Recommendations

June 2015 Follow-Up— California Department of Social Services It Has Not Corrected Previously Recognized Deficiencies in Its Oversight of Counties’ Antifraud Efforts for the CalWORKs and CalFresh Programs Report 2015-503 COMMITMENT INTEGRITY LEADERSHIP The first five copies of each California State Auditor report are free. Additional copies are $3 each, payable by check or money order. You can obtain reports by contacting the California State Auditor’s Office at the following address: California State Auditor 621 Capitol Mall, Suite 1200 Sacramento, California 95814 916.445.0255 or TTY 916.445.0033 OR This report is also available on our website at www.auditor.ca.gov. The California State Auditor is pleased to announce the availability of an online subscription service. For information on how to subscribe, visit our website at www.auditor.ca.gov. Alternate format reports available upon request. Permission is granted to reproduce reports. For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255. For complaints of state employee misconduct, contact the California State Auditor’s Whistleblower Hotline: 1.800.952.5665. Elaine M. Howle State Auditor Doug Cordiner Chief Deputy June 23, 2015 2015-503 The Governor of California President pro Tempore of the Senate Speaker of the Assembly State Capitol Sacramento, California 95814 Dear Governor and Legislative Leaders: This report presents the results of a follow-up audit of the California Department of Social Services (Social Services) subsequent to recommendations made in 2009 by the California State Auditor (state auditor). In November 2009 the state auditor issued a report titled Department of Social Services: For the CalWORKs and Food Stamp Programs, It Lacks Assessments of Cost‑Effectiveness and Misses Opportunities to Improve Counties’ Antifraud Efforts, Report 2009-101. The 2009 audit included recommendations aimed at improving Social Services’ oversight of counties’ antifraud efforts for the California Work Opportunities and Responsibility to Kids (CalWORKs) and CalFresh programs. This report concludes that Social Services’ oversight of counties’ antifraud efforts has fallen short. More than five years later Social Services has fully implemented only one of the 15 recommendations in our 2009 audit, and has either not fully implemented, taken no action, or decided that it will not implement the other 14 recommendations. For example, Social Services has either not fully implemented or taken no action regarding all six of our recommendations aimed at ensuring that counties receive the greatest benefit from the resources they spend on their antifraud efforts such as investigations. In addition, in the absence of effective, documented procedures, Social Services has not consistently monitored or corrected problems with counties’ processing of information that may affect CalWORKs and CalFresh recipients’ eligibility, nor has it sufficiently monitored counties’ reporting of important information regarding their investigation activities and their overpayment collection efforts. Social Services also has not determined whether the Statewide Fingerprint Imaging System (SFIS) is cost-effective, even though SFIS produces limited measurable results at a high cost. Specifically, in 2014 SFIS cost $12 million to maintain and resulted in only 57 instances of fraud being detected. As a result of the weaknesses we identified in our 2009 audit, and that we determined during this follow-up audit still continue, Social Services diminishes the efficiency and effectiveness of its guidance and oversight of counties’ antifraud efforts. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor 621 Capitol Mall, Suite 1200 Sacramento, CA 95814 916.445.0255 916.327.0019 fax www.auditor.ca.gov Blank page inserted for reproduction purposes only. California State Auditor Report 2015-503 v June 2015 Contents Summary 1 Introduction 3 Audit Results The California Department of Social Services Does Not Consistently Identify or Share Cost-Effective Best Practices for Antifraud and Prosecution Activities 5 Social Services Does Not Ensure That Counties Correct Findings From Its Reviews and Does Not Effectively Enforce Counties’ Prompt Processing of Match Lists 9 Social Services Has Not Addressed Problems With the Match Lists That Create Unnecessary Additional Work for Counties 12 Social Services Risks Inaccurate Reconciliation of Funds Owed to State, Local, and Federal Governments 13 Social Services Has Not Ensured That Counties Accurately Report Investigation Activity 15 Social Services Has Chosen Not to Evaluate the Cost-Effectiveness of the Statewide Fingerprint Imaging System 17 Recommendations 19 Response to the Audit California Department of Social Services 23 California State Auditor’s Comments on the Response From the California Department of Social Services 47 vi California State Auditor Report 2015-503 June 2015 Blank page inserted for reproduction purposes only. California State Auditor Report 2015-503 1 June 2015 Summary Results in Brief Audit Highlights . . . The California Department of Social Services (Social Services) Our audit of the California Department of is responsible for managing the California Work Opportunities Social Services’ (Social Services) progress and Responsibility to Kids (CalWORKs) program and the federal in addressing issues we raised in our 2009 Supplemental Nutrition Assistance Program, known as CalFresh audit revealed the following: in the State of California. CalWORKs provides cash assistance » More than five years later Social Services for living expenses while CalFresh provides financial assistance for has fully implemented only one of the purchasing food. These programs are administered by counties 15 recommendations we made in 2009, under Social Services’ oversight and serve many who legitimately and it either has not fully implemented, qualify for assistance. However, state and federal agencies recognize taken no action, or will not implement the that some fraud exists, and federal law requires that states develop other 14 recommendations. ways to detect fraud within these programs. This report presents the results of a follow-up audit of Social Services’ implementation » Deficiencies exist in Social Services’ of recommendations the California State Auditor (state auditor) oversight of counties’ antifraud activities made in 2009 related to fraud prevention in the CalWORKs and for the California Work Opportunities CalFresh programs. and Responsibility to Kids (CalWORKs) program and the federal Supplemental In November 2009 the state auditor released an audit report Nutrition Assistance Program, known as titled Department of Social Services: For the CalWORKs and CalFresh in the State of California. Food Stamp Programs, It Lacks Assessments of Cost-Effectiveness • Lack of documented procedures and Misses Opportunities to Improve Counties’ Antifraud Efforts, has caused inconsistencies in Social Report 2009-101. The audit recommended that Social Services Services’ ability to monitor and correct identify cost-effective antifraud practices and replicate these problems with counties’ processing practices among all counties. In addition, the audit recommended of information that may affect that Social Services improve its oversight of counties’ use of recipients’ eligibility. match lists, which help eligibility workers to identify current aid recipients who may be ineligible for that aid, and improve its • Social Services has still not oversight of counties’ reporting of investigation activities. The audit developed a formula to analyze the also recommended that Social Services improve its process for cost‑effectiveness of counties’ antifraud reconciling and distributing the CalFresh overpayments that the efforts, which would enable it to work counties collect, as well as monitor the county reports that Social to replicate the most cost‑effective Services uses to perform this reconciliation, to ensure that practices among all the counties. the information in these reports is accurate. Finally, the audit recommended that Social Services gauge the cost-effectiveness • Social Services does not always ensure of the Statewide Fingerprint Imaging System (SFIS). that counties correct findings from its reviews or assess how well counties Despite the findings and recommendations of our 2009 audit to are processing match lists. improve Social Services’ oversight of counties’ antifraud efforts, • The cost‑effectiveness of the Statewide we found that more than five years later Social Services has fully Fingerprint Imaging System has not implemented only one of the 15 recommendations, and that it been evaluated—it cost $12 million to either has not fully implemented, taken no action, or will not maintain in 2014 and resulted in only implement the other 14 recommendations. For example, we found 57 instances of fraud being found. that Social Services still has not developed a formula that enables it to analyze the cost-effectiveness of counties’ antifraud efforts and to subsequently work to replicate the most cost-effective practices among all the counties. Social