The Children's Mercy Hospital

Federal Program: Research and Development Cluster Federal Agency: U.S. Department of Health and Human Services Pass through Entity: Various ? see Schedule of Expenditures of Federal Awards CFDA Numbers and Program Expenditures: Various ? see Schedule of Expenditures of Federal Awards Federal Award Numbers: Various ? see Schedule of Expenditures of Federal Awards Federal Award Year: Various ? see Schedule of Expenditures of Federal Awards Condition Found: During our testing over the Research and Development Cluster program, we noted the Hospital had drafted a revised procurement policy to incorporate the requirements of 2 CFR sections 200.318 through 200.326; the draft policy was not formally adopted by the Hospital and was not communicated to Hospital personnel responsible for procurements. As a result, Hospital personnel continued following the existing procurement policy which did not conform to the revised procurement requirements under the Uniform Guidance. The Hospital paid contractual expenditures under the Research and Development Cluster program of approximately $1 million of which approximately $250,000 were purchases in excess of the micro purchase threshold. Each of the procurements in excess of the micro purchase threshold were sole sourced and justification of the sole source procurement was not documented at the time of the purchase. During our audit, the Hospital re evaluated each of the procurements and documented the rationale for sole sourcing. The Hospital has not established adequate controls to ensure required procurement policy updates are appropriately adopted and implemented in accordance with the procurement standards required by 2 CFR sections 200.318 through 200.326. Criteria: The Hospital must follow the procurement standards set out at 2 CFR section 200.318 through 200.326. The Hospital must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable Federal statues and the procurement requirements identified in 2 CFR part 200. These standards 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. According to 2 CFR section 200.319, the Hospital must conduct all procurement transactions in a manner providing full and open competition. In addition, for acquisitions exceeding the simplified acquisition threshold, the Hospital must use one of the following procurement methods: the sealed bid method if the acquisition meets the criteria in 2 CFR section 200.320(c); the competitive proposals method under the conditions specified in 2 CFR section 200.320(d); or the noncompetitive proposals method (i.e. solicit a proposal from only one source) but only when one or more of four circumstances are met, in accordance with 2 CFR section 200.320(f). Finally, the Hospital must perform a cost or price analysis in connection with every procurement action in excess of the simplified acquisition threshold as required by 2 CFR section 200.323. The micro purchases threshold is $10,000 and the simplified acquisition threshold for the Hospital is $250,000 as stated in the ?Notice of Increases to the Simplified Acquisition and Micro purchase Thresholds by the Office of Management and Budget?, notice number NOT OD 18 219 issued by the National Institutes of Health. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Cause: In discussing these conditions with Hospital personnel, they stated staff turnover resulted in the revised policy not being adopted, implemented, and communicated to individuals involved in the procurement process. Possible Asserted Effect: Failure to implement procurement policy changes required by the Uniform Guidance may result in noncompliance with procurement regulations and unallowable costs being charged to federal programs. Questioned Costs: None Repeat Finding: This is not a repeat audit finding. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: We recommend that management implement the necessary updates to its procurement policy to conform to the requirements as outlined in the Uniform Guidance and communicate those changes to individuals involved in the procurement process. Management should also evaluate its internal controls over the compliance and implement any additional changes to ensure procurements are made in accordance with federal regulations and are appropriately documented. Views of Responsible Officials: The Hospital agrees that it must implement the updates to the procurement policy as outlined in the Uniform Guidance. On 9/2/2019, the procurement policy was finalized and published in the Hospital?s Policy Manager. Communication of the procurement policy was sent out via hospital-wide Scope article and was disseminated in departmental meetings and through the research listserv. The Hospital is implementing an automated process to identify procurement transactions by the project?s Catalog For Domestic Assistance (CFDA) number. Once the transaction is identified as a federal purchase, it will be placed on hold and an email will be sent to Supply Chain for review. Supply Chain will work with purchaser to ensure compliance with the policy.

Federal Program:National Center for Advancing Translational Sciences, CFDA No. 93.350, Award No. ZPBK0010 Federal Agency:National Institutes of Health Pass through Entity:University of Kansas Medical Center Research Institute CFDA # and Program Expenditures:93.350 ($157,619) Federal Award Number:ZPBK00000 Federal Award Year:July 1, 2018 to June 30, 2019 Condition Found: During our testing of the period of performance requirement related to the Research and Development Cluster program, we noted spending on one subaward (ZPBK00000) sampled exceeded the amount awarded ($146,475) for the period of performance (fiscal year 2019) by $56,089. Upon further review of the award agreement, we noted the award provided funding for two specific budget periods - $210,411 for fiscal 2018 and $146,475 for fiscal 2019. The award did not permit funds to be carried between budget periods. The SEFA initially presented for audit included the spending in excess of those permitted by the award document. However, we noted the financial reports filed and the cash reimbursement requests submitted by the Hospital during the year ended June 30, 2019 did not include these expenditures. Additionally, the SEFA presented in with this report has also been adjusted to remove these expenditures. While supervisory review procedures require Hospital personnel to verify each expenditure is allowable and was incurred during the applicable period of performance, internal controls have not been established to ensure project expenditures do not exceed budgeted amounts. In addition, the Hospital did not establish separate and distinct projects for each budgetary period. Criteria: The Hospital must follow the period of performance requirements contained in 2 CFR section 200.309 which require nonFederal entities to charge to Federal awards only allowable costs incurred during the period of performance and any costs incurred before the Federal awarding agency or pass through entity made the Federal award that were authorized by the Federal awarding agency or pass through entity. Additionally, the Hospital must follow the requirements outlined in 2 CFR section 200.343(b) which require nonFederal entities to liquidate all obligations incurred under Federal awards no later than 90 calendar days after the end date of the period of performance as specified in the terms and conditions of the Federal award unless the Federal awarding agency or pass through entity authorizes an extension. In accordance with 2 CFR section 200.71, when used in connection with a nonFederal entity?s utilization of funds under a Federal award, ?obligations? means orders placed for property and services, contracts and subawards made, and similar transactions during a given period that require payment by the nonFederal entity during the same or a future period. Cause: In discussing these conditions with Hospital management, they stated the majority of their pass through awards permit carryover between budget periods and the specific budget period requirements of this award were not identified when the award was extended by the pass through entity. Possible Asserted Effect: Failure to properly identify period of performance requirements and establish appropriate internal controls may result in unallowable costs being charged to federal awards. Questioned Costs: None Repeat Finding: This is not a repeat audit finding. Statistical Sampling: The sample was not intended to be, and was not a statistically valid sample. Recommendation: We recommend that Management implement processes and controls as part of their system of internal control to ensure new activities are set up for awards with extensions where carryover is not permitted. In addition, we recommend that management ensure grant personnel involved in setting up new awards or extensions are properly trained on the period of performance requirements and the Hospital?s policies and internal controls. The Senior Manager of Research Accounting will provide training on the period of performance requirements to ensure compliance with the Hospital?s policies and internal controls standards. Views of Responsible Officials: The Hospital agrees that it should strengthen its internal control ensuring that awards are setup in new projects when carryover is not permitted. The Hospital believes that this was an isolated incident. An award was setup using a draft subaward document. When the fully executed award was received, the carryover clause was stricken. When finalizing the award as fully executed, the change was not noted, and the award was not setup in a separate project. The Senior Manager of Research Accounting will provide training on the period of performance requirements to ensure compliance with the Hospital?s policies and internal controls standards.