Spectrum Healthcare Group, Inc.

Item: 2020-001 CFDA Number: 93.788 Program: State Targeted Response to the Opioid Crisis Grant/State Opioid Crisis Response Grants Federal Agency: U.S. Department of Health and Human Services Pass-Through Agency: Health Choice Arizona Compliance Requirement: Allowable costs Criteria: Under cost principles established by 2 CFR Section 200.430, charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable and properly allocated and be incorporated into the official records of the non-Federal entity. Condition: It was determined that the rate per hour was not consistent with the requirements of cost principles established by 2 CFR Section 200.430. During testing of a non-statistically valid sample of a population of 192 employee payroll periods, including at least one pay period from each employee charged to the program, we noted exceptions for 4 out of 20 selections, encompassing 2 individuals over 2 separate pay periods. For one individual, the rate of pay charged to the program was greater than the rate of pay to the employee. Upon identification of the error, testing was expanded to the entire grant period, resulting in over-reported expenses of $1,119. For another individual, the rate of pay was not properly updated in the salary reimbursement to align with rate of pay change that occurred during the year to the individual resulting in an over-billing of $41.49. Questioned Cost: $1,161 Effect: Overbilling of payroll and related costs to the major program. If compensation costs charged to the grant and not supportable or accurate, the granting agency could request return of the grant funds or terminate the grant agreement Cause: Spectrum Healthcare Group, Inc. has not established a system of internal controls to ensure that charges to federal awards for salaries and wages provide reasonable assurance that the charges are accurate, allowable and properly allocated and that they are incorporated into the official records. A control has not been designed and implemented which requires the individual responsible for calculating the payroll allocation to agree the rates reported to source documentation to validate the accuracy of the rates charged against the grant, or a control to require a review of the payroll calculation by a second individual, which includes validation of the rates. Due to the lack of control in place, this is considered a pervasive deficiency in control over compliance resulting in a material weakness. Identification as a Repeat Finding: Repeat finding. See 2019-002 Recommendation: Spectrum Healthcare Group, Inc. should established a system of internal controls to ensure that charges to federal awards for salaries and wages provide reasonable assurance that the charges are accurate, allowable and properly allocated and that they are incorporated into the official records. Additionally, Spectrum Healthcare Group, Inc.?s management should consider integrating reporting with payroll to ensure that pay rate changes are updated in a timely manner. Views of Responsible Officials: Management of Spectrum Healthcare Group, Inc. concurs with the finding. See Corrective Action Plan.

Item: 2020-001 CFDA Number: 93.778 Program: State Targeted Response to the Opioid Crisis Grant/State Opioid Crisis Response Grants Federal Agency: U.S. Department of Health and Human Services Pass-Through Agency: Health Choice Arizona Compliance Requirement: Allowable costs Criteria: Under cost principles established by 2 CFR Section 200.430, charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable and properly allocated and be incorporated into the official records of the non-Federal entity. Condition: It was determined that the rate per hour was not consistent with the requirements of cost principles established by 2 CFR Section 200.430. During testing of a non-statistically valid sample of a population of 192 employee payroll periods, including at least one pay period from each employee charged to the program, we noted exceptions for 4 out of 20 selections, encompassing 2 individuals over 2 separate pay periods. For one individual, the rate of pay charged to the program was greater than the rate of pay to the employee. Upon identification of the error, testing was expanded to the entire grant period, resulting in over-reported expenses of $1,119. For another individual, the rate of pay was not properly updated in the salary reimbursement to align with rate of pay change that occurred during the year to the individual resulting in an over-billing of $41.49. Name of Contact Person: Gayle Lubahn, Accounting Manager Phone Number: (928) 340-1249 Anticipated Completion Date: September 30, 2020 Views of Responsible Officials and Corrective Actions: Management will establish a system of internal controls to ensure that charges to federal awards for salaries and wages provide reasonable assurance that the charges are accurate, allowable and properly allocated and that they are compared against relevant payroll information. Specifically, a control has been implemented for the Accounting Manager to review the payroll charges to compare to the payroll registers for each month to ensure accurate reporting of payroll rates.