Services also has not 2 California State Auditor Report 2015-503 June 2015 determined whether SFIS is cost-effective, despite the fact that SFIS cost $12 million to maintain in 2014 and resulted in only 57 instances of fraud being found. We also found deficiencies in Social Services’ oversight of the counties’ antifraud activities, including an ineffective method for assessing how well counties are processing match lists that identify potential instances of fraud. We noted two primary reasons for the lack of implementation of the 2009 recommendations: Social Services does not have effective, documented procedures for its oversight of counties’ antifraud efforts, and in one case Social Services continues to disagree with our recommendation. However, the weaknesses we identified in our 2009 audit and that we determined still continue during this follow-up audit diminish the efficiency and effectiveness of Social Services’ guidance and oversight of counties’ antifraud efforts. Recommendations To ensure that counties’ efforts to combat fraud in the CalWORKs and CalFresh programs are effective, Social Services should fully address the 14 remaining recommendations from our 2009 audit. These recommendations include that Social Services develop a formula to regularly perform a cost-effectiveness analysis of counties’ antifraud activities for the CalWORKs and CalFresh programs and that it improve its oversight of counties’ processing of match lists. The Legislature should require Social Services to annually report on the cost of SFIS and the fraud that it detects. Agency Comments Social Services generally agreed with our conclusions and recommendations. However, Social Services disagrees with our recommendation for it to analyze the effect of varying fraud prosecution thresholds on counties’ decisions to investigate potential welfare fraud. California State Auditor Report 2015-503 3 June 2015 Introduction Background The California Department of Social Services (Social Services) is responsible for managing the California Work Opportunities and Responsibility to Kids (CalWORKs) program and CalFresh.1 CalWORKs is a welfare program that provides cash assistance for living expenses to families with eligible children in the household, and families receiving cash assistance under CalWORKs are eligible for the CalFresh program. Families and individuals who do not qualify for CalWORKs may be eligible to receive CalFresh benefits based on income and other factors. CalWORKs is the State’s version of the federal Temporary Assistance to Needy Families program, while CalFresh is the State’s version of the federal Supplemental Nutrition Assistance Program. Because of the potential for fraud in these programs, federal law requires that states develop ways to detect, for example, when a welfare recipient knowingly signs up for assistance but is ineligible, or intentionally attempts to obtain aid in two counties at the same time. Under Social Services’ oversight, the counties are responsible for detecting, preventing, and prosecuting such fraud. Social Services coordinates the counties’ efforts to combat welfare fraud by providing guidance, technical assistance, and information on fraud prevention and detection. For example, Social Services provides a list of CalWORKs applicants and recipients to certain state and federal agencies that maintain information about individuals, such as their employment status, income, and outstanding felony warrants. When these state or federal agencies have information about an applicant or recipient, a match occurs and they create a match list that they send to Social Services. A discrepancy between information reported by the applicant or recipient to the CalWORKs or CalFresh programs and information about him or her as reported by state and federal agencies on a match list could result in his or her aid amount being reduced or could make the applicant or recipient ineligible for aid. For match lists containing financial and employment information, federal regulations require states to follow up within 45 days on matches related to recipients in their jurisdictions to determine whether the recipients’ eligibility has changed. Social Services performs on-site Income Eligibility and Verification System reviews at each of the counties once every three years—and Los Angeles County every year—to assess whether counties are processing match lists accurately and promptly. 1 When we performed our 2009 audit, CalFresh was known as the food stamp program. 4 California State Auditor Report 2015-503 June 2015 In addition, Social Services implemented the Statewide Fingerprint Imaging System (SFIS) in 2000 to help prevent fraud involving duplicate aid. In 2011 the Legislature repealed the fingerprint imaging requirement as a condition for receiving CalFresh benefits, but state law continues to require fingerprint imaging for CalWORKs. A fingerprint image and photograph for each eligible adult and each parent and caretaker relative of an eligible child in a CalWORKs case is required through SFIS. According to Social Services, the system enables counties to identify individuals applying for and potentially receiving aid in multiple jurisdictions and to identify individuals using falsified or fraudulently obtained documents to assume multiple identities for the purpose of receiving aid. Further, state regulations require the counties to maintain a special investigation unit (SIU) to investigate potential welfare fraud and to refer substantiated cases of fraud either for prosecution or for administrative settlement. In compliance with federal regulations, Social Services requires counties to report their welfare fraud investigation and prosecution activities each month. Social Services currently verifies the reports’ accuracy during its SIU reviews, which occur once every three years, except for Los Angeles County, which receives a review every year. Scope and Methodology The California State Auditor’s practice is to occasionally follow up on past audit reports to verify the agency’s assertions regarding its implementation of our recommendations. For this follow-up audit we assessed Social Services’ progress in implementing the recommendations from our 2009 audit regarding public assistance antifraud efforts—report 2009-101—which fall into six areas: cost-effectiveness of antifraud investigation and prosecution best practices, oversight of counties’ match list processing efforts, county concerns regarding match list formats and criteria, accuracy of overpayment collections, oversight of counties’ investigation activity reporting, and cost-effectiveness of SFIS. We interviewed Social Services staff and reviewed documentation supporting its implementation of our recommendations specific to these areas. California State Auditor Report 2015-503 5 June 2015 Audit Results The California Department of Social Services Does Not Consistently Identify or Share Cost-Effective Best Practices for Antifraud and Prosecution Activities The California Department of Social Services (Social Services) has not fully evaluated the cost-effectiveness of each county’s antifraud methods or sought to replicate the most cost-effective methods. As shown in Table 1 on the following page, Social Services has not fully implemented any of our six recommendations related to ensuring that counties use the most cost-effective fraud investigation and prosecution activities, including a recommendation that it implement the ideas of its own steering committee. Because Social Services is not providing guidance to counties in these areas, counties may continue to use inconsistent fraud investigation practices that vary in their effectiveness and thus the State may not maximize the amount of prevented overpayments. Social Services has not yet fully implemented our recommendation to develop a formula to determine why some counties’ California Work Opportunities and Responsibility to Kids (CalWORKs) and CalFresh antifraud efforts are more cost-effective than others. The formula we recommended would measure savings that a county achieves for each dollar spent on early fraud detection activities, which are activities that detect potential fraud and prevent it from occurring, or on ongoing investigations, which are activities involving cases in which counties suspect fraud by persons currently receiving aid. Although we previously concluded that Social Services had implemented this recommendation based on information it had provided us, this follow-up audit found that Social Services’ cost-savings formula does not include the cost of performing antifraud activities. Specifically, Social Services’ CalWORKs cost-savings formula includes only the savings generated from antifraud activities through the resulting denials, reductions, and discontinuations of aid and the associated reduction in administrative costs. However, the formula fails to measure the cost-effectiveness of counties’ efforts because it does not compare whether the savings that counties achieve are greater than the cost to perform antifraud activities. According to Social Services, it has not