Federal Grant Contracting MALPH September 2014 Tim Becker, CPA

1. Federal Grant Contracting MALPH September 2014 Tim Becker, CPA Senior Deputy Director, Operations Michigan Department of Community Health

2. Healthcare is an Economic Force in Michigan • Health Care Industry is Michigan’s Largest Private-Sector Employer1 • Provides more than 558,000 direct jobs1 • Hospitals employing nearly 219,0001 • One third of the projected fastest growing occupations are health care related2 • Health care employment as a percentage of total Michigan employment is 10.6%3 • 1 million people who collectively earn more than $48.4 billion a year in wages, salaries and benefits1 • Health Care Industry Generates $13.4 Billion in Federal, State & Local Tax Revenues1 • Health Care Spending Per Capita in Michigan is $6,6183 • Total Health Care Spending in Michigan is $64.3 Billion3 1 Economic Impact of Health Care in Michigan, 8thed. 2 U.S. Bureau of Labor Statistics 3 Kaiser State Health Facts (2009 data)

3. Our Guiding Principles Vision Improving the experience of care, improving the health of populations, and reducing costs of health care. Mission The Michigan Department of Community Health will protect, preserve, and promote the health and safety of the people of Michigan with particular attention to providing for the needs of vulnerable and under-served populations. Leadership, Excellence, Teamwork

4. MDCH Service Structure Behavioral Health, Developmental Disabilities Public Health Services to the Aging 9.9 MillionMichiganders Medicaid FY 2015 Budget: $17.4 billion General Fund: $2.9 billion Full Time Employees: 3,648 • Supported by: • Operations • Policy & Planning • Inspector General • Commissions

5. MDCH Services Statistics • 5,604 residents test positive for gonorrhea and/or chlamydia yearly by State Lab System and Local Public Health • 360,000 new vital records events recorded each year • 32,000,000 records in vital records depository dating to 1867 • 1,779,449 Medicaid Total Average Eligibles • 965,042 children served by Medicaid • 347,395 disabled adults served by Medicaid • 13 Medicaid Health Plans • 786,629Medicaid School-Based direct service procedures • 83,200,000 Medicaid transactions processed last year • 494,380 children currently enrolled in Healthy Kids Dental • 37,453 currently enrolled in MI Child • 1,039,000 calls handled annually by Michigan Enrolls • 3,788 women using Maternal Outpatient Medical Services (MOMS) program each month • 28,977 Medicaid nursing home residents • 46 Community Mental Health Services Programs (CMHSP) • 10 Prepaid Inpatient Health Plans (PIHPs) • 242,884 people served by CMHSPs and PIHPs • 5 state operated hospitals and centers • 1,017 state psychiatric hospital bed capacity • 1,975 licensed psychiatric beds in the community for adults; 242 for children • 6,537 allegations investigated, processed, and resolved by Office of Recipient Rights • 41 Developmental Disabilities Council grants • 66,164 received Substance Use Disorder Services • 125,277 participated in Substance Use Prevention Programs • 1,563 claims paid for crime victims • 79,337 cases worked by Victim Advocates in Prosecutor Offices • 1,900,000 older adults (aged 60+) in Michigan • 85+ age group is fastest growing • 10,498,348 home delivered/congregate meals provided to aging population in Michigan • 6,822 caregivers for the aging that were supported by 694,401 hours • 62,858 older adults received 541,393 hours/units of community services • 649 children received autism diagnostic services • 520 children diagnosed with Autism Spectrum Disorder • 40,564 children served in Children’s Special Health Care Services (CSHCS) • 254,100 eligible Women, Infants and Children (WIC) receive WIC services each month • 45 Local Public Health Departments (LPHD) • 12,000 live emergency department reports daily • 1, 894,673 doses of vaccine in the Vaccine for Children program distributed to eligible children • 22: Michigan’s 2012 rank (70.5%) based on a national childhood immunization survey • 134,310 Infectious Disease Specimens Tested • 122,127 Newborn Screening specimens tested • 26,181 tests completed for blood lead levels and environmental lead exposure • 126,000 Facilitated epidemiology responses to communicable disease cases • 504,000 dollars in healthy food purchased daily from local grocers • 1,000,000 hearing and vision Screenings done yearly for Pre-K and school aged kids • 6,700,000 lab services provided to over 240,000 individuals.

