Wayne County audit finds control gaps at federally qualified health centers; commission receives report

The Wayne County Committee on Audit on Jan. 15 received and filed a performance audit of the Department of Health, Human and Veterans Services’ (HHVS) Federally Qualified Health Center (FQHC) processes, which identified five issues and 13 recommendations to strengthen controls.

The audit, presented by Marci Koro, Auditor General, covered Oct. 1, 2021, through Sept. 30, 2024, and concluded the county’s FQHC operations and payment controls need improvement to ensure federal grant compliance and accurate county budgeting. "We identified 5 issues and 13 recommendations to strengthen the internal control environment within the FQHC processes," Koro said during the committee meeting.

The report found the county did not provide a salaries-and-positions listing before contract execution for the SEMHA (Southeastern Michigan Health Association) contract that supports the FQHCs. According to the audit, SEMHA’s budget narrative listed 21.8 full-time-equivalent (FTE) positions while its employee roster showed 26.8 FTEs, a variance of five positions. The auditors also reported roughly $1,600,000 in salaries expended in fiscal 2023—about $155,000 more than budgeted—and noted instances where position salaries exceeded budgeted amounts without documentation of county approval. The auditors recommended the county require documented approval of initial staffing lists and any subsequent changes; HHVS management disagreed with that recommendation.

Kamal Kepuru, finance director for HHVS, told the committee that while staffing decisions were discussed between department leadership and the FQHC, documentation was weak and responsibility for the contract is changing. "Going forward the FQHC will be handling its own SEMHA contract," Kepuru said, and that structural change should reduce the back-and-forth that produced discrepancies during the audit period.

The audit also flagged budgeting and general-ledger posting problems. The county budgeted $4.7 million in FQHC revenues and expenditures while actual federal grant awards totaled about $2.2 million, producing a budgeted overstatement of roughly $2.5 million. For fiscal 2023 the auditors reported actual expenditures of about $2.6 million against revenue recognized in the general ledger of $1.4 million, producing an expenditure-over-revenue shortfall of about $1.2 million; the audit notes $238,000 was transferred from the FQHC program to help cover part of that shortfall. HHVS finance management agreed with the auditors’ recommendation to reconcile grant revenues to the general ledger regularly and to base budgets on actual grant awards.

The auditors reported improper general-fund transfers and chargebacks during the scope period. The two FQHC business units had a combined deficit of $921,644 in fiscal 2023, and auditors identified more than $1 million in general-fund transfers recorded in fiscal 2024 that contributed to a combined surplus of roughly $1.2 million that year. HHVS staff told the committee they will submit a budget adjustment to remove about $1.2 million from the FQHC general-fund allocation for the current year and that the department has begun decertifying funds identified as overstated in prior budgets.

The report also found that lease payments were processed and reimbursed before the county had a valid commission-approved lease in place. The auditors said a voucher of about $326,000 was processed in February 2024 to reimburse three months of rent for the Hamtram FQHC before the new lease agreement was approved by the commission on April 23, 2024. Auditors recommended that procurements requiring commission approval not be processed via voucher and that payments await an approved contract.

Finally, auditors recommended strengthening cash controls over patient payments. Walkthroughs found the FQHC lacked segregation of duties for mail and receipt handling, did not prepare mailing logs, and did not perform daily reconciliations of patient receipts to the electronic health record postings. Auditors observed about $575 in cash stored in a safe in the CFO’s office as of August 2024 and recommended daily reconciliation procedures, segregation of duties, and timely bank deposits. Management agreed with these recommendations and the report said a corrective action plan will be requested about 30 days after formal receipt.

Javar Jackson, identified in the meeting as CEO of the FQHC, said the health center has worked to put an operational budget and reserves in place and has added finance staff since October to strengthen internal controls. "We recognize that we needed to strengthen our finance department from a checks-and-balances perspective," Jackson said, describing steps to install a director of finance and additional accounting staff and to run monthly financial statements reviewed by both the FQHC and the county.

Committee members pressed for clarity about the county's ongoing exposure if the FQHCs encounter future budget shortfalls. Commissioner Killeen said she did not want primary care delivery jeopardized and asked whether the new contract and budget controls will prevent repeat shortfalls. Kepuru and FQHC leadership said the new contracting structure and monthly reporting are intended to limit county general-fund exposure; auditors will request a corrective action plan and perform follow-up work.

The committee voted by voice to receive and file the audit report and forward it to the full commission. The motion was made from the committee floor, was supported, and passed on a voice vote.

The audit and management responses are now on record; auditors said they will perform follow-up work on the recommendations and the corrective action plan that HHVS must submit.

Votes at a glance: Receive and file the Office of Legislative Auditor General performance audit of the Wayne County Department of Health, Human and Veterans Services Federally Qualified Health Center processes — motion to receive and file moved from the committee floor; supported; passed by voice vote.