considered including the costs of performing antifraud activities in the formula because it needs to determine whether the data are available. In our previous report, we identified costs of early fraud detection efforts and ongoing investigations for computing the cost-effectiveness of antifraud activities, and we believe Social Services should be able to perform this analysis. Similarly, for the CalFresh program, Social Services’ cost-savings formula excludes the cost of performing antifraud activities. However, it also does not calculate the amount of CalFresh program benefits 6 California State Auditor Report 2015-503 June 2015 saved due to antifraud efforts. According to its fraud bureau chief, Social Services excludes these savings because the program benefits are funded entirely with federal money, and as a result, no state funds are saved. Therefore, Social Services limits the savings it calculates for the CalFresh program to the amount of administrative costs it estimates it saves as a result of denials and discontinuations of CalFresh aid. Although Social Services believes it has a valid reason for not calculating the amount of program benefits that are saved, our recommendation was not limited to a particular funding source and was never intended to measure only the amount of state funds saved. By not fully implementing our recommendation, Social Services is not ensuring that counties receive the greatest benefit from the resources it spends on antifraud efforts for the CalFresh program, regardless of funding source. Table 1 Status of Recommendations on the California Department of Social Services’ Cost-Effectiveness of Antifraud Investigation and Prosecution Best Practices CALIFORNIA DEPARTMENT OF CALIFORNIA SOCIAL SERVICES’ STATE AUDITOR’S (SOCIAL SERVICES) (STATE AUDITOR) ASSERTION OF DETERMINATION OF CURRENT STATUS AS CURRENT STATUS BASED RECOMMENDATION OF OCTOBER 2014 ON FOLLOW-UP AUDIT 1. To ensure that all counties consistently gauge the cost-effectiveness of their early fraud detection activities and ongoing investigation efforts for the California Work Opportunities and Responsibility to Kids (CalWORKs) program and CalFresh, which is the State’s version of the federal Supplemental Nutrition Assistance Program, Social Services should work with the counties to develop a formula to regularly perform a cost-effectiveness analysis using information that the counties currently submit. 2. To make certain that counties receive the greatest benefit from the resources they spend on antifraud efforts related to CalWORKs and CalFresh cases, Social Services should, using the results from the recommended cost-effectiveness analysis, determine why some counties’ efforts to combat welfare fraud are more cost-effective than others. 3. To make certain that counties receive the greatest benefit from the resources they spend on antifraud efforts related to CalWORKs and CalFresh cases, Social Services should seek to replicate the most cost-effective practices among all counties. 4. Social Services should track how counties determine prosecution thresholds for welfare fraud cases and determine the effects of these thresholds on counties’ decisions to investigate potential fraud, with a focus on determining best practices and cost-effective methods. It should then work with counties to implement the consistent use of these cost-effective methods. 5. Social Services should either ensure that counties follow state regulations regarding the use of administrative disqualification hearings or pursue changing the regulations. 6. To make certain that counties receive the greatest benefit from the resources they spend on antifraud efforts related to CalWORKs and CalFresh cases, Social Services should continue to address the recommendations of Social Services’ steering committee and promptly act on the remaining recommendations. Sources: State auditor’s recommendations in report 2009-101: Department of Social Services: For the CalWORKs and Food Stamp Programs, It Lacks Assessments of Cost-Effectiveness and Misses Opportunities to Improve Counties’ Antifraud Efforts; Social Services’ most recent response to the recommendations in report 2009-101; and the state auditor’s analysis of Social Services’ implementation activities. = Fully implemented = Not fully implemented = No action taken California State Auditor Report 2015-503 7 June 2015 Also, Social Services has not yet identified which antifraud practices Social Services has not yet identified are most cost-effective. According to the fraud bureau chief, which antifraud practices are most during special investigation unit (SIU) reviews, fraud bureau staff cost-effective. review the results of the cost-savings formula to identify counties that demonstrate successful early and ongoing fraud detection initiatives, and to identify other best practices through an ongoing network of regional meetings, regular county contacts, and compliance reviews. However, these results do not indicate which county initiatives are the most cost-effective because the cost-savings formula that counties use does not include the cost for them to perform their antifraud activities. If the fraud bureau had created the type of cost-effectiveness formula we recommended, it could use the counties’ results to better guide its staff in identifying the most cost-effective best practices of counties with the highest savings generated per dollar spent on antifraud activities. In a previous response to our recommendation that it seek to replicate the most cost-effective practices among all counties, Social Services asserted that it would add program integrity resource materials to its website, and that it might also include cost-effective antifraud practices that counties could adopt. However, this follow-up audit found that Social Services’ website does not contain any antifraud best practices and has only a few program integrity resources. According to the fraud bureau chief, Social Services shares antifraud best practices with counties at quarterly regional meetings. In addition, the fraud bureau chief told us that if her staff observes a particularly good antifraud practice during an SIU review, the staff may share this best practice with other counties informally when performing subsequent SIU reviews. However, this information is shared with other counties only as a way to help them resolve deficiencies found during their SIU review. Also, because Social Services performs these reviews only once every three years, this practice occurs infrequently. Nevertheless, the fraud bureau chief explained that Social Services shares these investigative practices informally and does not intend to make them available on its website because any documented practices made transparent to the public could jeopardize investigations and make antifraud practices less effective. The irregular and undocumented methods that Social Services currently uses to share this information could diminish counties’ access to important information regarding antifraud practices they could use. If Social Services believes these practices are sensitive information, it should consult with its legal counsel to assist the fraud bureau to determine whether to withhold information about these practices from public disclosure. In addition, Social Services has not taken action to implement our recommendation to track how counties determine prosecution thresholds—the minimum dollar amount at which each county 8 California State Auditor Report 2015-503 June 2015 district attorney generally prosecutes welfare fraud—and the effects of those thresholds on counties’ decisions to investigate welfare fraud. The fraud bureau chief disagrees with the finding upon which this recommendation is based, asserting that there is no direct relationship between a prosecution threshold and a county’s decision to investigate welfare fraud. According to the fraud bureau chief, state regulations require counties to investigate all cases of potential welfare fraud, regardless of their dollar value. However, we note that these regulations also allow counties some discretion in determining the order in which they investigate cases of potential welfare fraud. When a person suspected of fraud is in the process of applying for aid, a county must prioritize that case before investigating any other case, so as not to delay that person’s application process. For other cases counties may confer with local prosecutors to establish their own methods for prioritizing the cases for investigation, such as investigating cases with the highest dollar value, first. Our 2009 audit found that county district attorneys set monetary thresholds below which they generally do not prosecute fraud, that these thresholds vary among counties, and that these thresholds can be as high as $10,000. If county district attorneys are using the dollar amount of their prosecution threshold to decide which cases they will investigate first, some cases with dollar values that are beneath this threshold may never be investigated because the statute of limitations could expire before these cases are