All major parties involved in the SDU's implementation (Public Aid, SDU, circuit clerks, and employers) contributed to its start-up problems.

Initially, the SDU was significantly understaffed to fully and effectively carry out its operations.

Child support information submitted to the SDU by clerks was not always complete, accurate, or submitted timely.

Circuit clerks did not receive training prior to the SDU’s implementation from either the SDU or Public Aid on the use of the computer hardware and software programs necessary to send information to, or receive information from, the SDU.

Public Aid issued over $10 million of emergency child support payments between October 19, 1999 and January 5, 2000. Through February 18, 2000 a total of $658,602 has been returned or repaid by emergency check recipients.

When we completed our testing in late January 2000, 99 percent (67 of 68) of the cases sampled had a fully paid account without emergency checks.

The federal Personal Responsibility and Work Opportunity Reconciliation Act of 1996 amended the Social Security Act to require states to operate a centralized state disbursement unit (SDU) to handle the collection and disbursement of payments under child support orders. Pursuant to federal law, Illinois' SDU was required to be in place and operational by October 1, 1999. Prior to implementation of the SDU, most child support payments in Illinois were processed through the circuit clerks. To fulfill the federal requirement, the Department of Public Aid contracted with the DuPage County Circuit Clerk to operate an SDU for the State of Illinois.

Within days of its October 1 start date, the SDU experienced backlogs of checks received from employers for distribution to custodial parents that could not be matched to the correct child support order. In addition, some checks processed by the SDU were sent to the wrong address or to the wrong person.

Legislative Audit Commission Resolution Number 117, adopted January 11, 2000, directed the Auditor General to conduct a management audit of Public Aid's State Disbursement Unit which examined the possible causes of implementation problems, the manner in which the SDU contract was procured, and the issuance of emergency payments.

Factors contributing to implementation problems included:

Inadequate Planning. The Department of Public Aid did not adequately plan for implementation of the SDU.

• Although the federal requirement was passed in 1996, Public Aid procured legal services for the purpose of drafting the SDU contract through an emergency purchase in October 1998;
• Public Aid executed a contract with the DuPage County Circuit Clerk to operate the SDU in February 1999 -- two and one-half years after the federal requirement passed but only seven months before the SDU had to be operational. According to documents provided by Public Aid, the Department did not competitively procure the SDU services because of "time constraints." The contract's effective date was made retroactive to October 1, 1998. The original contract amount of $8.5 million has been increased by amendments to $17.5 million and further increases are in negotiation.
• Public Aid entered into the SDU contract five months prior to legislation being enacted specifically authorizing its implementation. Public Aid has varying statutes that it believes authorized its actions.
• Contrary to industry standards, no comprehensive test of the SDU system was made prior to its start-up on October 1, 1999. We conducted a survey of 7 other states having state disbursement units and found that 5 of the 7 either phased-in or tested their systems prior to start-up and those 5 states experienced few problems upon implementation. The remaining 2 states that did not phase-in their SDU, like Illinois, experienced implementation problems.

Computer Interface Failure. Successful implementation of the SDU required that a computerized system be in place for the purpose of exchanging information on child support orders among the SDU, Public Aid, and circuit clerks. Public Aid's plans for implementing the SDU were predicated on using the Department's Key Information Delivery System (KIDS) to serve as this computer interface. However, in May 1999--just one month after the KIDS system was conditionally certified by the federal government and less than five months before the SDU had to be operational--Public Aid determined that the KIDS system would not be capable of providing the necessary data link for operation of the SDU. Consequently, the original SDU contract was amended in August, 1999--just two months prior to implementation of the SDU--to provide for an alternative computer system at an additional cost.

Conflicting Notices Sent to Employers and Incomplete Employer Information. Employers submitting payments to the SDU for disbursement to custodial parents did not always provide adequate or accurate information to allow the SDU to match the payment to a valid support order in the SDU database. Between August 1999 and January 2000, Public Aid sent four notices to employers about SDU procedures. Each notice contained differing requirements concerning information that employers must submit with their payments.

