Legislative Audit Commission Resolution Number 122 directed the Auditor General to examine the adequacy of the Early Intervention (EI) Program's management information systems, as well as the Program's monitoring of contractor performance.

DHS had not established an adequate system to monitor provider performance and received little information on the quality and timeliness of provider services. For example,

• As of December 2001, DHS had not investigated 69 of the 122 (57 percent) phone inquiries parents made to the Central Billing Office from July 2000 to June 2001 involving questions about the accuracy of provider claims paid by the State (such as services billed that were not received by the child).
• In our review of cases from six providers, five of whom had at least one of the above phone inquiries, 309 of the 1,066 (29 percent) services billed lacked documentation in the providers’ case file to support the billing.
• As of February 2002, DHS had not followed up on $735,000 in potential duplicate payments identified in a DHS internal audit of the CBO system.

We also identified areas where CFC agencies' use of State funds did not comply with federal and State requirements. At the three CFC agencies where we conducted detailed testing, we found instances where: compensation had not been taxed as wages; required personnel evaluations had not been completed; year-end salary adjustments appeared to be a distribution of excess revenues; current fiscal year funds were used to prepay future fiscal year expenses; and recordkeeping of inventory could be improved.

Legislative Audit Commission Resolution Number 122 directed the Auditor General to conduct an audit of the EI Program examining the adequacy of its management information systems and contractor monitoring.

The EI Program has two computerized management information systems: the Cornerstone system contains client case information; and the Central Billing Office system contains information on paid claims.

Additional Cornerstone management reports and performance data were needed to assist the EI Bureau in carrying out its monitoring and program management responsibilities.

In early 2002, the EI Bureau began reporting additional performance statistics for CFCs.

As with the Cornerstone system, additional reports from the CBO system would assist DHS in its management of the EI Program.

We identified a large discrepancy between the Cornerstone and monthly managers' reports in the number of cases reported as being over 45 days old and without an IFSP.

We recommended that DHS should ensure that its management information systems provide adequate and accurate information to effectively oversee and manage the EI Program.

There was no formal system established to provide DHS with comprehensive information on either the quality of provider services or the degree to which providers were complying with Program requirements.

DHS did not follow up on the majority of Heat tickets that dealt with questions concerning potential billing discrepancies sent by the CBO to DHS.

In over half of the billings reviewed, the documentation in the case file did not adequately support the billings.

We referred the cases with inadequate documentation to DHS for follow-up.

Based on information from DHS and Provider Connections, three providers who delivered services in the cases we sampled were not credentialed with the State.

As of February 2002, neither the EI Bureau nor the CBO had followed up with providers on the potential $735,000 in duplicate payments.

Since the EI Program’s success, in terms of child development, rests largely on how effectively providers deliver services, improved monitoring of their performance is critical.

DHS conducts an annual on-site evaluation of CFCs.

All three CFC agencies, to varying degrees, had some documentation weaknesses and questionable expenditures.

We identified areas where the three CFC agencies we visited were not in compliance with DHS requirements in the areas of payroll and personnel administration.

We recommended that DHS should ensure that EI contracts contain performance measures and deliverables to aid in the Department’s assessment of the contractors’ performance.

REPORT CONCLUSIONS

The Early Intervention (EI) Program provides services to children, birth to 36 months of age, who have disabilities due to developmental delay, have an eligible mental or physical condition that typically results in developmental delay, or have been determined to be at risk of a developmental delay. The EI Program is administered by the Department of Human Services (DHS). DHS contracts with various entities to provide most Program components, including case coordination, public awareness, billing, provider credentialing, and training functions. As of March 31, 2002, 10,167 children had Individualized Family Service Plans (IFSPs) authorizing them to receive EI services, such as speech language therapy, developmental therapy, and physical therapy.

In April 2002, the Office of the Auditor General released a follow-up report to the 1993 audit it had conducted of the Early Intervention Program. The follow-up report concluded that while the operation of the Early Intervention Program had improved since our 1993 audit, there remained areas where further improvements were warranted.

