REPORT DIGEST

 

DEPARTMENT OF HUMAN SERVICES

CENTRAL OFFICE

 

FINANCIAL AUDIT

For the Year Ended

June 30, 2003

 

COMPLIANCE AUDIT

For the Two Years Ended

June 30, 2003

 

 

Summary of Findings:

 

Total this audit                     36

Total last audit                     17

Repeated from last audit        7

 

Release Date:

May 20, 2004

 

 

 

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 TDD (217) 524-4646

 

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

SYNOPSIS

  • The Department had weaknesses in the preparation of certain accounting reports submitted to the Office of the Comptroller and in the preparation of year-end financial statements.
  • The Department is not fully utilizing its current accounting system to enable the timely and accurate accumulation of federal expenditures. Further the system is not accumulating all the information needed for federal reporting requirements.

  • The Department used current year appropriations to pay for future services to avoid lapsing funds.
  • The Department made improper payments for developmental center personnel costs from Central office appropriations for awards and grants.
  • The Department had no consistent methodology for charging pharmaceutical costs among the Departmentís facilities.

  • The Department made excessive postage expenditures at fiscal year end, improperly used detail object codes for purchases of postage and did not adequately monitor the usage of postage.
  • We noted weaknesses in the Departmentís procedures for reviewing final grant expenditures reported by grantees and the Departmentís subsequent recovery of unspent grant funds.
  • The Department did not file Medicare cost reports in a timely manner resulting in delayed and suspended payments to the State.
  • The Department did not update daily billing rates for facilities in a timely manner resulting in approximately $172,000 in lost revenue.
  • The Department had $240,000 in excess commodity inventories on hand at June 30, 2003.
  • The Department did not maintain adequate records for State vehicles assigned to employees.
  • The Departmentís hiring and training policies at the Treatment and Detention Facility need to be improved.
  • The Department had a number of inefficiencies in the business office at its Treatment and Detention Facility due to a lack of updated computer software and integrated systems.

 

{Expenditures and Activity Measures are summarized on the next page.}

 

                        DEPARTMENT OF HUMAN SERVICES - CENTRAL OFFICE

                                        FINANCIAL AND COMPLIANCE AUDIT

                                          For The Two Years Ended June 30, 2003

EXPENDITURE STATISTICS (expressed in thousands)

FY 2003

FY 2002

FY 2001

  • Total Expenditures (All Funds)

OPERATIONS TOTAL

     % of Total Expenditures

          Personal Services

          % of Operations Expenditures

          Average Number of Employees

Other Payroll Costs (FICA, Retirement)

          % of Operations Expenditures

          Contractual Services

          % of Operations Expenditures

          Commodities

          % of Operations Expenditures

          Telecommunications

          % of Operations Expenditures

Medical Preparation and Food Supplies

% of Operations Expenditures

          All Other Items

          % of Operations Expenditures

GRANTS TOTAL

     % of Total Expenditures

PERMANENT IMPROVEMENTS TOTAL

     % of Total Expenditures

REFUNDS TOTAL

     % of Total Expenditures

Cost of Property and Equipment

$4,085,204

 

$769,003

18.8%

$317,973

41.3%

*15,678

$79,207

10.3%

$100,431

13.1%

$15,504

2.0%

$15,874

2.1%

$167,655

21.8%

$72,359

9.4%

$3,301,426

80.8%

$129

.0%

$14,646

.4%

$116,467,248

$4,172,967

 

$815,830

19.6%

$350,838

43.0%

*19,566

$86,765

10.6%

$108,294

13.3%

$21,351

2.6%

$17,640

2.2%

$159,918

19.6%

$71,024

8.7%

$3,349,809

80.3%

$1,317

.0%

$6,011

.1%

$120,302,211

$4,216,098

 

$783,036

18.6%

$337,398

43.1%

*19,972

$81,251

10.4%

$103,218

13.2%

$19,048

2.4%

$13,555

1.7%

$158,632

20.3%

$69,934

8.9%

$3,429,719

81.2%

$1,668

.1%

$1,675

.1%

$114,708,945

SELECTED ACTIVITY MEASURES

FY 2003

FY 2002

FY 2001

General Assistance

     Average number of monthly participants

     Annual program payments

     Average annual disbursement per participant

Temporary Assistance to Needy Families

     Average number of monthly participants

     Annual program payments

     Average annual disbursement per participant

Child Care

     Average number of monthly participants

     Annual program payments

     Average monthly disbursement per participant

Food Stamps (Federal and State Programs)

     Average number of monthly participants

     Annual program payments

     Average annual disbursement per participant

 

6,917

$8,189,796

$1,184

 

114,357

$124,443,300

$1,088

 

191,000

$597,191,200

$256

 

931,820

$1,019,266,824

$1,094

 

7,312

$8,257,584

$1,129

 

158,983

$158,847,612

$999

 

195,000

$623,394,500

$238

 

869,756

$903,806,604

$1,039

 

7,126

$7,268,841

$1,020

 

213,772

$208,159,056

$973

 

212,000

$620,800,000

$244

 

825,125

$802,953,827

$973

AGENCY SECRETARY

During Audit Period: Linda Renťe Baker (through 2-15-03) Carol L. Adams, Ph.D. (effective 2-16-03)

Currently: Carol L. Adams, Ph.D.