6. Total FY 2015 Budget Recommendation (in millions)

7. Revenue Sources (Millions) *Private and Local

8. Common Types of Federal Grants • Assistance or Benefits: Money, Property, Services • Transfer of value from Federal Government to entities or individuals • To accomplish a public purpose of support or stimulation • Authorized by Federal statute • Formula Grants • Allocation of money to states or their subdivisions • Distributed through legally prescribed or administratively regulated formula • For activities of a continuing nature • Project Grants • Funding for fixed or known periods • Scholarships, research grants, construction grants • Direct Payments • Provided directly to individuals or private entities • Receipt conditioned on specific performance or eligibility requirements

9. Federal Grants Cycle • Announcement: Federal posting of grant opportunity • Application: Request to Federal Government for award • Award: States terms, conditions, amount, duration • Accessing: Drawing down of federal funds • Appropriate: Expend or Pass-through • Account: Financial Status Report • Assess: Monitor of programs and subrecipients • Audit: Determine compliance with Federal programs

10. Announcement of Federal Grants • Grants.Gov • Find and apply for federal grants • Find Open Grant Opportunities • Browse Categories and Federal Agencies • Browse Eligibility Categories • Federal Register • Daily journal of United States Government • Announcement of all rules and funding announcements • Catalog of Federal Domestic Assistance (CFDA) • Detailed program descriptions for 2,243 federal assistance programs • CFDA is a 5 digit number • First 2 digits represent the funding agency • Last 3 digits represent the program • 10.557 = Department of Agriculture (10) Supplemental Nutrition Program for Women, Infant, and Children (557) • 93.778 = Health and Human Services (93) Medical Assistance Program (778)

11. Legislative-Intended Use of Funds • Federal Awards Authorized by Federal Statute • Medical Assistance Program (CFDA 93.778 – Formula Grant) • Authorized by Social Security Act, Title XIX and 67 Public Laws • Legislative intent expanded with Patient Protection and Affordable Care Act (PPACA) • Pre-PPACA: • Children • Pregnant Women • Aged Who Meet Income and Resource Requirements • PPACA adds the following up to 138% of Federal Poverty Level (FPL): • Parents • Caretaker Relatives • Disabled • Childless Adults • Any variances to Prescribed Federal Formula must be granted Federal Approval through a waiver as permitted in the Social Security Act • State Appropriates Federal Funds and State Match Annually • State Budget is Legislation authorizing the expenditure of federal awards and state resources • Medicaid funds appropriated to 13 private HMOs and 10 Prepaid Inpatient Health Plans

12. Healthy Michigan Plan

13. Healthy Michigan Plan • Authorized by Federal Government as a Waiver • Waiver granted under Section 1115 of the Social Security Act • Federal Government may waive compliance with certain provisions to permit demonstration • Permits experimental, pilot, or demonstration project • Federal Medicaid Waivers • Section 1115: Research and Demonstration Projects • Permits state flexibility to test new or existing approaches to financing and delivery • Section 1915(b): Managed Care Waivers • Permits state to provide services through managed care delivery systems and limit beneficiary’s choice of providers • Section 1915(c): Home and Community-Based Service Waivers • Permits state to provide continuum of services to elderly and disabled • Michigan Public Act 107 of 2013 • Established Healthy Michigan Plan to start April 1, 2014

14. Healthy Michigan Plan • Beneficiary Cost Sharing • Co-pays required of all Healthy Michigan Plan members • Individuals between 100% and 133% FPL pay into MI Health Account • Limited to 2% of annual income • Contributions made on a monthly basis • Co-pays and contributions can be reduced through health behavior incentives • Incentives for Healthy Behaviors • Addressing substance use disorders • Reduced tobacco use • Obesity reduction • Federal Waiver and Legal Intent of Healthy Michigan • Improved health outcomes through preventive primary care • Reduced cost burden on healthcare system through reduced emergency visits • Reduced spread of costs to other payers from hospitals for uncompensated care

15. Michigan Medicaid Waivers • Healthy Michigan: 1115 Demonstration • Healthy behavior incentives, premium sharing, health spending accounts • Michigan Specialty Services and Support: 1915(b)(c) • Mental health, substance abuse, developmental disabilities support • Prepaid shared risk arrangement with prepaid inpatient health plans • MIChoice: 1915(c) • Adult day health, respite, personal care, home delivered meals, nursing • Children with Serious Emotional Disturbance: 1915(c) • Respite, community living supports, family home care training, therapeutic activities • Children’s Waiver Program: 1915(c) • Specialized medical equipment and supplies, specialty services for autistic children • Habilitation Supports: 1915(c) • Private duty nursing for individuals with developmental disabilities • Comprehensive Health Care Program: 1915(b) • Managed care capitated payment system • Healthy Kids Dental: 1915(b) • MDCH partners with Delta Dental to administer dental care using Delta Dental’s commercial model