Missing or Inaccurate Information Provided by Public Aid and Circuit Clerks. Public Aid did not complete a reconciliation of support order information between its system and circuit clerks' records prior to the data being submitted to the SDU. Consequently, when case information from Public Aid and the circuit clerks was merged into the SDU system, information for the same case sometimes differed (such as custodial parents' addresses and court order numbers). As a result, even in those cases where employers submitted their payments with correct information, the SDU could not always determine where to distribute the check because of conflicting data within its own system.

SDU Understaffing. The SDU was significantly understaffed when the SDU became operational. On October 1, 1999, the SDU had on-board 25 of a planned 51 staff operation. The SDU's revised staffing plans now call for a headcount of 201.

Regarding the method used to procure the SDU contract and the adequacy of contract provisions, the audit concluded the following:

Contract Was Not Competitively Procured. Since the contract to operate the State Disbursement Unit was with the DuPage County Circuit Clerk, an Illinois government entity, Public Aid officials stated the contract was not required to be competitively procured under an exemption from the State Procurement Code (30 ILCS 500/1-10). While not required, competitive procurement might have given additional assurance that the most qualified vendor was selected to serve as the SDU, as well as eliciting a more rigorous planning process and identification and examination of potential implementation problems.

Contract Lacked Performance Provisions. The SDU contract lacked provisions to require satisfactory performance through either incentives or penalties. Several of the other states' contracts we reviewed had sections establishing rigorous performance measures and financial penalties for falling short of those standards. Furthermore, many contractually required monitoring reports detailing key payment processing statistics were not submitted to Public Aid by the SDU.

Our review of the issuance of emergency checks found the following:

Emergency Payments Issued Without a Decision Whether to Recover. To provide relief to custodial parents whose receipt of child support payments was delayed due to operational problems at the SDU, Public Aid issued over $10 million of emergency child support payments between October 19, 1999 and January 5, 2000. Half a million dollars of those emergency payments were inappropriately made using trust funds received from employers on behalf of custodial parents. Public Aid has not yet determined whether it will attempt to recoup these emergency payments and, if so, through what mechanisms.

Inadequate Controls over Emergency Checks. Public Aid lacked adequate controls over the issuing of the emergency checks. For example, when emergency checks were issued, Public Aid did not verify that the support order given was valid or that regular child support payment had not been received. We questioned the need for emergency checks in 16 percent (11 of 68) of emergency checks randomly sampled, for reasons such as the individual receiving the check had not been receiving regular child support payments, or when the emergency check was issued, all regular child support payments had been mailed to the individual by the SDU.

The federal Personal Responsibility and Work Opportunity Reconciliation Act of 1996 amended the Social Security Act to require states to operate a centralized state disbursement unit (SDU) to handle the collection and disbursement of payments under child support orders. Pursuant to federal law, Illinois' SDU was required to be in place and operational by October 1, 1999. Prior to implementation of the SDU, most child support payments in Illinois were processed through the circuit clerks. To fulfill the federal requirement, the Department of Public Aid contracted with the DuPage County Circuit Clerk to operate an SDU for the State of Illinois.

Within days of its October 1, 1999 start date, the SDU experienced backlogs of checks received from employers for distribution to custodial parents that could not be matched to the correct child support order. In addition, some checks processed by the SDU were sent to the wrong address or to the wrong person. On October 19, it was announced Public Aid would begin issuing emergency checks to individuals who had not received their regular support payments. (Pages 4-5, 17-18)

On January 11, 2000, the Legislative Audit Commission adopted Resolution Number 117 directing the Auditor General’s Office to conduct a management audit of the Illinois Department of Public Aid’s Child Support State Disbursement Unit (SDU). The Resolution directed the Auditor General to determine:

1. Possible causes of the problems in implementing the State Disbursement Unit, such as the adequacy of the computer interface system, management planning, and staffing;
2. The manner in which the contract establishing the State Disbursement Unit was procured and whether the contract establishing the State Disbursement Unit contains terms and conditions sufficient to protect the State’s interest; and
3. The extent of emergency payments made by the Department of Public Aid; its authority for making such payments; the source of funds for such payments; and what issues may affect the Department’s ability to require and/or obtain repayment of emergency payments.