This audit report on the Early Intervention Program examines issues specifically identified by Legislative Audit Commission Resolution Number 122. LAC Resolution Number 122 directed the Auditor General to examine the adequacy of the Program's management information systems, as well as the Program's monitoring of contractor performance.

Early Intervention Program data is maintained on two computerized management information systems. Cornerstone is a DHS case management system into which staff from the Child and Family Connections offices (CFCs) enter information on clients, services authorized, and other case processing information. DHS contracts with 25 CFCs throughout the State to provide intake and case coordination services for EI clients. The Early Intervention Program began using the Cornerstone system statewide in October 2000.

The second management information system is operated by the Central Billing Office (CBO). The CBO system contains information on early intervention claims submitted by providers. The EI Bureau also receives monthly managers' reports that are manually prepared by the CFCs that include information on cases where services to children are delayed.

While the Cornerstone system contained a great deal of client and case processing information, few reports were initially generated from the system during Fiscal Year 2001. During Fiscal Year 2002, the EI Bureau began to identify and develop additional reports and performance measures from Cornerstone that would provide useful information to monitor EI system performance. Similarly, there are additional reports from the CBO system that would be beneficial for Program management.

We reconciled information from a Cornerstone report and the monthly reports from four CFCs and found significant inaccuracies in both reports. For example, the four CFCs reported 119 cases over 45 days without an IFSP on their monthly reports; however, we determined that at least 150 cases should have been included (an underreporting of 21 percent). In Fiscal Year 2002, the EI Bureau relied on the monthly CFC reports to monitor cases where children were delayed in getting needed services.

We also concluded that DHS' monitoring of service providers needed to be strengthened. DHS had not established an adequate system to monitor provider performance and received little information on the quality and timeliness of provider services. Regarding DHS' monitoring of providers, we found:

• DHS was not making effective use of a control established to help insure accurate and valid provider billings. As of December 2001, DHS had not investigated 69 of the 122 (57 percent) phone inquiries parents made to the Central Billing Office from July 2000 to June 2001 involving questions about the accuracy of provider claims paid by the State (such as services billed that were not received by the child). DHS had resolved 41 of the calls, had begun action on 4 of them, transferred 2 to formal complaints, and could not locate the records associated with the remaining 6. DHS reported the Central Billing Office processed 669,660 provider claims in Fiscal Year 2001.

• The importance of DHS following up on phone inquiries regarding the accuracy of provider billings, and strengthening its overall monitoring of providers, is demonstrated by the results of our review of provider files. Five of the six providers we selected for case record review had at least one such billing inquiry from a parent in Fiscal Year 2001.

• Of the 1,066 services billed to the State that we tested for adequacy of documentation, 309 (29 percent) lacked documentation in the provider's file, such as case notes, to show that services were provided for the dates billed. Two providers accounted for 260 of the 309 cases where there were no case notes or other documentation to support the services that were billed. Another provider was unable to provide us with 11 of the 15 case files we requested. The one provider that did not have a billing inquiry from a parent had the fewest case file exceptions.

• In another 25 percent (269 of 1,066) of the billings reviewed, the documentation in the file either did not contain the duration of the service, or the duration of the service documented was inconsistent with the duration of the service on the billing.

• Three of the associates who provided services in the cases sampled did not have required credentials from the State to provide such services, based on information from DHS and Provider Connections, the DHS contractor responsible for credentialing providers. We have referred the results of our provider testing to DHS for follow-up.

• As of February 2002, neither the EI Bureau nor the CBO had followed up with providers on potential duplicate payments identified in a September 2001 DHS internal audit of the Central Billing Office. Of $112.5 million in paid claims in calendar years 1998 through 2000, the audit identified $735,000 in potential duplicate payments. The audit recommended that DHS follow up on these potential duplicate payments.

We identified other areas where monitoring or controls over providers could be improved. These included: timeliness and adequacy of providers' evaluations and assessments; provider participation in IFSP development meetings; background checks on providers; parent or caretaker sign-off on provider case notes; and routine surveys of parents to obtain information on provider performance.