* Includes employees for the entire Department of Human Services including individual Mental Health and Developmental Disabilities Facilities, Centers for Rehabilitation and Education, and Schools for the Deaf and Visually Impaired.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounting reports submitted to the Office of the Comptroller contained numerous inaccuracies and incomplete data

 

 

 

 

 

 

Extensive auditor adjustments and corrections were needed

 

 

 

 

 

 

For FY 2002, 19 out of 57 funds required revisions

 

 

 

For FY 2003, 14 out of 61 funds required revisions

 

 

 

Significant revisions made to expenditure amounts for federal programs made

 

 

 

Financial reports submitted to the State Comptroller were not adequately reviewed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current accounting system is not accumulating all information for federal reporting requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No policies and procedures to accumulate information related to federal programs

 

 

Current system does not capture information for all the federal programs

 

 

 

 

Expenditures for federal programs are reallocated very late to maximize federal funding

 

 

 

 

 

Subrecipient amounts are inaccurately recorded in the accounting system

 

 

 

 

 

 

 

Decentralized accounting for federal programs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Department "forward funded" appropriations to avoid lapsing funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total of $14.75 million was "forward funded" from FY 2002, $762 thousand was "forward funded" from FY 2003

 

 

 

 

 

 

 

 

Department management ceased forward funding in April 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developmental Center payroll costs paid from Central Office appropriation

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.79 million of four Developmental Centersí payroll was paid from a Central Office appropriation

 

 

 

 

 

 

 

 

 

 

 

$87,400 payroll made from a Central Office appropriation to employees not located in a Central Office function

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charges for pharmaceuticals based on fund availability not actual usage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For fiscal year 2003, 7 of 18 facilities paid for pharmacy purchases related to BPCSS

 

 

 

 

For fiscal year 2002, 13 of 20 facilities paid for pharmacy purchases related to BPCSS

 

 

 

 

 

 

 

 

 

A Central Office division for administration was charged for pharmacy purchases related to BPCSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$3.5 million of postage on hand at June 30, 2002, and

$2.7 million of postage on hand at June 30, 2003

 

 

 

 

 

 

 

 

 

$5.5 million (60%) of total FY 2002 and $4.7 million (81%) of total FY 2003 postage was paid from TANF appropriation

 

 

 

 

 

 

Usage reports did not contain all information for 114 of 126 postage meters in FY 2002, and the FY 2003 report was not completed until February 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant close out process is complex and not standardized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of care programs converted to grants to forward fund monies to providers

 

 

 

 

 

 

 

 

 

Unspent grant funds repaid to Department over 2 years in violation of the Grant Funds Recovery Act

 

 

 

 

 

 

 

Department is not recovering all unspent grant funds from providers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Failure to file Medicare cost reports resulted in suspension of monthly payments

 

 

 

 

 

 

 

Fiscal year 2003 Center Medicare cost reports had not been filed as of February 1, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicare payments have been suspended since December 1, 2003 for 8 Centers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Approximately $172,000 of revenue lost by not timely updating billing rates

 

 

 

 

Fiscal year 2002 Center daily billing rates not updated until December 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24 items with a value of approximately $240,000 were identified as having excess inventory balances at June 30, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23 of 51 employees assigned vehicles failed to file required annual license and insurance certification

 

1 employee had an assigned vehicle but it was not reported to payroll to include personal use in employeeís gross wages

 

3 employees noted on payroll records as being assigned a vehicle were not included in the vehicle database

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Department does not have formal policies and procedures outlining the manner and content of annual training

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Staff did not fully utilize the Departmentís primary accounting system

 

 

 

 

Trust fund system is not efficient and requires staff to maintain additional documents

 

 

 

 

 

 

 

 

 

 

 

 

Trust fund receipts not always safeguarded prior to deposit

 

 

 

 

Difficult to determine if dormant accounts are included in trust fund system

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

This report presents our financial statement audit for the entire Department for the year ended June 30 2003, and a State compliance audit of the Departmentís Central Office operations for the two years ended June 30, 2003. Limited scope compliance audits for the two years ended June 30, 2003 were also performed at 9 Developmental Centers, 8 Mental Health Centers, 2 combination Mental Health / Developmental Centers, and 3 Rehabilitation Service Facilities. Separate audit reports for each one of these Centers have also been issued.

