This report presents our financial statement audit for the entire Department for the year ended June 30 2003, and a State compliance audit of the Department’s Central Office operations for the two years ended June 30, 2003. Limited scope compliance audits for the two years ended June 30, 2003 were also performed at 9 Developmental Centers, 8 Mental Health Centers, 2 combination Mental Health / Developmental Centers, and 3 Rehabilitation Service Facilities. Separate audit reports for each one of these Centers have also been issued.

The Department had weaknesses in the preparation of certain accounting reports submitted to the Office of the Comptroller and in the preparation of year-end financial statements.

Year-end financial reporting in accordance with generally accepted accounting principles (GAAP) to the Office of the Comptroller contained numerous inaccuracies and incomplete data. These problems, if not caught and corrected, could materially misstate the Department’s financial statements and impact the statewide financial statements prepared by the Office of the Comptroller. This was identified as a material weakness in the Department’s internal control over financial reporting.

The Office of the State Comptroller requires State agencies to prepare and submit GAAP Reporting Package forms for each of their funds to assist in the annual preparation of the statewide financial statements and the Department's financial statements. During our audits of the June 30, 2002 and June 30, 2003 financial statements, we recommended extensive adjustments and corrections. Some of the problems noted were:

Department officials stated many of these problems occur because GAAP reporting forms are submitted to meet Office of the Comptroller deadlines before final information is received from Department program personnel. Further, because of the number of funds, volume of transactions, and the need to maximize federal funding, there is a tremendous volume of work to perform in a limited time frame. (Finding 1, pages 17-22)

We recommended the Department implement procedures to ensure GAAP Reporting Packages are prepared in an accurate and complete manner. This should include: 1) allocating sufficient staff resources and the implementation of formal procedures to ensure financial information from program personnel is prepared and submitted to GAAP personnel in a timely and accurate manner; 2) implementation of a coordinated, centralized oversight function between the Federal Reporting Unit and the General Accounting Unit to ensure financial information is timely, accurate and supported by an appropriate audit trail; and 3) the development of a standardized federal reporting accounting system that agrees GAAP reporting processes with federal reporting processes.

Department officials accepted our recommendation and stated they will establish and implement procedures to ensure GAAP reporting packages are prepared in a timely, accurate and complete manner.

The Department is not fully utilizing its current accounting system, Consolidated Accounting and Reporting System (CARS), to enable the timely and accurate accumulation of federal expenditures. The CARS is not accumulating all the information needed for federal reporting requirements, nor does it tie this information to the year-end financial reporting process that includes the reporting of federal expenditures, in accordance with generally accepted accounting principles (GAAP). This causes weaknesses in preparation of GAAP reporting packages submitted to the Office of the Comptroller and preparation of year-end Department financial statements.

These weaknesses, if not caught and corrected, could materially misstate the Department’s financial statements and impact the statewide financial statements prepared by the Office of the Comptroller. This was identified as a material weakness in the Department’s internal control over financial reporting.

Some of the problems noted during our audits of the June 30, 2002 and June 30, 2003 financial statements follow:

Department personnel indicated different federal program managers have always been responsible for accounting for their own programs since the Department was created from the various legacy agencies in 1997. Although there is a Federal Reporting Unit, Department officials did not realize the importance of integrating the Federal Reporting Unit responsibilities with the General Accounting Unit responsibilities and coordinating this effort through the Department’s primary accounting system. (Finding 2, pages 23-27)

We recommended the Department develop standardized federal reporting processes within CARS that agrees GAAP reporting package processes with federal reporting processes. We also recommended allocating sufficient staff resources and the implementation of formal procedures to ensure financial information is accumulated and appropriately utilized by program personnel, Federal Reporting Unit personnel, and GAAP preparation personnel in a timely and accurate manner.

Department officials accepted our recommendation and in summary, noted they believe the issues surrounding timely and accurate accumulation of federal expenditures can be resolved by standardizing procedures to enable adequate reconciliation between the federal expenditure reports and departmental financial statements. CARS has a grant reporting module that meets federal reporting requirements. Steps are currently being taken to interface payroll data to CARS at a greater level of detail, and the new interface will include grant-related coding. The implementation of the new interface is scheduled for the beginning of FY2005.

