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Department
facilities failed to bill residents for services
5 facilities were
significantly delinquent in their billings
Estimates of
unbilled services ranged from $3 to $9 million
Auditors could not
determine propriety of $1.321 million of inventory
Year end inventory of pharmaceutical not taken at 3
facilities
Strong internal
controls require a centralized oversight function related to commodity
inventories
$24 million of
federal funds not claimed timely
Department fiscal
year 2003 and 2004 financial statements were misstated
Federal
expenditures on the Department’s fiscal year 2003 and 2004 Schedule of
Expenditures of Federal Awards was understated
Numerous internal
control weaknesses were identified from an independent review contracted by
the Department
Supervisors only
review 10% of the case files annually
There was little or
no monitoring of the program by local office officials
The fraud division
did not appear to be adequately staffed
Grant close out
process is complex and not standardized
3 files did not
contain documentation on how lapse recoveries were resolved
No documentation of
how $3.8 million of a “refundable advance” was to be recovered from a
provider
Four pieces of identical
equipment totaling $38,600 were purchased separately within 10 days of each
other
Eight purchases of
similar office supplies were made without seeking competitive bids
Procurement Code
notes purchases are not to be divided into small purchases to circumvent the
competitive procurement process
158 contracts at
facilities were started prior to all required signatures being obtained
13 additional
facility contracts were noted as starting prior to all required signatures
being obtained
Contract indemnification clauses modified without
following established controls
Eight contracts
contained modifications to the indemnification
clauses that shifted some or all of the liability from the contactor to the
Department and State
The Department is
not maintaining time sheets for its employees in compliance with a statutory
mandated requirement
Act requires
employees to submit time sheets of time spent on official State business
Missing information
for 31 of 37 personally assigned vehicles
7 of 37 employees assigned vehicles
failed to file required annual license and insurance certification
Confidential
information was found in a recycling bin
Confidential information should be
adequately secured at all times
Staff did not fully
utilize the Department’s primary accounting system
Trust fund system
is not efficient and requires staff to maintain additional documents
Difficult to
determine if dormant accounts are included in trust fund system
Failure to fund program
Department could
not provide evidence that funding was requested
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INTRODUCTION
This
report presents our audit of the financial statements of the entire
Department of Human Services (Department) for the year ended June 30 2005,
and a State compliance examination of the Department’s Central Office
operations for the two years ended June 30, 2005. Limited scope compliance examinations for the two years ended
June 30, 2005 were also performed at 8 Developmental Centers, 7 Mental Health
Centers, 2 combination Mental Health / Developmental Centers, and 3
Rehabilitation Service Facilities.
Separate reports for each one of these Centers have also been issued.
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
FAILURE TO BILL RESIDENTS IN A TIMELY MANNER
The Department did
not bill residents in State mental health and developmental facilities in a
timely manner, resulting in significant lost revenue to the State and
inaccurate Department account receivable balances.
Of the 17 State operated facilities that provide services to
recipients of mental health or developmental disability care, 5 were noted as
being significantly delinquent in their billings. Department personnel further stated there may be billing
delinquency problems at almost all facilities. Unbilled amounts could not be determined due to significant
weaknesses in the controls, but Department estimates of unbilled services range from $3
million to $9 million.
Failure to record receivables as
services are provided is poor internal control and is ineffective cash
management and non-compliance with the Fiscal Control and Internal Auditing
Act. (Finding 05-1, pages 17-18)
We recommended the Department allocate
sufficient staff resources to each facility to process all delinquent
billings and process all future billings in a timely manner.
Department officials agreed with our recommendation and
indicated resources had been allocated to this function as of March
2006. Consultants/contractors will
take over some billing systems at facilities so other Department staff can
work on billing residents. Further,
additional staff may also be hired.
INADEQUATE CONTROLS OVER
COMMODITIES
During our testing we noted several exceptions and
weaknesses over commodity inventories.
The weaknesses were noted at various Central Office locations
including warehouses and at mental health and developmental facilities and
schools. Some of the inventory
problems noted were:
●
The auditors were not able to determine the propriety
of recorded inventories totaling $1.321 million at two facilities.
●
13 locations were tested with discrepancies and/or
weaknesses noted at 10 (77%) of these locations.
