State of South Dakota

Finding No. 2025-003: Inadequate Internal Controls over Cost Principles – Allocated Salaries and Wages Type of Finding: Material Weakness and Non-Compliance Assistance Listing Title: Aging Cluster (Special Programs for the Aging, Title III, Part B, Grants for Supportive Services and Senior Centers; COVID-19 Special Programs for the Aging, Title III, Part B, Grants for Supportive Services and Senior Centers; Special Programs for the Aging, Title III, Part C, Nutrition Services; COVID-19 Special Programs for the Aging, Title III, Part C, Nutrition Services; Nutrition Services Incentive Program) Assistance Listing Number: 93.044, 93.045, 93.053 Federal Award Number: 2101SDSSC6, 2101SDCMC6, 2301SDOACM, 2401SDOASS, 2401SDOACM, 2401SDOAHD, 2401SDOANS, 2501SDOASS, 2501SDOACM, 2501SDOAHD, 2501SDOANS Federal Award Year: FFY21, FFY23, FFY24, FFY25 Federal Agency: Department of Health and Human Services Category of Finding: Allowable Costs/Cost Principles COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: The Code of Federal Regulations (CFR) at 2 CFR 200.430g(1), requires that: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: … (vi), Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. 2 CFR 200.430g(5) allows states to use substitute processes or systems for allocating salaries and wages to Federal awards in place of the records described in paragraph (g)(1) of this section, if approved by the cognizant agency for indirect cost. The Department of Human Services (DHS) allocated some personal service costs to Aging Cluster programs using these substitute processes. Condition: Since State Fiscal Year (FY) 2017, the DHS has used a specific process to allocate certain personal service costs to the Aging Cluster as described in their Cost Allocation Plan (CAP). This CAP was approved by their cognizant agency, the United States Department of Health and Human Services (HHS), for FY2018, with the most recent certification for its continued use issued for FY2022. The DHS charged certain personal service costs to the Aging Cluster before obtaining approval from HHS for continued use of its CAP for FY 2023, FY2024, and FY2025. Cause: Inadequate internal controls and staff turnover resulted in failure to submit a current CAP to the cognizant agency for approval. Effect: Allocating personal service costs to Aging Cluster programs prior to submitting and obtaining approval of a CAP as required by 2 CFR 200.430g exposed the department to risk of potential federal grant disallowances. Questioned Costs: None. Further Information: As a result of the audit, DHS submitted a letter to the HHS certifying that the procedures approved in the FY2017 CAP had not changed for FY2023, FY2024, and FY2025. HHS acknowledged this certification on February 25, 2026, and advised DHS to continue using the procedures outlined in their approved public assistance cost allocation plan. Repeat Finding from Prior Year: No. Recommendation: We recommend the Department establish controls to ensure timely submission of an updated CAP for future periods. Views of Responsible Officials: The Department of Human Services concurs with the audit finding.

Finding No. 2025-004: Inadequate Internal Controls over Federal Funding Accountability and Transparency Act (FFATA) Reporting Type of Finding: Material Weakness and Non-Compliance Assistance Listing Title: Aging Cluster (Special Programs for the Aging, Title III, Part B, Grants for Supportive Services and Senior Centers; COVID-19 Special Programs for the Aging, Title III, Part B, Grants for Supportive Services and Senior Centers; Special Programs for the Aging, Title III, Part C, Nutrition Services; COVID-19 Special Programs for the Aging, Title III, Part C, Nutrition Services; Nutrition Services Incentive Program) Assistance Listing Number: 93.044, 93.045, 93.053 Federal Award Number: 2101SDSSC6, 2101SDCMC6, 2301SDOACM, 2401SDOASS, 2401SDOACM, 2401SDOAHD, 2401SDOANS, 2501SDOASS, 2501SDOACM, 2501SDOAHD, 2501SDOANS Federal Award Year: FFY21, FFY23, FFY24, FFY25 Federal Agency: Department of Health and Human Services Category of Finding: Reporting COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: Under the Federal Funding Accountability and Transparency Act (FFATA), as codified in 2 CFR Part 170, direct recipients of grants or cooperative agreements who make first-tier subawards are required to report each first-tier subaward or subaward amendment that results in an obligation of $30,000 or more in federal funds through the FFATA Subaward Reporting System (FSRS) no later than the last day of the month following the month in which the subaward or subaward amendment obligation was made. Condition: During State Fiscal Year 2025 (FY25), the Department of Human Services (DHS) received funding under the Aging Cluster and made multiple first-tier subawards to provide support services or nutrition services. The required reporting under FFATA was not performed for any subawards under this cluster. For Aging Cluster subawards over $30,000, with a portion funded during FY25, we identified the following: <See Schedule of Findings and Questioned Costs for Table> Cause: Inadequate internal controls and staff turnover resulted in non-compliance with FFATA reporting requirements. Effect: Incomplete data was available to the public as required under FFATA. Questioned Costs: None. Repeat Finding from Prior Year: No. Recommendation: We recommend the Department submit the required federal reporting in a timely manner and implement monitoring controls to ensure that data is properly submitted for future periods. Views of Responsible Officials: The Department of Human Services concurs with the audit finding.

Finding No. 2025-005: Inadequate Internal Controls over Certification of Maintenance of Effort Reporting Type of Finding: Material Weakness and Non-Compliance Assistance Listing Title: Aging Cluster (Special Programs for the Aging, Title III, Part B, Grants for Supportive Services and Senior Centers; COVID-19 Special Programs for the Aging, Title III, Part B, Grants for Supportive Services and Senior Centers; Special Programs for the Aging, Title III, Part C, Nutrition Services; COVID-19 Special Programs for the Aging, Title III, Part C, Nutrition Services; Nutrition Services Incentive Program) Assistance Listing Number: 93.044, 93.045, 93.053 Federal Award Number: 2101SDSSC6, 2101SDCMC6, 2101SDHDC6, 2201SDOACM, 2201SDOAHD, 2301SDOASS, 2301SDOACM, 2301SDOAHD, 2301SDOANS, 2401SDOASS, 2401SDOACM, 2401SDOAHD, 2401SDOANS Federal Award Year: FFY21, FYY22, FFY23, FFY24 Federal Agency: Department of Health and Human Services Category of Finding: Reporting COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: Title 45 of the U.S. Code of Federal Regulations (CFR) 1321.9(c)(2)(vi), requires that each fiscal year, in order to meet maintenance of effort (MOE) requirements, the State agency “must expend for both services and administration at least the average amount of State funds reported and certified as expended under the State plan for these activities for the three previous fiscal years for Title III.” An authorized State official must certify annually to the Administration for Community Living that prior fiscal year expenditure requirements have been met by submitting the Office of Management and Budget (OMB) Certification of Maintenance of Effort Form (OMB No. 0985-0083). Condition: The MOE expenditures for the Federal Fiscal Year ending September 30, 2024, were not certified by the August 1, 2025, deadline through submission of the OMB Certification of Maintenance of Effort Form. Cause: Inadequate internal controls, staff turnover, and a change in the Federal correspondence process resulted in the proper forms not being submitted. Effect: The South Dakota Department of Human Services was not in compliance with OMB Certification of MOE reporting requirements. Questioned Costs: None. Repeat Finding from Prior Year: No. Recommendation: We recommend the Department submit the required federal reporting in a timely manner and implement monitoring controls to ensure that data is properly submitted for future periods. Views of Responsible Officials: The Department of Human Services concurs with the audit finding.