The Department used current year appropriation to pay for future services to avoid lapsing funds. This practice resulted in other problems including inaccurate Department records, inadequate budgeting practices with subrecipients, confusion related to year-end reconciliation processes and inadequate cash management practices.

The Department analyzed its budget during the spring of fiscal year 2002 and determined it would be lapsing appropriations. The Department solicited providers to determine uses for these funds and instituted a formal procedure to request contracts or contract amendments through completion of an internal "Request for Forward Funding" form.

During our testing, we noted the Department forward funded 12 providers approximately $3.4 million out of fiscal year 2002 appropriations for use in fiscal year 2003. In addition, we noted the Department forward funded $7.85 million of fiscal year 2002 funds to 2003 in the employment and training programs. It was also noted that other program areas forward funded approximately $3.5 million of fiscal year 2002 appropriations for use in fiscal year 2003. Department records also noted $762,500 was forward funded to program providers out of fiscal year 2003 appropriations for services to be performed in fiscal year 2004.

As a result of our prior audit recommendation, the Department requested a formal written opinion from the Attorney General on October 18, 2002 to determine if the payments in question are subject to the Illinois Grants Recovery Act and are the payments in compliance with Section 25 of the State Finance Act. The Department has not, as yet, received an opinion from the Attorney General. Department management at the Office of Contract Administration stated that forward funding ceased in April, 2003 with the new Administration. (Finding 3, pages 28-30)

We recommended the Department continue to refrain from the practice of forward funding.

Department officials accepted our recommendation and stated procedures were implemented in April 2003 to discontinue the practice of forward funding.

The Department circumvented the appropriation process by paying personnel costs for four Developmental Centers from appropriations to the Central Office for awards and grants.

During fiscal year 2003, the Department’s Central Office received an appropriation for $2.45 million from the General Revenue Fund "For Costs Relating to Developmental Disability Community Transitions, Including Operations and Administration." Department personnel stated this $2.45 million appropriation was to support the placement of 100 State Operated Developmental Center residents into Community Integrated Living Arrangements, evenly phased over the course of fiscal year 2003. The intent behind the transition line is to move appropriate individuals from institutionalized care into less restrictive community settings.

We noted during fiscal year 2003 the transition of residents into the community never occurred. Instead, the Department expended $1,794,252 from this appropriation for unrelated personnel costs at four Developmental Centers as follows:

The Department also received a $371 million appropriation "For Intermediate Care Facilities for the Mentally Retarded and Alternative Community Programs in Fiscal Year 2003 and in all Prior Fiscal Years." We noted the Department improperly expended $87,400 for personal services related to the Murray Developmental Center for the time period March 1, 2003 to June 30, 2003. These personal service expenditures related to employees not located in a Central Office function and did not relate to intermediate care of residents.

Department personnel stated language in the appropriation bill did not prohibit paying these unrelated personnel costs. (Finding 4, pages 31-33)

We recommended the Department expend funds in accordance with the purpose for which they were appropriated, or request funds be transferred from other allowable line items within the Department.

Department officials partially accepted our recommendation and stated they believe that the FY2003 spending from both the Developmental Disability (DD) Community Transitions appropriation and the appropriation for Intermediate Care Facilities for the Mentally Retarded and Alternative Community Program was within the intent of the appropriation.

They also noted due to the numerous complications related to the closure of the Lincoln Developmental Center, the Howe, Kiley, Ludeman and Murray facilities were unable to meet budget targets for reduced residents and staff reductions. As a result, the four facilities noted in the finding were required to spend from the transition account in order to support resident populations above the budgeted targets. The plan to fund the placement of LDC residents from the DD Long Term Care appropriation was shared multiple times with agency administration and the Governor’s Office. Department officials indicated they believe the plan was fully within the intent and purpose of this appropriation and consistent with Office of the State Comptroller’s coding.

The Department had no consistent methodology for charging pharmaceutical costs among the Department’s Bureau of Pharmacy and Clinical Support Services (BPCSS) and Department facilities. We noted charges for pharmaceuticals were based on fund availability and not on actual usage.