●
3 facilities failed to perform a year-end physical
inventory count of their pharmaceutical inventory.
●
2 facilities operated independent inventory systems
in addition to the Department inventory system.
Generally accepted
accounting principles require the proper valuation, reduction of
overstocking, and control over annual physical inventory processes to ensure
complete and accurate inventories for financial reporting purposes. Strong internal controls require a
centralized oversight function related to commodities. This is important considering the
Department made commodities expenditures of $37.838 million during fiscal
year 2005. (Finding 05-2, pages
19-21)
We recommended the
Department establish a centralized oversight function related to commodities
to allow for strengthened inventory controls.
Department
officials agreed with our recommendation and stated they will investigate
centralizing this function.
FAILURE TO CLAIM EARLY INTERVENTION COSTS AND
PROPERLY ADJUST FINANCIAL STATEMENTS
We
noted the Department incurred costs under the Early Intervention program from
April 2003 to June 2004 totaling $24 million. These costs were not claimed with the federal government until
fiscal year 2005, in some instances approximately 15 months after the costs
were incurred. In addition, the
Department did not report these reimbursements as receivables and related
federal revenue in its fiscal year 2003 and 2004 financial statements in
accordance with generally accepted accounting principles. This materially misstated the fiscal year
2004 Department financial statements and necessitated a prior period adjustment
of over $24 million in the fiscal year 2005 Department financial statements.
In addition, costs
reported as part of the State-wide single audit in the Department’s fiscal
years 2003 and 2004 Schedule of Expenditure of Federal Awards were also
understated by a total of approximately $24 million. The Department’s failure to draw down
these funds in a timely manner resulted in program expenditures being funded
with State resources when federal resources were available. (Finding 05-3, pages 22-23)
We recommended the
Department establish controls to ensure all federal reimbursements are drawn
down in a timely manner and are properly recorded in the Department’s
financial statements and Schedule of Expenditures of Federal Awards.
Department
officials agreed with our recommendation and indicated they are reviewing
their accounting process for the Early Intervention Program. Further, changes to procedures for cash
draws have already been implemented and other enhancements to the accounting process
are scheduled for implementation before July 1, 2006.
INTERNAL
CONTROL WEAKNESSES IN THE HOME SERVICES PROGRAM
The
Home Services Program allows individuals with disabilities (customers) who
are at risk of placement in a nursing home to remain in their homes. Department officials stated they had
concerns regarding the controls within the program due to staff discovery of
instances of fraud and abuse. As a
result, the Department hired an independent contractor (public accounting
firm/consultant) to perform a review of the program. The review noted numerous internal control
weaknesses in the program. We
discussed the weaknesses identified in the review with Department managers
and noted the weaknesses were still prevalent. Some of the weaknesses noted were:
·
Supervisors generally review between 2 to 5 case
files each month; this review process results in less than 10% of case files
being reviewed each year, which is not adequate to ensure staff are compliant
with program requirements.
·
There was little or no monitoring of the program by
local office officials to ensure that program objectives were met. On average each supervisor is responsible
for approximately 873 customer files during fiscal year 2004 and 880 customer
files during fiscal year 2005.
·
The fraud division did not appear to be adequately
staffed to effectively identify, address or monitor fraudulent
activities. We noted the fraud
division consisted of one person during fiscal year 2004, and four individuals
at the end of fiscal year 2005.
During fiscal year 2005, the fraud division investigated 717 reported
cases of fraud.
Adequate
review, monitoring and staffing are important to provide internal controls
over the Home Services Program due to the size and decentralization of the
program. (Finding 05-4, pages 24-26)
We recommended the
Department implement a number of procedures to strengthen internal controls
over the Home Services Program.
The Department agreed
with our recommendation and indicated corrective action has been taken on
implementing procedures to strengthen the internal controls over the Home
Services Program.
WEAKNESSES
IN THE GRANT CLOSE OUT PROCESS AND RECOVERY OF UNSPENT FUNDS
We noted weaknesses in the Department’s
procedures for reviewing final grant expenditures reported by grantees and
the Department’s 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:
·
The Department does not adhere to the Illinois
Administrative Code when delineating close-out responsibilities among its
divisions or offices.
