St. Joseph's Health, Inc.Non-Profit

2024 001 Reporting and Procurement U.S. Department of the Treasury: Passed-through State of New Jersey Department of Community Affairs: COVID 19 Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027) Contract Number and Years: G2022 09 (03/02/2021 – 12/31/2026) Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample Repeat Finding: Yes (2023-001) Finding Type: Material Weakness, Material Noncompliance Criteria Reporting Per 2 CFR 200.502, the determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs. Generally, the activity pertains to events that require the non Federal statutes, regulations and the terms and conditions of Federal awards, such as: expenditures/expense transactions associated with awards including grants. Further, the Uniform Guidance compliance supplement notes, each recipient must report program outlays and program income on a cash or accrual basis, as prescribed by the Federal awarding agency. In accordance with the grant agreement and the reporting requirements for the State of New Jersey Department of Community Affairs, direct grants and pass through funds are fulfilled utilizing an advanced payment method and tracking reports. The grantee shall submit quarterly financial reports, in a format to be provided by the Department, and including the number of government full time employees responding to COVID 19 as supported by this funding. The reports are prepared and submitted to allow for relevant and reliable information to be provided to the Federal government or State of New Jersey for tracking purposes. The reports are the source documents for the grantee to prepare a schedule of expenditures of Federal awards (SEFA) for the period covered by the grantee’s financial statements in accordance with 2 CFR 200.502, Basis for determining Federal awards expended, for the SEFA. Procurement Non Federal entities other than states, including those operating Federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable Federal statutes and the procurement requirements identified in 2 CFR Part 200. A non Federal entity must: 1. Meet the general procurement standards in 2 CFR section 200.318, which include oversight of contractors’ performance, maintaining written standards of conduct for employees involved in contracting, awarding contracts only to responsible contractors, and maintaining records to document history of procurements. 2. Conduct all procurement transactions in a manner providing full and open competition, in accordance with 2 CFR section 200.319. 3. Use the micro purchase and small purchase methods only for procurements that meet the applicable criteria under 2 CFR sections 200.320(a) (1) and (2). Under the micro purchase method, the aggregate dollar amount does not exceed $10,000 ($2,000 in the case of acquisition for construction subject to the Wage Rate Requirements (Davis Bacon Act)). Small purchase procedures are used for purchases that exceed the micro purchase amount but do not exceed the simplified acquisition threshold ($250,000). Micro purchases may be awarded without soliciting competitive quotations if the non Federal entity considers the price to be reasonable (2 CFR section 200.320(a)). If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources (2 CFR section 200.320(b)). In accordance with the grant agreement and the reporting requirements for the State of New Jersey Department of Community Affairs, recipients may use award funds to enter into contracts to procure goods and services necessary to implement one or more of the eligible purposes outlined in sections 602(c) and 603(c) of the Act and Treasury’s Interim Final Rule and Final Rule. As such, recipients are expected to have procurement policies and procedures in place that comply with the procurement standards outlined in the Uniform Guidance. Under the program, St. Joseph’s Health, Inc. must follow the procurement standards in 2 CFR sections 200.318 through 200.327, including ensuring that the procurement method used for the contracts are appropriate based on the dollar amount and conditions specified in 2 CFR section 200.320. Internal Control Additionally, in accordance with Federal requirements, a non Federal entity shall maintain internal controls over Federal programs designed to provide reasonable assurance that transactions are executed in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award that could have a direct and material effect on a Federal program. Condition and Context Reporting On a quarterly basis, St. Joseph’s Health, Inc. (the System) prepares and reports to New Jersey Department of Community Affairs (the Department) the program expenditures for Federal funding amounts on the tracking report of expenditures, which are then used to prepare the annual SEFA in conjunction with the general ledger detail at the end of the fiscal year. While expenditures per the SEFA as prepared by the System were accurate and the quarterly reporting was accepted by the State, the System’s expenditures per the report of expenditures continue to be based upon purchase order amounts, which include expenditures that were incurred subsequent to year end. Procurement Further, the System engaged multiple vendors for several projects under the G2022 09 grant that were above the $10K micro purchase threshold, but below the simplified acquisition threshold. However, the System did not obtain multiple quotes from different vendors to encourage fair competition in the market. The System’s policies and procedures to ensure compliance with the above compliance requirements did not include certain internal controls that were designed properly and operating effectively to ensure that the System properly reported costs on the report of expenditures or obtained the necessary quotes from potential bidders for procurements over the micro purchase threshold. Cause Management’s review of the submitted quarterly report