All major parties involved in the SDU's implementation (Public Aid, SDU, circuit clerks, and employers) contributed to its start-up problems. As the agency charged with administering the State's child support system, however, Public Aid was ultimately responsible for planning, assisting, and monitoring the contractual implementation of the SDU. In several respects, Public Aid did not effectively fulfill these responsibilities.

The Department of Public Aid did not adequately plan for implementation of the Child Support SDU. Public Aid executed a contract with the DuPage County Circuit Clerk to operate the SDU in February, 1999 -- two and one-half years after the federal requirement passed but only seven months before the SDU had to be operational. According to documents provided by Public Aid, the Department did not competitively procure the SDU services because of "time constraints." The contract's effective date was made retroactive to October 1, 1998. (Pages 17-18)

Inability of KIDS to Serve as Interface. Successful implementation of the SDU required that a computerized system be in place for the purpose of exchanging information among the SDU, Public Aid, and circuit clerks. The plans to implement the SDU were premised on Public Aid's Key Information Delivery System (KIDS) serving as the computer interface to exchange information among the SDU, Public Aid, and the circuit clerks. However, in May 1999, just one month after the KIDS system was conditionally certified by the federal government, Public Aid determined that KIDS would not be capable of providing the necessary data link for the SDU's operation. Just two months before the SDU was to be operational, the SDU contract was amended to require the SDU to develop an alternative computer system at an additional cost. (Pages 10, 22-23)

Incomplete Record Reconciliation. Public Aid had not completed a reconciliation of support order information between KIDS and circuit clerks' records. Consequently, when case information from Public Aid and the circuit clerks was merged into the SDU system, information for the same case sometimes differed (such as custodial parents’ addresses and court order number formats) which contributed to late or misdirected payments. (Pages 25-26)

No Comprehensive Pre-Test of System. Contrary to industry standards, a comprehensive test of the SDU disbursement system was not performed before the system was implemented. This test should have included a realistic simulation of how the system would operate. We conducted a survey of 7 other states having state disbursement units and found that 5 of the 7 either phased-in or tested their systems prior to start-up and those 5 states experienced few problems upon implementation. Of the remaining 2 states that did not phase-in their SDU, like Illinois, those states experienced implementation problems. (28, 32-33)

Inadequate SDU Staffing Levels. Initially, the SDU was significantly understaffed to fully and effectively carry out its operations. On October 1, 1999, the SDU’s first day of operation, the SDU had 25 staff, as shown in Digest Exhibit 1. This was half the headcount of 51 staff in the SDU's original budget. By December 31, 1999, the SDU's headcount increased to 127 personnel (55 permanent and 72 temporary). The SDU’s revised budget calls for a headcount of 201 staff to more adequately perform its functions. (Pages 28-29)

Circuit Clerk Data Late or Incorrect. Child support information submitted to the SDU by clerks was not always complete, accurate, or submitted timely. Digest Exhibit 2 shows the number of counties by week that their data was loaded into the SDU system. Eighty-one counties had their data loaded by the SDU before the October 1, 1999 deadline, while the data from 21 counties was loaded by the SDU after October 1, 1999. According to the SDU, the last county data was not received and loaded into the SDU system until October 25, 1999.

