This report presents our financial audit for the whole Department for the year ended June 30 2001, and one compliance audit of the Department’s Central Office operations for the two years ended June 30, 2001. The Department administers 9 Developmental Centers, 8 Mental Health Centers, 2 combination Mental Health / Developmental Centers, and 3 Rehabilitation Service Facilities. Each of these Centers had a separate compliance audit for the two years ended June 30, 2001 and the reports have been issued.

Year-end financial reporting in accordance with generally accepted accounting principles (GAAP) to the Office of the Comptroller contained numerous inaccuracies and incomplete data. These problems, if not caught and corrected, could materially misstate the Department’s financial statements and impact the statewide financial statements prepared by the Office of the Comptroller.

The Office of the State Comptroller requires State agencies to prepare and submit GAAP Reporting Packages for each of their funds to assist in the annual preparation of the statewide financial statements and the Department's financial statements. During our audits of the June 30, 2000 and June 30, 2001 financial statements, we recommended extensive adjustments and corrections. Some of the problems noted follow:

Department officials stated many of these problems occur because GAAP reporting forms are submitted to meet deadlines before final information is received from program personnel. Due to the number of funds, volume of transactions, and the need to maximize federal funding, there is a tremendous volume of work to perform in a limited time frame. (Finding 1, pages 19-22)

We recommended the Department implement procedures to ensure GAAP Reporting Packages are prepared in an accurate and complete manner. This should include allocating sufficient staff resources and the implementation of formal procedures to ensure financial information from program personnel is prepared and submitted to GAAP personnel in a timely and accurate manner. We also recommended the Department implement a formal review process to ensure financial information is accurate and supported by an appropriate audit trail.

Department officials accepted our recommendation and stated they will implement additional procedures to ensure GAAP packages are completed accurately and submitted timely to the Comptroller. The Department indicated they will also implement additional review procedures for all GAAP packages.

The Department is not posting reconciling items or interfund transfers to their primary accounting system resulting in significant receipt overstatements and understatements in Department records.

The Department failed to adjust Child Care, Temporary Assistance for Needy Families (TANF) and Title XX program receipts on their primary accounting system for transfers made among the General Revenue, Special Purposes Trust and Social Services Block Grant Funds. As a result, numerous subaccounts within these funds were overstated or understated by millions of dollars, with one program (TANF) difference over $89 million.

Department personnel stated these problems are a result of a lack of communication between the Federal Reporting Unit and the General Accounting Unit. (Finding 11, page 42)

We recommended the Department implement controls to ensure all receipt transfers or adjustments are immediately recorded in the accounting system. We also recommended any adjustments noted when performing reconciliations be promptly investigated and posted.

Department officials accepted our recommendation and stated they will implement additional controls to ensure all receipt transfers are recorded in the accounting system.

The Department used current year appropriation to pay for future services to avoid lapsing funds. This practice resulted in other problems including inadequate budgeting practices with subrecipients, back dating of documents in order for contracts to clear the Comptroller's office, and inadequate cash management practices.

The Department analyzed its budget during the spring and determined it would have lapsing appropriations. The Department solicited providers to determine uses for these funds and instituted a formal procedure to request contracts or contract amendments through completion of an internal "Request for Forward Funding" form. On all but one of the forms examined the reason for "forward funding" was marked to "avoid lapse."

We noted the Office of Developmental Disabilities (ODD), and Office of Mental Health (OMH) extended contracts with providers to expend money for services past the end of the fiscal year to avoid lapse. ODD forward funded $8.375 million of fiscal year 2000 funds and $3.785 million of fiscal year 2001 funds. The Office of Transitional Services also forwarded funded at least $1.988 million of fiscal year 2000 funds. Other "Request for Forward Funding" forms were used to "forward fund" other Department programs, but according to Department management, there was no centralized file for all these forms.

Other problems noted relating to "forward funding" were:

Department management stated instances of "forward funding" are "grants" subject to the Illinois Grants Fund Recovery Act (Act). Should these agreements be "grants", the provider would have two years to expend the funds. The character of the majority of these payments are for "purchase of service" contracts. Funds disbursed in accordance with a fee for service purchase of care contract are not considered to be grant funds for purposes of this Act. The Department is using the Act for its convenience to characterize purchase of service payments as grant payments, allowing the Department to expend current fiscal year funds for future fiscal year services.

Department management also stated they use their appropriations to the maximum extent possible to further the purposes for which the funds were appropriated. They stated at the end of each fiscal cycle, the Department analyzes available funding and determines if additional grants can be funded for their intended purposes. They stated these end of the year grants represent a small percentage of all expenditures. (Finding 2, pages 23-26)

We recommended the Department discontinue the practice of "forward funding" and implement controls to charge expenditures to the appropriate fiscal year. We also recommended the Department implement controls to allow providers appropriate time to plan for the use of State resources, discontinue the practice of back dating contracts, and implement cash management procedures to ensure providers are advanced funds necessary only for current operating needs.

