REPORT DIGEST



DEPARTMENT OF VETERANS' AFFAIRS
ILLINOIS VETERANS' HOME AT ANNA


COMPLIANCE AUDIT
For the Two Years Ended:
June 30, 1996



Summary of Findings:

Total this audit 5
Total last audit N/A
Repeated from last audit N/A



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 of Veterans' Affairs did not have written policies and procedures to ensure continual and formal monitoring of the contractual agreement for the management and operation of the Home.
  • The contract for the management and operation of the Home contained vague wording in some sections and did not address all significant issues.
  • Required reports for two funds held locally on behalf of Home residents were not made. 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 for both years of the audit period. Consequently, we have qualified our opinion on the Department's financial statements which are presented in our audit report for the Department of Veterans' Affairs - Central Office.
{Expenditures and Activity Measures are summarized on the next page.}

 

DEPARTMENT OF VETERANS' AFFAIRS - ILLINOIS VETERANS' HOME AT ANNA
COMPLIANCE AUDIT
For The Two Years Ended June 30, 1996

 

EXPENDITURE STATISTICS

FY 1996

FY 1995

FY 1994

  • Total Expenditures (All Funds) (1)
OPERATIONS TOTAL
% of Total Expenditures
 
Personal Services
% of Operations Expenditures
Average No. of State Employees
 
Other Payroll Costs (FICA, Retirement)
% of Operations Expenditures
 
Contractual Services
% of Operations Expenditures
 
Locally Held Funds - Benefit Fund
% of Operations Expenditures
 
All Other Operations Items
% of Operations Expenditures
  • Cost of Property and Equipment

$2,015,028

$2,015,028
100%

$72,397
3.59%
2

$11,677
0.58%

$1,917,709
95.17%

$642
0.03%

$12,603
0.63%

$4,750,379

$1,391,445

$1,391,445
100%

$56,397
4.05%
2

$8,068
0.58%

$1,255,279
90.21%

$916
0.07%

$70,785
5.09%

$4,607,004

$189,816

$189,816
100%

$2,591
1.37%
0

$396
0.21%

$47,169
24.85%

$0
0.00%

$139,660
73.57%

$3,916,943

SELECTED ACTIVITY MEASURES

FY 1996

FY 1995

  • Average Number of Members

54

34

  • Average Number of Full-time Employees

47.5

43

  • Ratio - Average Number of Employees to Members

1/1.14

1/0.79

  • Estimated Cost Per Year Per Member(2)

$14,720

$27,855

HOME ADMINISTRATOR(S)
During Audit Period: Joanne Livengood, of Diversified Health Services
Currently: John Lippert, of Diversified Health Services

(1) Includes all funds except the Members' Trust Fund and the Clearing Account.
(2) Refer to page 29 of Report for basis of calculation and comments.

 




















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

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

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SPECIAL ASSISTANT AUDITORS

The audit was conducted by the Auditor General's staff.