Finding No. 2025-006: Inadequate Internal Controls over Supporting Documentation and Accuracy of Performance Reporting Type of Finding: Significant Deficiency and Non-Compliance Assistance Listing Title: Rehabilitation Services - Vocational Rehabilitation Assistance Listing Number: 84.126 Federal Award Number: H126A240062, H126A240084, H126A250062, H126A250084 Federal Award Year: FFY24, FFY25 Federal Agency: Department of Education Category of Finding: Reporting Criteria: The Department of Human Service (DHS) administers the Vocational Rehabilitation (VR) program authorized by the Rehabilitation Act of 1973, as amended. The program requires the DHS to submit the quarterly Case Service Report (RSA-911) containing specific data elements for each client. These data elements are to be supported by documentation contained in the client’s case file. Documentation to be maintained in each client case file is described in Title 34 of the Code of Federal Regulations (CFR) 361.47. Paragraph (a) of this section requires the case file to contain documentation regarding eligibility determination, the individualized employment plan (IEP) for the client, wage rates in the case of employment, case closure, and various other specific documentation requirements. Paragraph (b) of 34 CFR 361.47 requires the State to determine the type of documentation that must be maintained for each applicant and eligible individual in order to meet the requirements of Paragraph (a). The DHS has developed a VR Counselor Manual to comply with the provisions of 34 CFR 361.47(b). This manual contains policies regarding documentation that must be retained in each client’s electronic case file, including a certificate of eligibility, the case closure letter where applicable, and employment verification documents. The US Department of Education – Rehabilitation Services has provided specific instruction to State Vocational Rehabilitation (VR) agencies regarding case file documentation in its Administration Dear College Letter (DCL-23-04) which states: The requirements in 34 C.F.R. § 361.47 and 34 C.F.R. § 361.56, taken together, require VR agencies to maintain supporting documentation in an individual’s case file, particularly regarding eligibility determinations, development of the IPE, VR services provided, and case closure. It is important to note that the use of a case management system does not remove the requirement for the VR agency to maintain either hard copies or scanned copies of required supporting documentation in the individual’s service record. A case management system is merely a data entry process and it is susceptible to data entry errors. Condition: The Department maintains an official file for each case in a combination of electronic records (paperless file) and information entered into a case management system for each applicant and eligible individual. The data required for the completion of the RSA-911 reports is sourced from the case management system, while the electronic case file serves as the repository for underlying supporting information. The Office of Management and Budget (OMB) 2025 Compliance Supplement identifies the following key line items as critical information subject to audit, where the information reported must match supporting documentation: 1. Date of Application (element 7) 2. Date of Eligibility Determination (element 38) 3. Date of Initial Individualized Plan for Employment (IPE) (element 398) 4. Start Date of Employment in Primary Occupation (element 350) 5. Employment Outcome at Exit (element 356) 6. Date of Exit (element 353) 7. Hourly Wage at Exit (element 359) We reviewed a sample of clients from the September, 2024 and December, 2024 RSA-911 reports to ensure the information contained in the key line item data fields agreed to supporting documentation. Discrepancies in the supporting documentation were noted in the following areas: certificate of eligibility, the case closure letter, and employment verification documents. Our sample of clients was expanded for those key line items. Additional discrepancies were noted in the expanded sample. The list below summarizes these key line elements that had discrepancies between the reported data field and the supporting documentation: • Date of Eligibility Determination – Of 151 fields reported within our sample, we noted five cases where the eligibility date reported could not be verified to an eligibility certificate. • Start Date of Employment in Primary Occupation – Of 71 fields reported within our sample, we noted three cases where the start date of employment on the underlying support provided did not agree to the employment start date that was reported on the RSA-911. • Hourly Wage at Exit – Of 65 fields reported within our sample, we noted seven cases where the hourly wage at exit on the underlying support provided did not agree to the hourly wage that was reported on the RSA-911, and an additional four cases where the underlying support was not on file for the hourly wage that was reported on the RSA-911. Additionally, the VR Counselor Manual requires all case closure letters to be scanned for inclusion in the electronic case file. For four clients in our sample whose cases had been closed, there was no closure letter contained in the scanned file. Cause: The Department did not have adequate controls in place to ensure the maintenance of documentation supporting quarterly RSA-911 Case Service Reports. Effect: As a result, there was an increased risk of inaccurate data being submitted in RSA-911 reports. Questioned Costs: None. Repeat Finding from Prior Year: No. Recommendation: We recommend the Department strengthen internal controls to ensure all case files contain adequate documentation to support information submitted in RSA-911 reports. Views of Responsible Officials: The Department of Human Services concurs with the audit finding.

Finding No. 2025-007: Timeliness of Health and Safety Survey Requirements Type of Finding: Non-Compliance Assistance Listing Title: Medicaid Cluster – State Medicaid Fraud Control Units, State Survey and Certification of Health Care Providers and Suppliers (Title XVIII) Medicare, and Grants to States for Medicaid Assistance Listing Number: 93.775, 93.777, 93.778 Federal Award Numbers: 2405SD5MAP, 2505SD5MAP Federal Award Year: FFY2024, FFY2025 Federal Agency: Department of Health and Human Services Category of Finding: Special Tests and Provisions COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: 42 Code of Federal Regulations (CFR) 431.610(b) requires the Medicaid State Plan to designate the state authority responsible for establishing and maintaining health standards for private or public institutions that provide services to Medicaid beneficiaries. As the state agency responsible for administering the Medicaid program in South Dakota, the Department of Social Services (DSS) has designated the Department of Health (DOH) as the state agency responsible for establishing health and safety standards and performing the related surveys of Medicaid providers. 42 CFR 431.610(g)(2) states that survey agencies must “Have qualified personnel perform on-site inspections periodically as appropriate based on the timeframes in the correction plan and - (i) At least once during each certification period or more frequently if there is a compliance question; and (ii) For non-State operated NFs [nursing facilities], within the timeframes specified in § 488.308 of this chapter.” 42 CFR 488.308 (a) requires the survey agency to conduct a standard survey of each nursing facility and skilled nursing facility no later than 15 months after the last day of the previous standard survey. The Fiscal Year 2025 Mission and Priorities Document issued by the Centers for Medicare and Medicaid Services (CMS) requires that no more than five years elapse between surveys for any particular non-deemed hospital, psychiatric hospital, or critical access hospital and no more than 15.9 months elapse between completed surveys for any particular nursing home. Condition: The DOH did not complete health and safety inspection surveys within the required time frame for two out of a nonstatistical sample of twenty-seven hospitals and nursing facilities tested. Further review of DOH survey tracking documents indicated that an additional five hospitals and nursing facilities did not have inspection surveys performed within the required time frame. While the DOH has controls in place to track the surveys required, they did not have staff available to perform those seven reviews within the time frame required by CMS. The completion dates of those seven surveys ranged from two days late to roughly six months past required timeframes. Additional Information to provide perspective: At the time of the audit, there were 256 facilities subject to health and safety certifications, although some of these are subsidiaries grouped with another facility and surveyed as one unit. The dynamic nature of health system consolidation and closures, the federally approved pandemic backlog review schedule, and scheduling variances among different facilities make it difficult to ascertain a population of reviews required during the fiscal year under audit. Exceptions noted in the audit finding did not include facilities inspected late that had already been identified on a federally approved Covid-19 backlog schedule. Cause: Lack of resources, increases in required complaint investigations, and staff vacancies at the DOH along with inspection backlogs created by the Covid-19 pandemic resulted in DOH not having enough staff available to complete the surveys within the timeframes required by CMS. Effect: As a result of the noncompliance with CMS timing requirements for provider health and safety surveys, there was increased risk of the DSS making payments for Medicaid services to providers that do not meet prescribed health and safety standards. Questioned Costs: None. Repeat Finding from Prior Year: No. Recommendation: We recommend the DOH complete health and safety inspection surveys within the timeframe required by federal regulations. Views of Responsible Officials: The Department of Social Services concurs with the finding.

Finding No. 2025-008: Inadequate Internal Controls over Special Tests and Provisions Type of Finding: Significant Deficiency and Non-compliance Assistance Listing Title: Medicaid Cluster (State Medicaid Fraud Control Units, State Survey and Certification of Health Care Providers and Suppliers, and Medical Assistance Program) Assistance Listing Numbers: 93.775, 93.777, 93.778 Federal Award Numbers: 2405SD5MAP, 2505SD5MAP Federal Award Years: FFY2024, FFY2025 Federal Agency: Department of Health and Human Services Category of Finding: Special Tests and Provisions COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: Title 45 of the Code of Federal Regulations (CFR), Section 95.605 defines automated data processing (ADP) as “data processing performed by a system of electronic or electrical machines so interconnected and interacting as to minimize the need for human assistance or intervention.” 45 CFR 95.621(f) states: (1) ADP System Security Requirement. State agencies are responsible for the security of all ADP projects under development, and operational systems involved in the administration of HHS programs. State agencies shall determine the appropriate ADP security requirements based on recognized industry standards or standards governing security of Federal ADP systems and information processing.” (3) ADP System Security Reviews. State agencies shall review the ADP system security of installations involved in the administration of HHS programs on a biennial basis. At a minimum, the reviews shall include an evaluation of physical and data security operating procedures, and personnel practices. Condition: The Department of Social Services (DSS) did not perform the required biennial ADP risk analysis and system security review in FY25. The last such review was completed in FY22. Cause: Controls were not adequate to ensure that the required ADP risk analysis and system security review was performed biennially. Effect: As a result of this control deficiency, the DSS was not in compliance with HHS requirements for performing ADP risk analysis and system security reviews. Without the required reviews the DSS was exposed to increased risk related to ADP system security and potential sanctions from the federal awarding agency. Questioned Costs: None reported. Repeat Finding from Prior Year: Yes. Recommendation: We recommend that internal controls be strengthened over the initiation and completion of a biennial ADP system security review. Views of Responsible Officials: The required system security review was completed in December 2025.

