GALVESTON COUNTY HEALTH DISTRICT

Finding 2025-005: Period of Performance – Material Weakness Name of Federal Agency: U.S. Department of Health and Human Services U.S. Department of Agriculture Federal Program Names: Health Center Program Cluster Health Center Program Cluster (Community Health Centers, Migrant Health Centers, Health Care for the Homeless, and Public Housing Primary Care) WIC Special Supplemental Nutrition Program for Women, Infants, and Children Federal Assistance Listing Number: 93.224 and 10.557 Federal Award Identification Number and Year: H800344 – 2024 through 2026, 256TX507Q1003 for all programs except for PEER program – 2025, 256TX527Q5003 and 246TX527W5003 for PEER program - 2025 Criteria: In accordance with §200.309, Period of Performance, and applicable program requirements, Federal award expenditures are required to be incurred within the approved period of performance specified in the award agreement. Costs incurred before the beginning date or after the ending date of the approved period of performance are generally unallowable unless specifically authorized by the Federal awarding agency. Condition and Context: See material weakness in internal control over financial reporting item 2025-001. Audit procedures identified that payroll periods overlapping the fiscal year-end were not properly allocated. Specifically, for the WIC (10.557) and Health Center (93.224) programs, the District incorrectly included three days of salary from the prior fiscal year (September 2024) while failing to accrue four days of salary earned within the current fiscal year (September 2025). The cumulative impact of these errors resulted in a net understatement of $20,957 in SEFA expenditures as follows: WIC (10.557): $1,477 Understatement Health Center (93.224): $19,480 Understatement Cause: See material weakness in internal control over financial reporting item 2025-001. Effect or Potential Effect: As discussed in the material weakness in internal control over financial reporting item 2025-001, the schedule of expenditures of federal awards was under accrued as of year end. Questioned Costs: None. The costs were determined to be allowable and substantiated; however, they were reported in the incorrect fiscal period. Identification of Repeat Finding: Yes. (A similar deficiency was identified in the prior year as Finding 2024-002) Recommendation: See material weakness in internal control over financial reporting item 2025-001. View of Responsible Officials: See material weakness in internal control over financial reporting item 2025-001.

Finding 2025-006: Reporting – Material Weakness Name of Federal Agency: U.S. Department of Health and Human Services U.S. Department of Agriculture Federal Program Names: Health Center Program Cluster Health Center Program Cluster (Community Health Centers, Migrant Health Centers, Health Care for the Homeless, and Public Housing Primary Care) WIC Special Supplemental Nutrition Program for Women, Infants, and Children Federal Assistance Listing Number: 93.224 and 10.557 Federal Award Identification Number and Year: H800344 – 2024 through 2026, 256TX507Q1003 for all programs except for PEER program – 2025, 256TX527Q5003 and 246TX527W5003 for PEER program - 2025 Criteria: In accordance with §200.328, Financial Reporting, annual audit reports of recipients of federal funds are required to be submitted to the Federal Audit Clearing House within the earlier of 30 days after the receipt of the audit report or nine months after the end of the audit period. Also, recipients are required to submit accurate and timely financial and programmatic reports, including Federal Financial Reports, progress reports, and other performance reports. Condition and Context: During the audit, it was identified two out of seven tested reports were remitted one day later than the report deadline, and the annual single audit reporting package was remitted after the nine months of the District fiscal year end September 30, 2025. Cause: The District lacks timely review of the associated documentation in order to make sure the required reports are remitted on time. This deficiency was compounded by the significant turnover in key accounting and finance personnel identified in the prior year and during the audit process, which prevented the District to timely review. Effect or Potential Effect: Untimely reporting increases the risk of noncompliance with federal requirements, may subject the District to additional scrutiny by grantor agencies, and could adversely affect the District's eligibility for low-risk auditee status in future Single Audits. Questioned Costs: None. Recurring Finding: No. (New finding for the fiscal year ended September 30, 2025). Recommendation: We recommend the District strengthen its internal controls over compliance reporting by implementing procedures to monitor reporting deadlines, establish documented supervisory reviews before due dates, and maintain a reporting calendar with assigned responsibilities and backup personnel. View of Responsible Officials: Management acknowledges the finding and is committed to strengthening its review process.

