s ative Audit 353.5 OB L72dphhs rtnient of 1998 Health and :Services ial- Legislative Audit Division State of Montana Report to the Legislature March 1998 Financial-Compliance Audit For the Two Fiscal Years Ended June 30, 1997 Department of Public Health and Human Services This report contains 24 recommendations to the department. Major issues addressed in this report include: * Lack ofan effective and efficient flnancial management control structure. Unrecorded operating plans. Misstatements within the accounting records. •- $19.4 million ofimproper expenditure accruals. • Continuing lack ofcontrols over the Foster Care Program. * Noncompliance with the federal Cash Management Improvement Act. »- Noncompliance with federal regulations regarding resolution of Medicaid quality control flndings. Noncompliance with state laws related to Alcohol Tax Proceeds and statutory appropriations. STATE DOCUMENTS COLLECTION Direct comments/inquiries to: APR 7. r^ 19S8 Legislative Audit Division Room 135, State Capitol MONTANA STATE LIBRARY PO Box 201705 HELE1N5A1.5MEO-N6TtAhNAAVE5.0S2O MT 97-13 Helena 59620-1705 Help eliminate fraud, waste, and abuse in state government. Call the Fraud Hotlineat 1-800-222-4446 or 444-4446. I UAI ^nOSJi 's* "'.i^- FINANCIAL-COMPLIANCE AUDITS Financial-compliance audits are conducted by the Legislative Audit Division to determine ifan agency's financial operations are properly conducted, the financial reports are presented fairly, and the agency has complied with applicable laws and regulations. In performing the audit work, the audit staffuses standards set forth by the American Institute ofCenified Public Accountants and the United States General Accounting Office. Financial-compliance audit staff members hold degrees with an emphasis in accounting. Most staffmembers hold Certified Public Accountant (CPA) certificates. 0MB Government Auditing Standards, the Single Audit Act of 1984, and Circular A-128 require the auditor to issue certain financial, internal control, and compliance reports. This individual agency audit report is not intended to comply with these reponing requirements and is therefore not intended for distribution to federal grantor agencies. The Legislative Audit Division issues a statewide biennial Single Audit Report which complies with the above reporting requirements. The Single Audit Report for the two fiscal years ended June 30, 1997 has been issued. Copies ofthe Single Audit Report can be obtained by contacting: Single Audit Coordinator Legislative Audit Division Office of Budget and Program Planning Room 135, State Capitol State Capitol PO Box 201705 Helena MT 59620 Helena MT 59620-1705 Phone (406) 444-3616 MEMBERS OF THE LEGISLATIVE AUDIT COMMITTEE LEGISLATIVE AUDIT DIVISION ScottA. Seacat, LegislativeAuditor Deputy LegislativeAuditors: John W. Northey, Legal Counsel Jim Pellegrini, PerformanceAudit Tori Hunthausen, IT& Operations Manager James Gillett, Financial-ComplianceAudit March 1998 The Legislative Audit Committee ofthe Montana State Legislature: This is our financial-compliance audit report on the Department ofPublic Health and Human Services for the two fiscal years ended June 30, 1997. This is the first audit of this department since a major reorganization which was effective July 1, 1995. Included in this report are recommendations concerning implementation ofan effective, efficient financial management control structure; improper expenditure accruals in the amount of$19.4 million; improving controls over the department's foster care program; improving controls over preparation ofthe department's Schedule ofFederal Financial Assistance; compliance with the state's Cash Management Improvement Act agreement, and compliance with federal and state laws and regulations. We thank the director and her stafffor their assistance and cooperation Respectfully submitt icott A. Seacat Legislative Auditor Room 135, State Capitol Building POBox201705 Helena, Ml59620-1705 Phone(406)444-3122 FAX (406)444-9784 E-Mail lad(a!mt.gov Digitized by the Internet Archive in 2010 with funding from IVIontana State Library http://www.archive.org/details/departmentofpubl1998mont Legislative Audit Division Financial-Compliance Audit For the Two Fiscal Years Ended June 30, 1997 Department of Public Health and Human