principles Continued Unallowable Cost Types Contributions and donations Entertainment costs Fund raising and investment management costs Goods or services for personal use Lobbying Travel

Allowable Costs/Cost Principles Continued Most common deficiency – Lack of Supporting Documentation Adequate supporting documentation includes: Invoices showing vendor, date and amount paid. Receipt of purchase. Dates on invoices and receipts should fall within the grant period. Copies of cancelled checks showing the amounts were actually paid. Connection to the grant (cost center, fund type code) – in general ledger.

Allowable Costs/Cost Principles Continued Adequate supporting documentation (cont’d): Subgrantee agreements or contracts. Costs should support only items listed in the grant budget. Travel logs. Costs expended must not exceed total budgeted amounts. A cost accounting system in place that allows for costs from different grants to be charged to specific grants. Strong policies and procedures.

Allowable Costs/Cost Principles Continued Sample Audit Finding Criteria Description of finding Recommendation

Allowable Costs/Cost Principles Continued Best Practices Stick to Budget Intended Use/Purpose of grant Follow proper procedures Support, support, support!

Allowable Costs/Cost Principles Q & A session focusing allowable costs/cost principles

More Bonus Material – Eligibility 20% of audits received The specific requirements for eligibility are unique to each Federal program and are found in the laws, regulations, and the provisions of contract or grant agreements pertaining to the program. Income Verification

Eligibility Continued Sample Audit Finding Criteria Description of finding Recommendation

Eligibility Continued Best Practices Implement policy and procedures to include financial intake process. Ensure income verification performed on all applications. Proper formula being used on the sliding fee scale. Implement policy and procedures to ensure application is on file that includes proper documentation to support eligibility.

#1 – Reporting 38% of audits received Single audit requirements 2 CFR 200 (f) - establishes that all recipients of federal awards must submit reports (whether financial, performance-related, or of special nature) to the Federal government to monitor Federal assistance activities and uses. The most common reports are pre-designed by the Federal agency, are approved by OMB, and are freely available to all recipients and the general public. The time deadlines for submitting them vary depending on the report.

Reporting Continued Common reason for Reporting finding: Federal reports are not submitted or completed timely. Financial information on the reports is inaccurate. Financial information not properly recorded in accordance with accounting standards.

Reporting Continued Sample Audit Finding Criteria Description of finding Recommendation

Reporting Continued Best Practices Establish procedures to ensure audits are performed and submitted in a timely manner. Implement policies and procedures to ensure all grant funds are recorded properly on SEFA.

Reporting Q & A session focusing reporting

Open Q & A Any follow up questions for any of the audit findings?

Recap Reporting Allowable Costs/Cost Principles Special Tests and Provisions Program Income Cash Management

Wrap Up Jason Mastrangelo (301) 443-3626 Stephanie Sowalsky (215) 861-4392 hrsatop5@hrsa.gov