·
During our
review of fiscal monitoring files of providers we noted insufficient
documentation existed to justify the resolution of lapse recoveries being
taken to the informal hearing process.
We noted 3 instances in which the files did not contain documentation
on how the lapse recoveries were resolved in the informal hearing process.
·
During our testing of Financial Reporting Packages
filed by providers for fiscal year 2004 we noted one provider had a balance
due to the Department of approximately $7 million reported as a “Refundable
Advance” from a fiscal year 2004 contract.
This balance due was partially resolved by decreasing the provider’s
fiscal year 2005 contract by $3.2 million, but there was no documentation of
how the remaining $3.8 million balance was to be recovered. This appeared to be an isolated incident.
These weaknesses are a result of a lack
of a standardized overall methodology for closing out grants and recovering
unspent grant funds. (Finding 05-6,
pages 29-31)
We recommended the Department follow
its Administrative Directive for closing out grants and recovering unspent
grant funds. Further, the Department
should 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 agreed with our recommendation and noted the
Department’s Office of Contract Administration was responsible for all grant
close-outs for fiscal year 2006. The
Department noted the remaining balance cited was recouped (deducted from
future services) in fiscal year 2006.
CIRCUMVENTION
OF COMPETITIVE PROCUREMENT REQUIREMENTS IN THE ILLINOIS PROCUREMENT CODE
The
Department circumvented the Illinois Procurement Code (Code) by purchasing
items without soliciting competitive bids.
These purchases appeared to be strung in small amounts to avoid the
requirements of the Code. Had the
following purchases been made all at once they would have been required to be
competitively procured.
-
The
Department purchased 4 identical pieces of equipment within a 10-day
period during fiscal year 2004 from the same vendor using separate
purchase orders. These items
were not competitively procured and individually cost $9,650 and totaled
$38,600.
-
The
Department made 8 purchases of office supplies (envelopes and labels)
during fiscal year 2005 from the same vendor totaling $33,591 without
seeking competitive bids. The
Department should have solicited competitive bids for these supplies
since these purchases were in excess of $10,000 within the first three
months of the fiscal year.
The Code
states contracts are to be awarded through competitive sealed bids unless
exempted and procurements are not to be divided as to constitute a small
purchase, which would exempt the purchase from the Code. In addition, the Code notes if there is a
repetitive need for small procurements of the same type, competitive sealed
bids or proposals should be considered for procurements of those needs.
(Finding 05-8, pages 34-35)
We
recommended the Department adhere to the procurement and purchasing requirements
of the Illinois Procurement Code.
Department
officials agreed with our recommendation and noted they have developed
procedures to address the recommendation and have developed monitoring tools
to track compliance with the new policy.
UNTIMELY
SIGNING AND EXECUTION OF WRITTEN CONTRACT AGREEMENTS
During our
testing of contractual expenditures we noted the Department’s mental health
and developmental centers and schools (facilities) did not obtain all the
required signatures on the contracts before their starting date. The contracts tested were for a variety of
goods or services ranging from medical, administrative and laboratory
services to repairs and maintenance.
We noted the following during our testing:
-
Exceptions
were identified at 19 of the 20 facilities tested. Auditors identified that 158 of 286
(55.3%) contracts tested were not signed by all parties prior to the
beginning date as set forth in the contract agreement. The average length of time between
the beginning date of the contract and the final required signature was
115 days, with a range of 2 days to 365 days.
-
Additional
testing of facility contracts was performed at the Department’s Central
Office in which 13 additional contracts were noted as not being signed
by all parties prior to the beginning date as set forth in the contract
agreement. The average length of
time between the beginning date of the contract and the final required
signature was 110 days, with a range of 42 days to 280 days.
Failure to
have the contract agreements signed before the beginning of the contract
period does not bind the service provider for compliance with applicable
laws, regulations and rules. (Finding
05-9, pages 36-37)
We
recommended the Department implement procedures to ensure contracts are
signed before the beginning date as set forth in the contract agreements.
Department
officials agreed with our recommendation and stated they will work with the
Department of Central Management Services to verify if they have any
procedures to address this finding or work with them to develop guidelines.
