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REPORT DIGEST ILLINOIS DEPARTMENT OF HEALTHCARE AND FAMILY
SERVICES FINANCIAL
AUDIT AND COMPLIANCE
EXAMINATION For the Year Ended: June 30, 2007 Summary of Findings: Total this audit 15 Total last audit 10 Repeated from last audit 5 Release Date: June 18, 2008
State of Illinois Office of the Auditor General WILLIAM G. HOLLAND AUDITOR GENERAL
To obtain a copy of the
Report contact: Office of the Auditor
General Iles Park Plaza 740 E. Ash Street Springfield, IL 62703 (217) 782-6046 or TTY (888) 261-2887 This Report Digest and Full
Report are also available on the worldwide web at |
SYNOPSIS
¨
The
Department did not provide the auditors with timely and accurate financial
statements. Financial reporting
matters were first brought to the Department’s attention on June 19,
2007. On May 27, 2008 the Department
ultimately agreed with the accounting presentation recommended by the State
Comptroller and the Office of the Auditor General. The Department’s actions resulted in significant
delays in the financial reporting process, were dilatory and were a
disservice to the users of the State’s financial reports. ¨
The
Department made inappropriate payments of Workers’ Compensation Act claims
from its appropriation for health care coverage. These payments totaled approximately $20 million. ¨
The
Department did not pay the fiscal year 2007 hospital improvement access
payments on a timely basis. All
fiscal year 2007 payments totaling $1.2 billion were paid on September 25,
2007. ¨
The
Department did not require Cook County to comply with an Intergovernmental
Agreement that was executed between the Department and the County. Cook County owed the Department $10
million at June 30, 2007. ¨
The
Department did not exercise adequate internal control over voucher
processing. A total of $1.6 million
in 2008 medical services was paid from fiscal year 2007 appropriations. Further, an estimated $17.6 million in
interest is owed to medical providers at June 30, 2007. ¨
The
Department did not pay interest on intercepted State income tax refunds. The Key Information System is not capable
of automatically calculating interest on intercepted State income tax
refunds. {Expenditures and Activity
Measures are summarized on the reverse page.} |
DEPARTMENT OF
HEALTHCARE AND FAMILY SERVICES
FINANCIAL AUDIT AND
COMPLIANCE EXAMINATION
For the Period Ended
June 30, 2007
|
EXPENDITURE STATISTICS (in thousands) |
FY 2007 |
FY 2006 |
|
·
Total Expenditures.......................................................... |
$15,537,213 |
$14,771,647 |
|
OPERATIONS TOTAL...................................................... % of Total Expenditures............................................... |
$569,269 3.67% |
$722,562 4.89% |
|
Personal Services............................................................... % of Operations Expenditures....................................... Average No. of Employees (whole numbers)................. |
$116,151 20.40% 2,365 |
$105,774 14.64% 2,223 |
|
Other Payroll Costs (FICA, Retirement, Group Ins.).......... % of Operations Expenditures....................................... |
$36,620 6.43% |
$31,369 4.34% |
|
Contractual Services.......................................................... % of Operations Expenditures....................................... |
$91,807 16.13% |
$92,916 12.86% |
|
All Other Operations Items................................................ % of Operations Expenditures....................................... |
$324,691 57.04% |
$492,503 68.16% |
|
GROUP INSURANCE & HEALTHCARE COVERAGE... % of Total Expenditures............................................... |
$3,373,655 21.71% |
$3,153,103 21.35 |
|
AWARDS AND GRANTS.................................................. % of Total Expenditures............................................... |
$11,594,289 74.62% |
$10,895,982 73.76% |
|
·
Cost of Property and
Equipment.................................... |
$34,503 |
$43,121 |
|
SELECTED ACTIVITY MEASURES |
FY 2007 |
FY 2006 |
|
Adjudication
Processing Time Elapsing in Calendar Days - General Fund (unaudited).......................... |
52.6 Days |
51.2 Days |
|
Accounts Payable and Accrued Liabilities
(General Fund) (in thousands)......................................................................... |
$3,167,990 |
$2,041,583 |
|
AGENCY DIRECTOR |
|
During Audit Period: Mr. Barry S. Maram Currently: Mr. Barry S. Maram |
|
Financial statements received nine months after fiscal
year end $599 million correction made to the financial
statements Department officials partially agreed with auditors $2.4 billion in payments to be made Supplemental appropriation Liability at June 30th Auditors’ comment Matters first
brought to Department’s attention on June 19, 2007 Financial
statements not submitted to auditors until March 4, 2008 and only in response
from the Auditor General that all audit activity would be suspended
Department
ultimately agrees on May 27, 2008 with accounting presentation recommended by
State Comptroller and auditors Department delays
were dilatory and a disservice to users Workers’
Compensation Act claims Interagency
agreement CMS processed
approximately $20 million in Workers Compensation claims from Department
funds
Department
disagreed with auditors
Auditors’ comment
Circumvention of
limitations established by law Hospitals not paid
timely
Department paid all
FY07 payments totaling $1.2 billion on September 25, 2007
Department agrees
with reservation
Auditors’ comment Cook County owed
the Department $10 million at June 30, 2007 Repayment delayed
due to Cook County cash flow issues
$1.6 million in
2008 medical services paid from fiscal year 2007 appropriations An estimated $17.6
million in interest owed to medical service providers at June 30, 2007
Inadequate controls
for calculating interest due on intercepted State income tax refunds |
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS ACCURATE FINANCIAL STATEMENTS NOT PROVIDED TO AUDITORS IN A TIMELY MANNER
The Department did not provide the auditors with timely and accurate financial statements.