investigated. Thus, in the absence of guidance from Social Services regarding the prosecution thresholds that are most cost-effective for counties to adopt, some counties may not be investigating cases that could otherwise be successfully prosecuted. Therefore, as we recommended in 2009, Social Services should track counties’ prosecution thresholds for welfare fraud cases and determine if these thresholds affect counties’ decisions to investigate potential fraud. Although Social Services has taken Furthermore, although Social Services has taken some actions to some actions to address counties’ address counties’ limited use of administrative disqualification limited use of administrative hearings, it has not yet ensured that all counties use these hearings. disqualification hearings, it has not State regulations require counties to conduct administrative yet ensured that all counties use disqualification hearings for CalFresh fraud cases when the facts these hearings. of the case do not warrant prosecution or when a case has been referred for prosecution but the county district attorney declines to take action. Although state regulations require counties to use the administrative disqualification hearing process, according to the fraud bureau chief, counties were hesitant to use this process because they were unfamiliar with or had misinformation about the process. Thus, between June and October 2014 Social Services conducted formal statewide trainings to provide counties guidance on the process. These statewide trainings have successfully led to three more counties using the administrative disqualification California State Auditor Report 2015-503 9 June 2015 hearing process. However, because only 10 counties were using administrative disqualification hearings as of May 2015, Social Services must achieve all counties’ participation before we can consider our recommendation to be fully implemented. The fraud bureau chief told us Social Services will issue a letter to counties in summer 2015 reminding them of the requirement to use the administrative disqualification hearing process. In addition, she indicated that Social Services will verify during SIU reviews whether counties are using administrative disqualification hearings, and if they are not, Social Services will issue findings and follow up to verify that they begin doing so. Finally, in our 2009 audit we recommended that Social Services Social Services is still working to continue to address the recommendations of its own steering implement recommendations committee, which it formed to identify cost-effective made in 2008 by its own approaches for improving program integrity in the CalWORKs steering committee, which it and CalFresh programs. In 2008 this steering committee formed to identify cost-effective made nine recommendations to Social Services, including a approaches for improving program recommendation that Social Services provide counties regular integrity in the CalWORKs and reports to enable them to monitor the cost-effectiveness of their CalFresh programs. program integrity efforts to combat welfare fraud, maintain a central repository of fraud training ideas and materials created by counties and accessible to other counties via Social Services’ website, and review the cost-effectiveness of the various data match systems. More than five years later, Social Services has implemented five of the nine recommendations of this committee. However, as we mentioned previously, Social Services has not created a central repository of fraud training ideas because it believes such a repository could become public and that making these antifraud practices public could make them less effective. Social Services is still working to implement the four remaining recommendations. To the extent that these recommendations represent actions that could improve Social Services’ oversight of the counties’ antifraud efforts, its delay in implementing them reduces the effectiveness of its oversight role. Social Services Does Not Ensure That Counties Correct Findings From Its Reviews and Does Not Effectively Enforce Counties’ Prompt Processing of Match Lists Social Services has not fully implemented our recommendations to improve its oversight of counties’ processing of match lists, as shown in Table 2 on the following page. Match lists contain information about individuals who are applying for or receiving CalWORKs aid, such as their employment, income, and outstanding felony warrants. A discrepancy between information reported by the applicant or recipient to the CalWORKs program and information reported by state and federal agencies on a match 10 California State Auditor Report 2015-503 June 2015 list could cause an applicant’s or recipient’s aid amount to be reduced, or could make him or her ineligible for aid. As a result, these lists can be used to detect welfare fraud. Table 2 Status of Recommendations on the California Department of Social Services’ Oversight of Counties’ Match List Processing CALIFORNIA DEPARTMENT CALIFORNIA STATE OF SOCIAL SERVICES’ (SOCIAL AUDITOR’S (STATE SERVICES) ASSERTION OF AUDITOR) DETERMINATION CURRENT STATUS AS OF ITS OF CURRENT STATUS BASED RECOMMENDATION MOST RECENT RESPONSE* ON FOLLOW-UP AUDIT 7. To ensure that counties are consistently following up on all match lists, Social Services should perform Income Eligibility Verification System reviews of all counties regularly, and should better enforce the counties implementation of its recommendations to correct any findings, and should verify implementation of the corrective action plans submitted. 8. To ensure that counties are consistently following up on all match lists, Social Services should remind counties of their responsibility under state regulations to follow up diligently on all match lists. Further, it should work with counties to determine why poor follow-up exists and address those reasons. Sources: State auditor’s recommendations in report 2009-101: Department of Social Services: For the CalWORKs and Food Stamp Programs, It Lacks Assessments of Cost-Effectiveness and Misses Opportunities to Improve Counties’ Antifraud Efforts; Social Services’ most recent response to the recommendations in report 2009-101; and the state auditor’s analysis of Social Services’ implementation activities. * Social Services responded to recommendation 7 in January 2012 and to recommendation 8 in October 2014. = Fully implemented = Not fully implemented Federal law requires the states to help ensure that overpayments do not occur by maintaining a system to screen welfare program applicants and recipients against these match lists for initial and ongoing eligibility. This system is known as the Income and Eligibility Verification System (IEVS). Although federal law does not require California to use IEVS for CalFresh applicants, state regulations require that all CalFresh applicants and recipients receive IEVS screening. Social Services regularly provides counties with 10 match lists, and federal regulations require that five of these 10 lists be processed within 45 days of receipt. For the remaining five match lists, Social Services requires counties to process these lists by the quarter following the quarter in which it was received. As we discuss in the Introduction, Social Services conducts on-site IEVS reviews at each of the counties once every three years to assess whether counties are processing these match lists within the required time frames. Although Social Services is performing IEVS reviews regularly, as we found in 2009, it is not consistently verifying that counties correct the findings identified in its IEVS reviews. Specifically, Social Services substantially achieved its goal to California State Auditor Report 2015-503 11 June 2015 visit Los Angeles County every year for an IEVS review, and to visit the other 57 counties at least once during the last three fiscal years: 2011–12, 2012–13, and 2013–14. According to the program manager of the Overpayment and Collections Review unit, IEVS review staff monitor the counties’ progress toward correcting findings from IEVS reviews quarterly, and provide technical assistance until the findings are resolved. However, our testing of three IEVS reviews—Butte, Los Angeles, and Nevada counties— that Social Services conducted during fiscal year 2013–14 found that for one of the reviews, Social Services considered a finding corrected even though the county continued to be significantly out of compliance. Specifically, for one match list Social Services found that Butte County was not processing matches within the required 45 days. However, in its follow-up on this finding, Social Services If Social Services does not ensure indicated that the county had completed its corrective action even that counties correct all findings though the county had not processed 78 percent of the items on from IEVS reviews, instances of this particular match list within the required 45 days. If Social fraud could go undetected, causing Services does not ensure that counties correct all findings from counties to continue to pay benefits IEVS reviews, late match list processing