DHS has conducted annual monitoring visits to the 25 CFCs examining various aspects of CFC performance. These reviews provide DHS with monitoring information on CFC performance. DHS' Office of Contract Administration also conducted fiscal and administrative reviews at 18 of the 25 CFCs from Fiscal Years 1998 through 2001. The Office also conducts desk reviews of grant documents.

We identified areas where CFC agencies' use of State funds did not comply with federal and State requirements. At the three CFC agencies where we conducted detailed testing, we found instances where: compensation had not been taxed as wages; required personnel evaluations had not been completed; year-end salary adjustments appeared to be a distribution of excess revenues; current fiscal year funds were used to prepay future fiscal year expenses; and recordkeeping of inventory could be improved. DHS should ensure that the above issues are adequately examined in its fiscal/administrative reviews of the CFCs.

INTRODUCTION

The Legislative Audit Commission adopted Resolution Number 122 in June 2001 directing the Auditor General to conduct an audit of the EI Program examining the adequacy of its management information systems and contractor monitoring. In addition, Public Act 92-307, adopted in August 2001, directed the Auditor General to conduct a follow-up audit of the Auditor General's 1993 evaluation of the Early Intervention Program. The follow-up report pursuant to Public Act 92-307 was issued in April 2002. This report examines the areas identified in Legislative Audit Commission Resolution Number 122.

The Early Intervention (EI) Program provides services to children, birth to 36 months of age, who have disabilities due to developmental delay, have a medically diagnosed mental or physical condition that typically results in developmental delay, or have been determined to be at risk of a substantial developmental delay. The EI Program is administered by the Department of Human Services (DHS).

DHS contracts with various entities to provide most Program components. DHS contracts with 25 Child and Family Connections offices (CFCs) statewide to carry out intake and service coordination responsibilities. DHS has contracted with a vendor to operate the Central Billing Office to process all payments related to the EI Program. (pages 3-11).

The EI Program has two computerized management information systems: the Cornerstone system contains client case information; and the Central Billing Office system contains information on paid claims. The Program also receives monthly reports from CFC managers that contain information on cases where children are delayed in receiving services.

Cornerstone Case Management System

Cornerstone has been the Early Intervention case management information system since October 2000. The Child and Family Connections offices (CFCs) are responsible for maintaining child specific information and processing authorizations for providers to provide services through the Cornerstone system. CFC staff enters case information into Cornerstone and is responsible for routinely updating it. Cornerstone contains an extensive amount of information pertaining to the child and processing of the case.

In Fiscal Year 2001, DHS received limited management reports from the Cornerstone system. Additional Cornerstone management reports and performance data were needed to assist the EI Bureau in carrying out its monitoring and program management responsibilities.

In late 2001, the Bureau began the development of an Early Intervention Operations Plan. The Plan contained goals, objectives, and action steps covering a wide range of Early Intervention Program areas, including increased use of, and better access to, computerized management information to monitor the components of the EI Program (see Digest Exhibit 1 for an example).

In addition to reports and analyses identified in the Plan, there are others that would provide increased program management information. Some are currently being developed or considered by the EI Bureau:

• Timeliness reports on various aspects of case processing;

• Reports showing children who had an IFSP but who were not yet receiving all of the services authorized and cases where the amount of services approved for clients exceed EI guidelines.

• A report which shows the reasons for delays (i.e., delays attributable to parents, such as not returning phone calls versus delays attributable to the system, such as high caseloads or untimely evaluations).

• A report on outcome measures. There were no regular management reports from the Cornerstone system that specifically assessed the degree to which infants and toddlers were progressing or developing as a result of the Early Intervention services received.

In early 2002, the EI Bureau began reporting additional performance statistics for CFCs. Some of these statistics include participation rates, average age of the client at the time the initial IFSP is developed, and the number of days from intake to initial IFSP.