MODIFICATION
OF INDEMNIFICATION CLAUSES WITHOUT DOCUMENTED APPROVAL OF THE DEPARTMENT’S
OFFICE OF LEGAL SERVICES
The State of
Illinois and the Department have boilerplate documents attached to contracts
to ensure State contracts are consistent, fair and do not expose the State to
unnecessary liability. Department
contracts contain a standard indemnification clause, which sets forth the
Department will assume no liability arising from the actions of the
contractor and the contractor will hold the Department harmless against any
and all liability arising from intentional torts, negligence, or breach of
contract by the provider. During our
testing we noted the following instances in which the liability and
indemnification clause was modified without following established controls:
-
One
contract was identified in which a modification was attached that held
the Department responsible for and agreed the Department would indemnify
the provider for all liability arising out of professional services
furnished by the provider to patients hospitalized at a mental health
center. The Department’s Office
of Legal Services reviewed the contract and noted this modification was
unacceptable. The Office of
Contract Administration approved the contract with the
modification. The contract was
deobligated 14 days later, leaving the Department exposed to liability
during that 14-day period.
-
Three
contracts were identified in which a modification was attached that held
the Department responsible for and agreed the Department would indemnify
the provider(s) for all liability arising out of academic and/or
administrative services performed by the provider(s). One of the modifications was noted as
being approved by the Office of Contract Administration, documentation
could not be provided where the Department’s Office of Legal Services
approved any of the three modifications.
-
Two
contracts, which were renewals, contained modifications, which held the
Department responsible for all liability resulting from the provider(s)
administrative services.
Modifications to these indemnification clauses are inconsistent
with other contracts.
-
Two
contracts were modified to contain the language “To the extent permitted
by Illinois Law”. The Office of
Contract Administration approved one of the contracts; documentation
could not be provided that the Office of Legal Services had approved the
changes.
All of the
contracts were for medical services performed by doctors and inconsistently
shifted some or all of the liability from the contactor to the Department
without documented approval by the Department’s Office of Legal
Services. (Finding 05-10, pages
38-39)
We
recommended the Department implement procedures to ensure contracts with
modified or additional terms be sent to the Office of Legal Services for
review and approval prior to being signed/executed by the Department.
Department
officials agreed with our recommendation and noted the Office of Contract
Administration implemented a new policy for all of fiscal year 2006 whereby
the Department’s Office of Legal Services must approve all contract changes
before the contract is executed.
TIME
SHEETS NOT MAINTAINED IN COMPLIANCE WITH THE STATE OFFICIALS AND EMPLOYEES
ETHICS ACT
We noted the
Department’s employees did not maintain time sheets in compliance with the
State Officials and Employees Ethics Act (Act).
Employee time
is tracked through the use of the Daily Staff Attendance Report which is a
sign-in sheet maintained by the timekeeping group each calendar day. The Daily Staff Attendance Report does not
document the time spent each day on official state business to the nearest
quarter hour in compliance with the Act.
Senior management employees separately document their time on time
sheets in 15-minute increments.
The Act
requires the Department to adopt personnel policies consistent with the
Act. The Act requires employees to
periodically submit time sheets documenting the time spent each day on
official state business to the nearest quarter hour. (Finding 05-14, page 45)
We
recommended the Department amend it policies to require employees to maintain
time sheets in compliance with the Act.
Department
officials agreed with our recommendation and indicated they will work with
the Department of Central Management Services, as lead agency on the
Personnel Rules, to ensure the Department’s timekeeping policy is in
compliance with the Act.
INADEQUATE RECORDS FOR STATE VEHICLES
ASSIGNED TO DEPARTMENT EMPLOYEES
The Department did not have adequate
accounting records for Department owned vehicles.
During
the engagement period, the Department had 540 vehicles, 37 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 37 personally assigned vehicles during the engagement period,
some of the exceptions noted were:
·
31 of 37 personally assigned vehicles tested had
missing mileage and maintenance information in the database.
·
7 of 37 employees personally assigned a vehicle
failed to file the required annual certification relating to license and
insurance coverage.
·
One vehicle was involved in an accident, but the
database contained no record reflecting repair charges.
·
The Department does not have polices or procedures to
ensure that assigned vehicles are maintained. It is assumed the operator of an assigned vehicle will have the
oil changed, but they are not required to do so.