Department officials partially accepted our recommendation and stated they will implement procedures that ensure contract documents are not backdated. The Department, however, stated they do not agree with the portion of the recommendation regarding the discontinuance of forward funding and advance funding. The Department utilizes the "Forward Funding Form" to identify situations where grants are made from the current fiscal year for use by a provider in a future fiscal year(s). Department officials state the authority to provide for this type of funding is contained in the Illinois Grants Recovery Act.

An auditors' comment was added in regard to the Department’s response. The Department is expending their remaining appropriation at the end of the fiscal year in order to "Forward Fund", or pay for services to be performed in future years. The Department is calling the "Forward Funding" a grant that is allowable under the Illinois Grants Recovery Act. The Department believes these agreements allow the provider up to two years to expend the funds. Our testing noted the character of the majority of these "Forward Funding" payments are for "Purchase of Service" contracts. The Grant Funds Recovery Act states, "Funds disbursed in accordance with a fee for service purchase of care contract are not grant funds for the purpose of this Act." In conclusion, the auditors believe the Department has misinterpreted the Illinois Grants Recovery Act by characterizing purchase of service payments as grant payments. If the Department continues to disagree, we suggest they seek a formal written opinion on this matter from the Attorney General.

The Department did not comply with State Finance Act fiscal year constraints by paying over $26 million for child care services rendered during fiscal year 2002 from fiscal year 2001 appropriations.

The Department made payments for child care services totaling $26.373 million out of expiring fiscal year 2001 appropriations for subsequent fiscal year services. Approximately $17.7 million was expended from the General Revenue Fund and $8.7 million was expended from the Department’s Special Purposes Trust Fund.

In order to be paid from the current fiscal year, the liability must be established by the end of the fiscal year (June 30). In this case, services were provided in the subsequent fiscal year and should have been paid from the subsequent fiscal year.

Department officials stated these payments were allowable in accordance with the State Finance Act (Act). Specifically, the Act states "…child care payments may be made by the Department of Human Services (as successor to the Department of Public Aid) from appropriations for those purposes for any fiscal year, without regard to the fact that the medical or child care services being compensated for by such payment may have been rendered in a prior fiscal year." Department officials stated this allows payment for services rendered in future fiscal years, when in fact this allows payment only for services "…rendered in a prior fiscal year." (Finding 3, pages 27-28)

We recommended the Department implement controls to ensure child care services are paid from the proper fiscal year in compliance with the State Finance Act.

Department officials did not accept our recommendation and stated the Department’s legal staff interprets provisions in the State Finance Act to allow child care payments to be made for "any fiscal year."

An auditors' comment was added in regard to the Department’s response. The auditors believe the Department did not comply with the intent of the State fiscal year appropriation constraints. If the Department continues to disagree we suggest they seek a formal written opinion on this matter from the Attorney General.

The Department purchased 63 fax machines costing $70,885 during fiscal year 2001 to maintain "in stock" (to have on hand in the warehouse for Department needs). These machines were purchased using eight separate purchase orders to ensure each individual purchase was under the $10,000 threshold, which would require a written contract. The total also exceeded the $25,000 bidding threshold required by the Illinois Procurement Code.

Out of the 63 fax machines purchased for stock during fiscal year 2001, 29 remained idle in the Department’s warehouse for periods in excess of five months after the receipt date. This included 9 machines that were still in the warehouse and had not been placed into service as of February 15, 2002.

The Department made orders for equipment out of current appropriation authority, knowing the items would not be utilized until well into the next fiscal year. Two orders totaling $19,500 for a total of twenty fax machines for stock at the warehouse were paid with fiscal year 2001 funding, even though both purchase orders were dated in July, FY 2002, and the items were not received until the lapse period.

The Illinois Procurement Code (Code) requires that all equipment purchases exceeding $25,000 be awarded by competitive bid. In addition, the Code prohibits "stringing" of purchases and states, "Procurements shall not be artificially divided so as to constitute a small purchase…" and thus avoid competitive bid.

Department personnel stated they were purchasing fax machines compatible with other Department equipment and supplies. They also stated they should have requested an exception through CMS but failed to do so due to oversight. (Finding 5, pages 30-31)

We recommended the Department adhere to all procurement and purchasing requirements to ensure all purchases have the necessary contracts and meet all requirements of the bidding process. We also recommended the Department establish a policy to ensure all items covered by joint purchasing contracts are purchased accordingly.

Department officials accepted our recommendation and stated the department is currently purchasing fax machines from the master contract.

During our testing of the Department’s Warehouse Control System, we noted 65 out of 100 items tested had inventory levels in excess of one-year’s usage. We noted a total of $1,079,412 in excess inventory (the value of items in our sample we projected would not be used in one year). This included $254,774 of items that had no usage in the past 12 month time period.

