PHOENIX HOUSES OF TEXAS, INC.

Finding #2025-002 – Significant Deficiency and Other Noncompliance – Reporting. Applicable federal program: U. S. Department of Health and Human Services, Assistance Listing #93.959, Passed through Texas Health and Human Services Commission, All contracts, Contract years: 09/01/23 – 08/31/24 and 09/01/24 – 08/31/25. Criteria: Management is responsible for establishing internal controls for contract compliance for reporting in accordance with the Uniform Guidance and requirements in the pass-thru agency grant contract. Condition and context: In our testing of a sample of monthly billings and quarterly reports from throughout the fiscal year, we noted that reports were not being submitted within the required timelines for several reporting periods. Management communicated their delays to Texas Health and Human Services Commission (THHS), and their plan to rectify the delays. Phoenix Houses of Texas were able to file all delayed quarterly reports and monthly billings prior to June 30, 2025. THHS has approved all the delayed monthly billings and quarterly reports. Cause and effect: Phoenix Houses was awarded a new 5-year grant agreement in July 2024 with an effective date of September 1, 2024 from the Texas Health and Human Services Commission to support prevention programming in Dallas, Austin, and Houston. The discontinuation of residential treatment services and exclusive focus on new prevention service grants necessitated organizational restructuring and related changes in personnel. The accounting system also required updates to enable proper budgeting, accounting and reporting for the new grants. Late reporting may result in delayed management decision-making, potential non-compliance with THHS reporting timelines and impacts on grant reimbursement collections. Recommendation: Re-emphasize internal procedures for timely grant billing and reporting to comply with grant contracts. Views of responsible officials and planned corrective actions: Management agrees with the finding. See Corrective Action Plan.

Finding #2023-001 – Significant Deficiency. Applicable federal program: U. S. Department of Health and Human Services, Assistance Listing #93.959, Passed through Texas Department of Health and Human Services, Contract #’s: HHS000663700275, HHS000663700276, HHS000663700277, HHS000663700278, HHS000779800001, HHS000779800004, Contract years: 09/21 – 08/22; 09/22 – 08/23. Applicable state program: Texas Department of Health and Human Services, Contract #’s: HHS000779800001, Contract year: 09/21 – 08/22. Criteria: Allowable Costs – The Uniform Guidance §200.430 and the Texas Grant Management Standards require that charges to awards for salaries and wages must be based on records that accurately reflect the work performed. These records must 1) be supported by a system of internal control which provides reasonable assurance the charges are accurate, allowable and properly allocated; 2) reasonably reflect the total activity for which the employee is compensated; 3) comply with the established accounting policies and practices of the agency; and 4) support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one activity. Additionally, the Uniform Guidance requires costs to be necessary and reasonable for the performance of the federal award.. Condition and context: During our testing of 40 payroll transactions, we noted instances where the shift differential was not properly calculated and allocated to the grant departments. Cause: The errors in the payroll allocations to the grant occurred during the correction by the Agency for a single payroll period for individuals receiving shift differentials. Failure to follow established review policies and procedures resulted in these employees being overpaid for shift differential only. Effect: Failure to follow established internal control policies and procedures which requires reviews of payroll, could result in unallowable costs being charged to the grant cost center used for reporting costs under fee for service contracts. Recommendation: Emphasize adherence to established policies and procedures to ensure payroll, including allocations methodology, are properly followed and reviewed. Views of responsible officials and planned corrective actions: Management agrees with the finding. See Corrective Action Plan.

Finding #2023-002 – Material Weakness and Other Noncompliance. Applicable federal program: U. S. Department of Health and Human Services, Assistance Listing #93.959, Passed through Texas Department of Health and Human Services, Contract #’s: HHS000663700277 and HHS000663700278, Contract years: 09/21 – 08/22; 09/22 – 08/23. Applicable state program: Texas Department of Health and Human Services, Contract #’s: HHS000663700277 and HHS000663700278, Contract year: 09/21 – 08/22. Criteria: Eligibility – Texas Administrative Code (TAC) requirements, as referenced in the Substance Use Disorder (SUD) Utilization Management (UM) Guidelines requires that Federal Block Grant-funded SUD treatment services will be provided to all eligible Texas residents. Client eligibility for Texas residency, financial eligibility, and clinical eligibility must be performed prior to billing HHSC for SUD treatment services. Further, providers are to conduct and document in CMBHS the financial eligibility determination. If the client is unable to provide proof of financial status, the individual can attest by signing an attestation statement. Condition and context: During our testing of 40 clients for proper eligibility, three clients had documented income verification that did not meet the income guidelines specified under the grant. Despite this, services were provided to these clients, and the costs were billed to the grant. Furthermore, one client out of the 40 tested did not have proper documentation to support the financial eligibility determination, and there was no attestation statement from the client explaining the inability to provide the necessary information. Cause: The finding occurred as a result of Phoenix House not following its internal control procedures requiring review of documentation to ensure the client files are complete with eligibility documentation and that only eligible clients are being billed to the grant. Effect: Failure to follow internal control procedures resulted in incomplete client files and ineligible persons served. Questioned costs: The grant was billed $282.54 for the four clients in the billing months selected in our testing. Recommendation: Provide additional staff training to ensure internal control procedures over client eligibility and required documentation are followed. Views of responsible officials and planned corrective action: Management agrees with the finding. See Corrective Action Plan.