We identified other issues which needed attention relating to the Cornerstone system. These included improving EI Bureau access to the system as well as making system improvements requested by CFCs and providing additional Cornerstone training to CFCs. (pages 16–21)

Central Billing Office System

The Central Billing Office (CBO), operated by the Illinois Primary Health Care Association, began processing payments for EI services on July 1, 1999. The EI Program received several reports from the Central Billing Office on a monthly and annual basis. The reports received from the CBO contain various types of information on the services provided and paid. The reports can be classified into four general categories:

1. Utilization Reports: These reports show the number of clients served, the type of services provided, the amount billed and the amount paid, and location where service was provided (e.g., home, residential facility, etc.).
2. Top Providers: These reports list the top 50 providers who have submitted the most billings to the CBO in a given month.
3. Claims Processing Information: These reports show the timeliness of claims processing, the dollar amount of claims paid each month and the month in which those services were provided, and the amounts billed and paid each month.
4. Information for Annual Federal Reports: These reports include information DHS is required annually to file with the federal government.

As with the Cornerstone system, additional reports from the CBO system would assist DHS in its management of the EI Program. In its Operations Plan, the EI Bureau detailed additional reports it would like to obtain from CBO data. For example, the Plan included a report to assess the differences between authorizations and actual billings to determine if there are any regional, seasonal, disability type, service type, Medicaid/fee/insurance status or other patterns.

Other reports that may be of value to the EI Bureau in terms of managing the Program and monitoring contractor performance include reports on: performance of the CBO (such as reports on the accuracy of claims processors); provider billings (such as reports that identify unusual provider billing patterns); and EI system performance. System performance reports could identify significant variations among CFCs (such as differences in the average cost per case or utilization rates) which may be due to normal differences in client mixes, or due to system problems, such as lack of a specific type of provider or differences in services provided for similar clients. (pages 22–25)

The monthly managers' reports submitted by the CFCs provide the EI Bureau with a third source of management information. The managers' reports, which are manually prepared by CFC staff, provide information on children for whom an initial IFSP has not been prepared within 45 days. According to EI officials, eventually they would like to phase out the monthly managers' reports and use only the Cornerstone reports.

Accuracy of Management Reports

To test the accuracy of DHS’ management reports, we compared the Cornerstone reports with information on the CFC monthly managers' reports. We identified a large discrepancy between the Cornerstone and monthly managers' reports in the number of cases reported as being over 45 days old and without an IFSP. The October 31, 2001 Cornerstone "Initial IFSP Due" report contained 1,556 cases over 45 days without an IFSP; the October 31, 2001 CFC monthly managers' reports contained 891 such cases. To ascertain the reasons for this significant difference we reconciled the cases for four CFCs. The four CFCs reported 119 cases over 45 days on the monthly managers' reports. The Cornerstone "Initial IFSP Due" report showed 290 cases over 45 days for the four CFCs.

Our reconciliation of the two reports and follow-up with the CFCs identified 31 additional cases that should have been included in the October 31, 2001 monthly managers' reports for the four CFCs. As Digest Exhibit 2 shows, the four CFCs underreported cases an average of 21 percent on their monthly reports.

Our reconciliation also showed that the Cornerstone "Initial IFSP Due" report contained a significant amount of inaccurate data. The October 31, 2001 Cornerstone report showed 290 cases for the four CFCs with initial IFSPs that were overdue. However, based on explanations and documentation provided by the CFCs, only 102 of the cases should have been included in the Cornerstone report.

There were also 52 cases that were included on the monthly managers’ reports but that did not appear on the Cornerstone report. We followed up with the CFCs on these cases and based on screen prints from the Cornerstone system, it appeared that most of these cases should have been included in the Cornerstone report.

We recommended that DHS should ensure that its management information systems provide adequate and accurate information to effectively oversee and manage the EI Program. Such efforts should include further developing management reports from the Cornerstone and CBO systems to provide needed Program management information, reconciling information on both the Cornerstone and monthly CFC reports to ensure their accuracy, and continuing to improve access to both the Cornerstone and CBO systems. (pages 25–28)

 MONITORING OF PROVIDERS

DHS needs to strengthen its monitoring of EI providers. No formal system provides DHS with comprehensive information on either the quality of provider services or how well providers were complying with Program requirements. In addition, DHS had undertaken few site visits to providers to examine case file documentation.