BPCSS serves as the Department’s centralized warehouse for pharmaceutical commodities, and distributes these items to the various mental health and developmental disabilities facilities. These costs are generally first charged to BPCSS commodities appropriations. When BPCSS appropriations are exhausted, pharmaceutical costs are charged to other facilities’ appropriations based on fund availability. There are no procedures to reconcile actual commodity use by facility to ensure drug costs are appropriately allocated based on usage. As a result, facilities may be charged for drugs they never receive, or not charged for drugs they receive. Examples of these expenditures follow:

Department personnel stated these expenditures were considered to be for facilities’ pharmaceutical needs, so no appropriation transfer was considered necessary. (Finding 5, pages 34-35)

We recommended the Department follow appropriate procedure for charging expenditures in accordance with legislative intent. We also recommended the Department seek appropriation transfers when necessary, or develop a cost allocation plan to document and justify the methodology used in charging pharmaceutical expenditures throughout the Department.

Department officials accepted our recommendation and stated they will establish and implement procedures to ensure expenditures are in accordance with legislative intent.

EXCESSIVE POSTAGE EXPENDITURES AT FISCAL YEAR END, IMPROPER USAGE OF DETAIL OBJECT CODES FOR PURCHASE OF POSTAGE AND INADEQUATE MONITORING OF POSTAGE

During our review of postage usage, we noted the Department was requesting postage for their meters and postage warrants at the end of the fiscal year in excess of reasonably expected usage for the beginning of the next fiscal year.

At June 30, 2002, the Central Office maintained $3,559,617 in postage on hand, including vouchers in transit, or 6.4 months of postage based upon June 2002 usage. At June 30, 2003, the Central Office maintained $2,680,572 in postage on hand, or 4.9 months of postage based upon June 2003 usage. The June 30 balances were high each year as the Department purchased $2,582,898 of postage on June 19, 2002, which remained a voucher in transit as of June 30, 2002. The Department purchased $1,250,000 of postage on June 12 and 13, 2003, which is clearly in excess of postage usage, which approximates $500,000 to $600,000 per month.

In addition, we noted that a significant amount of purchases were made from awards and grants appropriations, not contractual services appropriations. During fiscal year 2002, $5,503,196, or 60% of the $9,243,683 postage purchases were made from the For Temporary Assistance for Needy Families under Article IV and other social services (TANF) appropriation. During fiscal year 2003, $4,694,087, or 81% of the $5,777,729 postage purchases were made from this appropriation.

We also noted the Department inadequately monitored postage usage during fiscal years 2002 and 2003. Internal Postage Meter Usage Reports are prepared for Central Office postage meters located at various locations. These meters ranged from 126 meters in fiscal year 2002 to 124 meters in fiscal year 2003. We noted the fiscal year 2002 report did not contain various information for 114 of the 126 meters, ranging from 1 to 12 months of activity missing. While the fiscal year 2003 report was properly completed, we noted that the report was not prepared for analysis until February 2004. (Finding 6, pages 36-38)

We recommended the Department develop a more effective means of matching yearly postage expense to the funds appropriated for that fiscal year. In addition we also recommended the Department analyze postage needs for the beginning of the next fiscal year to determine reasonable carryover balances.

Department officials accepted our recommendation and stated they will develop procedures to ensure adequate controls over postage expenditures and reporting.

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:

These weaknesses are a result of a lack of a standardized overall methodology for closing out grants and recovering unspent grant funds. (Finding 7, pages 39-42)

We recommended the Department adopt standardized procedures for closing out grants and recovering unspent grant funds. We also recommended the Department specifically assign responsibilities to OCA and the program areas. Further, we recommended the Department adopt policies for their informal hearing process, 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 accepted our recommendation and stated they will review the current written procedures for grant close out and will modify the process, as necessary, to ensure compliance. The revised procedures will be in place effective with the FY 2004 close out process.
 