16. Application for Federal Grants • OMB Circular A-102 • Regulates grants and cooperative agreements with state and local governments • Pre-Award Policies • Post-Award Policies • After-the-grant Policies • Requires advance public notice of awards in Federal Registry or other means • Prescribes standard forms for application • SF-424: Application for Federal Assistance • Non-profits, hospitals, institutions of higher education follow Circular A-110 • Medicaid State Plan • Comprehensive written statement of nature and scope of state’s Medicaid program • Required by 42 CFR Chapter 430.10 • Code of Federal Regulations = codification of rules published in the Federal Register • CFR is divided into 50 subject matter titles • CFR titles are divided into parts (chapters) according to the issuing Federal department/agency • Chapters are divided into sub-parts covering specific regulatory areas • Title 42 = Public Health • Chapter 430 = Department of Health and Human Services, Centers for Medicare & Medicaid Services, Medical Assistance Programs • Sub-part 10 = State Plan • Michigan Medicaid State Plan = 968 pages, online PDF = 39.74 MB

17. Program Intent through Federal Agreements • Michigan’s Medicaid Program Intent Expressed in State Plan • Medicaid State Plan is an agreement between state and federal government • Provides assurance that state’s Medicaid program will be administered in conformity with the specific requirements of the Social Security Act’s Title XIX and regulations • Specifies the services to be provided and the means to deliver the services • Identifies the general health care services • How costs of services will be reimbursed • Eligibility policies in effect for the program’s beneficiaries • Components of Michigan’s Medicaid State Plan • Single state agency organization • Describes the state organization administering the program and its authority to administer • Coverage and eligibility: identifies who qualifies for coverage • Amount, Duration, and Scope of Services Provided • Detailed description of services covered including limitations and requirements • Program administration • General program administration: reimbursement methodologies • Personnel administration: provides assurance on personnel standards and training • Financial administration: fiscal policies, accountability, cost allocation, financial participation

18. Award of Federal Grant • Notice of Grant Award • Issued by Awarding Federal Department/Agency • Authorizing Legislation Stated • CFDA Number • Approved Budget Period • Approved Budget amounts by category • Direct costs • Indirect Costs • OMB Circular A-87 • Cost principles for state, local, and Indian tribal governments • 5 attachments • Attachment A: General principles for determining allowable costs • Attachment B: Selected items of cost • Attachment C: State/local wide central cost allocation plans • Attachment D: Public assistance cost allocation plans • Attachment E: State and local indirect cost rate proposals

19. Program Intent through Contracts • Michigan’s Medicaid Providers Adhere to Provider Manual • Medicaid Provider Manual addresses all health insurance program provisions • Document is 1,789 pages divided into 44 comprehensive chapters and 4 appendices • Prescriptive Eligibility Determination and appeal rights • Coordination of Benefits • Mechanism used to designate order in which multiple carriers are responsible for payment • Medicaid is the payer of last resort • Billing Medicaid prior to exhausting other insurance resources may be considered fraud under the Medicaid False Claim Act if provider is aware beneficiary had other insurance coverage for services • Subrogation: beneficiaries assign MDCH the right to seek recovery of other payments • Cost Containment Through Managed Care • Most Medicaid services delivered through managed care organizations (HMOs) • Payments are capitated monthly payments per member per month • Fee For Service Cost Controls • Predictive Modeling: screening technology to identify Medicaid claims with billing irregularities • Third Party Liability Division: ensuring responsible payers meet their obligations • Office of Health Inspector General: Investigating Medicaid fraud

20. Accessing Federal Funds • Draw Methodology Varies by Federal Granting Agency • Web-Based Systems • Lines of Credit • Telephone Systems • Advance Draws • In some instances draws are permitted in advance of earned expenditure • Funds must be deposit into an interested bearing account • Interest earnings in excess of threshold limit must be remitted to Federal Government • SF-425 monitors timing of cash advances and disbursements • Submitted quarterly for most federal awards • Reimbursement-Based Draws • Most federal grants are drawn after an earning expenditure recorded at local level • Goal is to minimize lost interest exposure by ensuring timely draws are made

