NEBRASKA METHODIST HEALTH SYSTEM, INC.Non-Profit

Finding 2023-001 Federal Program Titles – Education Stabilization Fund Assistance Listing Nos. – 84.425F Federal Agencies – U.S. Department of Education Federal Award Numbers – P425F204105 - 20B Grant Award Periods – June 19, 2020 – June 30, 2023 Compliance Requirements – Reporting Criteria: The Health System received funding under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act (HEERF I), Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) (HEERF II) and the America Rescue Plan (ARP) (HEERF III). There are three components to reporting for HEERF: 1) quarterly public reporting on the Student Aid Portion; 2) quarterly public reporting on the Institutional Portion; and 3) the annual report. The CARES Act 18004(e) and the CRRSAA 314(e) requires an institution receiving funds under HEERF I and HEERF II to submit a report to the secretary, at such time in such a manner as the secretary may require. While ARP does not explicitly identify procedures by which institutions must report on their uses of HEERF grant funds, the Department of Education (ED) exercises this reporting authority under 2 CFR section 200.328 and 2 CFR section 200.329. In addition, CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: The Health System filed a report for the quarter ending June 30, 2023 related to HEERF II on July 3, 2023. Within that report, the Health System reported that it had expended $205,161 related to HEERF II institutional funds. Based on underlying support, the Health System did not spend any dollars related to HEERF II for the quarter ended June 30, 2023. The Health System filed a report for the quarter ended March 31, 2023 related to HEERF III on April 8, 2023. Within that report, the Health System reported that is had expended $12,318 related to HEERF III institutional funds. The $12,318 reported represented the amount planned to be drawn related to HEERF III during Q2 of 2023 not the amount expended during that period. The amount the Health System expended during that quarter was $178,155 related to HEERF III institutional funds. The Health System filed a report for the quarter ended June 30, 2023 related to HEERF III on July 3, 2023. Within that report, the Health System reported that it had expended $960,537 related to HEERF III institutional funds. The $960,537 reported represented the amount remaining to be drawn related to HEERF III not the amount expended during that period. The amount the Health System expended during that quarter was $794,592 related to HEERF III institutional funds. Questioned Cost: None. Cause and Effect: In discussing these conditions with the Health System management, there was a misunderstanding of what should be included in the reports and the current review process did not identify the issues. This lead to inaccurate information being reported in the required reports. Repeat Finding: A similar finding was not reported in prior year audit. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the Health System enhance its internal control process to ensure the Health System has effective internal controls in place in relation to completing its quarterly reporting in an accurate manner. View of Responsible Official: The Health System agrees the reports submitted were not accurate and will be submitting amended reports. The Health System also plans to improve the internal control process by adding another level of review to the current process to ensure reports are submitted accurately.

Finding 2023-002 Federal Program Titles – Student Support Services; Upward Bound; Upward Bound Math and Science Assistance Listing Nos. – 84.042 and 84.047 Federal Agencies – U.S. Department of Education Federal Award Numbers – P047A220134 - 22; P047A220134 – 23; P047M220042 - 22; P047M220042 – 23; P042A200395 – 22; P042A200395 - 23 Grant Award Periods – June 1, 2022 – August 31, 2024 Compliance Requirements – Allowable Costs/Cost Principles Criteria: Costs of compensation are allowable to the extent that they satisfy the specific requirements of 2 CFR 200.430, and that the total compensation for individual employees: (1) Is reasonable for the services rendered and conforms to the established written policy of the non-federal entity consistently applied to both federal and non-federal activities; (2) Follows an appointment made in accordance with entity's laws and/or rules or written policies and meets the requirements of federal statute, where applicable; and (3) Is determined and supported (documented) as provided in 2 CFR 200.430 (i), when applicable. Charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. Among other things, these records must: • Reasonably reflect the total activity for which the employee is compensated by the non-federal entity, not exceeding 100% of compensated activities. - 2 CFR 200.430(i)(1)(iii) • Comply with the established accounting policies and practices of the non-federal entity. - 2 CFR 200.430(i)(1)(v) • 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 which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. - 2 CFR 200.430(i)(1)(vii) • Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to federal awards, but may be used for interim accounting purposes, provided that: The system for establishing the estimates produces reasonable approximations of the activity actually performed; • Significant changes