Auditor finds $2.7M in cumulative questioned costs

An independent auditor has found that cumulative questioned costs of $2.7 million in several federal programs have been set forth in the Commonwealth Healthcare Corp.’s single audit report ended Sept. 30, 2019.

Auditor Ernst & Young disclosed that the questioned costs of $1,946,149 were for fiscal year 2019 and $791,456 for FY 2018, or for a total of $2,735,605.

CHCC chief financial officer Perlie Santos, Community Guidance Center director Reyna Saures, grant administrator Vincent Camacho, procurement director Cora Ada, and several other CHCC personnel shared with the auditor their corrective action plans to address the audit findings.

CHCC participates in a number of federally assisted grant programs by the U.S. government. These programs are subject to financial and compliance audits to ascertain if federal laws and guidelines have been followed.

Ernst & Young submitted their report on CHCC’s compliance for each major federal program to CHCC chief executive officer Esther L. Muna on Nov. 7, 2024.

Ernst & Young was hired by the CNMI Office of the Public Auditor to audit CHCC’s compliance with the types of compliance requirements described in the U.S. Office of Management and Budget Compliance Supplement that could have a direct and material effect on each of CHCC’s major federal programs for the year ended Sept. 30, 2019.

Ernst & Young also audited the financial statements of CHCC as of and for the year ended Sept. 30, 2019, and has issued their report on Nov. 7, 2024.

Ernst & Young believes that their audit provides a reasonable basis for their qualified opinion on compliance for major federal programs.

Ernst & Young, however, noted that their audit does not provide a legal determination of CHCC’s compliance.

The auditor found that CHCC did not comply with requirements regarding five federal programs or cluster names.

The programs involved are Special Supplemental Nutrition Program for Women, Infants and Children; Comprehensive Community Mental Health Services for Children with Serious Emotional Disturbances; Substance Abuse and Mental Health Services Projects of Regional and National Significance; Immunization Cooperative Agreements; and Maternal, Infant and Early Childhood Home Visiting Grant Program.

Ernst & Young did identify 13 deficiencies in CHCC’s internal control over compliance to be material weaknesses. The auditor in its report discussed only the $1,930,718 in total questioned costs.

Material weakness in internal control over compliance refers to “deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis.”

Ernst & Young found $16,190 and $23,500 in questioned costs on SED’s compliance requirement areas on allowable costs/cost principles, and procurement and suspension and debarment, respectively.

Regarding Substance Abuse and Mental Health Services Projects of Regional and National Significance, the auditor found $452,311 questioned costs pertaining to the requirement on allowable costs/cost principles, $97,710 on period of performance, $183,926 on procurement and suspension and debarment, and $468,864 on subrecipient monitoring.

Regarding Immunization Cooperative Agreements, the auditor found $22,500 in questioned costs to requirement on allowable costs/cost principles, and $80,809 on period of performance.

Pertaining to Maternal, Infant and Early Childhood Home Visiting Grant Program, the auditor found $524,804 in questioned costs to requirements on cash management, and $60,104 on procurement and suspension and debarment.

Due to the lengthiness of the auditor’s report, Saipan Tribune will only include details pertaining to the $524,804 and $468,864 in questioned costs.

On the area of cash management involving Maternal, Infant and Early Childhood Home Visiting Grant Program, Ernst & Young found that of five drawdowns of federal funds tested, aggregating $524,804 of a total population of $750,948, deficiencies were noted.

For one (or 20%), of the $97,117 drawdown amount, the payment for a certain check was liquidated almost a year from the check issued date.

The auditor said no questioned costs are presented as the potential interest liability is less than $500. For one (or 20%), the auditor said the payment has not been liquidated. No questioned costs are presented as the potential interest liability would have been less than $500 as their field work date of Sept. 10, 2024.

For five (or 100%), approved SF 270 (request for advance or reimbursement) evidencing prior approval by the Grants Management Officer of anticipated expenditures prior to drawdown of funds were not provided.

Ernst & Young said the cause is that CHCC did not enforce record keeping and monitoring controls over compliance with applicable cash management requirements and lacks monitoring controls over drawdown processing.

The auditor said the effect is in noncompliance with applicable cash management requirements and questioned costs of $524,804 for one finding.

Ernst & Young recommended that CHCC should implement monitoring control procedures to ensure that the time elapsing between the transfer of federal funds from the U.S. Treasury and the payout of funds by CHCC is minimized.

The auditor said CHCC personnel should establish record keeping system whereby underlying support for each transaction is substantiated and filed.

In its response, CHCC’s corrective action plan provides a detailed rationale for disagreement with three findings.

In the auditor’s response, they stated that while they understand that CHCC has no control over the timeliness of vendors cashing CHCC’s issued checks, CHCC is required to minimize the time elapsing between the transfer of funds from the U.S. Treasury and disbursements of federal funds and this can be achieved through the monitoring of outstanding checks during its bank reconciliation process.

The auditor also noted that it was also agreed during the Sept. 6, 2024 and Oct. 4, 2024 meetings for CHCC to provide corresponding underlying accounting records to resolve the finding, however, no documentations were provided within the agreed timeline and that accordingly, their finding is sustained.

On the requirement area pertaining to subrecipient monitoring involving Substance Abuse and Mental Health Services Projects of Regional and National Significance, Ernst & Young found that of five subrecipients tested, aggregating $160,000 of a total population of $468,64, deficiencies were noted.

The auditor said of five or (100%), documentation of the monitoring procedures performed to determine whether any of the subrecipients expended $750,000 or more in federal funds and whether those that expended $750,000 or more were audited, were not provided.

Total FY 2019 expenditures under the subrecipient agreements were $353,864, which is a questioned cost. Ernst & Young found that test of 14 nonpayroll expenditures pertaining to subrecipient transactions, aggregating $438,864 of a total population of $468,864, deficiencies were noted.

The auditor said for 14(or 100%), public publication notices of sub award opportunities were not provided. Total FY 2019 expenditures under the subrecipient agreements for four documents amounted to $115,000, which are for the same subrecipients, are questioned at the first finding, for which are for the same subrecipients. For one (or 7%), supporting documents were not provided and no questioned cost is presented as the amount questioned at the second finding for one document is for the same subrecipient.

Ernst & Young said the cause is that CHCC did not enforce record keeping and monitoring controls over applicable subrecipient monitoring requirements.

The auditor said the effect is that CHCC is in noncompliance with applicable subrecipient monitoring requirements and questioned costs of $468,864 result.

The auditor recommended that CHCC should establish and enforce required monitoring procedures and establish a record keeping system whereby underlying support for each transaction is processed timely and filed accordingly for easy retrieval to substantiate costs.

In its response, CHCC’s corrective action plan provides a detailed rationale for disagreement with the three findings. In its response, Ernst & Young said with respect to the first finding, invoices, receipts and progress reports from prior disbursements were not provided, and on the second finding, public publication notices of sub award opportunities were not provided.

The auditor said regarding the third finding, they were not made aware that the transaction was voided and the corresponding reversal journal entry was also not provided.

The auditor also noted that it was also agreed during the Sept. 6, 2024 and Oct. 4, 2024 meetings for CHCC to provide corresponding underlying accounting records to resolve the finding, however, no documentations were provided within the agreed timeline.

Ernst & Young said accordingly, their finding is sustained.