is more likely to persist. to ineligible recipients. As a result, instances of fraud could go undetected, causing the counties to continue to pay benefits to ineligible recipients. Furthermore, Social Services has not implemented our recommendation to determine why poor match list follow-up exists at the counties and to address those reasons. The three IEVS reviews we tested each reported that the respective county was not processing some of its match lists within the required time frames and that each county had a backlog of at least several hundred unprocessed matches. Although the program manager of the Overpayment Collections and Review unit indicated that IEVS reviewers discuss with counties the issues they find, we observed in the three IEVS reviews we tested that the supporting files contain no analysis or determination of the reasons why counties are failing to meet required time frames for processing match lists. Consequently, recommendations made in IEVS reviews may not address the specific obstacles that are hampering a county’s efforts to promptly process the match lists. Social Services’ lack of formal, documented policies and procedures for how its staff are to conduct and document IEVS reviews may contribute to the problems that we identified. Finally, Social Services has not implemented our recommendation to formally remind counties of their responsibility under state regulations to follow up diligently on all match lists. In response to this follow-up audit, Social Services indicated that it plans to issue this reminder by July 2015 and will further remind counties thereafter during IEVS reviews. 12 California State Auditor Report 2015-503 June 2015 Social Services Has Not Addressed Problems With the Match Lists That Create Unnecessary Additional Work for Counties In 2009 we recommended that Social Services work with the counties and federal agencies to address counties’ concerns regarding match list formats and criteria, but as shown in Table 3, Social Services has not fully implemented our recommendation. Social Services did conduct a series of focus group discussions in 2011 with groups that included county workers who use the match lists to identify discrepancies, and in 2013 summarized the problems with the match lists that state and county stakeholders had identified. According to the fraud bureau chief, Social Services has not taken action to address the concerns that the focus groups identified. However, Social Services is developing a central mechanism for digitizing the IEVS match lists, known as electronic IEVS (e-IEVS), which will address counties’ concern with paper-based match lists. According to Social Services, it currently provides only four of the 10 match lists in paper form, and it is working to develop e-IEVS so that it can provide all match lists electronically to counties. Social Services believes that the e-IEVS system will be developed and ready for implementation by June 2016. Table 3 Status of Recommendation on the California Department of Social Services Addressing Counties’ Concerns Regarding Match List Formats and Criteria CALIFORNIA DEPARTMENT CALIFORNIA STATE AUDITOR’S OF SOCIAL SERVICES’ (SOCIAL (STATE AUDITOR) DETERMINATION SERVICES) ASSERTION OF CURRENT OF CURRENT STATUS BASED ON RECOMMENDATION STATUS AS OF OCTOBER 2014 FOLLOW-UP AUDIT 9. To ensure that counties are consistently following up on all match lists, Social Services should revive its efforts to work with counties and federal agencies to address the counties’ concerns about match list formats and criteria. Sources: State auditor’s recommendations in report 2009-101: Department of Social Services: For the CalWORKs and Food Stamp Programs, It Lacks Assessments of Cost-Effectiveness and Misses Opportunities to Improve Counties’ Antifraud Efforts; Social Services’ most recent response to the recommendations in report 2009-101; and the state auditor’s analysis of Social Services’ implementation activities. = Not fully implemented Although e-IEVS will address the counties’ concern with paper-based match lists, other problems with the underlying format and content of the match lists will persist after e-IEVS is implemented. For example, the Social Services focus groups that held discussions regarding the match lists in 2011 indicated that counties are forced to resolve deceased person matches that are false positives because the deceased persons match list includes only the names of the deceased and does not include their Social Security numbers. Identifying both the name and the Social Security number of the deceased person would save the counties time and effort by eliminating many of the false matches that currently occur when a living applicant or recipient of aid California State Auditor Report 2015-503 13 June 2015 happens to have the same name as a deceased person. Despite the focus groups identifying this as a problem, Social Services has not requested that the California Department of Public Health and the Social Security Administration—which collaborate to provide the list of deceased persons to Social Services—include the Social Security number along with each deceased person’s name. In addition, Social Services has not actively worked with state or federal agencies to make any of the other time-saving changes to the content and format of the match lists that would address the many other problems county and state stakeholders have identified. If Social Services does not address counties’ concerns, match lists will continue to create unnecessary and burdensome additional work for the counties, regardless of whether they are in paper or electronic format. Social Services Risks Inaccurate Reconciliation of Funds Owed to State, Local, and Federal Governments Although Social Services has taken positive steps toward promptly reconciling collections of benefits overpaid to CalFresh recipients (overpayment collections), it has not fully implemented our recommendation regarding overpayment collections, as shown in Table 4 on the following page. Social Services uses counties’ overpayment collections reports to calculate the amount of funds recovered under the CalFresh program that is due to each county, the federal government, and itself. We previously confirmed that Social Services recovered $39.8 million of the $42.1 million backlog of overpayment collections that we identified in our 2009 We tested the overpayment report.2 This follow-up audit found that Social Services continues collections for the third quarter to promptly collect and distribute overpayments. Specifically, we of 2014 and found that Social tested the overpayment collections for the third quarter of 2014 and Services accurately calculated and found that Social Services accurately calculated and distributed the distributed the overpayments to the overpayments to the appropriate parties. appropriate parties. Although recent local validations of counties’ overpayment collections reports revealed inaccuracies, Social Services still has not begun monitoring the accuracy of these reports as we recommended in 2009. At the direction of the federal government, the 19 largest counties received validations to assess the accuracy of their reports. Specifically, at the time of our 2009 audit, the United States Department of Agriculture (USDA) had required these 19 counties to each obtain a validation to review the information reported in their respective overpayment collections reports for one quarter in 2007. This validation effort was to 2 The total overpayment collections of $42.1 million identified in our 2009 audit changed to $39.8 million due to adjustments and revisions that occurred when Social Services reconciled the overpayments with federal records. 14 California State Auditor Report 2015-503 June 2015 address concerns about the accuracy of these reports that the USDA had raised over the course of several years. Subsequently, between 2009 and 2015, the USDA has twice more directed Social Services to require these same 19 counties to have either an internal or independent auditor perform this validation of one quarter of overpayment collections reports. Social Services’ summary of the results of the most recent validations, received in 2014, noted that 12 of the 19 counties had discrepancies or errors. For example, the validation of San Diego County identified a discrepancy in which it overreported the amount of overpayments owed to the county (claims) by approximately $10.9 million, which represented almost 31 percent of its actual ending balance of claims. These validation reports demonstrate that there are ongoing problems with the accuracy of the counties’ reporting of information on their overpayment collections reports that warrant monitoring by Social Services, as we recommended in 2009. Table 4 Status of Recommendation on the California Department of Social Services’ Overpayment Collections CALIFORNIA DEPARTMENT CALIFORNIA STATE AUDITOR’S OF SOCIAL SERVICES’ (SOCIAL (STATE AUDITOR) DETERMINATION SERVICES) ASSERTION OF CURRENT OF CURRENT STATUS BASED ON RECOMMENDATION STATUS AS OF NOVEMBER 2010 FOLLOW-UP AUDIT 10. To expedite