in the corresponding work activity (as defined by the non-Federal entity's written policies) are identified and entered into the records in a timely manner. Short term (such as one or two months) fluctuation between workload categories need not be considered as long as the distribution of salaries and wages is reasonable over the longer term; and • The non-Federal entity's system of internal controls includes processes to review after-the-fact interim charges made to a Federal award based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated. In addition, per CFR 200.421 fringe benefits may be assigned to cost objectives by identifying specific benefits to specific individual employees or by allocating on the basis of entity-wide salaries and wages of the employees receiving the benefits. When the allocation method is used, separate allocations must be made to selective groupings of employees, unless the non-Federal entity demonstrates that costs in relationship to salaries and wages do not differ significantly for different groups of employees. Conditions Found: In testing over internal controls related to fringe benefit calculations, it was noted that the salary base used to apply the fringe benefit rate included certain salaries that should not be charged the fringe benefit rate. A control was in place to review the fringe calculations, but there was not a control attribute designed to ensure that the salary base used in the calculation included the appropriate salaries. Further, it was noted when two new employees were onboarded into the payroll system to have salary charges posted to Upward Bound and Upward Bound Math program, their approved cost allocation were not reviewed to ensure they properly reflected within the system to allocate costs between Upward Bound and Upward Bound Math program. Questioned Cost: There are no questioned costs. Cause and Effect: In discussing these conditions with the Health System management, there was a new enterprise resource planning software implemented January 1, 2023 and employee turnover in the program and the processes to ensure fringes are being properly applied and salaries allocated for new employees were not properly designed to ensure accurate recording. Repeat Finding: A similar finding was not reported in prior year audit. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the Health System enhance its internal control process to ensure the Health System has effective internal controls in place in relation to ensuring fringes are properly calculated and salaries properly allocated. View of Responsible Official: The Health System agrees that fringes and salary allocations were not properly recorded. We have already corrected the fringe calculation and set up the payroll allocations properly in the system. We plan to improve our internal controls related to the review of the fringe calculation as well the review of new employees onboarded into the payroll system to ensure accurate recording of expenditures to the appropriate program.

Finding 2022 01 Program Information: Compliance Requirement: Allowability and Reporting Federal Agency: Health Resources and Services Administration (HRSA) Federal Program Title: Provider Relief Fund (PRF) and American Rescue Plan (ARP) Rural Distribution (Assistance Listing No. 93.498) Award Year: January 1, 2021 through December 31, 2021 Criteria: The terms and conditions of the Provider Relief Fund (PRF) distributions state that funds are provided for health care-related expenses or lost revenues attributable to coronavirus. The funds are not to be used to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse. In addition, CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: The Health System filed reports for both Nebraska Methodist Health System (NMHS) and Methodist Fremont Hospital (MFH), related to periods 3 and 4 reporting. During the process of agreeing revenue reported for both periods, we identified that MFH revenue was underreported and NMHS was overreported for Q2 2020 in the amount of $1,175,244. This error resulted in MFH recognizing additional lost revenue and therefore having sufficient lost revenue to cover period 4 PRF payments received. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Identification of Questioned Costs: Total known questioned costs for ALN 93.498 amounted to $1,175,244 and were calculated based off total lost revenue reported during the Period 4 report submission. Repeat Finding: This finding is not a repeat finding in the immediately prior audit. Cause: The Health System did not perform procedures to review that the lost revenues recorded agreed to the underlying accounting records as part of the calculation of lost revenues incurred. Effect: MFH applied $1,175,244 of funds received against lost revenues which MFH did not incur. Recommendation: We recommend the Health System enhance its internal control to ensure that the Health System?s controls operating at an appropriate precision level and to perform a review over the allowability of costs. View of Responsible Officials: We concur with the finding and will correct the period 5 report to properly reflect lost revenues and include expenditures that are allowable under the compliance requirements. We will also improve our reporting review process to ensure such reporting errors are identified and corrected before submission.