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

WEAKNESSES IN PREPARATION OF ACCOUNTING REPORTS AND YEAR-END FINANCIAL STATEMENTS

The Department had weaknesses in the preparation of certain accounting reports submitted to the Office of the Comptroller and in the preparation of year-end financial statements.

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 Departmentís financial statements and impact the statewide financial statements prepared by the Office of the Comptroller. This was identified as a material weakness in the Departmentís internal control over financial reporting.

The Office of the State Comptroller requires State agencies to prepare and submit GAAP Reporting Package forms 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, 2002 and June 30, 2003 financial statements, we recommended extensive adjustments and corrections. Some of the problems noted were:

  • For fiscal year 2002, 19 out of 57 funds required revisions to GAAP package forms, which included 64 entries for adjustments and/or reclassifications and 3 entries for government-wide entries. Seven of the funds required adjustments in excess of $1 million.
  • For fiscal year 2003, 14 out of 61 funds required revisions to GAAP package forms, which included 53 entries for adjustments and/or reclassifications. Eleven of the funds required adjustments in excess of $1 million.
  • The Department made significant revisions to its fiscal year 2003 expenditure amounts reported to the Office of the State Comptroller for federal programs. The revisions ranged from $20.5 million to $48 million. These revisions were made as late as December 2003 in order to maximize the availability of federal funds.
  • The fiscal year 2002 GAAP package forms were not adequately reviewed prior to submission to the Office of the State Comptroller.

Department officials stated many of these problems occur because GAAP reporting forms are submitted to meet Office of the Comptroller deadlines before final information is received from Department program personnel. Further, because of 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 17-22)

We recommended the Department implement procedures to ensure GAAP Reporting Packages are prepared in an accurate and complete manner. This should include: 1) 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; 2) implementation of a coordinated, centralized oversight function between the Federal Reporting Unit and the General Accounting Unit to ensure financial information is timely, accurate and supported by an appropriate audit trail; and 3) the development of a standardized federal reporting accounting system that agrees GAAP reporting processes with federal reporting processes.

Department officials accepted our recommendation and stated they will establish and implement procedures to ensure GAAP reporting packages are prepared in a timely, accurate and complete manner.

DEPARTMENT NOT FULLY UTILIZING ITS CURRENT ACCOUNTING SYSTEM FOR FEDERAL PURPOSES

The Department is not fully utilizing its current accounting system, Consolidated Accounting and Reporting System (CARS), to enable the timely and accurate accumulation of federal expenditures. The CARS is not accumulating all the information needed for federal reporting requirements, nor does it tie this information to the year-end financial reporting process that includes the reporting of federal expenditures, in accordance with generally accepted accounting principles (GAAP). This causes weaknesses in preparation of GAAP reporting packages submitted to the Office of the Comptroller and preparation of year-end Department financial statements.

These weaknesses, if not caught and corrected, could materially misstate the Departmentís financial statements and impact the statewide financial statements prepared by the Office of the Comptroller. This was identified as a material weakness in the Departmentís internal control over financial reporting.

Some of the problems noted during our audits of the June 30, 2002 and June 30, 2003 financial statements follow:

  • The Department has no formal or specific overall policies and procedures to accumulate information related to federal programs. The primary accounting system, CARS, is not used in a standardized or systematic manner to accumulate federal accounting information.
     
  • CARS does not currently contain the capabilities to capture the information needed for reporting of federal expenditures for all the programs the Department administers, including payroll information.

     
  • The Department administers several programs in which certain expenditures may qualify as allowable costs under one or more of these programs. In order to maximize federal funding, the Department often reallocates these expenditures to various federal programs very late in the federal fiscal year, which ends September 30th.

  • Subrecipient amounts are inaccurately recorded within the CARS accounting system. The failure to properly communicate subrecipient amounts could cause these entities to improperly prepare financial statements and their schedule of expenditures of federal awards, incur additional audit fees related to a single audit if expenditures were over-reported, or failure to obtain appropriate single audit federal coverage if expenditure were under-reported.

Department personnel indicated different federal program managers have always been responsible for accounting for their own programs since the Department was created from the various legacy agencies in 1997. Although there is a Federal Reporting Unit, Department officials did not realize the importance of integrating the Federal Reporting Unit responsibilities with the General Accounting Unit responsibilities and coordinating this effort through the Departmentís primary accounting system. (Finding 2, pages 23-27)

We recommended the Department develop standardized federal reporting processes within CARS that agrees GAAP reporting package processes with federal reporting processes. We also recommended allocating sufficient staff resources and the implementation of formal procedures to ensure financial information is accumulated and appropriately utilized by program personnel, Federal Reporting Unit personnel, and GAAP preparation personnel in a timely and accurate manner.