the distribution of the $42.1 million in CalFresh overpayment collections to the appropriate entities, Social Services should continue to work with the United States Department of Agriculture and make its reconciliation of the backlog of overpayments a priority. Further, it should develop procedures to ensure that it promptly reconciles future overpayments. Additionally, Social Services should continue to monitor the counties collections reports to ensure that counties are reporting accurate information. Sources: State auditor’s recommendations in report 2009-101: Department of Social Services: For the CalWORKs and Food Stamp Programs, It Lacks Assessments of Cost-Effectiveness and Misses Opportunities to Improve Counties’ Antifraud Efforts; Social Services’ most recent response to the recommendations in report 2009-101; and the state auditor’s analysis of Social Services’ implementation activities. = Fully implemented = Not fully implemented However, Social Services is not currently evaluating the accuracy of the overpayment collections reports. In its November 2010 response to our recommendation, Social Services indicated that it evaluates the accuracy of counties’ overpayment collections reports during its triennial IEVS site reviews (except for Los Angeles, which receives annual IEVS reviews). Nevertheless, we found that this evaluation does not occur. According to the chief of the fiscal systems and accounting branch, at the behest of the USDA, Social Services requests the 19 largest counties to complete a validation of the overpayment collections reports, as these 19 counties represent over 80 percent of statewide collections. However, the USDA does not direct the 19 largest counties to obtain these validations California State Auditor Report 2015-503 15 June 2015 on a regular basis, and it may not require them in the future. In addition, the fact that the most recent validations revealed that 12 of the 19 counties’ overpayment collections reports contained errors underscores the need for Social Services to implement our recommendation to monitor county collections reports to ensure that the counties’ reporting is accurate. Although the validations that the USDA directs 19 counties to perform may partially address the need to monitor the counties’ reports for accuracy, we believe it is necessary for all 58 counties’ overpayment Until Social Services takes steps collections reports to be monitored for accuracy, at least on to better ensure the accuracy of a rotational basis. Further, until Social Services takes steps to counties’ overpayment collections better ensure the accuracy of counties’ overpayment collections reports, there is risk that reports, there is risk that counties will continue to report counties will continue to report inaccurate information. inaccurate information. Social Services Has Not Ensured That Counties Accurately Report Investigation Activity Social Services has not sufficiently addressed our recommendations to ensure the accuracy and consistency of the information on CalWORKs fraud investigation activities that counties report to Social Services, and that Social Services subsequently reports to the federal government, the Legislature, and other stakeholders. As Table 5 on the following page shows, this follow-up audit found that after more than five years, Social Services still has not fully implemented three of the four recommendations in this area from our 2009 audit. Social Services could not demonstrate that it implemented our recommendation to perform more diligent reviews of the counties’ investigation activity reports for accuracy or that it provided counties with feedback on how to correct or prevent errors that it detected during reviews. To meet federal reporting requirements, Social Services requires counties to submit monthly investigation activity reports that summarize their investigative efforts and the results of those efforts. Social Services indicated that it assesses the accuracy of investigation activity reports during its SIU reviews, the on-site evaluations of a county’s process for investigating and prosecuting suspected fraud performed once every three years. However, of the three SIU reviews we evaluated, we found that Social Services provided feedback to only one county regarding errors that its reviewers detected, and none of the three SIU reviews contained documentation of the analysis that staff performed to detect errors. The fraud bureau chief indicated that she was unable to locate the missing elements of the review documentation because the staff who performed the reviews no longer work for Social Services. We also noted that Social Services has no procedures detailing how staff are to perform these reviews, 16 California State Auditor Report 2015-503 June 2015 which would ensure the consistency of the reviews and the related supporting documentation. Lack of a formal documented review process creates the risk that reviewers will vary in the methods they use, resulting in inconsistently performed and documented reviews. In addition, without documented procedures Social Services will lose institutional knowledge of review practices when staff leave the unit. Table 5 Status of Recommendations on the California Department of Social Services’ Oversight of Counties’ Investigation Activity Reporting CALIFORNIA DEPARTMENT OF CALIFORNIA STATE AUDITOR’S SOCIAL SERVICES’ (SOCIAL SERVICES) (STATE AUDITOR) DETERMINATION ASSERTION OF CURRENT STATUS AS OF CURRENT STATUS BASED ON RECOMMENDATION OF ITS MOST RECENT RESPONSE* FOLLOW-UP AUDIT 11. To ensure the accuracy and consistency of the information on welfare fraud activities that counties report and that Social Services subsequently reports to the federal government, the Legislature, and internal users, Social Services should perform more diligent reviews of the counties’ investigation activity reports to verify the accuracy of the information submitted. 12. To ensure the accuracy and consistency of the information on welfare fraud activities that counties report and that Social Services subsequently reports to the federal government, the Legislature, and internal users, Social Services should provide counties with feedback on how to correct and prevent errors that it detects during this review. 13. To ensure the accuracy and consistency of the information on welfare fraud activities that counties report and that Social Services subsequently reports to the federal government, the Legislature, and internal users, Social Services should continue with regular meetings of its workgroup to further its efforts to clarify its instructions for completing the counties’ investigation activity reports. 14. To ensure the accuracy and consistency of the information on welfare fraud activities that counties report and that Social Services subsequently reports to the federal government, the Legislature, and internal users, Social Services should remind counties that they are responsible for reviewing the accuracy and consistency of investigation activity reports before submission. Sources: State auditor’s recommendations in report 2009-101: Department of Social Services: For the CalWORKs and Food Stamp Programs, It Lacks Assessments of Cost-Effectiveness and Misses Opportunities to Improve Counties’ Antifraud Efforts; Social Services’ most recent response to the recommendations in report 2009-101; and the state auditor’s analysis of Social Services’ implementation activities. * Social Services responded to recommendation 11 in January 2012, to recommendation 12 in October 2012, and to recommendations 13 and 14 in October 2014. = Fully implemented = Not fully implemented Five years after we issued our recommendation, Social Services has not clarified its instructions to the counties for completing the monthly investigation activity reports. In our 2009 audit we found that some counties inconsistently reported the actions resulting from ongoing investigations, a situation that hinders the comparability of the data that counties submit in their investigation activity reports. We concluded that unclear instructions caused these inconsistencies. In January 2009 Social Services formed an informal workgroup to revise the instructions; however, Social Services halted its revision California State Auditor Report 2015-503 17 June 2015 process because of limited resources. Further, the USDA informed Social Services that it planned to revise the State’s reporting requirements, which may change the information that Social Services requires counties to report. To avoid creating the need for counties to implement two separate rounds of revisions, the fraud bureau chief said that Social Services is waiting to issue final revised instructions for the state form until the USDA revises the federal form. According to the fraud bureau chief, the USDA will issue its final reporting requirement regulation in approximately January 2016. After the final regulation is issued, the USDA will give states approximately 12 months to develop and implement the new reporting requirements. Social Services estimates that the first required submission under