Contractor managing and operating the Anna
Veterans' Home was not in compliance with certain
contract provisions
Inadequate contract content for the operation and
management of the Anna Veterans' Home reduces the
assurance of contract performance in accordance with the
Department's intent
Transactions of two local funds were not reported
to the State Comptroller and transactions of one fund
were not included in the Department's financial
statements
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INTRODUCTION
- This is our first audit of the Anna Veterans'
Home which admitted its first resident August 29,
1994. The Department of Veterans' Affairs
contracted with a private organization to manage
and operate the Home since it opened. The
Department contracted with Diversified Health
Services (DHS), a subsidiary of Service Master
from Downers Grove, Illinois.
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
- INADEQUATE CONTRACT MONITORING PROCEDURES
The
Department of Veterans' Affairs entered into a
contractual agreement for the management and
operation of the Anna Veterans' Home. We tested
significant aspects of the contract and noted
areas of noncompliance; the majority of these
noncompliance issues went undetected by the
Department during the audit period. We also could
not determine if the contractor was in full
compliance with certain provisions of the
contractual agreement because the Department did
not have a formal system for monitoring
compliance with the contract. The following items
were among the exceptions we noted:
- Signed written contracts with subcontractors were
not in place during the entire audit period for
pharmaceutical, laboratory, rehabilitation,
radiology and medical director services. The
contract between the Department and the
contractor required written contracts between the
contractor and the subcontractor for these
services.
- During the majority of the audit period the
contractor charged Home residents for routine
beauty/barber services. According to contract
provisions, these services were to be provided
free of charge. This noncompliance issue was
noted during an internal audit conducted by the
Department 20 months after the Home opened. The
contractor took corrective action and provided
refunds for prior beauty/barber services.
- The contract addressed the contractor's
responsibilities in the event of a strike and the
contractor's responsibility to provide routine
recreational activities for the residents. The
Department did not have a formal system in place
to ensure these contract requirements were met.
Consequently, we could not determine whether the
contractor was in full compliance with these
provisions of the contract. (Finding 1, page 8)
- We recommended the Department develop formal
written policies and procedures to provide an
adequate system to monitor the performance of the
contract which governs management and operation
of the Home. The Department agreed with our
recommendation and noted the contract is the
Department's first experience with privatization.
INADEQUATE CONTRACT CONTENT
The Department's contract for management and
operation of the Home contained vague wording and
did not adequately address all significant
issues. We noted the following:
- The contract contained vague wording regarding
the contractor's intent to enter into written
contractual agreements with various
subcontractors. Agreements with subcontractors
for certain services were not reduced to writing.
- The contract contained vague wording regarding
the contractor's intent to make direct deposit
available to residents of the Home. Direct
deposit was not available during the audit
period.
- The contract did not address minimal requirements
for recreational activity.
- The contract did not address the establishment
and maintenance of the resident's benefit fund.
- The contract did not contain maximum or estimated
contract amounts.
- We recommended the Department consult with legal
counsel and modify the contract to clarify
ambiguities and include necessary language.
(Finding 2, page 10)
FAILURE TO REPORT
LOCALLY HELD FUNDS
The Home established and maintained two local
funds during the audit period as required by
statute. The Benefit Fund was established to
receive and expend monies donated for the special
pleasure, amusement, and comfort of Home
residents. The Resident's Trust Fund was
established to maintain the personal funds of the
Home's residents.
Required reports were not made to the State
Comptroller during the audit period regarding the
establishment and transactions of the two local
funds. In addition, the Department has refused to
report the activity and balances of the
Resident's Trust Fund as part of its departmental
financial statements. Activity and balances of
similar funds at the other three State Veterans'
Homes are included in the Department's financial
statements.
The Governmental Accounting Standards Board
(GASB) sets financial reporting standards for
governmental entities. According to GASB
standards, all funds, organizations,
institutions, agencies, departments, and offices
that are not legally separate are, for financial
reporting purposes, part of the primary
government and should be included in the
financial data of the primary government. Because
the Department did not include the Trust Fund in
its financial statements, we concluded the
Department was not complying with financial
reporting standards and we qualified our opinion
on the financial statements. (Finding 3, page 12)
The Department responded it has reported the
establishment of the Benefit Fund to the
Comptroller's Office and will submit annual
reporting packages. However, the Department
responded that the contractor operating the Anna
Veterans' Home has the legal responsibility for
maintaining the Trust Fund.
We believe that the Department has a fiduciary
responsibility and remains accountable for funds
held in trust for the residents regardless of
whether the fund is administered by a contractor
on behalf of the Department.
OTHER FINDINGS
The remaining findings were less significant
and, according to the Department's responses, are
being given appropriate attention. We will review
progress toward implementing our recommendations
in our next audit. Responses to the
recommendations were provided by Wilfred
Kaltenbach, Chief Internal Auditor, Department of
Veterans' Affairs.
AUDITORS' OPINION
- We conducted a compliance audit of the Home as
required by the Illinois State Auditing Act. We
also performed certain agreed-upon procedures
with respect to the records of the Home to assist
our single audit of the entire Department of
Veterans' Affairs. Financial statements for the
Department and federal reporting are included in
the audit report of the Department of Veterans'
Affairs - Central Office.
____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:GSS:pp
SPECIAL ASSISTANT AUDITORS
- The audit was conducted by the Auditor General's
staff.
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