Some data provided by the circuit clerks was corrupted. This corrupted data included blank fields, reversed names (i.e., custodial/non-custodial parents), duplicate cases, incorrect addresses, and deceased individuals. SDU officials also said the overlay of data provided either by Public Aid or the circuit clerks created additional data problems by overwriting good data with bad. (Pages 18-19)

Incomplete Employer Data. Many checks submitted by employers did not have the information needed to disburse child support payments. This may have resulted from minimal warning to employers prior to the SDU’s October 1 start-up and various and conflicting notices after implementation.

Public Aid’s first letter notifying employers of the change was mailed August 13, 1999, just six weeks prior to the SDU's implementation. This notice indicated that the employers should provide two pieces of information to the SDU—the case number (order docket number) and the name of the county where the child support order was entered. This was the only notice to employers before the SDU's October 1 start-up. Subsequent to October 1, three additional bulletins were issued by Public Aid each of which instructed employers to submit differing information. (Pages 21, 29-31)

Duplicate Data on the SDU System. The SDU computer system has case data which is inaccurate and invalid. As of January 2000, there are over 800,000 cases in the SDU computer system of which only 144,000 have received payments. Officials are unable to definitively determine what portion of the 800,000 cases are active (e.g., should be on the system) and what portion are inactive. SDU officials stated that the large number of cases does not significantly impact system performance. However, having the extra cases on the system allows SDU staff to make bad choices as to which accounts to post the payments. As a result, payments may be sent to the incorrect person or address. (Pages 20-21)

Current SDU Interface with Clerks Is Limited. The present interface between most circuit clerks and the SDU limits clerks' ability to view activity on a case and requires clerks to take information from their computer systems and enter it into the computer link to the SDU. Similarly, when payment information is received from the SDU, the clerks must take the information off the SDU computer link and re-enter it into their computer. This process results in inefficient use of clerks' time, as well as increases the opportunity for erroneous data entry. (Pages 23-24)

Public Aid Did Not Request an Exemption. Public Aid did not request an exemption or an extension to the SDU’s required implementation date of October 1, 1999. Although a reading of federal law shows them to be very strict, in practice, at least two exemptions have been granted because states did not have computer systems in place which are required for a successful SDU implementation. Although there is documentation that Public Aid spoke with and even worked with the federal government, the Department never requested an exemption or an extension. (Pages 26-27)

Lack of Clerk Training. Circuit clerks did not receive training prior to the SDU’s implementation from either the SDU or Public Aid on the use of the computer hardware and software programs necessary to send information to or receive information from the SDU. In late September 1999, and in many cases only a few days prior to the implementation of the SDU, the SDU sent computers equipped with software to the circuit clerks. Using these computers, the clerks were to send payment instructions and case updates to the SDU; in turn, the SDU would use the computers to send payment information to the clerks so the clerks could update their court accounts. (Page 33)

The Department of Public Aid did not adequately plan to allow them to prepare an RFP to competitively procure the contract for the State Disbursement Unit (SDU). Since the SDU contract is with a governmental unit, Public Aid officials stated the agreement was exempt from the Illinois Procurement Code and its general requirement that contracts be competitively procured (30 ILCS 500/1-10.) However, competitively procuring the contract may have provided several advantages, including assurance that the most qualified vendor was selected and obtaining other prospective vendors’ perspectives on the most appropriate planning and implementation process.

In an internal Decision Memorandum dated February 26, 1999, recommending DuPage’s selection as the SDU contractor, Public Aid stated that "time constraints" did not allow for the option of developing an RFP for the project. However, given that the federal requirement was passed in 1996 and the SDU did not have to be operational until October 1999, the Department had approximately three years to plan for and procure the necessary services to implement Illinois’ SDU.

Not only was the contract itself not competitively procured, but also the legal services to develop the contract were not. According to an affidavit filed by Public Aid, the contract for legal services was done as an emergency purchase because there was not enough time to procure the contract competitively. Again, considering the three year time frame available, it appears sufficient time was available if Public Aid had engaged in reasonable and timely planning efforts to implement this significant project. (Page 38-40)

Public Aid's contract with the DuPage County Circuit Clerk to operate the SDU has been amended four times since it was signed in February 1999. The amendments were entered into in August, October, and November of 1999, and February 2000, increasing the original contract amount of $8.5 million to a total of $17.5 million. Through January 2000, Public Aid paid the SDU $13.6 million of the total $17.5 million, as shown in Digest Exhibit 3.