21. Appropriating Federal Funds • Health Programs Administered Through Local Partners • Medicaid administered through 13 private health plans • Behavioral health administered through 10 Prepaid Inpatient Health Plans and 46 Community Mental Health Service Providers • Public Health administered through 45 local public health departments • Aging programs administered through 16 area agencies on aging • Interim Payments and Cost Settlements • Providers paid through monthly interim payments • Receivables/Payables Recorded at year-end on cost reports • Final cost settlements can lag two or more years after services • Dependent on cost report submissions from locals • Can be delayed by audits or open issues under review • Medicaid accruals at year-end can be as large as $1.7B

22. Michigan Medicaid Health Plans • 13 accredited health plans covering medically necessary services • Blue Cross Complete of Michigan • CoventryCares of Michigan, Inc. • HealthPlus Partners • McLaren Health Plan • Meridian Health Plan of Michigan • Midwest Health Plan • Molina Healthcare of Michigan • Physicians Health Plan – Family Care • Priority Health Choice • Harbor Health Plan • Total Health Care • UnitedHealthcare Community Plan • Upper Peninsula Health Plan

23. Prepaid Inpatient Health Plan (PIHP) Consolidation Region 1 Region 2 Region 3 Regional PIHP Structure though December 2013 (18) Regional PIHP Structure Beginning January 2014 (10) Region 4 Region 5 Region 6 Region 7 Keweenaw Region 8 Region 9 Region 10 Houghton Ontonagon Baraga Gogebic Marquette Luce Alger Iron Chippewa Schoolcraft Mackinac Dickinson Delta Emmet Menominee Emmet Presque Isle Cheboygan Cheboygan Charlevoix Presque Isle Alpena Otsego Antrim Montmorency Leelanau Grand Benzie Traverse Kalkaska Crawford Alcona Oscoda Wexford Ogemaw Iosco Manistee Missaukee Roscommon Arenac Mason Lake Osceola Gladwin Clare Huron Midland Mecosta Oceana Bay Isabella Newaygo Sanilac Tuscola Gratiot Saginaw Muskegon Montcalm Genesee Lapeer Shiawassee St. Clair Clinton Ionia Ottawa Kent Macomb Oakland Livingston Ingham Barry Eaton Allegan Van Buren Calhoun Wayne Washtenaw Jackson Kalamazoo St. Joseph Monroe Hillsdale Branch Cass Berrien Lenawee

24. Local Public Health Services Local Partners in Health Local Health Departments 30 County 14 District 1 City Services: ~ 5 million Visits: ~4.6 million Patients: ~1.4 million

25. Michigan’s Area Agencies on Aging

26. Accounting for Federal Funds • Internal Control Integrated Framework • COSO Report: Committee of Sponsoring Organizations of the Treadway Commission • Provides framework to design, implement, and evaluate controls for compliance • AICPA Statement on Auditing Standard 78: Consideration of Internal Controls in a Financial Statement Audit • Control Environment: Provides discipline and structure and sets organization tone • Risk Assessment: Identification and analysis of risks forming basis to manage risks • Control Activities: Policies and procedures that carry out management’s directives • Information and Communication: Enable staff to carry out responsibilities • Monitoring: A process that assesses the quality of internal control performance • Period of Availability • Can only charge obligations incurred during the budget/project period • Cash or accrued expenditures • Encumbrances: contracts for goods or services engaged before end of budget period • Periodic Reporting to Federal Government • Largest report for DCH is CMS-64 for quarterly reporting on Medicaid

27. Accounting for Federal Funds Entity Type Circulars Grants-wide HHS Programs Education Institutions OMB A-21 2 CFR 220 45 CFR 74.27 State and Local Gov. OMB A-87 2 CFR 225 45 CFR 92.22 Non-Profits OMB A-122 2 CFR 230 45 CFR 74.27

28. Internal Controls for Not-For-Profits • Proper accounting of costs • Consistency and equity in charging Federal and non-Federal activities • Expense item charged to a single Federal activity • Allocate costs in accordance with relative benefit received by program • COSO Internal Control Framework • Control Environment • Demonstrates commitment to integrity and ethical values • Enforces accountability • Risk Assessment • Identifies and analyzes risk • Control Activities • Deploys through policies and procedures • Information and Communication • Uses relevant information both internally and externally • Monitoring Activities • Conducts ongoing evaluations