the new reporting requirements will be October 2017. Although we agree that Social Services’ decision to wait until the USDA takes action to issue clarified instructions is reasonable, in the interim we believe that Social Services should Social Services should issue issue clarifications for the most common errors it finds that clarifications for the most common counties make, which it has not done. If Social Services does errors it detects in the counties’ not clarify the instructions to avoid the most frequent errors it investigation activity reports to detects in the counties’ investigation activity reports, counties eliminate counties submitting will continue to submit reports that contain inaccurate and reports that contain inaccurate incomparable information. and incomparable information. Finally, in response to this follow-up audit, Social Services issued its first reminder to counties in March 2015 that they are responsible for reviewing the accuracy and consistency of their investigation activities reports, thus fully implementing our recommendation. Social Services indicated that going forward it will issue this reminder annually. Social Services Has Chosen Not to Evaluate the Cost-Effectiveness of the Statewide Fingerprint Imaging System Designed to help prevent and detect fraud involving duplicate aid, the Statewide Fingerprint Imaging System (SFIS) uses fingerprint images of CalWORKs program participants to identify individuals applying for and receiving aid in multiple jurisdictions. SFIS is a condition of eligibility for receiving aid through the CalWORKs program. Although counties are required to establish an applicant’s eligibility for CalWORKs within 45 days, counties are not required to clear their backlogs of discrepancies identified by SFIS. As we observed in our 2009 audit, each year only a very small number of discrepancies detected by SFIS were instances of fraud. However, Social Services continues to indicate that it will not implement our 2009 recommendation to evaluate the cost-effectiveness of SFIS, as shown in Table 6 on the following page. 18 California State Auditor Report 2015-503 June 2015 Table 6 Status of Recommendation on the California Department of Social Services’ Cost-Effectiveness of the Statewide Fingerprint Imaging System CALIFORNIA DEPARTMENT OF CALIFORNIA STATE AUDITOR’S SOCIAL SERVICES’ (SOCIAL SERVICES) (STATE AUDITOR) DETERMINATION ASSERTION OF CURRENT STATUS AS OF CURRENT STATUS BASED ON RECOMMENDATION OF OCTOBER 2014 FOLLOW-UP AUDIT 15. Recognizing that the deterrence effect is difficult to measure, Social Services should develop a method that allows it to gauge the cost-effectiveness of the Statewide Fingerprint Imaging System (SFIS). Social Services should include in its efforts to measure cost-effectiveness the administrative cost that counties incur for using SFIS. Based on its results, Social Services should determine whether the continued use of SFIS is justified. Sources: State auditor’s recommendations in report 2009-101: Department of Social Services: For the CalWORKs and Food Stamp Programs, It Lacks Assessments of Cost-Effectiveness and Misses Opportunities to Improve Counties’ Antifraud Efforts; Social Services’ most recent response to the recommendations in report 2009-101; and the state auditor’s analysis of Social Services’ implementation activities. = Will not implement SFIS produces limited results at a high cost. Specifically, in 2014 SFIS cost over $12 million to operate, but it helped detect only 57 instances of CalWORKs fraud, a cost of over $215,000 per case. Social Services has not tracked the amount of savings that resulted from identifying these 57 cases. Further, between 2010 and 2014 SFIS helped detect only 299 instances of CalWORKs and CalFresh fraud.3 In addition, the large, ongoing historical backlog of SFIS results awaiting resolution by counties may further limit the cost-effectiveness of SFIS. As of December 2014 the statewide backlog of unresolved SFIS cases among counties was more than 8,500. Any cases of actual fraud that this backlog of SFIS discrepancies contains will go unaddressed unless and until the counties determine whether those discrepancies are due to administrative error or potential fraud. In a previous response to our 2009 recommendation, Social Services asserted that the chief benefit of SFIS is that it deters people from fraudulently applying for aid. However, in a 2003 audit report,4 we found that Social Services did not determine the amount of this deterrent effect when it was possible to do so, which would have been at the time SFIS was implemented. In the absence of a cost-effectiveness analysis, we believe that Social Services should annually provide the Legislature with the cost of SFIS and the total instances of duplicate-aid fraud—instances of fraud in which an individual either receives aid in multiple counties or uses falsified or fraudulently obtained documents in order to assume multiple identities for the purpose of receiving aid—that SFIS leads counties 3 The Legislature repealed the fingerprint imaging requirement for the CalFresh program in 2011. 4 California State Auditor’s Report 2001-015, Statewide Fingerprint Imaging System: The State Must Weigh Factors Other Than Need and Cost-Effectiveness When Determining Future Funding of the System (January 2003). California State Auditor Report 2015-503 19 June 2015 to detect. This information will allow the Legislature to assess the cost-effectiveness of SFIS based on the actual duplicate-aid fraud it helps detect and to determine whether SFIS continues to be a good use of limited resources for conducting antifraud activities. In our 2009 audit we reported that five states, including California, required applicants for public assistance to undergo fingerprint imaging. Since then, three of these states have repealed their use of fingerprint imaging for at least one of their public assistance programs. Specifically, New York and California repealed the requirement for their respective Supplemental Nutrition Assistance Programs (SNAP), and Texas repealed the requirement for both its SNAP and Temporary Assistance for Needy Families program. In addition to the high cost, all three states were concerned that the requirement might deter eligible households from participating in public assistance programs. According to the chief of program integrity, Social Services is working to identify alternative approaches to detecting and preventing duplicate-aid fraud. However, Social Services has not determined when it will select and implement an alternative, and it has not assessed the cost-effectiveness of any alternative methods. Social Services also has not determined whether repealing the SFIS requirement for the CalFresh program has resulted in an increased level of duplicate-aid fraud in that program, which is information that could help Social Services determine whether or not duplicate-aid fraud actually exists in California at significant enough levels to justify the annual cost of SFIS, which was over $12 million in 2014. In the meantime, state law continues to require counties to administer SFIS as a part of the CalWORKs application process. Recommendations To ensure that staff monitor both counties’ processing of match lists and counties’ reporting of investigation activity in a consistent and effective manner, Social Services should develop and document formal procedures for the IEVS and SIU review processes. Because Social Services will not implement our recommendation to gauge the cost-effectiveness of SFIS, the Legislature should require Social Services to annually report on the cost of SFIS and the fraud that it helps detect. Specifically, the Legislature should require Social Services to annually report to the Legislature the following metrics: • The annual cost to maintain and operate SFIS. 20 California State Auditor Report 2015-503 June 2015 • The total instances of duplicate-aid fraud that counties detect as a result of SFIS and the total amount of overpayments that they recover. • The total backlog of unprocessed SFIS matches as of December 31 of each year. The Legislature should require Social Services to determine the cost-effectiveness of any proposed alternative to SFIS in advance of Social Services adopting any such alternative method or tool to detect and prevent duplicate-aid fraud. To ensure that counties’ efforts to combat fraud in the CalWORKs and CalFresh programs are effective, Social Services should address our recommendations from our 2009 audit. The following are the parts of the recommendations from our 2009 audit that we determined Social Services has not fully implemented: • To ensure that all counties consistently gauge the cost-effectiveness of their early fraud detection activities and ongoing investigation efforts for the CalWORKs and CalFresh programs, Social Services should develop a formula to regularly perform a cost-effectiveness analysis using information that the counties currently submit. Specifically, this formula should measure the savings that a county achieves for each dollar spent on antifraud efforts. • To