The Department has not filed fiscal year 2003 Medicare cost reports with the Medicare intermediary resulting in a suspension of monthly Medicare payments. In addition, Medicare cost reports for fiscal year 2002 were not filed in a timely manner, resulting in delayed payments from Medicare. Due to filing delays, annual Medicare settlements (which approximate $2-3 million per year) have not, as yet, been received for fiscal years 2002 and 2003.

The Department was eligible to claim monthly Medicare reimbursements for 9 facilities in fiscal year 2002 and 8 facilities in fiscal year 2003. We noted the Department filed five of the nine June 30, 2002 cost reports after the November 30, 2002 deadline because the Department was waiting on facility information in order to finalize the cost reports. Four cost reports were filed in December 2002 and the final 2002 cost report was filed on October 31, 2003, eleven months late. As of February 1, 2004, the Department has not filed any of the eight June 30, 2003 cost reports. The deadline for fling the fiscal year 2003 cost reports was November 30, 2003.

Cost reports are required from providers on an annual basis with reporting periods based on the provider’s accounting year. If a provider has failed to timely file an acceptable cost report, payment to the provider is immediately suspended in whole or in part until a cost report is filed and determined by the intermediary to be acceptable.

Medicare payments have been suspended since December 1, 2003 for all eight facilities because the June 30, 2003 cost reports were not filed on November 30, 2003. The Department receives approximately $402,000 each month in Medicare payments for these eight facilities. Timely filing of the June 30, 2003 cost reports would have enabled the Department to continue to receive the monthly Medicare payments for these eight facilities without suspension.

In addition, the Department typically receives an annual final Medicare settlement between $2 and $3 million after submission of all final cost reports. The Department cannot receive the Medicare settlement until all cost reports have been filed. As of February 1, 2004, the Department has not received the 2002 and 2003 Medicare settlements.

Department personnel stated Medicare reports have not been filed due to lack of available staff. (Finding 9, pages 46-47)

We recommended the Department devote sufficient resources to file all outstanding Medicare cost reports as well as additional reports to receive final settlements for fiscal years 2002 and 2003. We also recommended the Department ensure all future Medicare cost reports are filed in a timely manner.

Department officials accepted our recommendation and stated the Medicare cost reports were completed April 16, 2004. The Department has received notification that the cost reports were accepted. Staffing vacancies were recently filled.

The Department did not update daily billing rates for residents in State mental health or developmental disability facilities in a timely manner, resulting in approximately $172,000 of lost revenue to the State.

Each year, the Department updates their daily billing rates as required by the Mental Health Act (Act) based on cost information from the previous fiscal year. For the years ended June 30, 1998 through June 30, 2001, these rates were updated no later than April 1 of the following year. We noted the Department did not update the daily billing rates for the year ended June 30, 2002 until December 1, 2003, eight months after the typical billing rate adjustment. Department calculations increased the daily rates at December 1, 2003 from $401 to $432 per day.

We estimated had this new rate been calculated and put into effect April 1, 2003 (eight months earlier), the increased rate would have generated an additional $172,000 for the Department. This estimate is only for amounts that would have been collected from private pay and insurance companies, and takes into consideration only 18% of total billings are collectible. This does not include Medicare, which is calculated separately.

Department personnel stated the rates were not updated due to an oversight. Although the Act does not stipulate a date these calculations should be completed, it is reasonable to expect the Department complete the calculations by April 1, nine months after the end of the fiscal year. (Finding 10, page 48)

We recommended the Department implement policies and procedures to ensure that the daily billing rates are updated annually no later than April 1.

Department officials accepted our recommendation and stated the daily billing rates were updated April 19, 2004 and policies and procedures are being developed to ensure that billing rates are updated on a timely basis.

During our testing of the Department’s Warehouse Control System, we noted 24 out of 60 items tested had inventory levels in excess of one-year’s usage. We noted a total of $240,126 in excess inventory (the value of items in our sample we projected would not be used in one year). This included $83,122 of items that had no usage in the past 12 month time period.

Department personnel stated excessive inventories were primarily due to consolidating legacy agency inventories when the Department was formed, along with technology and program changes that drastically reduced usage. This could result in commodity waste, obsolescence, loss, or unauthorized use of State assets. (Finding 16, pages 57-58)

We recommended the Department monitor inventory order points to ensure purchases are based on reasonable estimates of future usage. In addition, we also recommended the Department make overstocked items available to other State agencies.