of expenditures continuing not to be identified the need for a reconciliation of incurred expenditures and purchase order balances reported to the Department and as such, as there is a variance between the amounts reported on the SEFA and the amounts reported to the Department on the quarterly reports of approximately $2.1 million. We noted, however, that this variance did not represent any unallowable costs. Additionally, Management did not retain or obtain the required documentation indicating quotes from multiple vendors were obtained for the ongoing construction projects under the grant. Effect The System had a material variance in the amount of expenditures reported to the Department as compared to the SEFA and did not obtain multiple quotations from vendors when making selections for various projects ongoing under the Federal program. Questioned Costs None Recommendation Reporting We recommend that the System strengthen its processes and internal controls to ensure the tracking of each report of expenditures provided to the Department has a reconciliation of the amount of expenditures incurred in the period based upon the general ledger and accounting records, used to prepare the annual SEFA, as compared to the purchase order balances. Procurement We recommend that the System strengthen its processes and internal controls to ensure that all procurement related transactions are supported by the appropriate bidding documentation as required by the Uniform Guidance for each respective bidding threshold. View of Responsible Official Management agrees with the auditor’s recommendations and will strengthen its processes and internal controls to ensure the report of expenditures provided to the Department has a reconciliation of the amount of expenditures incurred in the period compared to the purchase order balances and all procurement transactions contain the required bidding documentation for each bidding threshold in accordance with the Uniform Guidance.

Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample Repeat Finding: Yes (2022-002) Finding Type: Material Weakness, Material Noncompliance Criteria Reporting Per 2 CFR 200.502, the determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs. Generally, the activity pertains to events that require the non Federal statutes, regulations and the terms and conditions of Federal awards, such as: expenditures/expense transactions associated with awards including grants. Further, the Uniform Guidance compliance supplement notes, each recipient must report program outlays and program income on a cash or accrual basis, as prescribed by the Federal awarding agency. In accordance with the grant agreement and the reporting requirements for the State of New Jersey Department of Community Affairs, direct grants and pass through funds are fulfilled utilizing an advanced payment method and tracking reports. The grantee shall submit quarterly financial reports, in a format to be provided by the Department, and including the number of government full time employees responding to COVID 19 as supported by this funding. The reports are prepared and submitted to allow for relevant and reliable information to be provided to the Federal government or State of New Jersey for tracking purposes. The reports are the source documents for the grantee to prepare a schedule of expenditures of Federal awards (SEFA) for the period covered by the grantee’s financial statements in accordance with 2 CFR 200.502, Basis for determining Federal awards expended, for the SEFA. Procurement Non Federal entities other than states, including those operating Federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable Federal statutes and the procurement requirements identified in 2 CFR Part 200. A non Federal entity must: 1. Meet the general procurement standards in 2 CFR section 200.318, which include oversight of contractors’ performance, maintaining written standards of conduct for employees involved in contracting, awarding contracts only to responsible contractors, and maintaining records to document history of procurements. 2. Conduct all procurement transactions in a manner providing full and open competition, in accordance with 2 CFR section 200.319. 3. Use the micro purchase and small purchase methods only for procurements that meet the applicable criteria under 2 CFR sections 200.320(a) (1) and (2). Under the micro purchase method, the aggregate dollar amount does not exceed $10,000 ($2,000 in the case of acquisition for construction subject to the Wage Rate Requirements (Davis Bacon Act)). Small purchase procedures are used for purchases that exceed the micro purchase amount but do not exceed the simplified acquisition threshold ($250,000). Micro purchases may be awarded without soliciting competitive quotations if the non Federal entity considers the price to be reasonable (2 CFR section 200.320(a)). If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources (2 CFR section 200.320(b)). In accordance with the grant agreement and the reporting requirements for the State of New Jersey Department of Community Affairs, recipients may use award funds to enter into contracts to procure goods and services necessary to implement one or more of the eligible purposes outlined in sections 602(c) and 603(c) of the Act and Treasury’s Interim Final Rule and Final Rule. As such, recipients are expected to have procurement policies and procedures in place that comply with the procurement standards outlined in the Uniform Guidance. Under the program, St. Joseph’s Health, Inc. must follow the procurement standards in 2 CFR sections 200.318 through 200.327, including ensuring that the procurement method used for the contracts are appropriate based on the dollar amount and conditions specified in 2 CFR section 200.320. Internal Control Additionally, in accordance with Federal requirements, a non Federal entity shall maintain