Department officials accepted our recommendation and in summary, noted they believe the issues surrounding timely and accurate accumulation of federal expenditures can be resolved by standardizing procedures to enable adequate reconciliation between the federal expenditure reports and departmental financial statements. CARS has a grant reporting module that meets federal reporting requirements. Steps are currently being taken to interface payroll data to CARS at a greater level of detail, and the new interface will include grant-related coding. The implementation of the new interface is scheduled for the beginning of FY2005.

CURRENT YEAR APPROPRIATION SPENT TO AVOID LAPSING FUNDS

The Department used current year appropriation to pay for future services to avoid lapsing funds. This practice resulted in other problems including inaccurate Department records, inadequate budgeting practices with subrecipients, confusion related to year-end reconciliation processes and inadequate cash management practices.

The Department analyzed its budget during the spring of fiscal year 2002 and determined it would be 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.

During our testing, we noted the Department forward funded 12 providers approximately $3.4 million out of fiscal year 2002 appropriations for use in fiscal year 2003. In addition, we noted the Department forward funded $7.85 million of fiscal year 2002 funds to 2003 in the employment and training programs. It was also noted that other program areas forward funded approximately $3.5 million of fiscal year 2002 appropriations for use in fiscal year 2003. Department records also noted $762,500 was forward funded to program providers out of fiscal year 2003 appropriations for services to be performed in fiscal year 2004.

As a result of our prior audit recommendation, the Department requested a formal written opinion from the Attorney General on October 18, 2002 to determine if the payments in question are subject to the Illinois Grants Recovery Act and are the payments in compliance with Section 25 of the State Finance Act. The Department has not, as yet, received an opinion from the Attorney General. Department management at the Office of Contract Administration stated that forward funding ceased in April, 2003 with the new Administration. (Finding 3, pages 28-30)

We recommended the Department continue to refrain from the practice of forward funding.

Department officials accepted our recommendation and stated procedures were implemented in April 2003 to discontinue the practice of forward funding.

 

IMPROPER PAYMENT OF DEVELOPMENTAL CENTER PERSONNEL COSTS FROM CENTRAL OFFICE APPROPRIATIONS FOR AWARDS AND GRANTS

The Department circumvented the appropriation process by paying personnel costs for four Developmental Centers from appropriations to the Central Office for awards and grants.

During fiscal year 2003, the Departmentís Central Office received an appropriation for $2.45 million from the General Revenue Fund "For Costs Relating to Developmental Disability Community Transitions, Including Operations and Administration." Department personnel stated this $2.45 million appropriation was to support the placement of 100 State Operated Developmental Center residents into Community Integrated Living Arrangements, evenly phased over the course of fiscal year 2003. The intent behind the transition line is to move appropriate individuals from institutionalized care into less restrictive community settings.

We noted during fiscal year 2003 the transition of residents into the community never occurred. Instead, the Department expended $1,794,252 from this appropriation for unrelated personnel costs at four Developmental Centers as follows:

Howe Developmental Center         $ 627,669

Kiley Developmental Center             421,026

Ludeman Developmental Center       355,718

Murray Developmental Center          389,839

                                                    $1,794,252

 

The Department also received a $371 million appropriation "For Intermediate Care Facilities for the Mentally Retarded and Alternative Community Programs in Fiscal Year 2003 and in all Prior Fiscal Years." We noted the Department improperly expended $87,400 for personal services related to the Murray Developmental Center for the time period March 1, 2003 to June 30, 2003. These personal service expenditures related to employees not located in a Central Office function and did not relate to intermediate care of residents.

Department personnel stated language in the appropriation bill did not prohibit paying these unrelated personnel costs. (Finding 4, pages 31-33)

We recommended the Department expend funds in accordance with the purpose for which they were appropriated, or request funds be transferred from other allowable line items within the Department.

Department officials partially accepted our recommendation and stated they believe that the FY2003 spending from both the Developmental Disability (DD) Community Transitions appropriation and the appropriation for Intermediate Care Facilities for the Mentally Retarded and Alternative Community Program was within the intent of the appropriation.

They also noted due to the numerous complications related to the closure of the Lincoln Developmental Center, the Howe, Kiley, Ludeman and Murray facilities were unable to meet budget targets for reduced residents and staff reductions. As a result, the four facilities noted in the finding were required to spend from the transition account in order to support resident populations above the budgeted targets. The plan to fund the placement of LDC residents from the DD Long Term Care appropriation was shared multiple times with agency administration and the Governorís Office. Department officials indicated they believe the plan was fully within the intent and purpose of this appropriation and consistent with Office of the State Comptrollerís coding.

