Alameda County

ALAMEDA COUNTY Audit Report HANDICAPPED AND DISABLED STUDENTS PROGRAM Chapter 1747, Statutes of 1984, and Chapter 1274, Statutes of 1985 July 1, 2002, through June 30, 2005 J C OHN HIANG California State Controller August 2008 J C OHN HIANG California State Controller August 13, 2008 The Honorable Scott Haggerty, President Board of Supervisors Alameda County 1221 Oak Street, Room 536 Oakland, CA 94612 Dear Supervisor Haggerty: The State Controller’s Office audited the costs claimed by Alameda County for the legislatively mandated Handicapped and Disabled Students Program (Chapter 1747, Statutes of 1984, and Chapter 1274, Statutes of 1985) for the period of July 1, 2002, through June 30, 2005. The county claimed $13,816,570 ($13,818,570 less a $2,000 penalty for filing a late claim) for the mandated program. Our audit disclosed that $12,081,799 is allowable and $1,734,771 is unallowable. The unallowable costs resulted primarily because the county (1) used incorrect rates and units to calculate costs, (2) claimed ineligible services, and (3) incorrectly calculated offsetting revenues. The unallowable costs also include an adjustment for the amount of allowable costs that exceed claimed costs for fiscal year 2002-03. The State paid the county $3,475,135. Allowable costs claimed exceed the amount paid by $8,606,664. If you disagree with the audit findings, you may file an Incorrect Reduction Claim (IRC) with the Commission on State Mandates (CSM). The IRC must be filed within three years following the date that we notify you of a claim reduction. You may obtain IRC information at CSM’s Web site, at www.csm.ca.gov (Guidebook link); you may obtain IRC forms by telephone at (916) 323-3562 or by e-mail, at csminfo@csm.ca.gov. If you have any questions, please contact Jim L. Spano, Chief, Mandated Cost Audits Bureau, at (916) 323-5849. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB/sk:vb:wm Scott Haggerty, President -2- August 13, 2008 cc: The Honorable Patrick O’Connell Auditor-Controller, Alameda County Marye Thomas, M.D. Behavioral Health Care Services Alameda County Leda Frediani, Financial Services Officer Behavioral Health Care Services Alameda County Sherie Peterson Auditor-Controller’s Office Alameda County Todd Jerue, Program Budget Manager Corrections and General Government Department of Finance Stacey Wofford Special Education Program Department of Mental Health Cynthia Wong, Manager Special Education Division California Department of Education Alameda County Handicapped and Disabled Students Program Contents Audit Report Summary............................................................................................................................ 1 Background........................................................................................................................ 1 Objective, Scope, and Methodology................................................................................. 2 Conclusion.......................................................................................................................... 2 Views of Responsible Officials.......................................................................................... 3 Restricted Use.................................................................................................................... 3 Schedule 1—Summary of Program Costs............................................................................ 4 Findings and Recommendations........................................................................................... 7 Attachment—County’s Response to Draft Audit Report Alameda County Handicapped and Disabled Students Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by Alameda County for the legislatively mandated Handicapped and Disabled Students Program (Chapter 1747, Statutes of 1984, and Chapter 1274, Statutes of 1985) for the period of July 1, 2002, through June 30, 2005. The county claimed $13,816,570 ($13,818,570 less a $2,000 penalty for filing a late claim) for the mandated program. Our audit disclosed that $12,081,799 is allowable and $1,734,771 is unallowable. The unallowable costs resulted primarily because the county (1) used incorrect rates and units to calculate costs, (2) claimed ineligible services, and (3) incorrectly calculated offsetting revenues. The State paid the county $3,475,135. The unallowable costs also include an adjustment for the amount of allowable costs that exceed claimed costs for fiscal year (FY) 2002-03. Allowable costs claimed exceed the amount paid by $8,606,664. Background Chapter 26 of the Government Code, commencing with section 7570, and Welfare and Institutions Code section 5651 (added and amended by Chapter 1747, Statutes of 1984, and Chapter 1274, Statutes of 1985) require counties to participate in the mental health assessment for “individuals with exceptional needs,” participate in the expanded “Individualized Education Program” (IEP) team, and provide case management services for “individuals with exceptional needs” who are designated as “seriously emotionally disturbed.” These requirements impose a new program or higher level of service on counties. On April 26, 1990, the Commission on State Mandates (CSM) determined that this legislation imposed a state mandate reimbursable under Government Code section 17561. The program’s parameters and guidelines establish the state mandate and define reimbursement criteria. The CSM adopted the parameters and guidelines for the Handicapped and Disabled Students Program on August 22, 1991, and last amended it on August 29, 1996. In compliance with Government Code section 17558, the SCO issues claiming instructions to assist local agencies and school districts in claiming mandated program reimbursable costs. The parameters and guidelines for the Handicapped and Disabled Students Program state that only 10% of mental health treatment costs are reimbursable. However, on September 30, 2002, Assembly Bill 2781 (Chapter 1167, Statutes of 2002) changed the regulatory criteria by stating that the percentage of treatment costs claimed by counties for FY 2000-01 and prior fiscal years is not subject to dispute by the SCO. Furthermore, this legislation states that, for claims filed in FY 2001-02 and thereafter, counties are not required to provide any share of these costs or to fund the cost of any part of these services with money received from the Local Revenue Fund established by Welfare and Institutions Code section 17600 et seq. (realignment funds). -1- Alameda County Handicapped and Disabled Students Program Furthermore, Senate Bill 1895 (Chapter 493, Statutes of 2004) states that realignment funds used by counties for the Handicapped and Disabled Students Program “are eligible for reimbursement from the state for all allowable costs [emphasis added] to fund assessments, psychotherapy, and other mental health services . . .” and that the finding by the Legislature is “declaratory of existing law.” On May 26, 2005, the CSM adopted a Statement of Decision for the Handicapped and Disabled Students II Program that incorporates the above legislation and further identified medication support as a reimbursable cost effective July 1, 2001. The CSM adopted the parameters and guidelines for this new program on December 9, 2005, and made technical corrections to it on July 21, 2006. The parameters and guidelines for the Handicapped and Disabled Students II Program state that, “Some costs disallowed by the State Controller’s Office in prior years are now reimbursable beginning July 1, 2001 (e.g., medication monitoring). Rather than having claimants re-file claims for those costs incurred beginning July 1, 2001, the State Controller’s Office will reissue the audit reports.” Consequently, we are allowing medication support costs commencing on July 1, 2001. Objective, Scope, We conducted the audit to determine whether costs claimed represent increased costs resulting from the Handicapped and Disabled Students and Methodology Program for the period of July 1, 2002, through June 30, 2005. Our audit scope included, but was not limited to, determining whether costs claimed were supported by appropriate source documents, were not funded by another source, and were not unreasonable and/or excessive. We conducted the audit according to Government Auditing Standards, issued by the Comptroller General of the United States, and under the authority of Government Code sections 12410, 17558.5, and 17561. We did not audit the county’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that costs claimed were allowable for reimbursement. Accordingly, we examined transactions, on a test basis, to determine whether the costs claimed were supported. We limited our review of the county’s internal controls to gaining an understanding of the transaction flow and claim preparation process as necessary to develop appropriate auditing procedures. Conclusion Our audit disclosed instances of noncompliance with the requirements outlined above. These instances are described in the accompanying Summary of Program Costs (Schedule 1) and in the Findings and Recommendations section of this report. For the audit period, Alameda County claimed $13,816,570 ($13,818,570 less a $2,000 penalty for filing a late claim) for costs of the Handicapped and Disabled Students Program. Our audit disclosed that $12,081,799 is allowable and $1,734,771 is unallowable. -2- Alameda County Handicapped and Disabled Students Program For the fiscal year (FY) 2002-03 claim, the State paid the county $73. Our audit disclosed that $5,339,891 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $5,339,818, contingent upon available appropriations. For the FY 2003-04 claim, the State made no payment to the county. Our audit disclosed that $3,398,231 is allowable. The State will pay allowable costs claimed contingent upon available appropriations. For the FY 2004-05 claim, the State paid the county $3,475,062. Our audit disclosed that $3,343,677 is allowable. The State will offset $131,385 from other mandated program payments due the county. Alternatively, the county may remit this amount to the State. Views of We issued a draft audit report on July 11, 2008. Marye E. Thomas, M.D., Director of Behavioral Services, responded by letter dated August 1, Responsible 2008 (Attachment), agreeing with the audit results except for Finding 1. Officials This final audit report includes the county’s response. Restricted Use This report is solely for the information and use of Alameda County, The California Department of Finance, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits August 13, 2008 -3- Alameda County Handicapped and Disabled Students Program Schedule 1— Summary of Program Costs July 1, 2002, through June 30, 2005 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 July 1, 2002, through June 30, 2003 Assessment and case management costs $ 1,325,603 $ 3,288,825 $ 1,963,222 Finding 1 Administrative costs 96,082 173,561 77,479 Finding 2 Less offsetting revenues: State categorical funds (EPSDT) (223,120) (705,439) (482,319) Finding 3 Short-Doyle/Medi-Cal (FFP only) (223,120) (904,937) (681,817) Finding 3 Other (SEP or IDEA Fund) (31,586) — 31,586 Finding 3 Net assessment and case management costs 943,859 1,852,010 908,151 Treatment costs 14,787,414 12,073,342 (2,714,072) Finding 1 Administrative costs 1,071,817 652,919 (418,898) Finding 2 Less offsetting revenues: State general/realignment funds (1,478,631) (1,478,631) — State categorical funds (EPSDT) (4,816,107) (2,998,344) 1,817,763 Finding 3 Short-Doyle/Medi-Cal (FFP only) (4,816,107) (3,846,286) 969,821 Finding 3 Other (SEP or IDEA fund) (352,354) — 352,354 Finding 3 Net treatment costs 4,396,032 4,403,000 6,968 Subtotal 5,339,891 6,255,010 915,119 Less allowable costs that exceed claimed costs 2 — (915,119) (915,119) Total program costs $ 5,339,891 5,339,891 $ — Less amount paid by the state (73) Allowable costs claimed in excess of (less than) amount paid $ 5,339,818 July 1, 2003, through June 30, 2004 Assessment and case management costs $ 1,190,593 $ 3,056,678 $ 1,866,085 Finding 1 Administrative costs 76,384 168,572 92,188 Finding 2 Less offsetting revenues: State categorical funds (EPSDT) (171,572) (716,038) (544,466) Finding 3 Short-Doyle/Medi-Cal (FFP only) (244,215) (984,900) (740,685) Finding 3 Other (SEP or IDEA Fund) (427,133) (427,133) — Net assessment and case management costs 424,057 1,097,179 673,122 Treatment costs 15,937,008 13,252,439 (2,684,569) Finding 1 Administrative costs 1,022,459 718,649 (303,810) Finding 2 Less offsetting revenues: State categorical funds (EPSDT) (3,794,520) (3,347,812) 446,708 Finding 3 Short-Doyle/Medi-Cal (FFP only) (5,401,112) (4,604,857) 796,255 Finding 3 Other (SEP or IDEA fund) (3,716,367) (3,716,367) — Net treatment costs 4,047,468 2,302,052 (1,745,416) -4- Alameda County Handicapped and Disabled Students Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 July 1, 2003, through June 30, 2004 (continued) Subtotal 4,471,525 3,399,231 (1,072,294) Less late claim penalty (1,000) (1,000) — Total program costs $ 4,470,525 3,398,231 $ (1,072,294) Less amount paid by the state — Allowable costs claimed in excess of (less than) amount paid $ 3,398,231 July 1, 2004, through June 30, 2005 Assessment and case management costs $ 2,240,163 $ 2,192,451 $ (47,712) Finding 1 Administrative costs 146,344 120,144 (26,200) Finding 2 Less offsetting revenues: State categorical funds (EPSDT) (376,374) (403,561) (27,187) Finding 3 Short-Doyle/Medi-Cal (FFP only) (485,645) (484,242) 1,403 Finding 3 Other (SEP or IDEA Fund) (1,064,680) (1,064,680) — Net assessment and case management costs 459,808 360,112 (99,696) Treatment costs 11,468,413 11,713,153 244,740 Finding 1 Administrative costs 749,203 630,758 (118,445) Finding 2 In-state room-and-board costs 887,883 887,883 — Less offsetting revenues: State categorical funds (EPSDT) (2,854,817) (3,285,383) (430,566) Finding 3 Short-Doyle/Medi-Cal (FFP only) (3,683,635) (3,942,145) (258,510) Finding 3 Other (SEP or IDEA fund) (3,019,701) (3,019,701) — Net treatment costs 3,547,346 2,984,565 (562,781) Subtotal 4,007,154 3,344,677 (662,477) Less late claim penalty (1,000) (1,000) — Total program costs $ 4,006,154 3,343,677 $ (662,477) Less amount paid by the state (3,475,062) Allowable costs claimed in excess of (less than) amount paid $ (131,385) Summary: July 1, 2002, through June 30, 2005 Assessment and case management costs $ 4,756,359 $ 8,537,954 $ 3,781,595 Administrative costs 318,810 462,277 143,467 Less offsetting revenues: State categorical funds (EPSDT) (771,066) (1,825,038) (1,053,972) Short-Doyle/Medi-Cal (FFP only) (952,980) (2,374,079) (1,421,099) Other (SEP or IDEA Fund) (1,523,399) (1,491,813) 31,586 Net assessment and case management costs 1,827,724 3,309,301 1,481,577 -5- Alameda County Handicapped and Disabled Students Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 Summary: July 1, 2002, through June 30, 2005 (continued) Treatment costs 42,192,835 37,038,934 (5,153,901) Administrative