internal controls over Federal programs designed to provide reasonable assurance that transactions are executed in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award that could have a direct and material effect on a Federal program. Condition and Context Reporting On a quarterly basis, St. Joseph’s Health, Inc. (the System) prepares and reports to New Jersey Department of Community Affairs (the Department) the program expenditures for Federal funding amounts on the tracking report of expenditures, which are then used to prepare the annual SEFA in conjunction with the general ledger detail at the end of the fiscal year. While expenditures per the SEFA as prepared by the System were accurate and the quarterly reporting was accepted by the State, the System’s expenditures per the report of expenditures were based upon purchase order amounts, which include expenditures that were incurred subsequent to year end. Procurement Further, the System engaged multiple vendors for several projects under the G2022 09 grant that were above the $10K micro purchase threshold, but below the simplified acquisition threshold. However, the System did not obtain multiple quotes from different vendors to encourage fair competition in the market. The System’s policies and procedures to ensure compliance with the above compliance requirements did not include certain internal controls that were designed properly and operating effectively to ensure that the System properly reported costs on the report of expenditures or obtained the necessary quotes from potential bidders for procurements over the micro purchase threshold. Cause Management’s review of the submitted quarterly report of expenditures did not identify the need for a reconciliation of incurred expenditures and purchase order balances reported to the Department and as such, as there is a variance between the amounts reported on the SEFA and the amounts reported to the Department on the quarterly reports of approximately $458 thousand. We noted, however that this variance did not represent any unallowable costs. Additionally, Management did not retain or obtain the required documentation indicating quotes from multiple vendors were obtained for the ongoing construction projects under the grant. Effect The System had a material variance in the amount of expenditures reported to the Department as compared to the SEFA and did not obtain multiple quotations from vendors when making selections for various projects ongoing under the Federal program. Questioned Costs None Recommendation Reporting We recommend that the System strengthen its processes and internal controls to ensure the tracking of each report of expenditures provided to the Department has a reconciliation of the amount of expenditures incurred in the period based upon the general ledger and accounting records, used to prepare the annual SEFA, as compared to the purchase order balances. Procurement We recommend that the System strengthen its processes and internal controls to ensure that all procurement related transactions are supported by the appropriate bidding documentation as required by the Uniform Guidance for each respective bidding threshold. View of Responsible Official Management agrees with the auditor's recommendations and will strengthen its processes and internal controls to ensure the report of expenditures provided to the Department has a reconciliation of the amount of expenditures incurred in the period compared to the purchase order balances and all procurement transactions contain the required bidding documentation fro each bidding threshold in accordance with the Uniform Guidance.

U.S. Department of the Treasury State of New Jersey Department of Community Affairs COVID-19 Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027) Federal Award Number and Years: G2022-09 (03/02/2021 – 12/31/2024) Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample Repeat Finding: No Finding Type: Material Weakness, Material Non-compliance Criteria Reporting Per 2 CFR 200.502, the determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs. Generally, the activity pertains to events that require the non-Federal entity to comply with Federal statutes, regulations, and the terms and conditions of Federal awards, such as: expenditure/expense transactions associated with awards including grants. Further, the Uniform Guidance compliance supplement notes, each recipient must report program outlays and program income on a cash or accrual basis, as prescribed by the federal awarding agency. Also, in accordance with the grant agreement and the reporting requirements for the State of New Jersey Department of Community Affairs, direct grants and pass-through funds are fulfilled utilizing an advanced payment method and tracking reports. The grantee shall submit quarterly financial reports, in a format to be provided by the Department, and including the number of government full-time employees responding to COVID-19 as supported by this funding. The reports are prepared and submitted to allow for relevant and reliable information to be provided to the Federal government or State of New Jersey for tracking purposes. The reports are the source documents for the grantee to prepare a schedule of expenditures of Federal awards (SEFA) for the period covered by the grantee’s financial statements in accordance with 2 CFR 200.502, Basis for determining Federal awards expended, for the SEFA. Procurement Non-federal entities other than states, including those operating federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in 2 CFR Part 200. A non-federal entity must: 1. Meet the general procurement standards in 2 CFR section 200.318, which include oversight of contractors’ performance, maintaining written standards of conduct for employees involved in contracting, awarding contracts only to responsible contractors, and maintaining records to document history of procurements. 