NO METHODOLOGY FOR CHARGING PHARMACEUTICAL EXPENDITURES

The Department had no consistent methodology for charging pharmaceutical costs among the Departmentís Bureau of Pharmacy and Clinical Support Services (BPCSS) and Department facilities. We noted charges for pharmaceuticals were based on fund availability and not on actual usage.

BPCSS serves as the Departmentís centralized warehouse for pharmaceutical commodities, and distributes these items to the various mental health and developmental disabilities facilities. These costs are generally first charged to BPCSS commodities appropriations. When BPCSS appropriations are exhausted, pharmaceutical costs are charged to other facilitiesí appropriations based on fund availability. There are no procedures to reconcile actual commodity use by facility to ensure drug costs are appropriately allocated based on usage. As a result, facilities may be charged for drugs they never receive, or not charged for drugs they receive. Examples of these expenditures follow:

  • During fiscal year 2003, 7 of 18 (39%) facilities or centers incurred $399,465 of expenditures related to BPCSS purchases. These expenditures were charged to facilities or centers based upon fund availability, not based upon usage or distribution of pharmaceutical inventory over the fiscal year.
  • During fiscal year 2002, 13 of 20 (65%) facilities or centers incurred $695,089 of expenditures related to BPCSS purchases, including one mental health center and one developmental center that closed during fiscal year 2002. These expenditures were charged based upon fund availability. This included spending the remaining commodity appropriations for the two facilities that closed during fiscal year 2002.
  • We noted that the Treatment and Detention Facility was charged for $245,654 and $121,290 of BPCSS purchases during fiscal years 2003 and 2002, respectively.
  • During fiscal year 2003, another central office division for administration and program support was charged for $318,012 in BPCSS purchases.

Department personnel stated these expenditures were considered to be for facilitiesí pharmaceutical needs, so no appropriation transfer was considered necessary. (Finding 5, pages 34-35)

We recommended the Department follow appropriate procedure for charging expenditures in accordance with legislative intent. We also recommended the Department seek appropriation transfers when necessary, or develop a cost allocation plan to document and justify the methodology used in charging pharmaceutical expenditures throughout the Department.

Department officials accepted our recommendation and stated they will establish and implement procedures to ensure expenditures are in accordance with legislative intent.

EXCESSIVE POSTAGE EXPENDITURES AT FISCAL YEAR END, IMPROPER USAGE OF DETAIL OBJECT CODES FOR PURCHASE OF POSTAGE AND INADEQUATE MONITORING OF POSTAGE

During our review of postage usage, we noted the Department was requesting postage for their meters and postage warrants at the end of the fiscal year in excess of reasonably expected usage for the beginning of the next fiscal year.

At June 30, 2002, the Central Office maintained $3,559,617 in postage on hand, including vouchers in transit, or 6.4 months of postage based upon June 2002 usage. At June 30, 2003, the Central Office maintained $2,680,572 in postage on hand, or 4.9 months of postage based upon June 2003 usage. The June 30 balances were high each year as the Department purchased $2,582,898 of postage on June 19, 2002, which remained a voucher in transit as of June 30, 2002. The Department purchased $1,250,000 of postage on June 12 and 13, 2003, which is clearly in excess of postage usage, which approximates $500,000 to $600,000 per month.

In addition, we noted that a significant amount of purchases were made from awards and grants appropriations, not contractual services appropriations. During fiscal year 2002, $5,503,196, or 60% of the $9,243,683 postage purchases were made from the For Temporary Assistance for Needy Families under Article IV and other social services (TANF) appropriation. During fiscal year 2003, $4,694,087, or 81% of the $5,777,729 postage purchases were made from this appropriation.

We also noted the Department inadequately monitored postage usage during fiscal years 2002 and 2003. Internal Postage Meter Usage Reports are prepared for Central Office postage meters located at various locations. These meters ranged from 126 meters in fiscal year 2002 to 124 meters in fiscal year 2003. We noted the fiscal year 2002 report did not contain various information for 114 of the 126 meters, ranging from 1 to 12 months of activity missing. While the fiscal year 2003 report was properly completed, we noted that the report was not prepared for analysis until February 2004. (Finding 6, pages 36-38)

We recommended the Department develop a more effective means of matching yearly postage expense to the funds appropriated for that fiscal year. In addition we also recommended the Department analyze postage needs for the beginning of the next fiscal year to determine reasonable carryover balances.

Department officials accepted our recommendation and stated they will develop procedures to ensure adequate controls over postage expenditures and reporting.

WEAKNESSES IN THE GRANT CLOSE OUT PROCESS AND RECOVERY OF UNSPENT FUNDS IN ACCORDANCE WITH THE GRANT FUNDS RECOVERY ACT

We noted weaknesses in the Departmentís procedures for reviewing final grant expenditures reported by grantees and the Departmentís subsequent recovery of unspent grant funds.