2019-002

Criteria: Under cost principles established by 2 CFR Section 200.430, charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable and properly allocated and be incorporated into the official records of the non-Federal entity. Condition: Records supporting time charged to the grant were not incorporated into the official payroll records of Spectrum Healthcare Group, Inc. Additionally, it was determined that the number of hours or rate per hour were not accurately reflecting the relative time spent by the employee under the program and not consistent with the requirements of cost principles established by 2 CFR Section 200.430. During testing of a statistically valid sample of a population of 80 employee payroll months, we noted exceptions for 3 out of 12 selections. For one item, the number of hours charged was over-reported by $284. For another item, the calculation of employee related expenses was based on an incorrect wage rate, resulting in an under-billing of $1,148. For the third item, the authorized wage rate used was incorrect resulting in under-billing of $74. Questioned Cost: Questioned costs are less than $25,000 Effect: If records supporting time charged to the grant were not incorporated into the official payroll records and if compensation costs charged to the grant are not supportable in accordance with the Uniform Guidance, the granting agency could determine that these costs are not allowable and the granting agency could request return of the grant funds or terminate the grant agreement. Cause: Spectrum Healthcare Group, Inc. has not established a system of internal controls to ensure that charges to federal awards for salaries and wages provide reasonable assurance that the charges are accurate, allowable and properly allocated and that they are incorporated into the official records. Additionally, the individual responsible for calculating payroll allocation did not perform a detailed review of rates and hours reported to ensure completeness and accuracy of the hours and rates charged against the grant, or a control to require a review of the payroll calculation by a second individual. Identification as a Repeat Finding: Not a repeat finding. Recommendation: Spectrum Healthcare Group, Inc. should establish a system of internal controls to ensure that charges to federal awards for salaries and wages provide reasonable assurance that the charges are accurate, allowable and properly allocated and that they are incorporated into the official records. Additionally, Spectrum Healthcare Group, Inc.?s management should consider adding detailed payroll time tracking either within their time entry system or in Excel in order to allow employees to track their time by grant agreement to allow for review by supervisors prior to monthly reimbursement reporting requests to allow for accurate and detailed time tracking by award and to integrate reporting with payroll to ensure that pay rate changes are updated in a timely manner. Views of Responsible Officials: Management of Spectrum Healthcare Group, Inc. concurs with the finding. See Corrective Action Plan.

Item: 2019-002 CFDA Number: 93.778 Program: State Targeted Response to the Opioid Crisis Grant/State Opioid Crisis Response Grants Federal Agency: U.S. Department of Health and Human Services Pass-Through Agency: Steward Health Choice Arizona Compliance Requirement: Allowable costs and activities Criteria: Under cost principles established by 2 CFR Section 200.430, charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable and properly allocated and be incorporated into the official records of the non-Federal entity. Condition: Records supporting time charged to the grant were not incorporated into the official payroll records of Spectrum Healthcare Group, Inc. Additionally, it was determined that the number of hours or rate per hour were not accurately reflecting the relative time spent by the employee under the program and not consistent with the requirements of cost principles established by 2 CFR Section 200.430. During testing of a statistically valid sample of a population of 80 employee payroll months, we noted exceptions for 3 out of 12 selections. For one item, the number of hours charged was over-reported by $284. For another item, the calculation of employee related expenses was based on an incorrect wage rate, resulting in an under-billing of $1,148. For the third item, the authorized wage rate used was incorrect resulting in under-billing of $74. Name of Contact Person: Gayle Lubahn, Accounting Manager Phone Number: (928) 340-1249 Anticipated Completion Date: September 30, 2020 Views of Responsible Officials and Corrective Actions: Management will establish a system of internal controls to ensure that charges to federal awards for salaries and wages provide reasonable assurance that the charges are accurate, allowable and properly allocated and that they are incorporated into the official records. Specifically, management has implemented a time tracking system for all employees to notate their time incurred by program to reduce the manual nature of reviewing number of hours charged to the program.