2. Conduct all procurement transactions in a manner providing full and open competition, in accordance with 2 CFR section 200.319. 3. Use the micro-purchase and small purchase methods only for procurements that meet the applicable criteria under 2 CFR sections 200.320(a) (1) and (2). Under the micro-purchase method, the aggregate dollar amount does not exceed $10,000 ($2,000 in the case of acquisition for construction subject to the Wage Rate Requirements (Davis-Bacon Act)). Small purchase procedures are used for purchases that exceed the micro-purchase amount but do not exceed the simplified acquisition threshold ($250,000). Micro-purchases may be awarded without soliciting competitive quotations if the non-federal entity considers the price to be reasonable (2 CFR section 200.320(a)). If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources (2 CFR section 200.320(b)). In accordance with the grant agreement and the reporting requirements for the State of New Jersey Department of Community Affairs, recipients may use award funds to enter into contracts to procure goods and services necessary to implement one or more of the eligible purposes outlined in sections 602(c) and 603(c) of the Act and Treasury’s Interim Final Rule and Final Rule. As such, recipients are expected to have procurement policies and procedures in place that comply with the procurement standards outlined in the Uniform Guidance. Under the program, St. Joseph’s Health, Inc. must follow the procurement standards in 2 CFR sections 200.318 through 200.327, including ensuring that the procurement method used for the contracts are appropriate based on the dollar amount and conditions specified in 2 CFR section 200.320. Additionally, in accordance with Federal requirements, a non-Federal entity shall maintain internal controls over Federal programs designed to provide reasonable assurance that transactions are executed in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award that could have a direct and material effect on a Federal program. Condition and Context Reporting On a quarterly basis, St. Joseph’s Health, Inc. (the System) prepares and reports to the State of New Jersey Department of Community Affairs (the Department) the program expenditures for Federal funding amounts on the tracking report of expenditures, which are then used to prepare the annual SEFA in conjunction with the general ledger detail at the end of the fiscal year. While the expenditures per the SEFA as prepared by the System was accurate and the quarterly reporting was accepted by the State, the System’s expenditures per the report of expenditures were based upon purchase order amounts, which includes expenditures that were incurred subsequent to year-end. Procurement The System has procurement policies and guidelines that are in accordance with the respective provisions of the Uniform Guidance. The System contracted with multiple vendors for several projects under the G2022-09 grant that were above the micro purchase threshold of $10,000, but below the simplified acquisition threshold of $250,000. However, the System did not obtain multiple quotes from different vendors to encourage fair competition in the market as per the System’s prescribed procurement policies and guidelines. The vendors were not suspended or debarred and the associated expenditures with these vendors incurred in fiscal year 2022 were determined to be allowable. The System’s policies and procedures to ensure compliance with the above compliance requirements did not include certain internal controls that were designed properly and operating effectively to ensure that the System’s report of expenditures submitted to the Department includes a reconciliation between incurred expenditures and purchase order balances or obtained the necessary quotes from potential bidders for procurements over the micro purchase threshold. Cause Management’s review of the submitted tracking report of expenditures did not identify the need for a reconciliation of incurred expenditures and purchase order balances reported to the Department and as such, as there is a variance between the amounts reported on the SEFA and the amounts reported to the Department on the quarterly reports of approximately $2.2 million. Additionally, they System did not retain or obtain the required documentation for procurements entered into with vendors for the grant in accordance with the System’s procurement policies and guidelines. Effect The System had a material variance in the amount of expenditures reported to the Department as compared to the SEFA, as well as did not comply with Federal regulations or its own policies and guidelines for procurement transactions and related document retention. Questioned costs None Recommendation Reporting We recommend that the System strengthen its processes and internal controls to ensure the tracking report of expenditures provided to the Department has a reconciliation of the amount of expenditures incurred in the period based upon the general ledger and accounting records, used to prepare the annual SEFA, as compared to the purchase order balances. Procurement We recommend that the System strengthen its processes and internal controls to ensure the System obtains and retains the required documentation for each procurement based upon the type of procurement and dollar thresholds. View of Responsible Official Management agrees with the auditor’s recommendation and will strengthen its processes and internal controls to ensure the report of expenditures provided to the Department has a reconciliation of the amount of expenditures incurred in the period compared to the purchase order balances. In addition, Management will strengthen its processes and internal controls to ensure the System obtains and retains the required documentation for each procurement based upon the type of procurement and dollar thresholds.