Annually, the Department reconciles approximately $1 billion of grants and contracts awarded to over 1,000 providers. The Department awards grants in two basic manners: 1) reimbursements to grantees based on eligible grant costs, or 2) payment based on services projected to be provided in the contract or grant agreement. We noted because of varying methods for determining unspent grant amounts and the multiple ways of recovering these amounts the process is complex and not always standardized. The current grant close-out and recovery process also causes confusion among recipients of the grant funds. Some of the specific weaknesses noted were:

  • We noted two instances in which Office of Contract Administration (OCA) made a final determination that unspent funds were to be returned to the Department only to have the program area later intervene to request the funds be approved for another program. Funds were restored because of a prior approval that was not communicated to OCA.

    The former Office of Transitional Services (OTS) utilized the close out process to identify overpayments for its employment and training program. The employment and training program normally is a purchase of care (service) (POS) program in which the Department remits payment to the provider after the services are performed. We noted that during the audit period, OTS converted employment and training programs from POS to grants reconciled by expenses prior to year end so OTS could forward fund monies to the providers to pay for future services out of previous year funding that was subject to lapse.

  • We noted one provider which had unspent funds at the end of its grant totaling $80,164 at June 30, 2002. The Grant Funds Recovery Act (30 ILCS 705/5) states, "Any grant funds not expended or legally obligated by the end of the grant agreementÖ must be returned to the grantor agency within 45 days." The Department allowed the provider to repay these funds in two installments, $40,164 repaid in fiscal year 2004 and $40,000 to be repaid in fiscal year 2005, in violation of the Act. Department records indicated a similar arrangement was worked out with this provider in previous years, allowing the provider to repay unspent funds at June 30, 2000 during fiscal year 2002.
  • We noted the Department is not recovering all unspent funds from grantees. During our grant testing and review of grantee audit reports, we noted several providers that showed amounts due to the Department at fiscal year end. For example we noted one provider audit that identified $148,888 as due to the Department at June 30, 2001. We noted no follow-up or collection by the Department.

These weaknesses are a result of a lack of a standardized overall methodology for closing out grants and recovering unspent grant funds. (Finding 7, pages 39-42)

We recommended the Department adopt standardized procedures for closing out grants and recovering unspent grant funds. We also recommended the Department specifically assign responsibilities to OCA and the program areas. Further, we recommended the Department adopt policies for their informal hearing process, collect unspent funds in compliance with the Grant Funds Recovery Act, and strengthen procedures for reviewing grantee audits to ensure unspent funds are properly collected.

Department officials accepted our recommendation and stated they will review the current written procedures for grant close out and will modify the process, as necessary, to ensure compliance. The revised procedures will be in place effective with the FY 2004 close out process.
 

FAILURE TO FILE MEDICARE COST REPORTS IN A TIMELY MANNER RESULTING IN DELAYED AND SUSPENDED PAYMENTS TO THE STATE

The Department has not filed fiscal year 2003 Medicare cost reports with the Medicare intermediary resulting in a suspension of monthly Medicare payments. In addition, Medicare cost reports for fiscal year 2002 were not filed in a timely manner, resulting in delayed payments from Medicare. Due to filing delays, annual Medicare settlements (which approximate $2-3 million per year) have not, as yet, been received for fiscal years 2002 and 2003.

The Department was eligible to claim monthly Medicare reimbursements for 9 facilities in fiscal year 2002 and 8 facilities in fiscal year 2003. We noted the Department filed five of the nine June 30, 2002 cost reports after the November 30, 2002 deadline because the Department was waiting on facility information in order to finalize the cost reports. Four cost reports were filed in December 2002 and the final 2002 cost report was filed on October 31, 2003, eleven months late. As of February 1, 2004, the Department has not filed any of the eight June 30, 2003 cost reports. The deadline for fling the fiscal year 2003 cost reports was November 30, 2003.

Cost reports are required from providers on an annual basis with reporting periods based on the providerís accounting year. If a provider has failed to timely file an acceptable cost report, payment to the provider is immediately suspended in whole or in part until a cost report is filed and determined by the intermediary to be acceptable.

Medicare payments have been suspended since December 1, 2003 for all eight facilities because the June 30, 2003 cost reports were not filed on November 30, 2003. The Department receives approximately $402,000 each month in Medicare payments for these eight facilities. Timely filing of the June 30, 2003 cost reports would have enabled the Department to continue to receive the monthly Medicare payments for these eight facilities without suspension.

In addition, the Department typically receives an annual final Medicare settlement between $2 and $3 million after submission of all final cost reports. The Department cannot receive the Medicare settlement until all cost reports have been filed. As of February 1, 2004, the Department has not received the 2002 and 2003 Medicare settlements.