29. Assessing Utilization of Federal Funds • Performance Audits • Conducted by Office of Auditor General on Department of Community Health • Objective is to assess the effectiveness of particular programs • These audits are not on a regular schedule and can cover multiple years • Internal Control Evaluation • Conducted by department and reviewed by internal auditors • Objective is to assess the effectiveness of the internal control environment • Formal evaluation is conducted on a biennial basis with ongoing interim monitoring • Subrecipient Monitoring • Department conducts reviews and audits of subrecipients • Compliance examinations to ensure compliance with the contracts on grants • Ensure that subrecipients are complying with OMB Circular A-133

30. Contract Compliance • Internal Controls • Pre-audit assessment through questionnaires • Field testing by auditors through observation and interviews • Reconcile financial status reports to accounting records • Unsubstantiated costs are questioned and susceptible to disallowance • Accounting records must demonstrate appropriate allocations • Expenditure testing for program compliance • Payroll and Building Space • Costs are to be charged in accordance with relative benefit received • Pre-determine interim allocations permissible if trued up at year-end • Time reporting should be used if staff are allocated to multiple activities • Charging of direct/indirect costs • Double dipping: directly allocating overhead to a cost center while also allocating the cost indirectly through a general administrative cost pool

31. Common Errors in the Grants Process • Assumed risk with subrecipients • Staffing limitations limit ability to monitor subrecipients • Financial status reports taken at face value and not sufficiently audited • Failure to check contracts to compliance supplements • Federal regulations updated annually through compliance supplements • Limited internal audit staff and lack of training for grant accountants • Vesting fiduciary responsibilities with program staff • Program specialists tend to initiate grants proposals • Program staff need to be supported by strong financial analysts • Inadequate financial review leads to missed budgets and compliance issues • Decentralized cost allocation methodology • Loose cost allocation plans without strong central oversight tend to lead to errors in cost allocation and improper charging of indirect costs

32. Auditing of Federal Grants • Single Audit • Primary accountability system for use of federal funds • Pre-1979: Federal agencies responsible for their own audits of their grants • 1979: OMB Circular A-102: First government-wide audit requirements of grants • 1984: Single Audit Act: Established organization-wide audits of states and locals • 1996 Amendment: Extended Single Audits to non-profits and universities • Increased audit expenditure threshold from $25k to $300k • OMB Circular A-133 • Issued pursuant to Single Audit Act • 2003 Amendment: increased audit expenditure threshold from $300k to $500k • Establishes policies and procedures for auditors and auditees • A-133 Compliance Supplement • Provides guidance to auditors for testing federal program compliance requirements • Narrative descriptions and purpose descriptions for all federal programs • Revised annually

33. Single Audit • “Single” Audit is both a compliance and financial audit • Conducted by an independent auditor • State’s audit is conducted by Office of the Auditor General • Audited agencies are part of the Executive Branch • Office of the Auditor General reports to Legislative Branch • Financial Statements: prepared by auditee • Schedule of Expenditures of Federal Awards (SEFA) • Discloses each award expended or passed through • Auditor’s Opinions on Financial Statements and SEFA • Auditor’s Report on internal controls and compliance • Auditor’s Schedule of findings and questioned costs • Auditee’s Corrective Action Plans

34. Single Audit: Common Findings • State of Michigan Statewide Single Audit: FY 2012 • 37 major program: 24 qualified, 9 qualified, 4 adverse • $22B in federal awards for FY 2012 • Data Integrity • User access rights and safeguards to ensure data is secure • Implications for program costs and accuracy of eligibility determination • Ensure secure data exchanges between systems • Comprehensive automated data processing security program • Subrecipient Monitoring • Proper review of subrecipients audit reports and accounting records • Investigation of variances on financial status reports • Period of Availability • Ensure reported expenditures are in proper period and supported by documentation • Contract Compliance • Expenditures are authorized in contract and incurred during contract period • Administrative expenditure limits • Federal regulations restrict subcontracting with debarred, suspended, excluded entities

35. MDCH Links Website: http://www.michigan.gov/mdch Facebook: https://www.facebook.com/michigandch Twitter: @MIHealth, https://twitter.com/mihealth Michigan 2012 Single Audit: http://audgen.michigan.gov/finalpdfs/12_13/r000010013.pdf