ACTS Retirement-Life Communities, Inc. and Subsidiaries

Finding 2021-001 - Significant Deficiency in Internal Control - Reporting Assistance Listing Number: 93.498 COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution Federal Agency: U.S. Department of Health and Human Services Pass-Through Agency: Not Applicable Award Number / Year: Not Applicable / 2021 Criteria: Non-federal entities in receipt of federal funds must comply with the requirements of 2 CFR 200.303(a), which require an entity to establish and maintain effective internal control over the Federal award to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Recipients of Provider Relief Funds (PRF) payments must also comply with the reporting requirements described in the PRF terms and conditions and specified in directions issued by the U.S. Department of Health and Human Services. Condition/Context: The Company did not complete the PRF reporting in accordance with the U.S. Department of Health and Human Services guidance. For all 17 reports tested, the Company excluded from patient care revenue the amount attributable to independent living related services provided to residents. Additionally, all 17 reports tested did not contain a documented review and approval of the reports prior to submission. Effect: The amounts reported to Health Resources & Services Administration (HRSA) were not in accordance with established U.S. Department of Health and Human Services reporting guidance. Questioned Costs: None reported. Cause: Management believed that the most appropriate option to select was Option i, not Option iii, based on their interpretation of the guidance. Recommendation: We recommend that management review and update, as needed, their procedure for completion of the reporting to ensure that a review and approval of such reporting is completed and documented prior to submission. Additionally, we recommend that management change their selected reporting option from Option i to Option iii in the next required submission, if revenue attributable to independent living related services will continue to be excluded from patient care revenues. Views of Responsible Officials: In the Provider Relief Fund Lost Revenues Guide distributed by HRSA in August 2021, "Patient Care" is defined as "health care, services and supports, as provided in a medical setting, at home/telehealth, or in the community". As such, management assumed that patient care revenue pertained only to revenue generated in the healthcare setting. As a continuing care retirement community, management does not consider residents that live independently in an independent living unit as "Patients". All reports were submitted by senior level individuals within the financial services department. Review was completed by senior level executives prior to submission but did not formally document the review process. Management will select option iii on future HRSA PRF Reporting Portal submissions and retain documented proof that the reports were reviewed prior to filing.

Finding 2021-002 - Significant Deficiency in Internal Control - Review and Approval of Allowable Costs Assistance Listing Number: 93.498 COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distribution Federal Agency: U.S. Department of Health and Human Services Pass-Through Agency: Not Applicable Award Number / Year: Not Applicable / 2021 Criteria: During the testing of activities allowed or unallowed, allowable costs/cost principles we observed six out of forty selections that did not contain a documented review and approval of the employee time card. For the six items noted, time cards did exist and the hours worked were attested to by the employee but lacked the approval by their department manager prior to payment. Condition/Context: For six out of forty payroll selections there was no evidence of time card approval. Effect: Transactions containing no evidence of review or approval could result in unallowable costs being charged to the federal program. Questioned Costs: None reported. Cause: As a result of COVID-19 pandemic, the Company experienced an unprecedented increase in the demand on existing resources across all lines of business. The Company prioritized the health and safety of staff and residents first and foremost. While the Company's policy is to document a review and approval of employee time-cards, resource constraints and competing priorities led to the missing documentation noted in testing. Recommendation: We recommend that management review their existing policies and procedures to ensure that during times of increased demand, the review and approval of transactions charged to the federal award may still be consummated through the use of alternative reviews and approvals. Views of Responsible Officials: Management's adherence to internal controls over review and approval of allowable costs is paramount. Multiple ways to ensure accurate payroll processing are in place, including various monitoring reports that are provided and reviewed throughout all levels of the organization. In a very small number of circumstances, supervisors were unable to document their timecard approvals. Operating in an unprecedented pandemic, management's ultimate responsibility was the safety and care of our residents and employees.