Department personnel stated Medicare reports have not been filed due to lack of available staff. (Finding 9, pages 46-47)

We recommended the Department devote sufficient resources to file all outstanding Medicare cost reports as well as additional reports to receive final settlements for fiscal years 2002 and 2003. We also recommended the Department ensure all future Medicare cost reports are filed in a timely manner.

Department officials accepted our recommendation and stated the Medicare cost reports were completed April 16, 2004. The Department has received notification that the cost reports were accepted. Staffing vacancies were recently filled.

 

FAILURE TO UPDATE BILLING RATES IN A TIMELY MANNER

The Department did not update daily billing rates for residents in State mental health or developmental disability facilities in a timely manner, resulting in approximately $172,000 of lost revenue to the State.

Each year, the Department updates their daily billing rates as required by the Mental Health Act (Act) based on cost information from the previous fiscal year. For the years ended June 30, 1998 through June 30, 2001, these rates were updated no later than April 1 of the following year. We noted the Department did not update the daily billing rates for the year ended June 30, 2002 until December 1, 2003, eight months after the typical billing rate adjustment. Department calculations increased the daily rates at December 1, 2003 from $401 to $432 per day.

We estimated had this new rate been calculated and put into effect April 1, 2003 (eight months earlier), the increased rate would have generated an additional $172,000 for the Department. This estimate is only for amounts that would have been collected from private pay and insurance companies, and takes into consideration only 18% of total billings are collectible. This does not include Medicare, which is calculated separately.

Department personnel stated the rates were not updated due to an oversight. Although the Act does not stipulate a date these calculations should be completed, it is reasonable to expect the Department complete the calculations by April 1, nine months after the end of the fiscal year. (Finding 10, page 48)

We recommended the Department implement policies and procedures to ensure that the daily billing rates are updated annually no later than April 1.

Department officials accepted our recommendation and stated the daily billing rates were updated April 19, 2004 and policies and procedures are being developed to ensure that billing rates are updated on a timely basis.

OVERSTOCKING OF COMMODITY INVENTORIES

During our testing of the Departmentís Warehouse Control System, we noted 24 out of 60 items tested had inventory levels in excess of one-yearís usage. We noted a total of $240,126 in excess inventory (the value of items in our sample we projected would not be used in one year). This included $83,122 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 16, pages 57-58)

We recommended the Department monitor inventory order points to ensure purchases are based on reasonable estimates of future usage. In addition, we also recommended the Department make overstocked items available to other State agencies.

Department officials accepted our recommendation and stated they are establishing and implementing procedures to ensure that inventory is monitored and purchases are based on reasonable estimate of future use. In addition, Department officials noted they would reiterate to staff that overstocked items should be surplused.

INADEQUATE RECORDS FOR STATE VEHICLES ASSIGNED TO DEPARTMENT EMPLOYEES

The Department did not have adequate accounting records for Department owned vehicles. During the audit period, the Department had 590 vehicles, 51 of which were specifically assigned to Department employees. The Department tracks mileage and maintenance for all vehicles on a fleet database. We tested records for all 51 personally assigned vehicles during the audit period, some of the exceptions noted follow:

  • We noted 22 of 51 personally assigned vehicles tested had missing mileage and maintenance information in the database.
  • We noted 23 of 51 employees personally assigned a vehicle failed to file the required annual certification relating to license and insurance coverage.
  • We noted one employee listed on the database as having an assigned vehicle, but was not reported on the Departmentís payroll as having an assigned vehicle. As a result, the employee did not have personal use income included in the their gross wages in accordance with Internal Revenue Regulation.
  • We noted three employees listed on payroll records as having an assigned vehicle, but the vehicle database had no record of these employees having an assigned vehicle.

Department personnel stated during fiscal years 2003 and 2002, due to changes in staffing, the Department had four different vehicle coordinators. In addition, responsibility for maintenance of the fleet database changed hands several times. (Finding 21, pages 68-69)

We recommended the Department ensure complete, accurate and timely information is entered into its fleet database. In addition, we also recommended the Department monitor the assignment of vehicles and ensure the information is properly maintained and reported.

Department officials accepted our recommendation and stated they are monitoring the assignment of vehicles and updating the fleet database when changes occur.

HIRING AND TRAINING POLICIES AT THE DEPARTMENTíS TREATMENT AND DETENTION FACILITY

During our testing at the Departmentís Treatment and Detention Facility (TDF), we noted several items related to the hiring and training procedures that should be addressed.

The basic line personnel that deal with committed persons at the TDF on a day-to-day basis are Security Therapy Aides (STA). The position specification for the STA does not set a minimum education and experience requirement for applicants to ensure that newly hired employees have adequate core knowledge and experience, which may help to perform their job. The Department of Central Management Services (CMS) Class Specification requirements to become an STA Trainee "Requires ability to participate in and successfully complete the Security Therapy Aide training program."