Finding No. 2025-009: Inadequate Internal Controls over Maintenance of Effort Requirements Type of Finding: Significant Deficiency and Non-compliance Assistance Listing Title: Block Grants for Prevention and Treatment of Substance Abuse; COVID-19 Block Grants for Prevention and Treatment of Substance Abuse Assistance Listing Numbers: 93.959 Federal Award Numbers: B08TI083967, B08TI084671, B08TI087065, B08TI088132 Federal Award Years: FFY2022, FFY2023, FFY2024, FFY2025 Federal Agency: Department of Health and Human Services Category of Finding: Level of Effort COVID-19 Funding: Includes some COVID-19 funding to an existing program Criteria: States are required to spend a given amount of State funds to meet what is referred to as Maintenance of Effort (MOE) requirements for some federal programs. The MOE requirement for the Block Grants for Prevention and Treatment of Substance Abuse (BGPTSA) program is outlined in the Code of Federal Regulations (CFR) at 45 CFR 96.134(a) which states: With respect to the principal agency of a State for carrying out authorized activities, the agency shall for each fiscal year maintain aggregate State expenditures by the principal agency for authorized activities at a level that is not less than the average level of such expenditures maintained by the State for the two year period preceding the fiscal year for which the State is applying for the grant. The Block Grant shall not be used to supplant State funding of alcohol and other drug prevention and treatment programs. Condition: The Department of Social Services (DSS) did not meet MOE requirements for the BGPTSA program for State Fiscal Year (FY) 2025. The MOE requirement for this program for FY2025 was $26,419,575.30. General fund expenditures eligible to meet the MOE requirement totaled $24,752,507.31. This resulted in DSS being $1,667,067.99 below the required MOE for FY2025. Cause: Some services previously provided using the MOE for the BGPTSA program began being charged to Medicaid after expansion of the Medicaid program in FY2024. Controls were not adequate to ensure the applicable MOE requirement was still met for FY25 with this shift in funding. Effect: As a result of the noncompliance with MOE requirements, there is an increased risk of future reductions in the State’s allotment for funding under the BGPTSA program. Questioned Costs: None with regard to Federal funds expended. The shortage in MOE amounted to $1,667,067.99 for FY2025. Repeat Finding from Prior Year: No. Recommendation: We recommend the DSS implement controls to ensure compliance with MOE requirements for future periods. Views of Responsible Officials: The Department of Social Services concurs with the finding. In State Fiscal Year 2025, the variance in the State’s Maintenance of Effort (MOE) calculation is attributable to a structural change in the financing of behavioral health treatment services following the expansion of Medicaid eligibility in FY2024. As a result, certain substance use disorder treatment services that were historically funded through direct State general fund appropriations and counted toward MOE are now reimbursed through the Medicaid program. The Department actively monitors MOE throughout the fiscal year and identified, based on expenditure trends, that the State would fall short of the required MOE threshold for FY2025. This projected shortfall was driven by the shift in funding mechanisms rather than a reduction in services or State support. Services continued to be delivered at or above prior levels, with State resources supporting these services through Medicaid state share. DSS has actively been working with our federal oversight agency to request a waiver of the required MOE requirement. Feedback received from the grant administrator on the Department’s draft waiver request was very positive. DSS is presently waiting a formal response from its federal oversight agency.

Finding No. 2025-010: Inadequate Internal Controls over Federal Funding Accountability and Transparency Act (FFATA) Reporting Type of Finding: Significant Deficiency and Non-Compliance Assistance Listing Title: CCDF Cluster – Child Care and Development Block Grant, COVID-19 Child Care and Development Block Grant Assistance Listing Number: 93.575 Federal Award Numbers: 2101SDCDC6, 2201SDCCDD, 2301SDCCDD Federal Award Year: FFY2021, FFY2022, FFY2023 Federal Agency: Department of Health and Human Services Category of Finding: Reporting COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: Under the Federal Funding Accountability and Transparency Act (FFATA), as codified in 2 CFR Part 170, direct recipients of grants or cooperative agreements who make first-tier subawards are required to report each first-tier subaward or subaward amendment that results in an obligation of $30,000 or more in federal funds through the FFATA Subaward Reporting System (FSRS) no later than the last day of the month following the month in which the subaward or subaward amendment obligation was made. Condition: During State Fiscal Year 2025 (FY25), the Department of Social Services (DSS) received funding under the Child Care and Development Block Grant (CCDBG) and allowed the Governor’s Office of Economic Development (GOED) to administer some of the grant awards to subrecipients. Both agencies made multiple subawards to subrecipients for program purposes. For the sample of CCDBG subawards over $30,000, with a portion funded during FY25, we identified the following: <See Schedule of Findings and Questioned Costs for Table> The award in our sample that was properly reported and the two awards identified as not being reported timely were administered by the DSS. The four awards identified as not being reported were administered by the GOED and not reported until after our inquiry during the audit. They were subsequently reported as a result of the audit. Additional Information to provide perspective: In FY2025, payments totaling more than $30,000 under CCDBG were made to 21 subrecipients subject to FFATA reporting requirements. A cursory review of the information reported across the population indicates our sample results are reflective of the population. Cause: Inadequate internal controls and communication gaps between the DSS and the GOED resulted in non-compliance with FFATA reporting requirements. Effect: Incomplete data was available to the public as required under FFATA. Questioned Costs: None. Repeat Finding from Prior Year: No. Recommendation: We recommend the Department submit the required federal reporting in a timely manner and implement monitoring controls to ensure that data is properly submitted for future periods. Views of Responsible Officials: The Department concurs with this finding and agrees that improvements are needed to ensure consistent and timely FFATA reporting, particularly in situations where subawards are administered through partner agencies. All reports related to the Child Care and Development Block Grant and the Child Care COVID-19 Child Care and Development Block Grant have been in the FSRS System.

Finding No. 2025-011: Inadequate Internal Controls over Obligating Funds within the Availability Period Type of Finding: Material Weakness and Non-Compliance Assistance Listing Title: CCDF Cluster – Child Care and Development Block Grant, COVID-19 Child Care and Development Block Grant Assistance Listing Number: 93.575 Federal Award Numbers: 2101SDCDC6, 2201SDCCDD, 2301SDCCDD Federal Award Year: FFY2021, FFY2022, FFY2023 Federal Agency: Department of Health and Human Services Category of Finding: Period of Performance COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: The Notice of Award Number 2101SDCDC6 for the American Rescue Plan Discretionary Supplemental Funds states that “funds must be obligated by September 30, 2023, and liquidated by September 30, 2024,” and that any Federal funds not obligated and expended by those deadlines “will be recouped by ACF.” The allowed obligation and liquidation periods for funds granted under the Child Care and Development Fund (CCDF) are provided in Title 45 of the Code of Federal Regulations (CFR), at Section 98.60 which states: (d) The following obligation and liquidation provisions apply to States and Territories: (1) Discretionary Fund allotments shall be obligated in the fiscal year in which funds are awarded or in the succeeding fiscal year. Unliquidated obligations as of the end of the succeeding fiscal year shall be liquidated within one year. (5) Except for Paragraph (d)(6) of this section, determination of whether funds have been obligated and liquidated will be based on: (i) State or local law; or, (ii) If there is no applicable State or local law, the regulation at 45 CFR 75.2, Expenditures and Obligations. (6) Obligations may include subgrants or contracts that require the payment of funds to a third party (e.g., subgrantee or contractor). However, the following are not considered third party subgrantees or contractors: (i) A local office of the Lead Agency; (ii) Another entity at the same level of government as the Lead Agency; or (iii) A local office of another entity at the same level of government as the Lead Agency. 45 CFR 75.2 states: Obligations, when used in connection with a non-Federal 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 non-Federal entity during the same or a future period. South Dakota Codified Law (SDCL) 20-1-1 defines obligation as “a legal duty by which a person is bound to do or not to do a certain thing.” SDCL 20-1-2 further clarifies this definition, stating that, “An obligation arises either from: (1) The contract of the parties; or (2) the operation of law.” Condition: During State Fiscal Year 2025 (FY25), the Department of Social Services (DSS) received funding under the Child Care and Development Fund (CCDF) and allowed the Governor’s Office of Economic Development (GOED) to administer some of that funding as grant awards to subrecipients. The DSS issued multiple contracts and both agencies granted multiple subawards to subrecipients for program purposes. Out of a nonstatistical sample of 41 payments to contractors and subrecipients amounting to $2,035,066 made during FY25, we identified ten payments amounting to $350,235 made under contracts or subawards that were not obligated within the obligation period required under federal regulations. While the expenditures in our sample were not obligated within the allowable period for obligation, all of the expenditures were made within the liquidation period allowed by federal regulations. None of the expenditures in our sample were paid outside of the period in which funds must be expended. Additional Information to provide perspective: The amount awarded outside of the obligation period on contracts or grants in our sample totaled $641,489. Our sample was randomly selected from a population of 468 payments made to contractors and subrecipients totaling $22,529,116 during FY25. Cause: Controls were not adequate to ensure obligation requirements applicable to CCDF grant awards were met. Effect: Noncompliance with obligation requirements increases the risk of disallowance of federal grant funds. Questioned Costs: $350,234.64 Repeat Finding from Prior Year: No. Recommendation: We recommend the Department develop written procedures defining the obligation of grant funds in accordance with federal regulations and implement monitoring controls to ensure that obligation requirements are met for future periods. Views of Responsible Officials: The Department obligated funds within the required timeline based on federal guidance. The Department entered into a collaborative agreement with a state component unit within the obligation period to administer a defined portion of the funds. The Department considers this agreement to represent an obligation of funds based on written confirmation from the Administration for Children and Families, the federal oversight authority.