The Department did not provide complete
Departmental financial statements for the year ended June 30, 2007 to the
auditors until March 4, 2008. In
addition, the Department did not provide certain Hospital Provider Fund’s
(Fund 346) accounting reports to the auditors for testing until March 18,
2008. Departmental financial
statements were received nine months after the year end and the Hospital
Provider Fund’s GAAP Package was received nine and a half months after year
end. Additionally, the Statement of Activities
provided to the auditors required a material correction to the governmental
activities section of the financial statements. Operating grants and contributions (program revenues) for the
health and social services function was overstated and other taxes (general
revenues) was understated by approximately $599 million. The Department’s
management has the ultimate responsibility for the Department’s internal
control system and the accuracy and completeness of the Department’s
financial statements to ensure that the financial statements and GAAP
Packages are timely and accurate. (Finding 1, pages 12-15) We recommended the Department review its current process for the preparation and review of Departmental financial statements and allocate the resources necessary to ensure Departmental financial statements and Fund GAAP Packages are completed on a timely basis and are accurate. Department officials partially concurred with our
recommendation and stated that extenuating circumstances led to the
Department requiring more time to provide financial statement information
relative to the Hospital Provider Fund.
The Department was unable to fully execute requirements set forth in
305 ILCS 5/5A of the Public Aid Code, in regards to a payment schedule
originally anticipated as $2.4 billion in payments be made to eligible
hospitals in FY’07, to be used to improve access to services for Medicaid
clients. However, for FY’07 the Department
originally only received $1.2 billion in appropriation authority from the
General Assembly to the Hospital Provider Fund (HPF) for execution of the
statutory requirement. Supplemental
appropriation language requesting an additional $1.2 billion was submitted,
but was not passed by the legislature until June 13, 2007 and was
subsequently passed into law August 13, 2007. According to the Department, the payments were not rendered due
to the minimal time available to utilize the supplemental appropriation and
the lack of the required funding. The
payments were made in September 2007. Department officials went on to say, as a result
of the Department’s inability to execute the payments as stated in 305 ILCS
5/5A-12.1, significant research was conducted to ensure the transactions
associated with the Hospital Assessment Tax (HAT) were properly accounted for
in the Department’s financial statements.
At the forefront of the research were whether or not a liability existed
as of June 30, 2007 and the fair presentation of the true financial position
of the Department and State for FY’07.
Consideration was given to:
defining the nature of the Access Improvement Payments (AIP’s) and the
resulting federal reimbursement and assessment tax revenues, the legal existence
of a liability, the statutory interpretation, revenue recognition criteria,
and the overall presentation of the financial statement to the reader. The Department solicited in-house counsel,
the Chief Internal Auditor, contracted external counsel, an international
accounting firm, as well as the Governmental Accounting Standards Board to
assist in assessing the proper reporting of the transactions associated with
the HAT for the reporting period ending June 30, 2007. The Department further responded that the
principal reporting concern of the Department was the potential for
misleading a reader of the financial statements by recording payments
occurring in FY’08 as a liability in FY’07, without recording the
corresponding revenue. At the fund
reporting level, since the revenue is received beyond 60 days of the
year-end, the State’s revenue recognition criteria requires the revenue
associated with the $1.2 billion to essentially not be recognized. The process of the HAT is to pay AIP’s in
the amount of $1.2 billion to eligible hospitals through the use of
short-term borrowing (STB). Once
paid, HFS is able to claim the AIP’s to the federal government to generate
$600 million in new federal revenue and the recipient hospitals are able to
pay $734 million in assessment tax to the Department. All transactions occur within
approximately a one-month period, allowing the State to repay the STB and net
$134 million in additional revenues.
Recording the liability in FY’07 in essence doubles the expenditures
in FY’07 and the revenues in FY’08, without achieving the effect of
offsetting each other, as was intended by the HAT program. The overall impact is $1.34 billion in
revenues over the $1.2 billion in expenditures, creating a net income of $134
million. The entirety of the
transaction is administered within the HPF. The Department finally noted that following
multiple conversations with the OAG, it was determined to work closely to
further disclose the impact of the revenue associated with the HAT. As a result, further language was added to
both the Fund Deficit and Subsequent Event footnotes to explain the
associated transactions and to ensure full disclosure within the financial
statements. The further explanation
of the increased revenue to the State through expanded footnote disclosure
enabled the Department to concur with recording the payment to the
hospitals. The Department will
continue to work closely with the OAG to ensure all material transactions are
properly and accurately disclosed and reported. In an auditors’ comment,
we noted that the Department refers to “extenuating circumstances” as
justification for its untimely and inaccurate submission of Departmental
financial statements. While the
issues surrounding the Hospital Provider Fund were complicated, these matters
were first brought to the Department’s attention on June 19, 2007 and
should have been and could have been dealt with by the Department in a timely
manner. Instead, financial statements
due November 15, 2007, were not submitted by the Department to the
auditors until March 4, 2008 – nearly four months late – and only then
in response to notice from the Auditor General that all audit activity was
suspended and would not be resumed until delinquent information was provided
by the Department. Ultimately, the Department agreed with the financial statement presentation for the Hospital Provider Fund recommended by the Comptroller in a December 2007 positio |