DECATUR MEMORIAL HOSPITALNon-Profit

Finding 2019-001 Activities Allowed or Unallowed and Allowable Costs/Cost Principles ? Effort Reporting Information on the Federal Program: Federal Agencies: U.S. Department of Defense and U.S. Department of Health and Human Services Pass-Through Entities: N/A Major Program: Research & Development (R&D) Cluster CFDA No.: 93.395 Award/Subaward No.: 5UG1CA189830 Award/Subaward Years: 08/01/2018-07/31/2019 and 08/01/2019-07/31/2020 Criteria or Specific Requirement: 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).? Appendix IX to Part 75?Principles for Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals, I. General Standards for Selected Items of Cost, (4) Preparation of Estimates of Effort states: Where required under paragraph (3) above, estimates of effort spent by a member of the professional staff on each research agreement should be prepared by the individual who performed the services or by a responsible individual such as a department head or supervisor having first-hand knowledge of the services performed on each research agreement. Estimates must show the allocation of effort between organized research and all other hospital activities in terms of the percentage of total effort devoted to each of the broad functional categories referred to in (2) above. The estimate of effort spent on a research agreement may include a reasonable amount of time spent in activities contributing and intimately related to work under the agreement, such as preparing and delivering special lectures about specific aspects of the ongoing research, writing research reports and articles, participating in appropriate research seminars, consulting with colleagues with respect to related research, and attending appropriate scientific meetings and conferences. The term ?all other hospital activities? would include departmental research, administration, committee work, and public services undertaken on behalf of the hospital. Condition: As part of our testing of the operating effectiveness of controls over the allowable activities and allowable costs compliance requirements, we noted a deficiency in the segregation of duties between the preparer and reviewer of the effort certification. Further, effort certifications did not show the allocation of effort between organized research and all other hospital activities. Cause: The same individual prepared and reviewed the effort report for three months during the year when there was no official Director of Research. The policies and procedures do not require employees? effort certification to include the allocation to other hospital activities. Questioned Costs: None. Context: The total R&D Cluster expenditures on the SEFA are $2,853,449 for the year ended September 30, 2019. Total Payroll costs are $1,037,826 for the year ended September 30, 2019 which is 36.4% of total R&D Cluster expenditures. Payroll costs for the three months where there was not a segregation of duties was $276,116 which is 9.7% of total R&D Cluster expenditures. Effect or Potential Effect: The lack of segregation of duties could result in incorrect effort or salaries and wages being approved and allocated to the grant. Unallowable costs could be charged to the federal program. Identification as a Repeat Finding, if Applicable: The finding is not a repeat finding. Recommendation: The Hospital should ensure it has adequate internal controls to require a segregation of duties between the review and approval of efforts report and ensure effort certifications show the allocation of effort between organized research and all other hospital activities. Views of Responsible Officials: Management agrees with the finding and has developed a plan to correct the finding.

Finding 2019-002 Activities Allowed or Unallowed and Allowable Costs/Cost Principles ? Indirect Rate Information on the Federal Program: Federal Agencies: U.S. Department of Defense and U.S. Department of Health and Human Services Pass-Through Entities: N/A Major Program: Research & Development (R&D) Cluster CFDA Nos.: 93.395 Award/Subaward No.: 5UG1CA189830 Award/Subaward Years: 08/01/2018-07/31/2019 and 08/01/2019-07/31/2020 Criteria or Specific Requirement: 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).? 45 CFR Section 75 Appendix IX, Section E, subsection 3, paragraph b states: ?b. Where the actual allowance for indirect costs on any research grant must be restricted to the smaller of the two alternative amounts referred to in 3.a. above, such alternative amounts should be determined in accordance with the following guidelines: (1) The maximum allowable under the limitation should be established by applying the stated percentage to a direct cost base which shall include all items of expenditure authorized by the sponsoring agency for inclusion as part of the total cost for the direct benefit of the work under the grant; and (2) The amount otherwise allowable under these principles should be established by applying the current institutional indirect cost rate to those elements of direct cost which were included in the base on which the rate was computed.? Condition: As part of our testing of the operating effectiveness of controls over the allowable activities and allowable costs compliance requirements, we noted a deficiency over the calculation of indirect costs by management. Management calculated indirect costs by allocating the indirect cost per the NIH budget evenly across the year. Management did not calculate indirect costs based on the total direct costs for a month (the base) multiplied by the Federal indirect rate to calculate indirect expenses for the month. Cause: DMH does not have policies and procedures in place to calculate indirect costs in accordance with 45 CFR Section 75 Appendix IX, Section E, subsection 3, paragraph b and federal indirect cost rate agreement. Questioned Costs: None. Context: The total R&D Cluster expenditures reported on the SEFA are $2,853,449 for the year ended September 30, 2019. Indirect costs are $301,623 for the year ended September 30, 2019, which is 10.6% of total R&D Cluster expenditures. Effect or Potential Effect: Incorrect indirect costs were calculated on a monthly basis. Identification as a Repeat Finding, if Applicable: The finding is not a repeat finding. Recommendation: DMH should calculate the allowed indirect amount per month based on the following calculation: base (total direct costs) multiplied by the indirect rate as required by the indirect cost rate agreement and 45 CFR Section 75 Appendix IX, Section E, subsection 3, paragraph b. Views of Responsible Officials: Management agrees with the finding and has developed a plan to correct the finding.

Finding 2019-003 Subrecipient Monitoring and Management Information on the Federal Program: Federal Agencies: U.S. Department of Defense and U.S. Department of Health and Human Services Pass-Through Entities: N/A Major Program: Research & Development (R&D) Cluster CFDA Nos.: 93.395 Award/Subaward No.: 5UG1CA189830 Award/Subaward Years: 08/01/2018-07/31/2019 and 08/01/2019-07/31/2020 Criteria or Specific Requirement: 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).? 2 CFR Section 200.331 Requirements for pass-through entities of the Uniform Guidance states the following regarding internal control: ?Pass-through entity monitoring of the subrecipient must include: (1) Reviewing financial and programmatic reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and other means.? Condition: As part of our testing of the operating effectiveness of controls over subrecipient monitoring, we noted a deficiency in the documentation of management?s review of subrecipient?s single audits and risk assessment determination. Management did not fully document their assessment or retain the documentation used in their review of subrecipient single audits or in the risk assessment determination to support their review and conclusions. Cause: DMH policies and procedures do not require they fully document or retain the documentation used in their review of subrecipients? risk assessment or single audit reports. Questioned Costs: None. Context: The total R&D Cluster Expenditures on the SEFA are $2,853,449 for the year ended September 30, 2019. Subrecipient costs total $1,552,360, which represent 54.4% of total R&D Cluster expenditures. Effect or Potential Effect: No documentation over the review of the subrecipient risk assessment determination and single audits was retained to support management risk assessment or review of subrecipient audit reports. Identification as a Repeat Finding, if Applicable: The finding is not a repeat finding. Recommendation: The Hospital should maintain documentation of its review of the single audit reports and the risk assessment determination. Views of Responsible Officials: Management agrees with the finding and has developed a plan to correct the finding.

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