Finding No. 2025-012: Inadequate Internal Controls over Documentation of Allowability Type of Finding: Material Weakness and Non-Compliance Assistance Listing Title: CCDF Cluster – COVID-19 Child Care and Development Block Grant Assistance Listing Number: 93.575 Federal Award Numbers: 2101SDCDC6 Federal Award Year: FFY2021 Federal Agency: Department of Health and Human Services Category of Finding: Activities Allowed or Unallowed COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: The American Rescue Plan Act (ARPA) (Public Law No. 117-2) provided supplemental funds for child care stabilization to support the child care sector during and after the COVID-19 public health emergency. ARPA also provided additional supplemental appropriations that could be used for broader child care purposes which were not limited to addressing coronavirus impacts. The regulations for this supplemental award are the same as those governing Discretionary Funds under the Child Care and Development Fund (CCDF). 45 CFR 75.303 requires the non-Federal entity to: 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 75.305(b)(1) states in part: Advance payments to a non-Federal entity must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the non-Federal entity in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the non-Federal entity for direct program or project costs… . 45 CFR 75.403(g) requires costs to be adequately documented to be allowable under Federal awards. 45 CFR 98.56(b)(1) states: For State and local agencies…no funds shall be expended for the purchase or improvement of land, or for the purchase, construction, or permanent improvement of any building or facility. However, funds may be expended for minor remodeling, and for upgrading child care facilities to assure that providers meet State and local child care standards, including applicable health and safety requirements. … Condition: The Department of Social Services (DSS) partnered with the Governor’s Office of Economic Development (GOED) to develop a community based child care grant program with the GOED taking the lead in administering the program. GOED awarded these funds to several subrecipients for program purposes. In our sample of 16 ARPA payments tested we identified the following: a) Five payments were made to subrecipients for activities that do not appear to be allowed under federal regulations. Two of these payments totaling $76,798.89 were made for architectural and engineering design services on a construction project. Two other payments totaling $3,458.70 were made to a subrecipient to prepay eighteen months of water service and prepay $2,000 for an unknown amount of propane. The other payment amounted to $4,050.00 for consulting fees on other grants which were not allowable under the implementation portion of the community based child care grants. b) Two invoices were not adequately supported. One invoice in the amount of $152,080.99 was a bill from a contractor for “playground equipment” and “kitchen equipment” as part of a construction project. This invoice provided no other details as to what playground and kitchen equipment was provided, costs per item, amounts of items provided, or whether any construction and/or installation services were performed as part of the amount billed. One invoice for $842.80 was a billing for consulting services. This invoice did not provide specific details of what work was performed, how it benefitted the program, or the dates of service. Additional Information to provide perspective: A sample of 16 vouchers paid with Child Care ARPA funds amounting to $1,419,665.84 was tested out of 157 vouchers paid during State Fiscal Year 2025. The total dollar amount of payments made with CCDF Discretionary ARPA funds in FY25 was $11,583,775.61. Total questioned costs identified below are also questioned under finding Number 2025-011. Cause: Internal controls were not sufficient to prevent payment for questionable or improperly supported invoices. Effect: As a result of these deficiencies, questionable and/or unsupported payments were made from grant funds. Questioned Costs: $238,475.38 Repeat Finding from Prior Year: No. Recommendation: We recommend that internal controls be strengthened to ensure that program funds are utilized in accordance with federal regulations and adequate documentation is obtained and retained to support amounts paid. Views of Responsible Officials: The Department of Social Services partially concurs with the finding and recognizes that internal controls in place during the administration of the CCDF ARPA Discretionary Supplemental funded community-based childcare grant program were not sufficient to ensure full compliance with federal allowability and documentation requirements. The program acknowledges its responsibility for oversight of federal funds administered in partnership with the Governor’s Office of Economic Development (GOED). Consulting fees and design fees were allowable under the terms of the grant based on two sources: state policy and written federal guidance received by the Department. Based on that guidance, proposed expenses were approved pre-award, award, and with post-award expenditure reporting. Formal approval occurred through review of the application and award process. DSS concurs that more robust formalized and documented guidance provided to subrecipients, would enhance controls for future programs.

Finding No. 2024-005: Inadequate controls over the payment of claims. Type of Finding: Material Weakness Assistance Listing Title: Temporary Assistance for Needy Families (TANF) Assistance Listing Number: 93.558 Federal Award Numbers: 2201SDTANF, 2301SDTANF, 2401SDTANF Federal Award Years: 2022, 2023, 2024 Federal Agency: Department of Health and Human Services Category of Finding: Activities Allowed or Unallowed Criteria: Title 45 of the Code of Federal Regulations (CFR), Section 263.11(a)(2) allows states to use Federal TANF funds for emergency services “For which the State was authorized to use IV-A or IV-F funds under prior law, as in effect on September 30, 1995 (or, at the option of the State, August 21, 1996).” 45 CFR 75.303 requires the non-Federal entity to: (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 75.403(g) requires costs to be adequately documented to be allowable under Federal awards. The Family and Child Information System (FACIS) is utilized to process TANF emergency assistance payments. Approximately $6.8 million in federal TANF emergency assistance claims were processed on the FACIS system during FY24. Chapter XIII of the FACIS Manual states: “Any claims entered on the New Claim Entry screen require supervisor approval before payment is made. The claims entered by Batch also require supervisor approval.” Condition: Out of 77 TANF emergency assistance paid claims tested, we identified the following: • Claim Approval There was no evidence on the FACIS system of more than one person being involved with the authorization or payment of 45 claims. Sixteen of these 45 claims were “batch” claims for monthly foster care maintenance type payments and there was no documentation of claim payment approval on the FACIS system. Twenty-three of these 45 claims were miscellaneous type claims with no documentation of claim payment approval on the FACIS system. These 39 claims were entered and paid prior to DSS adding a field on the FACIS system in January of 2024 to document claim payment approval. Six claims were paid after this field was added to the FACIS system in January of 2024 and were approved for payment by the same person that entered the claim. • Payment Exceeding Authorized Amount For one client, the monthly amount authorized for daycare was exceeded in the month related to the claim tested, resulting in an overpayment of $380.00. In this instance two separate claims were paid in the same month for foster parent daycare. Each claim was below the total authorized monthly amount of $1,000 for this client. However, in total these two claims in the amounts of $600 and $780 exceeded the monthly authorized amount and the FACIS system allowed payment of both claims. • Inadequate Supporting Documentation Two claims were not adequately supported. These claims were for foster parent day care. Invoices attached to the CP-522 claim forms did not include provider names, dates of service, and/or the number of hours the child was in care. For one of these claims, the CP-522 claim form was not signed by the claimant but rather was signed by the DSS caseworker who also entered and approved the claim on the FACIS system. Cause: Controls in the FACIS system were not adequate to prevent the person entering a claim for payment in the system to also approve the claim for payment with no further review. For those claims that were subject to secondary review, no documentation of that review and approval was maintained in the system. Controls in the FACIS system were not adequate to prevent paying claims in excess of authorized monthly amounts when billed by more than one provider. Controls were not adequate to prevent paying claims without proper supporting documentation. Effect: As a result of these deficiencies, there was increased risk of improper payments being made from grant funds. Questioned Costs: $2,327.50. Further Information: A sample of 77 claims amounting to $95,309.52 was tested out of 14,024 total claims paid on the FACIS system during State Fiscal Year 2024. These claims were paid with a combination of Federal TANF and state general funds. The total dollar amount of claims paid for Emergency Assistance in FY24 was $14,127,248.26, of which $6,817,450.60 was Federal. Questioned costs reported include only the federal share of claims found to be improperly paid and/or improperly supported. Repeat Finding from Prior Year: Yes. Recommendation: We recommend internal controls be strengthened over the initiation and approval of claims on the FACIS system. These controls should ensure that claim reviews and approvals are being performed by at least one individual other than the person entering the claim on the FACIS system. We also recommend adequate documentation be maintained to identify the individual who approved the claim and the date it was approved. We recommend that internal controls be strengthened within the FACIS system to prevent overpayments when multiple claims are submitted for the same services in any given month. We recommend that internal controls be strengthened to ensure that adequate documentation is obtained and retained to support the claims paid. Views of Responsible Officials: The Department of Social Services concurs with the finding.