Complete
and accurate information is critical to effectively manage the Department’s
fleet of vehicles. In addition, good
business practice requires the Department to have a system in place to
provide the vehicle coordinator with the proper information needed to
properly monitor the Department’s vehicles.
(Finding 05-21, pages 56-57)
We recommended the Department enter and maintain complete, accurate
and timely information in its fleet database. We also recommended the Department monitor the assignment of
vehicles and ensure all the required certifications are obtained on a timely
basis.
Department officials agreed with our recommendation and
indicated procedures have been put in place that will alleviate this problem.
INADEQUATE
PROCEDURES FOR THE DISPOSAL OF CONFIDENTIAL INFORMATION
While
performing testing procedures at the Department’s Central Office we observed
confidential information in a recycling dumpster in an area that was open and
accessible to people not employed by the Department. The material in the dumpster included
payroll voucher reports containing employee names and social security
numbers, technical computer information, and screen prints containing
confidential information.
Confidential,
sensitive and personal identifiable information collected and maintained by
the Department should be adequately secured at all times. As such, it is the Department’s
responsibility to ensure adequate procedures for safeguarding all
confidential information have been established, effectively communicated to
all personnel, and continually enforced.
(Finding 05-25, pages 64-65)
We
recommended the Department establish adequate Department-wide procedures for
properly disposing of confidential information. Once established, the Department should effectively communicate
the procedures to all Department personnel, and enforce compliance with its
procedures ensuring all confidential information is kept secured until no
longer needed, and then properly disposed.
Department
officials agreed with our recommendation and identified numerous policies and
procedures of corrective action to address the handling of confidential
information.
INEFFICIENCIES
IN THE BUSINESS OFFICE AT THE TREATMENT AND DETENTION FACILITY
We noted the business office at the
Department’s 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
Department’s 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.
·
When a committed person leaves the system, the
committed person’s 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.
Using outdated trust and commissary
systems and not utilizing the Department-wide CARS system to its full
potential can lead to weakened internal control, duplication of work,
inefficiencies, and inadequate financial information available to
management. (Finding 05-31, pages 75-76)
We recommended the Department develop necessary reports from CARS
rather than developing spreadsheets separate from the accounting system to
track vendor payments and spending availability. We also recommended the Department upgrade the TDF trust fund
accounting system to provide management with timely and useful accounting
information.
Department officials
agreed with our recommendation and stated they have requested additional
staffing for the business office at the new Rushville location.
FAILURE TO FUND THE ILLINOIS AFRICAN-AMERICAN
COMMISSION
The Department did not fund the Illinois
African-American Commission as mandated by State law.
The Illinois
African-American Family Commission Act (20 ILCS 3903 et seq.)
established the Illinois African American Family Commission. Section 25 of the Act states, “The
African-American Family Commission shall receive funding through
appropriations available for its purposes made to the Department on Aging,
the Department of Children and Family Services, the Department of Commerce
and Economic Opportunity, the Department of Corrections, the Department of
Human Services, the Department of Public Aid, the Department of Public
Health, and the Department of Transportation.”
The Act established a
15-member Illinois African-American Commission to guide the efforts of and
collaborate with the Departments mentioned above. The Act intends to improve the tremendous challenges facing the
African-American family in Illinois such as the “huge disparities in
education, employment, income, child welfare, criminal justice, and
health.” The State has not funded
this program.
The Department could not
document that funding had been requested.
(Finding 05-35, page 82)
We recommend the Department
seek funding for the Illinois African-American Family Commission as mandated
by State law.
Department officials agreed
with our recommendation and stated they will collaborate with the other State
agencies and participate in an interagency funding analysis and request.
OTHER
FINDINGS
The
remaining findings are reportedly being given attention by the
Department. We will review the
Department’s progress toward the implementation of our recommendations in our
next engagement.
Mr. Robert Stanek, Chief
Financial Officer, provided the Department’s responses.
AUDITORS’ OPINION
Our
auditors state the June 30, 2005 financial statements of the Department’s are
fairly presented in all material respects.
_____________________________________
WILLIAM G. HOLLAND,
Auditor General
WGH:RPU:pp
SPECIAL ASSISTANT AUDITORS
The public
accounting firm of Sikich LLP was our special assistant auditor for this
engagement.
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