Heat Tickets

DHS was not making effective use of a control established to help insure accurate and valid provider billings. The Central Billing Office (CBO) sends an explanation of benefits to the child's family every month. The explanation of benefits lists the date and duration of the services provided by each provider to the child. If parents have a question about the billing (such as the child did not receive service on the date billed or the service lasted only 30 minutes and not the hour billed), they may call the CBO Call Center which documents the call by creating a "Heat" ticket. If the CBO cannot resolve the question, the Heat ticket is forwarded to DHS for follow-up.

There were 122 Heat tickets dealing with questions concerning provider billings that the CBO sent to DHS for follow-up in Fiscal Year 2001. DHS reported the Central Billing Office processed 669,660 provider claims in Fiscal Year 2001. The 122 Heat tickets pertained to less than three percent of the State's 4,200 EI providers.

DHS did not follow up on the majority of Heat tickets that dealt with questions concerning potential billing discrepancies sent by the CBO to DHS. We reviewed the 122 Heat tickets from the time period July 2000 through June 2001 and found that DHS had taken no action on 69 of them (57 percent) as of December 2001. Of the remaining 53, 41 had been resolved, some action had been taken on 4 of them, 2 had been transferred to formal complaints, and 6 could not be located.

In addition to the Heat tickets, DHS also received formal complaints directly from parents and CFCs. In calendar year 2001, DHS logged 16 formal complaints, 8 from parents and 8 from CFCs. These complaints included poor service delivery and provider billing inaccuracies. DHS did follow up on each of the 16 formal complaints. (pages 33-35)

OAG On-Site Reviews of Providers

To ascertain the importance of following up on Heat tickets, we reviewed case files at five providers who had at least one Heat ticket filed against them in Fiscal Year 2001. We also reviewed case files at one provider who had no Heat tickets in Fiscal Year 2001. Our review determined the extent to which providers' records contained documentation to support the services billed.

At five of the six providers, we examined 15 clients' case files and tested a maximum of 15 billings for each case. At the sixth provider, we reviewed only 4 of the 15 case files selected; the provider was unable to provide the remaining 11 cases. We referred the specifics of our interaction with this provider to DHS for follow-up. A team consisting of four staff from the EI Bureau performed an on-site record review of this provider and identified deficiencies in the provider's case files.

We tested a total of 1,066 billings. In over half of the billings reviewed, the documentation in the case file did not adequately support the billings. As shown in Digest Exhibit 3, we found that 309 (29 percent) of the billings did not have any support in the case files, such as case notes or other documentation, to show that services were provided for the dates billed. Two of the providers accounted for 260 of the 309 cases (84 percent) where there were no case notes or other documentation to support the services that were billed.

In 25 percent (269 of 1,066) of the billings reviewed, although the service was documented in the case file, the documentation either did not contain the duration of the service, which is required by DHS, or the duration of the service documented was inconsistent with the duration of the service on the billing. One provider accounted for 203 of the 269 instances (75 percent) where duration of the service was not recorded or was inconsistent with billing records. Finally, in 54 of the billings reviewed, the case file contained some documentation to support the services billed, but the date of service in the case file documentation was different than the service date in the CBO billing reports. We referred the cases with inadequate documentation to DHS for follow-up.

Most of the exceptions in Digest Exhibit 3 were from the case files of the five providers that had Heat tickets filed against them in Fiscal Year 2001. Only five of the exceptions included in Digest Exhibit 3 were from the provider that did not have a Heat ticket in Fiscal Year 2001. (pages 35-36)

Credentialing of Providers

Providers of early intervention services are required to be credentialed with the EI Program. DHS has contracted with Provider Connections to perform the credentialing function. As part of our on-site review of provider case files, we checked to see if the individuals providing the services were credentialed with the State.

Based on information from DHS and Provider Connections, three providers who delivered services in the cases we sampled were not credentialed with the State. These non-credentialed providers delivered 80 of the 1,066 (8 percent) services we reviewed. The non-credentialed providers worked for credentialed, enrolled providers. While the EI Program allows associates to work for credentialed, enrolled providers, the associates are required to be credentialed.

