REPORT DIGEST

DEPARTMENT OF CHILDREN AND FAMILY SERVICES

FINANCIAL AND COMPLIANCE AUDIT
(In accordance with the Single audit Act of 1984 and OMB Circular A-128)
For the Two Years Ended:
June 30, 1996

Summary of Findings:

Release Date:
May 8, 1997

State of Illinois
Office of the Auditor General

WILLIAM G. HOLLAND
AUDITOR GENERAL

Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046

SYNOPSIS

• The Department is not properly monitoring all advance payments and accounts receivable for contracts with various providers of child care services resulting in overpayments.

• The Department needs to increase its contract monitoring of new agencies providing services to children to better detect inappropriate or unallowable costs.

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

• Total Expenditures (All Funds)

OPERATIONS TOTAL
% of Total Expenditures

 

Personal Services
% of Operations Expenditures
Average No. of Employees

 

Other Payroll Costs (FICA,
Retirement)
% of Operations Expenditures

 

Contractual Services
% of Operations Expenditures

 

All Other Operations Items
% of Operations Expenditures

 

LUMP SUM AND OTHER
TOTAL
% of Total Expenditures

 

GRANTS TOTAL
% of Total Expenditures

• Cost of Property and Equipment

$1,303,886,497

$229,999,552
18%

$152,826,838
67%
3,983

$24,572,110
11%

$30,910,743
13%

$21,689,861
9%

$32,338,544
2%

$1,041,548,401
80%

$20,344,297

$1,122,278,065

$208,760,566
19%

$142,080,469
68%
3,876

$21,520,140
10%

$26,364,602
13%

$18,795,355
9%

$29,098,879
2%

$884,418,620
79%

$17,063,063

$886,526,548

$170,218,199
19%

$117,402,011
69%
3,620

$17,797,874
11%

$22,204,896
13%

$12,813,418
7%

$28,599,380
3%

$687,708,969
78%

$16,396,628

FY 1996

FY 1995

FY 1994

• Reports of Child Abuse and Neglect

124,530

139,676

136,123

• Investigations within 24 hours of report

99.2%

98.5%

98.5%

• Children served

- Foster care
- Relative foster care
- Institutional care

Total children

17,476
28,034
4,709

50,219

15,632
27,071
5,159

47,862

13,861
22,631
4,669

41,161

During Audit Period: Mr. Jess McDonald
Currently: Mr. Jess McDonald

Problems in monitoring contracts and accounts receivable

Need to increase monitoring of agencies providing services to children

INTRODUCTION

Our 1996 audit of the Department is presented in two volumes. Volume I contains the findings, recommendations and agency responses. Volume II contains the agency's financial statements.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

CONTRACTS AND ACCOUNTS RECEIVABLE

The Department is not properly monitoring child care provider contracts, resulting in overpayments to providers. Also, the Department is advancing money to certain providers. At June 30, 1996 and June 30, 1995, those who provided care for children in Department custody had accounts receivable owed to the Department of approximately $26.8 million and $22.2 million, respectively.

According to Department personnel, it is necessary to advance monies to child care providers to serve as an incentive to participate in the program by limiting their risk. Department personnel also indicated it takes 60 to 75 days to process the providers first payment at the beginning of each fiscal year. The Department stated that providing advances minimizes providers' cash flow problems. Department personnel indicated that virtually all institutional providers are receiving advances.

During our review of the contracts and accounts receivable, we noted the following problems with the providers' account balances.

• The Department did not offset actual charges against advances to identify excess payments.

• One provider voluntarily returned excess revenues to the Department.

• Some contracts had overpayments due to the Department that were written off.

• The Department was unable to provide an audit trail for reductions in some balances.

• The Department improperly coded some contracts which made it difficult to track payments.

As a result of our testing, we determined the Department's receivables to be overstated, and we recommended contract advances and receivables be adjusted downward by $12.0 million and $11.6 million at June 30, 1996 and 1995, respectively. The Department accepted our recommendation and the financial statements reflect these adjustments. (Finding 3, page 17, repeated since 1994)

We recommended the Department review all receivable and advance amounts to determine their correctness. Once proper balances are established, the Department should continuously monitor transactions within the accounts. The Department should also perform a detailed review of the amounts at the end of the year, making any necessary adjustments prior to preparing its financial statements. We also recommended the Department annually evaluate the need to enter into contracts requiring prepayments to providers.

Department officials agreed with the finding and state they will implement the recommendation. For fiscal year 1997 contracts, the Department changed its policy on advances, or prepayments. Advances at the beginning of the fiscal year have been discontinued. Payments now are made during the month in which services are being provided. Quarterly reconciliations are being completed and appropriate adjustments made to avoid creating end-of-year receivable amounts. Procedures are being developed to ensure follow up on providers who have not filed required cost reports.

AGENCIES PROVIDING SERVICES TO CHILDREN

The Department is not adequately monitoring the contracts it has with direct service providers. The Department contracts for purchase of direct services totaled $769 million in 1995 and $907 million in 1996. Pursuant to the B.H. vs. Suter Consent Decree, the Department is required to maintain a 25 to 1 caseload ratio. Between 1993 and 1996, the Department substitute care caseload increased 49% from 33,088 to 49,379. To be in compliance with the Decree, the Department contracted with private agencies for direct care and supervision of the additional children in substitute care. In total, approximately 95% of the growth in the number of children in substitute care went to private agencies, including a number of new agencies specifically recruited to supervise the increasing number of children placed in the homes of relatives. During our audit, we noted the Department is now in the process of investigating at least three of the new agencies for noncompliance and questioned costs. The amount of funds awarded to the three new agencies during 1995 and 1996 was over $21 million.

According to Department personnel, child cases are monitored to ensure appropriate care and planning is done, and that private agencies are only reimbursed for authorized care. In addition, the Department requires agencies to submit financial audits, and desk reviews are conducted to ensure the audits are submitted in an appropriate format and with the required disclosures. However, these procedures do not provide the Department with information to assess the risk that a new agency will not be fiscally accountable to the Department prior to inception of a contract with the new agency.

Failure to monitor the expenditures of direct service providers may lead to inappropriate and unallowable costs. When State funds are spent improperly, they are not being used in the best interests of the children. The Department's investigations of the new agencies may have been avoided or problems detected and addressed earlier, if the contract monitoring process included procedures to more effectively monitor the fiscal operations of the new agencies. (Finding 2, page 15)

We recommended the Department develop procedures to assess whether new agencies will be fiscally accountable to the Department, and that the Department closely monitor the expenditure of State funds by direct service providers on a regular basis.

Department officials stated they agree with the finding and will implement the recommendation. The officials also stated that several monitoring activities were implemented during 1996 and could be expanded. In addition, the Department is re-examining current reporting requirements and provider compliance with those requirements.

OTHER FINDINGS

The remaining findings are being given attention by the Department, and we will review the Department's progress toward the implementation of our recommendations in our next audit.

Mr. Jess McDonald, Director of the Department, provided the agency's responses.

AUDITORS' OPINION

Our auditors stated the Department's June 30, 1996 and June 30, 1995 financial statements are fairly presented.

 

___________________________________
WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

Kerber, Eck & Braeckel, LLP were our special assistant auditors on the audit.