In addition to the costs incurred pursuant to the contract with the SDU, Public Aid has incurred extraordinary and unplanned costs due to the SDU's implementation problems. Public Aid's costs include extra staff, overtime, equipment, and phone lines needed to operate the child support hotline that was established to handle phone calls from parents, circuit clerks, legislators, and others. These costs are also summarized in Digest Exhibit 3. (Pages 10-11)

The SDU contract lacked provisions to require satisfactory performance through either incentives or penalties. Several of the other states' contracts we reviewed had sections establishing rigorous performance measures and financial penalties for falling short of those standards.

Many contractually required monitoring reports detailing key payment processing statistics were not submitted to Public Aid by the SDU. While reports on total disbursements and deferred case reports were submitted, other required reports detailing total dollars collected by the SDU, all payments received but not disbursed by the SDU, and exception reports detailing checks returned as undeliverable and misapplied payments were not submitted to Public Aid by the SDU.

Furthermore, the contract did not require the SDU to submit reports which detailed payment processing times. Federal law requires that checks with appropriate information be processed by the SDU within 48 hours of receipt. The SDU was not preparing a regular report that accurately tracked payment processing times.

The contract did not define the term "transaction", even though the amount paid to the SDU under the contract is determined by how many transactions are processed. Not defining the term "transaction" exposes the State to unknown liability. (Pages 39-44)

To provide relief to custodial parents whose receipt of child support payments was delayed due to operational problems at the SDU, Public Aid issued over $10 million of emergency child support payments between October 19, 1999 and January 5, 2000. Through February 18, 2000, a total of $658,602 has been returned or repaid by emergency check recipients.

Public Aid cited Section 10-26 of the Public Aid Code as its authority for issuing emergency payments. That section of the Code states that the SDU shall collect and disburse support payments. As such, the Department has determined that the emergency payments are a form of child support.

Public Aid did not make a determination whether or how such funds would be recouped prior to issuing the payments. The Department’s legal counsel indicated that a determination whether emergency payments could be recouped is being postponed pending receipt of an opinion on this matter by the Attorney General. Prudent business practice dictates the legal nature of the payments and any federal or State restrictions on their recoupment should have been established before the payments were issued.

Half a million dollars of emergency payments were inappropriately made using trust funds received from employers. Payments the SDU receives from employers for custodial parents are fiduciary funds, which according to government accounting standards, cannot be used to support the government's own programs. (Pages 47, 58-65)

Public Aid lacked adequate controls over the issuing of emergency checks. For example, before authorizing emergency payments, the Department did not verify that the support order given was valid or that regular child support payments had not been received. These lapses in controls resulted in individuals receiving emergency checks who did not have a valid support order, who were current in receiving regular child support payments, or who received emergency payments significantly exceeding the amount of overdue regular support payments.

In our analysis we identified 6,357 individuals who received more than one emergency payment. These checks totaled $4,189,274. As shown on Digest Exhibit 4, one custodial parent received 12 checks totaling $2,910.

Some custodial parents received emergency payments significantly exceeding the amount of overdue regular support payments. For example, a custodial parent received $4,500 in emergency payments (two checks on October 30 and one check on October 31 -- each check was for $1,500). The custodial parent's regular support check was $500 per week. While, in October, the custodial parent received only one regular support payment of $500, on November 2, the SDU began sending the custodial parent regular support payments of $500 per week. As a result, the custodial parent received $2,500 more than she would have been entitled from regular support payments.