Services Members ofthe audit staff involved in this audit were Pearl M. Allen, Jeane Carstensen-Garrett, Chris Darragh, Laurie Evans, John B. Fine, Wayne D. Guazzo, Geri Hoffman, Frieda Houser, Cindy S. Jorgenson, Susan McEachern, Emlyn Neuman-Javornik, Vickie Rauser, and Jennifer Solem. : Table of Contents List ofFigures and Tables iv Appointed and Administrative Officials v Report Summary vii Introduction Introduction and Scope ofAudit 1 Reorganization 2 Department Financial Activity 2 Background 3 Director's Office 3 Child and Family Services Division 3 Child Support Enforcement Division 5 Health Policy and Services Division 5 Quality Assurance Division 6 Operations and Technology Division 6 Disability Services Division 7 Senior and Long-Term Care Division 7 Addictive and Mental Disorders Division 8 Prior Audit Prior Audit Recommendations 11 Recommendations Department ofSocial and Rehabilitation Services 11 Department ofCorrections and Human Services 11 Department ofFamily Services 11 Department ofHealth and Environmental Sciences 12 Depanment ofPublic Health and Human Services - Limited Scope Review 12 Findings and Financial Management 15 Recommendations Vendor/Provider Payments 16 Operating Budgets not Recorded on SBAS 18 Accruals and Deferrals ofFederal Revenue 19 Federal Revenue and Expenditure Errors 19 Accounts Receivables and Accrued Expenditures 20 Correction ofExpenditure Accruals 21 SBAS Mini-Coding 21 Trust and Agency Funds 23 Eastern Montana Veterans' Home Nursing Care Reimbursements 23 Montana State Hospital 24 Additions/Reductions to Property Held in Trust 24 Escheated Property 26 Child Support Enforcement Division Accounts Receivable 26 Page Table of Contents Inter-entity Loans 27 Summary 27 Improper Expenditure Accruals 33 Foster Care 35 CAPS 37 Funding Sources Errors for Foster Care 38 EDP Controls 38 Overpayments 40 Noncompliance with Federal Matching Requirements 41 . . Subsidiary System Reconciliations to SBAS 42 Inadequate Segregation ofIncompatible Trust Account Functions 45 Trust Account Investment Earnings Concerns 46 Unreconciled Child Support Payments 47 Schedule ofFederal Financial Assistance 49 Other Federal Compliance Issues 50 Cash Management 50 Subrecipient Monitoring 53 Debarred and Suspended Parties 54 Resolution ofQuality Control Findings 55 Allocation ofOperating Costs to Food Commodities 56 Women, Infants, and Children Federal Financial Reports 57 . Questioned Costs for Temporary Assistance to Needy Families Program 58 Misuse ofRestricted Appropriation 59 State Compliance 60 Reporting Theft 60 Report on Medicaid Funding 61 Payroll Corrections Made Due to Untimely Submission ofTime Sheets 61 Distribution of Alcohol Tax Proceeds 62 Statutory Appropriations 63 Tobacco Education Fees 64 Alcohol Tax Proceeds 64 Energy Conservation and Assistance Accounts 64 Summary 65 Invalid Fund Transfer - Prior Audit Recommendation 65 Page ii 1 Table of Contents Independent Auditor's Independent Auditor's Report A-3 Report & Agency Financial Schedules Schedule ofChanges in Fund Balances & Property Held in Trust for the Fiscal Year Ended June 30, 1997 A-5 Schedule ofChanges in Fund Balances & Property Held in Trust for the Fiscal Year Ended June 30, 1996 A-7 & Schedule ofTotal Revenues Transfers-In for the Fiscal Year Ended June 30, 1997 A-9 & Schedule ofTotal Revenues Transfers-In for the Fiscal Year Ended June 30, 1996 A-1 & Schedule ofTotal Expenditures Transfers-Out for the Fiscal Year Ended June 30, 1997 A-13 & Schedule ofTotal Expenditures Transfers-Out for the Fiscal Year Ended June 30, 1996 A-15 Notes to the Financial Schedules A-I7 Department Response Department ofPublic Health and Human Services B-3 Page iii & List of Figures Tables Figure Department of Public Health and Human Services 9 1 Figure 2 Fiscal Year 1996-97 Foster Care Funding Percent by Source 36 Figure 3 Fiscal Year 1996-97 Foster Care Expenditures Percent by Type 36 Tahie Total Expenditures by Fund 1 (in thousands) 2 Table 2 Summary ofthe Status ofPrior Audit Recommendations Applicable to PHHS 13-14 Table 3 Operating Budgets Not Allocated on SBAS 28 Table 4 Sunmiary of Financial Management Issue Misstatements 29 Table 5 Composition ofChild Support Accounts Payable As ofJune 30, 1997 48 Table 6 Federal Cash Requested in Excess ofImmediate Need 52 Page iv