Finding 2019-001: Special Tests and Provisions ? Verification - Failure to submit data correction for verified student Federal Agency: U.S. Department of Education (USDE) Program Name: Student Financial Assistance Cluster CFDA # and Name: 84.063, Federal Pell Grant Program Federal Award Number: P063P Federal Award Year: July 1, 2018 to June 30, 2019, July 1, 2019 to June 30, 2020 Questioned Costs None Condition Found The Health System did not appropriately review documents provided through the verification process which resulted in a student receiving a Pell Grant for which they were ineligible. Information submitted on a student?s Free Application for Federal Student Aid (FAFSA) is used to calculate the student?s expected family contribution (EFC) which is used to calculate how much federal financial aid a student can be offered. Institutions are required to verify applicant FAFSA information selected by the U.S. Department of Education (USDE) and are required to submit data corrections to the central processor if necessary. During our testwork of 50 Pell Grant recipients who were verified during fiscal year 2019, we noted one student whose verification support did not agree to the final submitted FAFSA. The student selected for verification had reported six members in their household with two of those members in postsecondary institutions (number in college) on their FAFSA. Upon being selected for verification by the USDE, the student completed and signed the Health System?s verification worksheet for dependent students indicating six members in their family but only one in college. No data correction was made and the final FAFSA incorrectly indicated two members in college. Further, we noted management review controls implemented by the Health System were not designed at a level of precision to appropriately review verification documents and submit data corrections if necessary. Criteria According to 34 CFR Section 668.55 (b) (1) An applicant who is selected for verification of the number of persons in his or her household (household size) or the number of those in the household who are attending postsecondary institutions (number in college) must update those items to be correct as of the date of verification, except when the update is due to a change in his or her marital status. In addition, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Effective internal controls should include establishing procedures to verify student information is appropriately verified and any necessary data corrections are made. Cause In discussing these conditions with Health System officials, they stated that the verification worksheet and supporting verification documents obtained were not reviewed in appropriate detail in order to identify the discrepancy between the FAFSA and verification support. Possible Asserted Effect Inaccurate information reported on a student?s FAFSA application impacts the EFC calculation and determination of award eligibility based on the EFC. Repeat Finding A similar finding was not reported in the prior year audit. Statistical Sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the Health System review its controls and procedures to ensure adequate and accurate review of documents received during the verification process. Views of Health System Officials The Health System acknowledges the error, and took immediate action to correct the student?s FAFSA during the audit. We provide this explanation as a possible cause: A verification worksheet in the student?s file for the prior academic year included two family members in college. It?s possible that the wrong worksheet was used to complete verification. A Corrective Action Plan is being implemented to ensure that verification is completed accurately and any errors are identified and corrected in a timely manner.

Finding 2019-002: Eligibility/Allowability - Inappropriate determination of Pell Grant eligibility Federal Agency: U.S. Department of Education (USDE) Program Name: Student Financial Assistance Cluster CFDA # and Name: 84.063, Federal Pell Grant Program Federal Award Number: P063P Federal Award Year: July 1, 2018 to June 30, 2019, July 1, 2019 to June 30, 2020 Questioned Costs: $805.00 Condition Found The Health System did not appropriately review verification documents which resulted in a student receiving a Pell Grant for which they were ineligible. Information submitted on a student?s Free Application for Federal Student Aid (FAFSA) is used to calculate the student?s expected family contribution (EFC), which is used to determine whether a student is eligible for a Pell Grant. Each academic year the U.S. Department of Education (USDE) releases a payment and disbursement schedule indicating maximum Pell Grant awards based on the calculated EFC and other information. Institutions are required to perform verification procedures on students selected by the USDE and submit corrections to the central processor if necessary. During our testwork of 65 Pell Grant recipients during fiscal year 2019, we noted one student who received a Pell Grant who was ineligible based on the correct calculated EFC. The student had been selected for verification and initially reported six members in their household with two of those members in postsecondary institutions (number in college) on the FAFSA. Upon being selected for verification by the USDE, the student completed and signed the Health?s verification worksheet for dependent students indicating six members in their family but only one in college. No data correction was made and the final FAFSA incorrectly indicated two members in college. As a result of two household members in college, the student was Pell Grant eligible and their EFC was $4,095. After making the correction to the FAFSA to reflect only one student in college the student became ineligible for Pell as their EFC was $6,588. The total ineligible amount that the student received during the July 1, 2019 to June 30, 2020 award year was $805.00. Further, we noted management review controls implemented by the Health System were not designed at a level of precision to appropriately review verification documents and determine eligibility. Criteria According to 34 CFR Section 690.62 (a) The amount of a student?s Pell Grant for an academic year is based upon the payment and disbursement schedules published by the Secretary for each award year. The 2019-2020 Pell Grant payment and disbursement schedule released by the Department of Education indicates that a calculated EFC that is over $5,577 makes a student ineligible for a Pell Grant. In addition, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Effective internal controls should include establishing procedures to verify student information is appropriately verified and eligibility is properly determined. Cause In discussing these conditions with the Health System officials, they stated that the verification worksheet and supporting verification documents obtained were not reviewed in appropriate detail in order to identify the discrepancy between the FAFSA and verification support which ultimately led to the student receiving a Pell Grant when they were ineligible based on EFC. Possible Asserted Effect Inaccurate information reported on a student?s FAFSA application impacts the EFC calculation and determination of Pell Grant eligibility based on the EFC. Repeat Finding A similar finding was not reported in the prior year audit. Statistical Sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the Health System review its controls and procedures to verify adequate and accurate review of documents received during the verification process and eligibility criteria. Views of Health System Officials The Health System acknowledges this error which resulted from the verification error identified in Finding 2019-001. Pell Grant awards are calculated automatically by the PowerFAIDS system, based on data contained within that system. Therefore, the verification error resulted in an incorrect Pell Grant award. During the audit, the College took immediate action to correct the student?s FAFSA and reverse the Pell Grant award. A Corrective Action Plan is being implemented to ensure that verification is completed accurately and any errors are identified and corrected in a timely manner.

Finding 2019-003: Special Tests and Provisions ? Disbursements - Untimely notification of funds disbursed to student accounts Federal Agency: U.S. Department of Education (USDE) Program Name: Student Financial Assistance Cluster CFDA # and Name: 84.268, Federal Direct Student Loans Federal Award Number: P268K Federal Award Year: July 1, 2018 to June 30, 2019, July 1, 2019 to June 30, 2020 Questioned Costs: None Condition Found The Health System did not appropriately notify students of funds posted to their student account within 30 days of disbursement. Institutions are required to notify students when Direct Loans are disbursed to a student. The notice should include the date and amount of the disbursement, the student?s right to cancel that loan, and the time by which the student must notify that they wish to cancel. The notice should be made no earlier than 30 days before and no later than 30 days after crediting the student?s ledger account at the institution. During our testwork of 94 Direct Loan recipients during fiscal year 2019, we noted two students who did not meet this compliance requirement. One student was disbursed funds on October 7, 2019 and did not receive a notice of funds applied to student account email until January 20, 2020 (105 days). Another student was disbursed funds on July 16, 2019 and never received a notice of funds applied to student account email. The Health System completed a full review of the population and found an additional four students that did not receive a notice of funds applied to student account email within 30 days. Further, we noted management review controls implemented by the Health System were not designed at a level of precision to notify students of direct loans posted to their student accounts within 30 days of disbursement. Criteria According to 34 CFR Section 668.165 (a) (3) (i) the institution must notify the student or parent of - (i) the anticipated date and amount of disbursement; (ii) the student?s or parent?s right to cancel all or a portion of that loan or loan disbursement and have the loan proceeds returned to the Secretary; and (iii) the procedures and time by which the student or parent must notify the institution that he or she wishes to cancel the loan or loan disbursement ? no earlier than 30 days before, and no later than 30 days after, crediting the student?s ledger account at the institution. In addition, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Effective internal controls should include establishing procedures to verify students receive a notice of funds applied to student account email within 30 days of disbursement. Cause In discussing these conditions with Health System officials, they stated that there are not sufficient controls in place to ensure that a notice of funds applied to student account email was sent. Possible Asserted Effect Untimely notice of disbursements can result in student?s not being aware of disbursements posted to their account and not being aware of their rights in regards to cancelling the loan. Repeat Finding A similar finding was not reported in the prior year audit. Statistical Sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the Health System review its controls and procedures to ensure appropriate notice of funds being applied to student accounts. Views of Health System Officials The Health System acknowledges the errors that resulted in untimely notification of funds disbursed. Responsibility for these notifications transitioned to the Financial Aid Office in May 2019, and new procedures were successfully implemented during the initial disbursements for the summer term. For loans disbursed at the start of a term, notices are typically sent within 7-10 days of the disbursement. For disbursements that occur later in the semester, notices are typically sent on the date of disbursement. As identified by the audit, the new procedure was not followed in every instance when there was a single disbursement or a small group of disbursements made at a later date. A corrective action plan was implemented immediately to ensure that all disbursement notifications are sent within the required 30-day period.