There are no educational or experience requirements such as a high school degree or GED. According to the job requirements, the position "Requires the capability to adjust to mentally ill individuals under conditions of maximum security." Other CMS job specifications for positions that require interaction with committed persons require the applicant to have the knowledge, skill and mental development equivalent to completion of four years of high school as well as successfully completing an approved training program.

We also noted the Department does not have formal policies and procedures outlining the manner and content of annual training of STAs at the TDF. The TDF Training Officer coordinates annual training for all STAs and facility employees at the TDF. The Training Officer considers certain topics to be core topics which are repeated yearly (facility counts, transportation of residents, keys and locks, tool control, report writing, cell searches, body search, vehicle search, work place violence, emergency evacuation, and fire safety) and certain topics which may or may not be taught each year (psychopathy, relationship security/tactics, CPR, body mechanics and lifting techniques, and defensive tactics).

The Department has not developed formal policies and procedures requiring TDF STAs to receive all offered training. We also noted the STAs performed multiple duties such as inventory and distribution of resident clothing and personal supplies, distribution of resident internal and external commissary supplies, distribution of resident mail, and inventory and distribution of resident cleaning supplies as well as administrative duties.

In recognition of the security risks inherent in the Departmentís TDF program, establishing employee qualifications and ongoing training consistent with those of other positions in the State that require interaction with committed persons would reinforce security and safety for personís at the Departmentís TDF. (Finding 30, pages 83-84)

We recommended the Department work with CMS to revise its educational and experience requirements for the CMS Class Specifications for STA Trainees and STAs. Also, the Department should establish formal policies and procedures for annual training of all STAs and facility employees at the TDF. Further, the Department should address the facility resource allocation.

Department officials accepted our recommendation and stated they will work with CMS to formulate educational requirements for STAs and establish written, formal training policies. The Department also noted they will review and assess personnel and staffing at the Treatment Detention Facility.

INEFFICIENCIES IN THE BUSINESS OFFICE AT THE TREATMENT AND DETENTION FACILITY

We noted the business office at the Departmentís Treatment and Detention Facility (TDF) had inefficiencies due to lack of updated computer software and integrated systems. We also identified weaknesses in maintaining the TDF Trust Fund checkbook, receipts, and accounts. Some of the issues noted were:

  • The TDF business office staff did not utilize the Departmentís primary accounting system, the Consolidated Accounting and Reporting System (CARS) to its full potential. The business manager utilizes separate spreadsheets to track vendor payments and spending availability.

  • The trust fund system was written in the early 1980s and does not reflect advancements in computer programming which increase functionality. Consequently, staff are sometimes not able to retrieve the reports they need to answer inquiries without spending unnecessary time running multiple reports. The trust accountant must also maintain separate spreadsheet files that report this information in the desired format.
  • The trust fund system dumps trust fund data after three months so that it is no longer retrievable electronically. This requires the TDF to maintain older records in printed format. If these printed forms are misplaced or destroyed, the TDF will not have more than three months of data in the computer system without contacting the Central Office.
  • We noted trust fund receipts are sometimes placed in the trust accountantís mailbox when he is not available. These mailboxes are not secure, so the checks or currency could be stolen from the mailboxes.
  • When a committed person leaves the system, the committed personís account stays on the system usually with a zero balance. These accounts should be removed from the system as soon as possible for good internal control. By not removing the accounts it is difficult to determine whether there are dormant accounts on the system.

TDF officials stated that due to the newness of the TDF, which first started January 1, 1998, staff are still learning processes and working with systems that were currently available. (Finding 33, pages 88-90)

We recommended the Department develop necessary reports from CARS rather than using spreadsheets separate from the accounting system. We also recommended the Department upgrade the TDF trust fund accounting system to provide management with timely and useful accounting information, and that controls be implemented relating to trust fund receipts and deposits.

Department officials accepted our recommendation and stated the TDF business office staff have CARS inquiry capabilities. CARS entry capability will be provided when business office staff assume responsibility for the accounting duties. The Departmentís Facility Management Committee will review the feasibility of updating the trust fund accounting system.

 

OTHER FINDINGS

The remaining findings are reportedly being given attention by the Department. We will review the Departmentís progress toward the implementation of our recommendations in our next compliance audit.

Carol A. Kraus, Chief Financial Officer, provided the responses to our findings and recommendations.

 

 

AUDITORSí OPINION

Our auditors stated the Departmentís financial statements as of June 30, 2003, and for the year then ended were fairly presented in all material respects.

 

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

 

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors were Sikich Gardner & Co, LLP.