Department officials accepted our recommendation and stated they are establishing and implementing procedures to ensure that inventory is monitored and purchases are based on reasonable estimate of future use. In addition, Department officials noted they would reiterate to staff that overstocked items should be surplused.

The Department did not have adequate accounting records for Department owned vehicles. During the audit period, the Department had 590 vehicles, 51 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 51 personally assigned vehicles during the audit period, some of the exceptions noted follow:

Department personnel stated during fiscal years 2003 and 2002, due to changes in staffing, the Department had four different vehicle coordinators. In addition, responsibility for maintenance of the fleet database changed hands several times. (Finding 21, pages 68-69)

We recommended the Department ensure complete, accurate and timely information is entered into its fleet database. In addition, we also recommended the Department monitor the assignment of vehicles and ensure the information is properly maintained and reported.

Department officials accepted our recommendation and stated they are monitoring the assignment of vehicles and updating the fleet database when changes occur.

During our testing at the Department’s Treatment and Detention Facility (TDF), we noted several items related to the hiring and training procedures that should be addressed.

The basic line personnel that deal with committed persons at the TDF on a day-to-day basis are Security Therapy Aides (STA). The position specification for the STA does not set a minimum education and experience requirement for applicants to ensure that newly hired employees have adequate core knowledge and experience, which may help to perform their job. The Department of Central Management Services (CMS) Class Specification requirements to become an STA Trainee "Requires ability to participate in and successfully complete the Security Therapy Aide training program."

There are no educational or experience requirements such as a high school degree or GED. According to the job requirements, the position "Requires the capability to adjust to mentally ill individuals under conditions of maximum security." Other CMS job specifications for positions that require interaction with committed persons require the applicant to have the knowledge, skill and mental development equivalent to completion of four years of high school as well as successfully completing an approved training program.

We also noted the Department does not have formal policies and procedures outlining the manner and content of annual training of STAs at the TDF. The TDF Training Officer coordinates annual training for all STAs and facility employees at the TDF. The Training Officer considers certain topics to be core topics which are repeated yearly (facility counts, transportation of residents, keys and locks, tool control, report writing, cell searches, body search, vehicle search, work place violence, emergency evacuation, and fire safety) and certain topics which may or may not be taught each year (psychopathy, relationship security/tactics, CPR, body mechanics and lifting techniques, and defensive tactics).

The Department has not developed formal policies and procedures requiring TDF STAs to receive all offered training. We also noted the STAs performed multiple duties such as inventory and distribution of resident clothing and personal supplies, distribution of resident internal and external commissary supplies, distribution of resident mail, and inventory and distribution of resident cleaning supplies as well as administrative duties.

In recognition of the security risks inherent in the Department’s TDF program, establishing employee qualifications and ongoing training consistent with those of other positions in the State that require interaction with committed persons would reinforce security and safety for person’s at the Department’s TDF. (Finding 30, pages 83-84)

We recommended the Department work with CMS to revise its educational and experience requirements for the CMS Class Specifications for STA Trainees and STAs. Also, the Department should establish formal policies and procedures for annual training of all STAs and facility employees at the TDF. Further, the Department should address the facility resource allocation.

Department officials accepted our recommendation and stated they will work with CMS to formulate educational requirements for STAs and establish written, formal training policies. The Department also noted they will review and assess personnel and staffing at the Treatment 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:

TDF officials stated that due to the newness of the TDF, which first started January 1, 1998, staff are still learning processes and working with systems that were currently available. (Finding 33, pages 88-90)

We recommended the Department develop necessary reports from CARS rather than using spreadsheets separate from the accounting system. We also recommended the Department upgrade the TDF trust fund accounting system to provide management with timely and useful accounting information, and that controls be implemented relating to trust fund receipts and deposits.

Department officials accepted our recommendation and stated the TDF business office staff have CARS inquiry capabilities. CARS entry capability will be provided when business office staff assume responsibility for the accounting duties. The Department’s Facility Management Committee will review the feasibility of updating the trust fund accounting system.