The state Department of Social Services for years failed to pursue medical collections on nearly $25.2 million owed the state and has seen its internal auditing system decimated even as it grew into the state’s highest-spending agency, a new report concludes.
The 49-page, independent audit of the DSS for fiscal years 2006 and 2007 recently released by the Office of Auditors of Public Accounts repeated 13 recommendations identified nearly two years ago in a previous audit. The state auditors, a legislative agency headed by two auditors from different political parties, also reported three new recommendations.
Among the audit’s key findings, the agency was criticized for not reviewing the audits of the nonprofits it contracts with and for not claiming indirect costs for its administration of federally funded programs.
“We certainly believe … [that the failure to claim indirect costs] was lost dollars to the state,” said state Auditor Robert G. Jaekle. “This is federal money available to Connecticut and we missed the opportunity for some of that.”
The auditors did not identify a specific dollar amount in unclaimed indirect costs. However, the report noted that the DSS expended more than $47.7 million in federal funds for 25 of 48 federal programs it administers, and 21 of those programs had federal money available to the state for administrative and fringe benefit costs associated with staff to run the programs.
In response, David Dearborn, DSS spokesman, stated in an e-mail that “if there were indirect costs that we could have claimed and did not, and that is up for debate, the amount would be a small fraction of the $47.7 million in program costs.”
Decimated Internal Audit
Many of the audit recommendations reflected the agency’s inability to properly audit itself internally.
Jaekle said it was striking that the internal audit unit of the DSS had been decimated over the past 15 years, down from 10 auditors to two.
“No state agency spends more money,” said Jaekle, noting that DSS’ budget in 2007 was more than $4.5 billion, and since has grown while the size of its audit unit was slashed.
“That, to me, is very telling,” he said. “The internal audit units of state agencies are supposed to be on top of things as they are occurring. Internal audit units should perform regular efficiency and economic reviews. Since DSS spends so much money, even minor cost-saving ideas can be a large amount of money for the state.”
Jaekle said one example of their concern was reflected in the report’s comment that DSS did not adequately monitor the use of its cashbook, which in 2006, processed approximately $4.15 billion.
“Without an adequately designed internal audit function, it is unlikely that the department has the ability to indentify improper, inefficient, illegal, fraudulent or abusive acts that have already transpired as well as the conditions that will allow these acts to continue without detection,” the audit report states.
The agency agreed with the auditors’ recommendation that it implement a more “balanced internal audit function.”
However, the agency stated that until it is able to increase its staff, it “cannot expand reviews beyond its current scope.”
A request for two additional auditors proposed in the governor’s recommended budget was not approved.
In a related finding, the audit also reported that DSS failed to read and review the independent audits of nonprofits it contracts with to provide DSS services.
The agency administers about $140 million in grants with 191 nonprofits.
The nonprofits are required to submit independent audits annually.
However, some of the audits were not on hand, and the agency did not perform desk reviews for 20 out of 44 contracts the state auditors tested for fiscal year 2006 and for 40 out of 45 it tested for fiscal year 2007.
Collections Improved
In addition, the auditors reported that DSS failed to initiate collection in over a year of nearly $25.2 million in medical receivables.
It blamed a lack of policy by the department’s management combined with insufficient internal controls over receivables. Some of the receivables have been owed the state for as long as 26 years.
Dearborn acknowledged that since the audit findings were disclosed to the agency, it received authorization to write off more than $6 million of its uncollectable accounts, reducing the current accounts receivable balance to about $19 million.
“In many of the cases, the receivables were born from the audits of medical providers that upon receiving the audit results, either closed their business down, disappeared or became insolvent,” Dearborn explained in an e-mail. “Some of the providers went to jail, died, or left the state.”
Failure To Report
In response to the audit finding that the DSS does not fully comply with mandates to file 35 annual reports, Dearborn noted that lawmakers do not fund staff for the special reports it legislates.
The state auditors reported that of the seven mandated reports reviewed, DSS failed to prepare three reports in fiscal year 2005-2006, and five in fiscal year 2006-2007.
The auditors maintain that the agency’s failure to file annual reports diminishes legislative and executive branch oversight of the DSS.
The auditors recommended that the agency seek revisions of its bureaucratic reporting requirements.