In August 2001, DHS created a revised billing form that requires the disclosure of the name of the associate who performed the service. The billings for the services provided by the uncredentialed providers in our sample were submitted prior to the creation of this revised form. We recommended that DHS test the billing system controls to ensure that associates who provide services are properly credentialed. (pages 36-37)

DHS Follow-Up on Duplicate Claims

In September 2001, DHS' Office of Internal Audits completed an audit of the Central Billing Office. Of $112.5 million in paid claims in calendar years 1998 through 2000, the audit identified $735,000 in potential duplicate payments to providers. The audit recommended that DHS follow up on these potential duplicate payments.

As of February 2002, neither the EI Bureau nor the CBO had followed up with providers on the potential $735,000 in duplicate payments. According to DHS and CBO staff, a letter to the providers requesting information to support the claims had been drafted but not yet sent. (page 37)

Other Management Controls

There are additional controls over providers that could be incorporated into the EI Program. DHS is currently considering several of these:

• Increasing monitoring of the timeliness and adequacy of provider evaluations and assessments;

• Strengthening requirements for evaluator participation in the IFSP development meetings;

• Requiring background checks of service providers;

• Requiring parents or caretakers to sign off on case notes or other documentation to affirm that services were indeed provided; and

• Conducting routine surveys to receive feedback from families who received EI services.

Since the EI Program’s success, in terms of child development, rests largely on how effectively providers deliver services, improved monitoring of their performance is critical. The EI Bureau had not established policies or procedures for the monitoring of providers. Such policies and procedures should contain the basic components of the monitoring system, including mechanisms to routinely collect information on provider performance. (pages 37-39)

MONITORING OF CFCs

DHS has established a system to monitor CFC performance, including information obtained and being developed from Cornerstone and CBO reports, monthly managers' reports, and on-site CFC evaluations.

On-Site Programmatic Monitoring of CFCs

DHS conducts an annual on-site evaluation of CFCs. The purpose of the annual evaluation is to identify and document strengths and weaknesses of the EI system, as well as to ensure that the system provides quality EI services to all eligible children.

The CFC evaluation reports were inconsistent in length and style. We recommended that DHS improve the consistency of the annual on-site evaluations conducted of the CFCs. We also recommended that the site evaluations should: examine case files to ascertain the accuracy of CFCs reporting of reasons for IFSP delays; test to see whether the CFC is properly reporting all cases over 45 days in its monthly reports to DHS; and verify that the services authorized in Cornerstone are consistent with the IFSP signed by all the parties. (pages 43-44)

Fiscal Monitoring of the CFCs

DHS' Office of Contract Administration has undertaken fiscal/administrative reviews of 18 of the 25 CFCs from Fiscal Year 1998 through Fiscal Year 2001. These reviews have identified some problems in the areas of fiscal operations, fixed assets, cost allocation plans, and personnel. In addition, all the entities receiving grant funds are required to submit grant reports and independent audit reports that are subject to desk review by the Department.

We performed on-site audit procedures at three agencies that had CFC contracts with the Department for Fiscal Year 2001. The operations of these CFCs were largely funded by the State, with monies from the Department constituting 88 to 94 percent of all monies received during Fiscal Year 2001 by each entity. State receipts to each entity during Fiscal Year 2001 ranged from $952,000 to $3.4 million. We found deficiencies in the areas of expenditures, inventory, and payroll/personnel.

Expenditures -- We selected for testing 225 transactions/expenditures by the three CFC agencies totaling $470,979. All three agencies, to varying degrees, had some documentation weaknesses and questionable expenditures. For example:

• Lack of Documentation for Contractual Rates: $96,334 in 18 payments made by the three CFC agencies lacked a signed, written agreement to which we could verify the rate charged for services provided by the vendors.

• Prepaid Expenses: One CFC agency made three payments for prepaid expenses totaling $42,350 during June 2001 for services to be completed in the next fiscal year. There was no signed contract for services to be performed to support the expenditure. The Grant Funds Recovery Act states that grant funds not expended or legally obligated by the end of the grant period must be returned to the grantor agency (30 ILCS 705/5).

• Unallowable Costs: At two CFC agencies we identified 19 charges for expenditures that were unallowable based on Department (89 Ill. Adm. Code 509) and/or federal rules (OMB Circular A-122). These expenditures for non-client meals, tips, gifts, donations and entertainment totaled $4,149.