Identification of the federal program: Federal Agency: U.S. Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA) Assistance Listing No.: 93.498 COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution Award Period of Performance: July 1, 2020 ? December 31, 2021 Criteria or Specific Requirement (including statutory, regulatory or other citation): 2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control: ?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).? The terms and conditions of the award require the recipient to submit reports to the secretary of HHS for each reporting period to ensure compliance with conditions that are imposed on the payment, and such report shall be in such form, with such content, as specified by the secretary of HHS in program instructions directed to all recipients. Condition: Management did not have sufficiently designed internal controls to review the supporting documentation underlying the expenditure and lost revenue amounts submitted in the HHS data portal for the Provider Relief Fund (PRF). The issues noted related to this finding are as follows: Item 1: For the following entities which received approximately $601,000 (collectively) of funds under the PRF program in April 2020, management did not submit the required information for Reporting Period 1 to the HHS data portal by the required filing date: St Joseph's Healthcare Inc., St Joseph's Emergency Physicians, St Joseph's Faculty Physicians, Inc. Item 2: For St. Joseph?s Hospital, the lost revenue calculation for Reporting Periods 1 and 2 included several calculation errors which resulted in lost revenue being incorrectly calculated resulting in an overstatement of approximately $5.4 million for the amounts reported in the HHS data portal. Item 3: For St. Joseph?s Hospital, for Reporting Periods 1 and 2 the supporting documentation for certain Other PRF Expenses reported in the HHS portal required additional documentation to accumulate expenditures which were incurred during the PRF Reporting Periods. Additionally, we noted an error in the calculation of fringe benefits costs in Reporting Period 2 that resulted in an overstatement of such costs by approximately $344,000. Cause: Management?s internal control over the review and approval of the HHS portal data did not prevent or detect these issues. Effect or potential effect: A deficiency in internal control over the review of the expenditure data submitted in the HHS portal could result in a misstatement of the amounts reported in the HHS portal. In relation to Item 1 above, management addressed the issue by submitting the necessary information in the HHS portal in May 2022. In relation to Item 2 above, the lost revenue reported in the HHS portal is incorrect and management intends to correct the data submission in a subsequent filing. In relation to Item 3 above, management prepared additional summary documentation to support the amounts reported in the HHS portal. Questioned Costs: $5.7 million, representing the incorrectly calculated lost revenue reported in the HHS portal (item 2) and the fringe benefits expense calculation error (item 3), prior to consideration of other eligible PRF activity for Assistance Listing No. 93.498. Context: During our testing of PRF lost revenue and expenditures as reported in the HHS portal, we identified the three issues noted above. On a consolidated basis for SJH overall, total PRF activity reported in the HHS portal during the period of availability for Reporting Period 1 (January 1, 2020 through June 30, 2021) and PRF Reporting Period 2 (January 1, 2020 through December 31, 2021) for Assistance Listing No. 93.498 included lost revenues of approximately $76.0 million and expenses of approximately $107.7 million. PRF general and targeted distributions received from April 10, 2020 through December 31, 2020 for PRF Reporting Periods 1 and 2 totaled approximately $180.3 million (interest earned on retained PRF funds totaled approximately $4.0 million). Identification as a repeat finding, if applicable: The finding is not a repeat finding. Recommendation: Management should correct the lost revenue calculation error in the next PRF reporting period. In addition, management should enhance internal control over the review and approval of the data used to calculate PRF-eligible expenses and lost revenue and the report submission for the HHS portal. View of Responsible Officials: Management agrees with the finding. Management will correct the lost revenue reporting error in the next HHS portal reporting submission period. Management has identified and intends to submit additional PRF-eligible expenses (incurred prior to December 31, 2021) which address the shortfall resulting from the lost revenue calculation error. Management has also enhanced its formal review and approval process over the data used to calculate PRF-related information.