2024-002 Material Weakness in Internal Control Over Period of Performance – Health Center Program, WIC Special Supplemental Nutrition Program for Women, Infants, and Children, and Immunization Cooperative Agreements (93.224, 10.557, 93.268) Criteria: As discussed in the material weakness in internal control over financial reporting item 2024-001, this requires the statement of expenditures of federal awards to report on the accrual bases of accounting. Condition: See material weakness in internal control over financial reporting item 2024-001. Audit procedures identified that payroll periods overlapping the fiscal year-end were not properly allocated. Specifically, for the WIC (10.557), Immunization (93.268) and Health Center (93.224) programs, the District incorrectly included two days of salary from the prior fiscal year (September 2023) while failing to accrue three days of salary earned within the current fiscal year (September 2024). Additionally, for the Health Center (93.224) program, the District failed to properly adjust the SEFA for a salary overpayment, which was further impacted by improper fiscal year-end accrual timing. The cumulative impact of these errors resulted in a net understatement of $5,513 in SEFA expenditures as follows: • Immunization (93.268): $2,469 Net Understatement • WIC (10.557): $3,085 Net Understatement • Health Center (93.224): $41 Net Overstatement Cause: See material weakness in internal control over financial reporting item 2024-001. Effect: As discussed in the material weakness in internal control over financial reporting item 2024-001, the statement of expenditures of federal awards was under accrued as of year end. Recommendation: See material weakness in internal control over financial reporting item 2024-001. Management’s Response: See material weakness in internal control over financial reporting item 2024-001. Questioned Costs: None. The costs were determined to be allowable and substantiated; however, they were reported in the incorrect fiscal period. Recurring Finding: No. (New finding for the fiscal year ended September 30, 2024).

2024-003 Material Weakness in Internal Control Over Allowable Costs/Cost Principles and Reporting – WIC Special Supplemental Nutrition Program for Women, Infants, and Children, and Immunization Cooperative Agreements (10.557, 93.268) Criteria: The District’s internal control structure should ensure that the indirect costs be properly calculated and reported according to the allowable indirect costs provided by Texas Health and Human Services. Condition: During the audit, formula errors were identified and total allowable costs were over reported and reimbursed. Specifically, the District utilized inaccurate salary bases when applying the approved indirect cost rate of 21.51%, resulting in the following program-specific variances: • WIC (10.557): Based on the audited allowable salary base of $654,232, the total allowable indirect cost was determined to be $140,725. However, the District only requested reimbursement for $139,492, representing an under-reported variance of $1,234. • Immunization Cooperative Agreements (93.268): The District reported indirect costs of $57,255. Based on the audited allowable salary base of $258,449, the maximum allowable indirect cost was $55,592, representing an over-reported variance of $1,663. (Note: This variance was partially offset by the under-reporting in other programs). The aggregate impact of these discrepancies resulted in a net over-reimbursement of $429. These errors were primarily attributed to manual spreadsheet formula inaccuracies and the omission of certain eligible salary categories from the financial reports. Cause: The District lacks a formal review of reporting. This deficiency was compounded by the software transition challenges and significant turnover in key accounting and finance personnel identified in the prior year, which prevented the District to properly review the reporting and the associated calculation. Effect: The total indirect costs were over reported and reimbursed. Recommendation: We recommend that the District develop and implement a formal review of reporting. Management’s Response: Management acknowledges the finding and is committed to strengthening its reporting controls. Questioned Costs: None. The $429 over-reimbursement of indirect costs was fully offset by the $5,513 understatement of salary expenditures identified in Finding 2024-002. Consequently, the cumulative impact resulted in a net understatement of federal expenditures, and no repayment is required. Recurring Finding: No. (This specific calculation error is a new finding for the fiscal year ended September 30, 2024).

2024-004 Material Weakness in Internal Control Over Special Tests – Health Center Program (93.224) Criteria: The District’s internal control structure should ensure that patients whom have filled out a sliding scale fee application were charged the appropriate rate. Condition: During the audit, it was identified three out of sixty tested patients were determined to be a full discount eligibility, self-pay patients but the associated support documents could not be located. This testing focused on the Special Tests and Provisions regarding how the District maintains program documentation for federal compliance; the missing records represent a control deficiency in record retention rather than a direct impact on expenditures. Cause: The District lacks a formal review of maintaining all of the associated documentation. This deficiency was compounded by the significant turnover in key accounting and finance personnel identified in the prior year, which prevented the District to properly review the processes. Effect: Any incorrect calculated self pay patients discount could be not properly identified. Recommendation: We recommend that the District develop and implement a formal review process. Management’s Response: Management acknowledges the finding and is committed to strengthening its review process. Questioned Costs: None. While the documentation was missing, there was no evidence that the services provided were unallowable or that the lack of documentation resulted in an overpayment of federal funds. Recurring Finding: Yes. (A similar deficiency regarding sliding scale fee overrides was identified in the prior year as Finding 2023-002).