Department personnel stated excessive inventories were primarily due to consolidating legacy agency inventories when the Department was formed, along with technology and program changes that drastically reduced usage. This could result in commodity waste, obsolescence, loss, or unauthorized use of State assets. (Finding 7, pages 34-35)

We recommended the Department implement controls to monitor inventory order points to ensure purchases are based on reasonable estimates of future usage.

Department officials accepted our recommendation and stated they plan to reduce overstocking of commodities to optimal levels by June 30, 2002. Department officials indicated they have continued to lower overall commodity levels since the Department’s inception, and inventory levels have been reduced by 30% over the last 10 months.

We noted one employee that from May 1, 2000 through June 30, 2001 submitted travel vouchers for reimbursement that included 243 trips from (to) the employee’s home in Milwaukee, Wisconsin to (from) various Department locations, while passing by her assigned headquarters, which was Park City. These vouchers also included forty meal allowances for dinner since the employee did not return to her residence until after 7:00 p.m. The normal commute accounted for the last hour of each trip.

The employee’s travel headquarters was listed as Park City, Illinois, where the Department has an office and where Department officials stated this employee spent the majority of her time when not traveling. This employee spends the majority of her time conducting training in large suburban Department offices. When traveling, the employee travels south from Wisconsin on Interstate 94 and while not technically passing "through" the Park City city limits, travels within 1-2 miles of her assigned headquarters for the trips noted above.

As a result of the employee’s headquarters being strictly interpreted as the corporate city limits, the employee received $5,000 to $6,000 in reimbursement for mileage, train costs and meal allowances. The employee also required hotel stays that may not have been necessary if the commuting mileage were not an issue.

Department officials stated the employee moved and her manager assigned her headquarters to the DHS office closest to her new residence. By failing to utilize the option of making the employee’s headquarters the geographical region she traveled through (Lake County), the Department allowed the employee to receive monetary reimbursement for normal commuting distance as well as meal allowances that would not have been paid had the employee driven through the corporate city limits. (Finding 10, pages 40-41)

We recommended the Department initiate travel policies to ensure employees are only paid for travel mileage that is in excess of their normal commuting distance and that no unnecessary meal allowances are paid for normal commuting time.

Department officials indicated they are implementing a policy requiring mileage to be charged from the employee’s residence or headquarter whichever is less.

The Department did not award $74,133 in research grants to the American Diabetes Association as required by the Department of Human Services Act.

The American Diabetes Fund was established in 1998 in order to receive deposits of donations received by checkoff on 1997 individual income tax returns. A total of $74,133 was deposited into the fund as part of the 1997 income tax checkoffs. The Department of Human Services Act stated the Department was to make grants to the American Diabetes Association for research on diabetes from appropriations to the Department from the American Diabetes Fund.

The Department has made no disbursements from the fund since it was established three years ago. In addition, the American Diabetes Association is not receiving the interest income on the monies held in the State Treasury.

The Department stated they delayed paying the grants to the American Diabetes Association while they investigated whether they could give the money to the Illinois Chapter of the American Diabetes Association. (Finding 14, page 46)

We recommended the Department fulfill the statutory compliance requirements by requesting an appropriation to provide research grants to the American Diabetes Association or seek legislative remedy to allow the Department to grant these funds to the Illinois Chapter of the American Diabetes Association.

Department officials indicated they would seek appropriation authority in FY 03 to grant money to the American Diabetes Association through the Illinois Chapter of the American Diabetes Association.

The Department’s Office of Business Services implemented three different methodologies to allocate the cost of bulk airline tickets within the Department during the audit cycle. The first method was to allocate the costs based on a percentage. The second methodology was to allocate the costs based on each Division’s prior year usage. Department personnel stated both these methods were ineffective and decided to poll each Division before purchases to determine how many tickets would be needed by each Division. The costs would then be allocated accordingly.

The Department failed to implement procedures to perform year-end reconciliations of bulk airline tickets by appropriation lines for both fiscal years 2000 and 2001. By not performing year-end reconciliations, certain Divisions were over/under charged for the amount of tickets used as follows:

Fiscal Year 2000

Fiscal Year 2001

We also noted the Department had not received a refund for over $38,000 for 318 unused tickets from an airline that no longer serves Springfield. All bulk tickets were purchased from this carrier. Department personnel stated they stopped buying bulk tickets prior to June 30, 2001. They also stated they maintained detailed logs for each Division’s usage. (Finding 16, pages 48-50)

We recommended for all future bulk ticket purchases, the Department perform year-end reconciliations to ensure the correct expenditure line items are charged based on actual usage. We also recommended the Department continue to pursue a refund from the airline for the unused bulk airline tickets.

Department officials accepted our recommendation and stated the Department discontinued the purchase of bulk airline tickets prior to the end of FY 01 and have requested a refund of unused tickets through the Governor’s Travel Control Board.