Finding No. 2024-006: Inadequate Internal Controls over Special Tests and Provisions Type of Finding: Significant Deficiency and Non-compliance Assistance Listing Title: Medicaid Cluster (State Medicaid Fraud Control Units, State Survey and Certification of Health Care Providers and Suppliers, and Medical Assistance Program) Assistance Listing Numbers: 93.775, 93.777, 93.778 Federal Award Numbers: 2305SD5MAP, 2405SD5MAP Federal Award Years: FFY2023, FFY2024 Federal Agency: Department of Health and Human Services Category of Finding: Special Tests and Provisions COVID-19 Funding: Cluster includes some COVID-19 funding to an existing program Criteria: Title 45 of the Code of Federal Regulations (CFR), Section 95.605 defines automated data processing (ADP) as “data processing performed by a system of electronic or electrical machines so interconnected and interacting as to minimize the need for human assistance or intervention.” 45 CFR 95.621(f) states: (1) ADP System Security Requirement. State agencies are responsible for the security of all ADP projects under development, and operational systems involved in the administration of HHS programs. State agencies shall determine the appropriate ADP security requirements based on recognized industry standards or standards governing security of Federal ADP systems and information processing.” … . (3) ADP System Security Reviews. State agencies shall review the ADP system security of installations involved in the administration of HHS programs on a biennial basis. At a minimum, the reviews shall include an evaluation of physical and data security operating procedures, and personnel practices. Condition: The Department of Social Services (DSS) did not perform the required biennial ADP risk analysis and system security review in FY24. The last such review was completed in FY22. Cause: Controls were not adequate to ensure that the required ADP risk analysis and system security review was performed biennially. Effect: As a result of this control deficiency, the DSS was not in compliance with HHS requirements for performing ADP risk analysis and system security reviews. Without the required reviews the DSS was exposed to increased risk related to ADP system security and potential sanctions from the federal awarding agency. Questioned Costs: None reported. Repeat Finding from Prior Year: No. Recommendation: We recommend that internal controls be strengthened over the initiation and completion of a biennial ADP system security review. Views of Responsible Officials: The Department of Social Services concurs with the finding.

Finding No. 2024-007: Inadequate Internal Controls over Monitoring of Subrecipient Audits Type of Finding: Significant Deficiency and Non-Compliance Assistance Listing Title: Disaster Grants - Public Assistance (Presidentially Declared Disasters) Assistance Listing Number: 97.036 Federal Award Number: 4155DRSDP00000001,4440DRSDP00000001, 4463DRSDP00000001, 4467DRSDP00000001, 4469DRSDP00000001, 4527DRSDP00000001, 4656DRSDP00000001, 4664DRSDP00000001, 4689DRSDP00000001, and 4718DRSDP00000001 Federal Award Year: 2019, 2020, 2021, 2022, 2023, and 2024 Federal Agency: Department of Homeland Security Category of Finding: Subrecipient Monitoring Criteria: 2 CFR section 200.332 requires, among other things, that a pass-through entity verify that subrecipients receive Single Audits as required by 2 CFR 200.501(a), follow-up to ensure that the subrecipient takes timely and appropriate action on audit findings, and issue a management decision on applicable audit findings pertaining to the subaward. 2 CFR 200.521(d) requires this management decision to be issued within six months of acceptance of the audit report by the Federal Audit Clearinghouse (FAC). Condition: The Department of Public Safety (DPS) receives funding under ALN 97.036, Disaster Grants - Public Assistance (Presidentially Declared Disasters) (Public Assistance) and makes subawards to local governments and private nonprofit entities to respond to and recover from presidentially declared disasters. During FY24, DPS did not have adequate controls in place to ensure that Single Audits were obtained for all applicable subrecipients within the required time frame, that those audits were reviewed to ensure timely and appropriate action was taken on any findings, and that a management decision was issued by DPS within the six-month time frame required by federal regulations. Based on our review of funding amounts passed through by DPS, there were seven subrecipients receiving Federal grant payments that would require a Single Audit for the auditee’s fiscal year 2023. These subrecipients had received the required audits and their audit reports were accepted by the FAC, however, two of the audits were not reviewed timely by DPS. Of those two subrecipient audits, one had an audit finding pertaining to the Public Assistance program and DPS had not issued a management decision within the time frame required by 2 CFR 200.521. Cause: Controls were not adequate to identify when subrecipient audits were due and obtain all required audits off the FAC in a timely manner. While DPS personnel did track expenditures to determine which subrecipients were required to have audits under 2 CFR 200.501(a), failure to monitor subrecipient year-ends and the related audit deadlines resulted in some audits not being obtained and reviewed in a timely manner. Effect: This resulted in noncompliance with subrecipient monitoring requirements and increased the risk of subrecipient audit findings not being corrected in a timely manner. Questioned Costs: None. Repeat Finding from Prior Year: No. Recommendation: We recommend the Department implement controls to ensure that audits of subrecipients are obtained and followed up on in a timely manner and that management decisions are issued within the required time frame for all audit findings pertaining to DPS subawards. Views of Responsible Officials: The Department of Public Safety concurs with the audit finding.

Finding No. 2024-008: Unallowable cost reimbursement under the Highway Planning and Construction Program Type of Finding: Noncompliance Assistance Listing Title: Highway Planning and Construction Program Assistance Listing Number: 20.205 Federal Award Number: 693JJ22230000Y236SD2042029 Federal Award Year: 2022 Federal Agency: Department of Transportation Category of Finding: Activities Allowed or Unallowed Criteria: Title 23 of the Code of Federal Regulations Part 1.9(a) states: Federal-aid funds shall not participate in any cost which is not incurred in conformity with applicable Federal and State law, the regulations in this title, and policies and procedures prescribed by the Administrator. Federal funds shall not be paid on account of any cost incurred prior to authorization by the Administrator to the State highway department to proceed with the project or part thereof involving such cost. Condition: Construction costs on projects performed under the Highway Planning and Construction program are tracked using a Construction Pay Estimate (CPE). Costs included in a project but not related to the federal portion of the project are coded on the CPE as “nonparticipating”. Projects may be broken into different segments and tracked under different project numbers but still have costs accumulated together on one CPE. In such instances, a manual process is necessary to break out nonparticipating costs when costs are posted to the Construction Billing system for reimbursement. A federal reimbursement of Project Number NH 2042(29) PCN 06YQ included CPE 28 totaling $955,373.74 in costs for the period. Of these costs, $21,625.00 were related to “Concrete Sidewalk” and were coded as “nonparticipating”. When posting the expenditures to the Construction Billing system, the accountant erroneously used the total CPE expenditures instead of the “participating” federal portion of $933,748.74 resulting in $21,625 in “nonparticipating” costs being charged to the program. Projects are paid according to the approved bid and federal reimbursements may only be drawn up to the federal award amount. After a project is completed, a review is performed to reconcile costs incurred to the awarded amount, as modified by Construction Change Orders, and federal reimbursements. During this process, the error identified during the audit would have likely been caught and corrected. Cause: System limitations and human error led to this finding. Effect: As a result, there was improper reimbursement of federal funds for nonparticipating costs and an increased risk that the improper reimbursement would not be properly identified and corrected during subsequent project closeout. Questioned Costs: $17,721.69 Further Information: The questioned costs above were calculated by multiplying the nonparticipating portion of project costs by the project’s federal participation rate of 81.95%. An error rate of .013% was calculated by dividing the $17,721.69 found to be in error by the $140,595,557.09 total dollar amount of reimbursements tested. This error rate was then applied to untested reimbursements of $393,336,560 resulting in total projected errors of $49,579.00. Recommendation: We recommend nonparticipating costs drawn be credited back to the federal project and future nonparticipating costs not be claimed for reimbursement. Views of Responsible Officials: The Department of Transportation concurs with the audit finding.