To handle requests for emergency checks, Public Aid had 82 telephone lines available as of November 1999. The lines were open from 7:30 a.m. to 8:00 p.m. Monday through Friday and 7:30 a.m. to 6:00 p.m. on Saturdays. Hotline operators began collecting caller information using manual inquiry forms and later switched to a computerized log.

In a random sample of 68 cases in which an emergency check was issued, we determined that in 56 of 68 (82%) cases sampled, there was an apparent need for an emergency check based upon a review of SDU and circuit clerk information. Of the 56 cases where there was apparent need, disbursements were delayed due to:

• the SDU backlog (23 cases);
• late or missing information from the circuit clerks (9 cases);
• late or missing information from employers (6 cases);
• late information from Public Aid or incorrect cost recoveries by Public Aid (3 cases); or
• a combination of factors, including the SDU backlog, and incomplete information from clerks, employers, or Public Aid (15 cases).

There was questionable need for an emergency check in 16 percent of the emergency checks we sampled. The 16 percent were determined to have questionable need because:

• neither the SDU nor the circuit clerk reported receiving payments for the individual for the period in question (6 cases);
• the custodial parent was behind in support payments when the emergency check was requested but was current in support payments when the emergency check was finally issued (3 cases); or
• it appeared that the custodial parent was receiving regular payments through the circuit clerk and, therefore, support checks were not being delayed by the SDU (2 cases).

For one case in our sample we were unable to determine need for an emergency check.

When we completed our testing in late January 2000, 99 percent (67 of 68) of the cases sampled had a fully paid account without emergency checks. In other words, employers’ payments had been received and regular checks had been issued to the custodial parents. Therefore, any emergency payments retained by the custodial parent represented an overpayment. The total overpayment for the 68 cases in our sample was $32,771. (Pages 47-65)

The audit report contains 15 recommendations. Eleven recommendations are directed to the Department of Public Aid, which recommended that Public Aid:

• conduct a detailed audit of KIDS to identify the nature and cause of its deficiencies (Recommendation Number 1);
• continue efforts to reconcile case information with circuit clerks and ensure that account balances are accurately stated (Recommendation Number 4);
• ensure that employer notices are clear and consistent, and that the SDU promptly informs employers of missing information in their submissions (Recommendation Number 5);
• institute management controls to ensure that projects are reasonably planned, implemented timely, and adequately controlled (Recommendation Number 6);
• assure that contracts include provisions to appropriately protect the State's interests (Recommendation Number 7);
• institute management controls to ensure that all reports necessary to effectively monitor the quality and accuracy of services are received timely, reviewed, and acted upon (Recommendation Number 8);
• require reports from the SDU which accurately assess payment processing times and regularly review such reports (Recommendation Number 9);
• ensure that basic contract terms are defined to avoid possible contract disputes (Recommendation Number 10);
• require regular reviews and SAS 88 reports be done of the SDU (Recommendation Number 11);
• refrain from expending State funds until clear statutory and contractual authority to do so is obtained (Recommendation Number 13); and
• immediately review federal and State restrictions on child support collections and disbursements and determine what restrictions may apply to recoupment of erroneous or excessive emergency payments (Recommendation Number 15).

The remaining four recommendations are directed to both the Department of Public Aid and the SDU. They include recommendations to:

• remove inactive or duplicate cases from the SDU system and ensure that the remaining data is accurate (Recommendation Number 2);
• ensure that clerks receive the necessary reports and have adequate access to the SDU system (Recommendation Number 3);
• take immediate action to ensure the timely and accurate disbursement of child support (Recommendation Number 12); and
• cease using funds collected and held in trust for child support payments for anything other than the purpose for which they were collected (Recommendation Number 14).

Public Aid generally agreed with the recommendations but responded that three of the recommendations should be dropped. However, we concluded that the recommendations were valid and they remained in the report. The SDU responded to recommendations addressed to them. Both agencies’ comments have been incorporated into the report and the full responses are included in Appendix G.

_________________________

WILLIAM G. HOLLAND

Auditor General

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