2024-005 Material Weakness in Internal Control Over Eligibility – WIC Special Supplemental Nutrition Program for Women, Infants, and Children (10.557) Criteria: The District’s internal control structure should ensure that only eligible applicants participate into the program. Condition: During the audit, it was identified partial of the associated support documents could not be located for two out of sixty tested participants. This testing was performed to evaluate the District’s controls over maintaining federal program eligibility files; as the participants were served by the program, the finding relates to document maintenance and has no direct impact on federal expenditures. Cause: The District lacks a formal review of maintaining all of the associated documentation for review purpose. This deficiency was compounded by the significant turnover in key accounting and finance personnel identified in the prior year, which prevented the District to properly review the processes. Effect: The associated information for the participants could be incorrectly reported. Recommendation: We recommend that the District develop and implement a formal review process. Management’s Response: Management acknowledges the finding and is committed to strengthening its review process. Questioned Costs: None. The finding relates to a failure in the control process for maintaining participant documentation. No unauthorized expenditures were identified. Recurring Finding: No. (New finding for FY 2024).

Criteria: The District’s internal control structure should ensure that patients whom have filled out a sliding scale fee application were charged the appropriate rate. Condition: During the audit, it was identified one patient out of twenty-five tested was charged an inappropriate amount when compared to the sliding fee scale application filled out. The patient was accurately determined to be a full discount eligible, self-pay patient. While reviewing the invoice billed to the patient, it was determined that all charge codes except the coronavirus lab test fee were fully discounted appropriately. After noting that one incident, an additional seven patients who were billed with the coronavirus charge code were reviewed. All of the seven patients reviewed, of varying discount eligibility, were noted to have been fully charged for the coronavirus lab fee. Cause: The coronavirus lab test code was manually overwritten to exempt the sliding fee scale eligibility determination due to a previous grant covering the fee. The grant that covered this expense for self pay patients had lapsed and the manual override was not removed. Effect: Self pay patients of varying discount eligibility were fully charged for the coronavirus lab test. Recommendation: We recommend that the District review invoices for self-pay patients to ensure they are being accurately billed. We also recommend that manual overrides are reviewed periodically. Managements Response: The District has reviewed the Independent Auditor’s recommendation. The District’s leadership is committed to developing processes to ensure all compliance requirements are met.

Criteria: Annually, the District is required to report patient characteristics along with financial data within the Uniform Data Systems report and submit it to the Health Resources & Services Administration online. The District’s internal control structure should ensure that their Uniform Data System annual report is complete and accurate. Condition: During the audit, it was identified that four of seven key line items reviewed within the Uniform Data System report for 2023 were unable to be substantiated. The first key line item reviewed revolved around patient numbers and data received supported 11,584 patients while 11,575 patients were reported. For second the key line item reviewed, regarding total physician clinic and virtual visits, data reports provided supported 8,330 physician visits while 10,893 physician visits were noted as being reported within the Uniform Data System report. The third key line item reviewed was total accrued costs before donations and after allocation of overhead. Data supplied showed $14,466,183 which was $39,967 less than what was reported on the Uniform Data System report. The final key line reviewed with exception was regarding total accrued medical staff and other medical cost after allocation of overhead excluding lab and x-ray cost with a total cost within the Uniform Data System reported as $7,393,886, for this key item, no support was supplied. Cause: While the financial system has the data to back up most of the initial figures reported, comments left by Health Resources & Services Administration reviewers required adjustment to some of the key line items. Effect: The final Uniform Data System report has non-financial and financial data that cannot be substantiated at the amount reported as the adjustments and reasoning for those adjustments were not reconciled. Recommendation: We recommend that the District create reports that capture the data and is reconciled to the final Uniform Data System report filed. Managements Response: The District has reviewed the Independent Auditor’s recommendation. The District was already in the midst of creating Uniform Data System reports within their financial reporting software in order to be able to reconcile to final reports uploaded.

Criteria: Monthly, the District is required to request funds in the form of a draw down from Health Resources & Services Administration online. The District’s internal control structure should ensure that draw down support is complete, accurate, and made available in a timely and orderly manner. Condition: During the audit, it was identified that two of four draw downs were not supported completely and consistently. The February 2023 draw down support was completely unsubstantiated for the $366,785 requested and received. The November 2022 draw down was substantiated in support; however, approval for the draw down was not noted as being received. Cause: Previous leadership processes maintained a majority of their draw down support in paper files that were disorganized which created a difficulty in re-producing for substantiation. Effect: The draw down support for November 2022 and February 2023 was not complete. Recommendation: We recommend that the District retain all support in regards to draw downs and create a better filing system. Managements Response: The District has reviewed the Independent Auditor’s recommendation. The District’s new leadership is already in the process of improving the document support, retention, and filing system in order to alleviate missing documents.