"Finding No. 2023-003: Inadequate Internal Controls over Federal Funding Accountability and Transparency Act (FFATA) Reporting Type of Finding: Material Weakness and Non-Compliance Assistance Listing Title: Disaster Grants - Public Assistance (Presidentially Declared Disasters) Assistance Listing Number: 97.036 Federal Award Number: 4440DRSDP00000001, 4469DRSDP00000001, 4527DRSDP00000001, 4656DRSDP00000001, and 4664DRSDP00000001 Federal Award Year: 2019, 2020, 2021, 2022, and 2023 Federal Agency: Department of Homeland Security Category of Finding: Reporting Criteria: Under the Federal Funding Accountability and Transparency Act (FFATA), as codified in 2 CFR Part 170, direct recipients of grants or cooperative agreements who make first-tier subawards are required to report each first-tier subaward or subaward amendment that results in an obligation of $30,000 or more in federal funds through the FFATA Subaward Reporting System (FSRS) no later than the last day of the month following the month in which the subaward/subaward amendment obligation was made. Condition: During FY23, the Department of Public Safety (DPS) received funding under ALN 97.036, the Disaster Grants - Public Assistance (Presidentially Declared Disasters) (Public Assistance) program and made multiple first-tier subawards to local governments and private nonprofit entities to respond to and recover from presidentially declared disasters. The required reporting under FFATA was not performed accurately or timely for all subawards under this program. For a sample of 20 out of 60 subrecipients receiving over $30,000 in payments for Public Assistance during FY23, we identified the following: <See Schedule of Findings and Questioned Costs for Table> In addition, for all 32 of the subawards tested, the Subaward Action Date field was inaccurate. According to the FFATA Grants Reporting Model, the date the subaward agreement was signed should be reported in this field. DPS reported the date the information was entered on FSRS in this field. Cause: Multiple natural disasters between fiscal years 2019 and 2023 in addition to the coronavirus pandemic resulted in multiple grant awards being open during the fiscal year requiring extensive reporting under FFATA. Staffing shortages and the lack of resources resulted in improper compliance and oversight of FFATA reporting requirements. Effect: Incomplete and inaccurate data was available to the public as required under FFATA. Questioned Costs: None. Repeat Finding from Prior Year: No. Recommendation: We recommend the Department submit the required federal reporting in a timely manner and implement monitoring controls to ensure that data is properly submitted for future periods. Views of Responsible Officials: The Department of Public Safety concurs with the audit finding 2023-003, Inadequate Internal Controls over Federal Funding Accountability and Transparency Act (FFATA) reporting. Due to staffing shortages in our fiscal office, multiple presidential disasters in 2019 and 2022 and the coronavirus pandemic, we fell behind in our FFATA reporting. As of June 30, 2023, FEMA approved over 2,300 project worksheets related to these incidents. This large increase in workload in a short three years caused an increased administrative workload. Our efforts focused on prioritizing service to our customers in a timely manner rather than the FFATA reporting requirements. We also relied on some of our own judgement on the correct way to report the information since there was little to no feedback from our federal partners. We have heard other states are receiving similar FFATA audit findings as well. We look forward to getting our awards into compliance."

"Finding No. 2023-004: Inadequate Controls over the Payment of Claims Type of Finding: Material Weakness Assistance Listing Title: Temporary Assistance for Needy Families (TANF) Assistance Listing Number: 93.558 Federal Award Numbers: 2001SDTANF, 2101SDTANF, 2201SDTANF Federal Award Years: 2020, 2021, 2022 Federal Agency: Department of Health and Human Services Category of Finding: Activities Allowed or Unallowed Criteria: Title 45 of the Code of Federal Regulations (CFR), Section 263.11(a)(2) allows states to use Federal TANF funds for emergency services “For which the State was authorized to use IV-A or IV-F funds under prior law, as in effect on September 30, 1995 (or, at the option of the State, August 21, 1996).” 45 CFR 75.303 requires the non-Federal entity to: (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 Family and Child Information System (FACIS) is utilized to process TANF emergency assistance payments. Approximately $7.2 million in TANF emergency assistance claims were processed on the FACIS system during FY23. Chapter XIII of the FACIS Manual states: “Any claims entered on the New Claim Entry screen require supervisor approval before payment is made. The claims entered by Batch also require supervisor approval.” Condition: Out of 60 TANF emergency assistance claims tested, there was no evidence on the FACIS system of more than one person being involved with the authorization or payment of 53 of those claims. Cause: Controls in the FACIS system were not adequate to prevent the person entering a claim for payment in the system to also approve the claim for payment with no further review. For those claims that were subject to secondary review, no documentation of that review and approval was maintained in the system. Effect: As a result of these deficiencies, the lack of secondary review and improper segregation of duties increased the risk of improper payments being made from grant funds. Questioned Costs: None. Recommendation: We recommend that internal controls be strengthened over the initiation and approval of claims on the FACIS system. These controls should ensure that claim reviews and approvals are being performed by at least one individual other than the person entering the claim on the FACIS system, and adequate documentation should be maintained to support the individual reviewing the claim and the date it was approved. Views of Responsible Officials: The Department of Social Services concurs with the finding."

"Finding No. 2023-005: Internal Control over Compliance Type of Finding: Material Weakness Assistance Listing Title: Unemployment Insurance Assistance Listing Number: 17.225 Federal Agency: Department of Labor Category of Finding: Reporting Criteria: ETA and the ET Handbook 401 and ET Handbook 336 provide for the required financial, performance and special reporting required by the Unemployment Insurance program. Internal controls should provide for the accurate preparation, review, and timely submission of these required reports. Condition: Based on our testing performed, we identified that there was not a control in place for the review of the required reports by an individual separate from the preparer prior to their submission. Cause: An internal control was not designed to ensure that the required financial, performance, and special reports were being reviewed prior to submission by an individual separate from the preparer. Effect: Failure to review reports prior to their submission could result in errors in the reported information being submitted. Questioned Costs: None reported. Context/Sampling: A nonstatistical sample of 20 reports out of 56 total required reports were selected for testing. Repeat Finding from Prior Year(s): No. Recommendation: We recommend management designate a knowledgeable individual, someone separate from the preparer of each respective required report, to review the report and its content for accuracy Views of Responsible Officials: Management agrees with the finding. "

"Finding No. 2023-006: Internal Control over Compliance Type of Finding: Material Weakness Assistance Listing Title: Unemployment Insurance Assistance Listing Number: 17.225 Federal Agency: Department of Labor Category of Finding: Special Tests and Provisions - UI Reemployment Programs Criteria: The Reemployment Services and Eligibility Assessments (RESEA) program serves as one of the Unemployment Insurance (UI) program's primary programs that facilitates the reemployment needs of UI claimants. RESEA is authorized by Section 306 of the Social Security Act and uses an evidence-based integrated approach that combines an eligibility assessment for continuing UI eligibility and the provision of reemployment services. Operating guidance for the RESEA program is updated annually through UIPL's. The RESEA program requires quarterly performance reporting to which UI staff are required to review the RESEA performance reports prior to submission. Condition: Based on our testing performed, we identified that there was not a control in place for the review of the required performance reports by an individual of UI staff prior to submission. Cause: An internal control was not designed to ensure that the required performance reports were being reviewed by UI staff prior to submission. Effect: Failure to review reports prior to their submission could result in errors in the reported information being submitted and is required by RESEA program guidance. Questioned Costs: None reported. Context/Sampling: A nonstatistical sample of 4 quarterly reports out of 8 total quarterly reports were selected for testing. Repeat Finding from Prior Year(s): No. Recommendation: We recommend management designate a knowledgeable individual from UI staff to review the performance report and its content for accuracy and reasonableness, and document their review for audit documentation purposes, prior to the submission of the report. Views of Responsible Officials: Management agrees with the finding. "

"Finding No. 2022-002: Internal Controls over Compliance ? Procurement, Suspension and Debarment Type of Finding: Significant Deficiency Assistance Listing Title: Office of Science Financial Assistance Program ? Sanford Underground Research Facility (SURF) Operations Support Assistance Listing Number: 81.049 Federal Agency: Department of Energy Category of Finding: Procurement and Suspension and Debarment Criteria: The Sanford Underground Research Facility (SURF) Operations Support program provides federal funds to support its mission of advancing world-class science and inspire learning across generations. There are compliance requirements regarding procurement, suspension and debarment to ensure federal funds are being expended in accordance with the grant agreements. Furthermore, the Uniform Guidance, Section 200.303 Internal Controls, requires that the non-Federal entity must establish and maintain documentation of effective internal controls over Federal awards that provide reasonable assurance that awards are being managed in compliance with Federal statutes, regulations and the terms and conditions of the Federal award. Condition: We tested procurement, suspension and debarment for 22 vendor expenditures. We noted the following in our testing: ? One instance where the required request for proposal was not able to be located. ? One instance where various applicable provisions required by Appendix II to 2 CFR Part 200 were not included in the contract. Cause: The Authority failed to ensure that the internal controls surrounding compliance over the program?s procurement, suspension and debarment criteria were in place related to data maintained by employees that are no longer employed with the Authority. As such, information related to the request for proposal work that was performed by an employee no longer with the Authority could not be located when requested for the audit. Additionally, controls were not in place to ensure that all applicable required provisions are included in all federal contracts. Effect: Transactions could be entered into with vendors that do not follow the Authority?s written procurement policies and that do not include the proper contract provisions. Questioned Costs: None to report. Context/Sampling: A nonstatistical sample of 22 vendors out of 144 were selected for procurement, suspension and debarment testing. Repeat Finding from Prior Year(s): No. Recommendation: We recommend the Authority implement controls which include a review of contracts to ensure they contain the proper provisions and institute document retention policies. Views of Responsible Officials: Agree. "