Inventory -- We found that all three CFC agencies needed to update their equipment inventory to comply with current contract provisions with the Department. Contracts between providers and the Department give the Department the right to require transfer of any equipment purchased in whole with Department funds from the provider to the Department.

Payroll/Personnel -- We identified areas where the three CFC agencies were not in compliance with DHS requirements in the areas of payroll and personnel administration. Two of the three CFCs had relatively minor areas of non-compliance. At one CFC agency, an annual evaluation was not completed for the Executive Director. At the second CFC agency, the employee handbook did not address requirements for an annual evaluation. Seven of the 15 staff reviewed at this CFC agency did not have a personnel evaluation in their files. CFC agency staff noted that these employees handled few clients or were part-time. At the third CFC agency, we found more significant exceptions in the payroll and personnel area. These included:

• Personnel Evaluations: Ten of 15 personnel files (67 percent) tested at the CFC agency were inadequate relative to maintenance of annual personnel evaluations, as required by DHS rules. Some files did not contain evaluations. Also, some evaluations were late or had not been in the employees’ personnel files during our first review. Some evaluations for incentive payments were also not included in the personnel files.

• Board Approval of Policies: Although the governing Board was aware of a new variable compensation system implemented in July 2000, the Board did not formally approve it until May 2002. DHS rules require that all providers have current bylaws, policies and procedures that should be current and reviewed and approved by the governing body of the provider (89 Ill. Adm. Code 509.80 (a)).

• Taxation of Employee Compensation: The CFC agency failed to withhold the required employment taxes for some compensation provided to staff. These payments included approximately $21,000 in additional compensation to staff in December 2000, $3,475 to seven staff in October 2000 as additional payments for services, and $10,000 to the executive director in February 2001 for service to the agency. Officials indicated a weakness in control was the reason for the oversight. Failure to withhold taxes results in potential individual tax liabilities for the affected staff. Agency officials stated, and documents were provided showing, that the organization was addressing the tax liability issue.

• Justification for Bonuses: The CFC agency issued $162,000 in bonuses to all employees in June 2001 after making an examination of agency revenue versus expenditures. These bonuses were in addition to other salary increases given in Fiscal Year 2001. Individual bonuses disbursed in June 2001 ranged from $7,000 to $500. DHS rules do not currently address requiring bonus compensation to be tied to performance as opposed to simply a distribution of excess earnings as do federal rules (OMB Circular A-122 Attachment B 7(d)(1)). Effective May 31, 2002, DHS requires providers of services to include in their personnel policies a policy concerning approval of bonuses for staff and administration including the need for Board approval of such personnel transactions (89 Ill. Adm. Code 509.80 (d)(8)). (pages 44-50)

EI CONTRACTS

Legislative Audit Commission Resolution Number 122 inquired as to whether contracts with entities coordinating and providing services contain reporting mechanisms, such as performance measures or deliverables, to allow the Department to monitor and evaluate their performance.

DHS’ Fiscal Year 2002 contracts with CFCs set few specific performance standards that the CFCs were required to meet or standards that could be used to assess CFC performance. In Fiscal Year 2003, the Department initiated performance contracting with the CFCs. According to DHS officials, the performance contracting uses various measures to assess CFC performance. CFCs receive funding on a quarterly basis which is adjusted for changes in caseloads. CFCs can also receive incentive payments for exceptional performance, or receive penalties for failure to meet performance floors.

The Fiscal Year 2002 contract with the Central Billing Office contained a scope of services section; however, it did not detail specific deliverables or performance standards that the CBO must meet (such as requirements for claims processing times or accuracy of claims processing).

We recommended that DHS should ensure that EI contracts contain performance measures and deliverables to aid in the Department’s assessment of the contractors’ performance. (pages 41-42, 51-54)

AGENCY RESPONSE

The Department of Human Services agreed with the four recommendations made in the audit report. The Department's written response can be found in Appendix C of the report. 

                                                              
                                                       _________________________

                                             WILLIAM G. HOLLAND
                                              Auditor General

WGH\JS
August 2002