make certain that counties receive the greatest benefit from the resources they spend on antifraud efforts related to CalWORKs and CalFresh cases, Social Services should, using the results from the recommended cost-effectiveness analysis, determine why some counties’ efforts to combat welfare fraud are more cost-effective than others. • To make certain that counties receive the greatest benefit from the resources they spend on antifraud efforts related to CalWORKs and CalFresh cases, Social Services should seek to replicate the most cost-effective practices among all counties. Social Services should work with its legal counsel to determine whether to withhold information about these practices from public disclosure. • Social Services should track counties’ prosecution thresholds for welfare fraud cases and determine whether they affect counties’ decisions to investigate potential fraud, with a focus on determining best practices and cost-effective thresholds. If Social Services’ analysis determines that varying prosecution California State Auditor Report 2015-503 21 June 2015 thresholds do affect counties’ decisions, it should then work with counties to implement the consistent use of these cost-effective prosecution thresholds. • Social Services should continue its efforts to ensure that counties follow state regulations regarding the use of the administrative disqualification hearings process until all counties have adopted the process. • To make certain that counties receive the greatest benefit from the resources they spend on antifraud efforts related to CalWORKs and CalFresh cases, Social Services should address and promptly act on the four remaining recommendations that its steering committee provided in 2008. • To ensure that counties are consistently following up on all match lists, Social Services should better enforce the counties’ implementation of its recommendations from the IEVS reviews and verify implementation of the corrective action plans that counties submit. • To ensure that counties are consistently following up on all match lists, Social Services should remind counties of their responsibility under state regulations to follow up diligently on all match lists. Further, it should work with counties to determine why poor follow-up exists and address those reasons. • To make counties’ review of match lists more efficient, Social Services should revive its efforts to work with state and federal agencies that prepare the match lists to address the counties’ concerns about match list formats, content, and criteria. • To ensure the accuracy of the overpayments that counties collect and report for the CalFresh program, Social Services should create a process to verify on a rotational basis the counties’ overpayment collections reports. • To ensure the accuracy and consistency of the information on welfare fraud activities that counties report and that Social Services subsequently reports to the federal government, the Legislature, and internal users, Social Services should perform more diligent reviews of the counties’ investigation activity reports to verify the accuracy of the information submitted. • To ensure the accuracy and consistency of the information on welfare fraud activities that counties report and that Social Services subsequently reports to the federal government, 22 California State Auditor Report 2015-503 June 2015 the Legislature, and internal users, Social Services should provide counties with feedback on how to correct and prevent errors that it detects while reviewing counties’ investigation activity reports. • To ensure the accuracy and consistency of the information on welfare fraud activities that counties report and that Social Services subsequently reports to the federal government, the Legislature, and internal users, Social Services should incorporate the upcoming federal changes to the revision of its instructions for completing the counties’ investigation activity reports. In the interim, Social Services should issue clarifications for the most common errors Social Services observes counties make in reporting their investigation activities. We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the scope and methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor Date: June 23, 2015 Staff: John Baier, CPA, Audit Principal Whitney M. Smith Jerry A. Lewis, CICA Michelle J. Sanders Lisa J. Sophie, MPH Legal Counsel: J. Christopher Dawson, Sr. Staff Counsel For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255. California State Auditor Report 2015-503 23 June 2015 * * California State Auditor’s comments begin on page 47. 24 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 25 June 2015 1 2 2 26 California State Auditor Report 2015-503 June 2015 2 3 4 California State Auditor Report 2015-503 27 June 2015 5 2 28 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 29 June 2015 30 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 31 June 2015 32 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 33 June 2015 34 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 35 June 2015 36 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 37 June 2015 38 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 39 June 2015 40 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 41 June 2015 42 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 43 June 2015 44 California State Auditor Report 2015-503 June 2015 California State Auditor Report 2015-503 45 June 2015 46 California State Auditor Report 2015-503 June 2015 Blank page inserted for reproduction purposes only. California State Auditor Report 2015-503 47 June 2015 Comments CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE CALIFORNIA DEPARTMENT OF SOCIAL SERVICES To provide clarity and perspective, we are commenting on the California Department of Social Services’ (Social Services) response to our audit. The numbers below correspond to the numbers we have placed in the margins of Social Services’ response. 1 Social Services’ statement implies it took action to discontinue the use of the Statewide Fingerprint Imaging System (SFIS) for the CalFresh program. To clarify, the Legislature repealed the use of SFIS for CalFresh (Chapter 501, Statutes of 2011). 2 It concerns us that Social Services indicates in its response that it plans to wait until June 2016, or nearly a year after the release of our follow-up audit—and more than six years after our original recommendation—before deciding whether it will implement our recommendation to develop a formula for evaluating the cost-effectiveness of counties’ antifraud activities. As we state on page 5, although Social Services claimed it had fully implemented our 2009 recommendation to develop a cost-effectiveness formula to measure savings that a county achieves for each dollar spent on antifraud activities, our follow-up audit found that the cost-savings formula that Social Services uses includes only the savings and not the counties’ costs to perform antifraud activities—rendering it nearly useless for its intended purpose. 3 Social Services asserts that there is no direct relationship between prosecution thresholds and counties’ decisions to investigate welfare fraud. However, as we state on pages 7 and 8, Social Services has not taken action to implement our recommendation to track how counties determine prosecution thresholds and the effects of those thresholds on counties’ decisions to investigate potential welfare fraud. We expect Social Services to demonstrate the presence or absence of this effect through an analysis of actual county practices, rather than through supposition. 4 Although Social Services asserts that its administrative disqualification hearing (ADH) training has led five additional counties to begin using the ADH process, Social Services did not provide evidence to fully support this claim. As we state on page 8, Social Services was able to demonstrate that it conducted statewide ADH trainings between June and October 2014, and these trainings successfully led to three more counties using the ADH process. The two additional counties to which Social Services refers began using ADH before June 2014. 48 California State Auditor Report 2015-503 June 2015 5 Contrary to Social Services’ statement, our analysis found that it did not revise the investigation activity report to include additional data as the steering committee had recommended in 2008. We compared a version of the investigation activity report used in July 2014 to a version used in July 2004 and also to the version that Social Services provided as Attachment A to its response to our follow-up audit. We found no difference between these three versions of the investigation activity report. Moreover, all three versions of the investigation activity report indicate that the last revision date was “7/04” (July 2004)—four years before the steering committee’s recommendation—as shown on pages 31 to 45. Thus, we expect Social Services to identify the additional data that its steering committee expected it to include, and then revise its investigation activity report accordingly.