"Finding No. 2022-003: Inadequate Internal Controls over Federal Financial Reports Type of Finding: Material Weakness and Non-Compliance Assistance Listing Title: Nationally Significant Freight and Highway Projects, National Infrastructure Investments Assistance Listing Number: 20.934 and 20.933 Federal Award Number: INFRA 2017, INFRA 2019 MISSOURI BRIDGE, BUILD 2018, and BUILD 2020 Federal Award Year: 2017, 2018, 2019, and 2020 Federal Agency: Department of Transportation Category of Finding: Reporting Criteria: The South Dakota Department of Transportation (DOT) is required under the Term Sheet Under The Nationally Significant Freight And Highway Projects Discretionary Grant Program, the General Terms and Conditions Under The Fiscal Year 2019 INFRA Program: FHWA Projects, the Grant Agreement Under The Consolidated Appropriations Act, 2018 (PUB. L. 115-141, March 23, 2018) For The National Infrastructure Investments Discretionary Grant Program (FY 2018 BUILD Transportation Discretionary Grants), and the General Terms and Conditions Under The Fiscal Year 2020 BUILD Transportation Grants Program: FHWA Projects to submit Quarterly Project Progress Reports, which must include the SF-425 Federal Financial Report. Condition: Internal controls were not adequate to ensure the accuracy of SF-425 Federal Financial Reports submitted for the Nationally Significant Freight and Highway Projects (INFRA) and National Infrastructure Investments (BUILD) programs. Cause: Errors were identified related to two distinct causes. Three INFRA and one BUILD (3/31/22 BUILD 2018) reports tested identified material errors on line 10 j. Recipient share of expenditures due to a failure to properly identify and report relevant expenditure data. One BUILD (6/30/22 BUILD 2020) report tested identified material errors on lines 10 a. Cash Receipts, 10 b. Cash Disbursements, and 10 f. Federal share of unliquidated obligations due to human data entry error. Effect: The result of the errors noted is the misstatement of values as follows: [See Schedule of Findings and Questioned Costs for table] Questioned Costs: None. Repeat Finding from Prior Year: Yes. Recommendation: We recommend internal controls be strengthened to ensure the material accuracy of SF-425 reports submitted. Views of Responsible Officials: The Department of Transportation concurs with this audit finding. "

"Finding No. 2022-004: Inadequate Controls over Subrecipient Monitoring of Nutrition Service Providers Type of Finding: Significant Deficiency Assistance Listing Title: Special Programs for the Aging, Title III, Part C, Nutrition Services; COVID-19 Special Programs for the Aging, Title III, Part C, Nutrition Services; and Nutrition Services Incentive Program Assistance Listing Number: 93.045; 93.053 Federal Award Number: 2001SDOACM, 2101SDOACM, 2201SDOACM, 2001SDOANS, 2101SDOANS, 2201SDOANS, 2001SDOAHD, 2101SDOAHD, 2201SDOAHD Federal Award Year: FFY20, FFY21, FFY22 Federal Agency: Department of Health and Human Services Category of Finding: Subrecipient Monitoring Criteria: Title 45 of the Code of Federal Regulations (CFR), Part 1321.11, states: (a) The State agency on aging shall develop policies governing all aspects of programs operated under this part ?. The state agency is responsible for enforcement of these policies. (b) The policies developed by the State agency shall address the manner in which the State agency will monitor the performance of all programs and activities initiated under this part for quality and effectiveness. 45 CFR 75.352 requires pass-through entities to: (b) Evaluate each subrecipient?s risk of noncompliance with Federal statues, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this section ?. ?. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include: ?. (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. ?. (e) Depending upon the pass-through entity?s assessment of risk posed by the subrecipient (as described in paragraph (b) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals: (1)Providing subrecipients with training and technical assistance on program-related matters; and (2) Performing on-site reviews of the subrecipient's program operations? Condition: Controls were not adequate to ensure policies for subrecipient monitoring of nutrition service providers were properly developed, implemented, and documented during the audit period. The Division of Long-Term Services and Supports (LTSS) within the South Dakota Department of Human Services (DHS) administers the Title III-C Nutrition Services program through grants to subrecipients who provide congregate and home-delivered meals to eligible participants. LTSS was not able to provide us with any written policies and procedures over subrecipient monitoring that had been prepared prior to the end of the audit period. On December 29, 2022, we requested the policies and procedures in place over subrecipient monitoring during state fiscal year (FY) 2022. On January 20, 2023, we were provided written subrecipient monitoring procedures for the Department of Human Services Office of Budget and Finance which were dated as having been printed on January 13, 2023 and approved on January 19, 2023. These policies state: If a subrecipient relationship is determined, a pre-award risk assessment is completed while working with the department?s budget and financial grants/contracts specialist. The pre-award risk assessment helps to determine a subrecipient organization?s financial and management strength, which helps assess risk and dictates the monitoring plan for domestic subrecipients. We requested these risk assessments for nine of the 14 subrecipients providing nutrition services during FY22 and were provided completed assessments prepared on standardized risk assessment forms approved by the South Dakota Board of Internal Control. These forms rank risk on a number scale and determine a risk rating of ?Low?, ?Moderate?, or ?High? depending on the point values assigned to the various risk factors for each subrecipient. Two of the nine risk assessments reviewed had a ranking of ?Low? risk, while seven had a risk ranking of ?Moderate?. The written subrecipient monitoring procedures for the Department of Human Services Office of Budget and Finance state: If the subrecipient is determined to be medium risk by the department, the subrecipient must complete a subrecipient questionnaire. The completed subrecipient questionnaire is then scored by division staff using the questionnaire scoring sheet and if the risk is determined to be low, medium, or high, various periodic departmental procedures will be implemented. The periodic departmental procedures that will be implemented based on the assessed level of risk are: ? reviewing invoices prior to payment ? program/financial desk reviews ? program/financial field reviews We requested the subrecipient questionnaires from LTSS and were again provided the standardized risk assessment forms described above. These risk assessment forms do not contain any conclusions as to what monitoring procedures will be performed for that subrecipient, and we were unable to obtain any information tying the risk assessments to the monitoring carried out for these subrecipients. According to the LTSS nutrition program manager, on-site assessments are done for nutrition sites on a rotational basis, with the dates that sites last received assessments and the fiscal year of the next scheduled assessment recorded on a tracking spreadsheet to ensure the proper assessments get performed. During FY22, this spreadsheet identified 142 nutrition sites operated by ten nutrition providers. Tribal providers were not included on this tracking spreadsheet, as discussed further below. We reviewed a random sample of 15 nutrition sites out of the 142 sites on the tracking spreadsheet and identified the following issues: For six of the 15 sites selected for testing, there had been no site assessment performed since the DHS took over the program during state FY18. Three of these six sites were scheduled for review during FY22 on the tracking spreadsheet, but there was no review performed. For two of the on-site assessments in our sample, issues were identified as needing correction on the assessment checklist, but there was no documentation in the file that nutrition site personnel acknowledged the review or prepared a corrective action plan. Further, there was no documentation in the file documenting LTSS personnel had followed up with the nutrition site to determine if the issues were corrected. Tribal nutrition sites receive direct funding from the Federal Department of Human Services, Administration for Community Living (ACL) under Title VI of the Older Americans Act in addition to the funding provided to some of the tribes by the South Dakota DHS under the Title III Nutrition Program. Since the tribes also receive direct funding from ACL, personnel at LTSS informed us that they believe the on-site assessments are handled by the federal government, but they had not requested or received these assessments or any notice that the assessments had been completed. Because the amount given to the tribal governments by the DHS does not exceed the Single Audit threshold, no Single Audits of the tribes were requested or reviewed by LTSS or DHS Budget and Finance Office personnel. Cause: Employee turnover, personnel shortages, and the lack of written policies and procedures over subrecipient monitoring resulted in inconsistent application and inadequate documentation of internal controls. Effect: As a result of the deficiencies in internal control over subrecipient monitoring, LTSS was hindered in its ability to verify and document that all subawards were used for authorized purposes in compliance with Federal statutes, regulations, and the terms and conditions of the subaward, and that subaward performance goals were achieved. Questioned Costs: None. Repeat Finding from Prior Year: No. Recommendation: We recommend DHS maintain written internal control procedures over the subrecipient monitoring process to ensure that monitoring procedures for nutrition service providers are consistently applied and adequately documented. These procedures should include documentation tying pre-award risk assessments to monitoring procedures to be performed for all subrecipients, including tribal governments, and proper follow up on any issues identified with subrecipients as a result of monitoring performed. Views of Responsible Officials: The Department of Human Services concurs with this audit finding. "