Finding 2019-004: Special Tests and Provisions ? Enrollment Reporting - Inaccurate and untimely enrollment reporting Federal Agency: U.S. Department of Education (USDE) Program Name: Student Financial Assistance Cluster CFDA # and Name: 84.268, Federal Direct Student Loans, 84.063, Federal Pell Grant Program Federal Award Number: P268K, P063P Federal Award Year: July 1, 2018 to June 30, 2019, July 1, 2019 to June 30, 2020 Questioned Costs: None Condition Found The Health System did not accurately and timely report student enrollment status changes to the National Student Loan Data System (NSLDS). A student?s enrollment status determines eligibility for in-school status, deferment, and grace periods, as well as for the payment of interest subsidies to Federal Direct Loan Program loan holders by the U.S. Department of Education (USDE). Reporting enrollment data in a timely and accurate manner is critical for effective management of the programs. During our testwork of 80 borrowers under the Direct Loan program or Pell grant program that graduated or withdrew during fiscal year 2019, we noted the status changes for five graduated students were not accurately reported to the NSLDS as of the date of our testing. The enrollment statuses were reported to the NSLDS as Withdrawn (W) status rather than Graduated (G) status. The Health System completed a full review of the population and found an additional 42 students that were identified as being reported as Withdrawn (W) status rather than Graduated (G) status. Additionally, during the same testwork of 80 borrowers under the Direct Loan program or Pell grant program that graduated or withdrew during fiscal year 2019, we noted the effective date for two withdrawn students was not accurately reported to the NSLDS. The Health System completed a full review of the population and found an additional 18 students that were identified as having an inaccurate effective date reported to NSLDS. Lastly, during the same testwork of 80 borrowers under the Direct Loan program or Pell grant program that graduated or withdrew during fiscal year 2019, we noted two withdrawn students whose withdrawn status was not reported to the NSLDS. The Health System completed a full review of the population and did not find any further students that were not reported to NSLDS. Further, we noted management review controls implemented by the Health System were not designed at a level of precision to verify student enrollment data submitted to NSLDS was accurate and transmitted in accordance with required timeframes. Criteria According to 34 CFR Section 685.309, under the Federal Direct loan program, institutions must complete and return the Enrollment Reporting roster file via NSLDS within 15 days of receipt. Enrollment information must be reported within 30 days whenever attendance changes for students, unless a roster will be submitted within 60 days. An institution must notify the Secretary of Education if it discovers that a loan under Title IV of the Act was made to or on behalf of a student who was enrolled or accepted for enrollment at the school, and the student has ceased to be enrolled on at least a half-time basis or failed to enroll on at least a half-time basis for the period for which the loan was intended. According to 34 CFR Section 690.83(b)(2), under the Pell grant program, an institution shall submit, in accordance with deadline dates established by the Secretary, through publication in the Federal Register, other reports and information the Secretary requires and shall comply with the procedures the Secretary finds necessary to ensure that the reports are correct. In addition, 2 CFR 200.303 requires non-Federal entities to, among other things, 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. Effective internal controls should include establishing procedures to ensure student enrollment status changes are accurately and timely reported to the NSLDS. Cause In discussing these conditions with Health System officials, they stated that there was lack of sufficient communication between the Financial Aid Department and the Registrar?s Office who submits the enrollment detail. Possible Asserted Effect Inaccurate and delayed submission of student enrollment status information affects the determinations that lenders and servicers of student loans make related to in-school status, deferments, grace periods, and repayment schedules, as well as the federal government?s payment of interest subsidies. Repeat Finding A similar finding was not reported in the prior year audit. Statistical Sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the Health System review its controls and procedures to ensure timely and accurate reporting of student enrollment status information to the NSLDS. Views of Health System Officials The Health System acknowledges these errors and will immediately implement a corrective action plan to ensure that enrollment reporting is completed accurately and on time. The College will maintain its current schedule of reporting enrollment to NSLDS on a monthly basis, and we will continue to utilize the services of the National Student Clearinghouse to do so.