Finding No. 2021-008: Inadequate internal controls over grant management Type of Finding: Significant Deficiency CFDA Title: Epidemiology and Laboratory Capacity for Infectious Diseases CFDA Number: 93.323 Federal Award Number: NU50CK000512-01-05, NU50CK000512-01-06, NU50CK000512-01-07, NU50CK000512-01-08, NU50CK000512-01-09, NU50CK000512-01-10, NU50CK000512-02-00, NU50CK000512-02-01, NU50CK000512-02-02, NU50CK000512-02-03, NU50CK000512-02-04, NU50CK000512-02-05, NU50CK000512-02-06, NU50CK000512-02-07, NU50CK000512-02-08 Federal Award Year: 2020 Federal Agency: Department of Health and Human Services Type of Finding: Significant Deficiency Category of Finding: Allowable Costs/Cost Principles, Cash Management Criteria: 31 CFR 205.33 states: A State must minimize the time between the drawdown of Federal funds from the Federal government and their disbursement for Federal program purposes. A Federal Program Agency must limit a funds transfer to a State to the minimum amounts needed by the State and must time the disbursement to be in accord with the actual, immediate cash requirements of the State in carrying out a Federal assistance program or project. The timing and amount of funds transfers must be as close as is administratively feasible to a State's actual cash outlay for direct program costs and the proportionate share of any allowable indirect costs. States should exercise sound cash management in funds transfers to subgrantees in accordance with OMB Circular A-102?. The Compliance Supplement, part 3-B-10 states in part: Allowable Costs ? Direct and Indirect Costs The individual state/local government/Indian tribe departments or agencies (also known as ?operating agencies?) are responsible for the performance or administration of federal awards. In order to receive cost reimbursement under federal awards, the department or agency usually submits claims asserting that allowable and eligible costs (direct and indirect) have been incurred in accordance with 2 CFR Part 200, Subpart E. Condition: Each year the Department of Health (DOH) obtains approval of their indirect cost rate proposal (ICRP). The ICRP identifies the indirect cost rates that the DOH uses to recover the federal share of administrative costs that were incurred in administering the various federal grants. The DOH did not process the transactions to reimburse State funds for the federal share of the administrative costs for April, May or June of 2021. These indirect costs had been spent from State funds by DOH and could have been charged to the federal grants and reimbursed from the federal government. Cause: Internal controls over grant management were not adequate to ensure indirect costs were timely charged to federal programs. Effect: Failure to recover reimbursement from the federal awarding agency. Questioned Costs: None Context/Sampling: The DOH charged $1,557,671.56 to federal programs for the federal share of the administrative costs incurred from June 2020 through February 2021 of which $467,712.27 was charged to the ELC grant. In August 2021, the indirect costs were charged to federal grants for the months of March through June 2021. The total charged to federal funds was $468,789.24 of which $18,793.76 was to the ELC grant. Repeat Finding from Prior Year: No Recommendation: We recommend controls be strengthened to ensure that the federal share of indirect costs are charged to federal programs and that reimbursement is requested on a timely manner. Views of Responsible Officials: The Department of Health (DOH) does not agree with this finding. DOH agrees that indirect costs for March through June 2021 were drawn in August 2021. However, DOH's internal controls for drawing indirect costs are adequate and are functioning as intended. DOH complied with 31 CFR 205.33. The DOH also complied with Compliance Supplement 3-B-10, as it establishes principles and standards for determining allowable direct and indirect costs, and there were no questioned or unallowable costs.

Finding No. 2021-009: Inadequate procedures over grant disbursements Type of Finding: Significant Deficiency CFDA Title: Coronavirus Relief Fund (CRF) CFDA Number: 21.019 Federal Award Year: 2020 Federal Agency: Department of Treasury Type of Finding: Significant Deficiency Category of Finding: Allowable Costs/Cost Principles Questioned Costs: $533,915.88 Criteria: The Government Accountability Office ? Standards for Internal Control in the Federal Government principle of internal control principle 10 states, ?Management should design control activities to achieve objectives and respond to risks.? Common examples of control activities include the proper execution of transactions and the appropriate documentation of transactions. The Federal Register Volume 86, number 10, dated January 15, 2021, frequently asked question 59 states that if a grant is being provided to a small business from the Coronavirus Relief Fund, the recipient must take into account the business? receipt of a paycheck protection program loan (PPP) or economic injury disaster recovery loan (EIDL) loan or grant. The State?s program overview for small business grants provided a grant calculation to be used in determining the eligible amount for the reduction in business grants. The eligible amount for the reduction in business grant was calculated using the 2019 cash flow from operations and subtracting the 2020 cash flow from operations and any federal COVID-19 aid. The State further defined federal COVID-19 aid as; 1) paycheck protection program loans (PPP), 2) economic injury disaster recovery loans (EIDL), 3) coronavirus food assistance program (CFAP) and 4) any other COVID-19 federal payment or grant. Condition: The following were noted during testing: 1. Fourteen instances were noted where COVID-19 federal assistance was not reduced from the amount of the small business grant that was awarded. 2. One instance was noted where a healthcare provider was paid a grant from the CRF based upon the number of beds authorized by the Department of Health. Documentation indicated that the healthcare provider has multiple federal taxpayer identification numbers as it operates numerous facilities through the State. It appears that $275,000 was paid for 25 critical access hospital beds to the healthcare provider using the wrong federal taxpayer identification number. Cause: Procedures were not adequate to ensure that the correct federal taxpayer identification numbers were used. The State utilized a third party to provide grant management services for a portion of the CRF grant. Errors were made in the grant calculations. Effect: Unallowable or unsupported costs were incurred from the CRF grant. Questioned Costs: Auditor calculated overpayments for small business CRF grants where the award was not reduced for other federal assistance received. Questioned costs were $533,915.88. Further Information: Small Business Grants: From a sample of 60 payments made from the CRF, 19 payments tested were for small business grants. Two instances were noted where federal assistance (CFAP) was not reduced from the amount being calculated for the small business grant and one instance was noted where documentation of the reduction in net income was not present. Forty-one additional small business grants were selected and were reviewed for adequate support and determination that if federal assistance was received, that it was properly included in the grant formula. One additional instance was noted where CFAP was not included in the formula, however it did not affect the grant amount. Testing was further expanded to include 104 small business recipients that had a high risk of receiving CFAP assistance. Thirty-five did receive CFAP or other federal assistance and 12 of those did not have the assistance properly reduced from the grant amount. The State has instructed the third-party administrator to review the small business grants awarded for potential payment errors and has engaged an accounting firm to perform monitoring activity over the awards. This includes the exceptions noted in this finding. High Impact Grants: High impact grants were awarded to healthcare providers based upon the number of beds authorized by the Department of Health. The worksheet provided for testing contained the provider?s federal taxpayer identification number, name and number of beds. Support for the number of beds initially could not be located so the occupancy reports on the Department of Health?s website were used. Of the seven tested, one instance was noted where the number of beds did not agree for one provider?s critical access bed count. Testing was expended to verity the number of beds authorized for all hospital, assisted living and nursing home providers. No further problems were noted. Subsequent documentation indicated that the discrepancy noted was the payment being made to the wrong federal taxpayer identification number. Repeat Finding from Prior Year: No Recommendation: We recommend procedures be strengthened to ensure proper payment from grant funds. Views of Responsible Officials: The State concurs with this audit finding.

Finding No. 2021-010: Inadequate internal controls over Federal Financial Reports Type of Finding: Material Weakness and Noncompliance CFDA Title: National Infrastructure Investments, Nationally Significant Freight and Highway Projects CFDA Number: CFDA 20.933, CFDA 20.934 Federal Award Number: INFRA 2019, BUILD 2018 Federal Award Year: 2019, 2018 Federal Agency: Department of Transportation Type of Finding: Material Weakness and Noncompliance Category of Finding: Reporting Criteria: The South Dakota Department of Transportation (DOT) is required under the Grant Agreement Under The Consolidated Appropriations Act, 2018 (PUB. L. 115-141, March 23, 2018) For The National Infrastructure Investments Discretionary Grant Program (FY 2018 BUILD Transportation Discretionary Grants) and the General Terms and Conditions Under The Fiscal Year 2019 INFRA Program: FHWA Projects to submit Quarterly Project Progress Reports, which must include the SF-425 Federal Financial Report. Condition: The SF-425 Federal Financial Reports for the periods ending December 31st, 2020 and March 31st, 2021, two of the four quarters reported during the audit period, were selected for testing and determined to have material variances as compared to the South Dakota Accounting System. In comparing the data reported on the SF-425 to the accounting system, the following variances were identified: [See Schedule of Findings and Questioned Costs for table] Cause: Following the issuance of audit finding No. 2020-006 in the prior audit, the Department moved responsibility for the SF-425 between divisions, resulting in some variances being corrected and others being created as staff learned the appropriate reporting methodologies and data elements. Further, it has been represented to us that secondary review of the completed report has been implemented, but it has not been documented in a manner which allows us to verify and rely upon the control. Effect: The result of the errors noted is in an understatement of: a. Federal Cash Receipts, b. Federal Cash Disbursements, f. Federal Share of Unliquidated Obligations, and j. Recipient Share of Expenditures, as noted in the table above. Questioned Costs: None. Repeat Finding from Prior Year: Yes Recommendation: We recommend the Department implement internal controls to ensure the accuracy of SF-425 Federal Financial Reports submitted. Views of Responsible Officials: The Organization agrees with the finding.

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