costs 2,843,479 2,002,326 (841,153) In-state room-and-board costs 887,883 887,883 — Less offsetting revenues: State general/realignment funds (1,478,631) (1,478,631) — State categorical funds (EPSDT) (11,465,444) (9,631,539) 1,833,905 Short-Doyle/Medi-Cal (FFP only) (13,900,854) (12,393,288) 1,507,566 Other (SEP or IDEA fund) (7,088,422) (6,736,068) 352,354 Net treatment costs 11,990,846 9,689,617 (2,301,229) Subtotal 13,818,570 12,998,918 (819,652) Less late claim penalty (2,000) (2,000) — Less allowable costs that exceed claimed costs 2 — (915,119) (915,119) Total program costs $ 13,816,570 12,081,799 $ (1,734,771) Less amount paid by the state (3,475,135) Allowable costs claimed in excess of (less than) amount paid $ 8,606,664 ___________________________ 1 See the Findings and Recommendations section. 2 Government Code section 17561 stipulates that the State will not reimburse any claim more than one year after the filing deadline specified in the SCO’s claiming instructions. That deadline has expired for FY 2002-03. -6- Alameda County Handicapped and Disabled Students Program Findings and Recommendations FINDING 1— The county overstated assessment and treatment costs by $1,372,306 for the audit period. Overstate assessment and treatment costs The county used incorrect units of service to calculate costs and applied rates that were not based on actual costs incurred for the reimbursable activities. Also, the county claimed ineligible costs related to therapeutic behavioral service, crisis intervention, non-AB 3632 residential placement, parental stress, and adult treatment. The Handicapped and Disabled Students Program allows only costs relating to children’s activities. Additionally, the county claimed costs without adequate supporting documentation and costs already claimed in a bundled service. We recalculated the program costs using rates supported by the cost report and contractual agreements between the county and the service providers. The parameters and guidelines for the Handicapped and Disabled Students Program specify that the State will reimburse only actual increased costs incurred to implement the mandated activities and supported by source documents that show the validity of such costs. Additionally, the parameters and guidelines state that the claimant is only allowed to claim and be reimbursed for eligible activities. The following table summarizes the overstated costs: Fiscal Year 2002-03 2003-04 2004-05 Total Assessment costs: Incorrect rates or units $ 1,963,222 $ 1,866,085 $ (47,712) $ 3,781,595 Treatment costs: Incorrect rates or units (1,732,597) (2,479,054) 237,647 (3,974,004) No supporting documentation (163,502) — — (163,502) Duplicate claim (923) (4,610) 7,093 1,560 Ineligible costs: Therapeutic behavioral services (453,544) — — (453,544) Crisis intervention (101,563) — — (101,563) Residential placement (53,204) (24,022) — (77,226) Parental stress costs (81,395) (176,883) — (258,278) Adult treatment services (127,344) — — (127,344) Audit adjustment $ (750,850) $ (818,484) $ 197,028 $(1,372,306) Recommendation We recommend that the county ensure it uses appropriate rates to compute claimed assessment and treatment costs. Additionally, we recommend that the county claim only eligible services. -7- Alameda County Handicapped and Disabled Students Program County’s Response We disagree that Alameda County used incorrect units of service. Alameda County claimed all units that were considered eligible based on the report generated from our database. Unfortunately, since it had been found that certain services are not eligible under the statutes, it caused the discrepancy between the units claimed and the units allowable, which caused the overstatement of assessment and treatment costs. We agree with the recommendation that the County will claim only eligible services. We will ensure that the report generated from our database will be analyzed and assure that all services claimed are eligible. We partially agree with the recommendation for the County to ensure using appropriate rates. It is in our intention to calculate treatment and assessment costs using the appropriate rates. The acceptable methodology to calculate the appropriate rate is by using the Providers’ contractual agreements and their cost reimbursement settlements. These rates are not available at the time of the claim submission. The Providers’ contractual agreement does not set the claimable rates under the Negotiated Rate Contracts. The appropriate rates would only be found on the cost reimbursement settlements calculation. If the cost reimbursement settlements are available by the deadline of the amended claim, we will calculate costs using this methodology. We will use the cost per unit (CPU) from our annual cost report as an alternative rate in order to calculate the assessment and treatment costs and submit the claim in a timely manner. SCO’s Comment The finding and recommendation remain unchanged. The county claimed certain services which are not reimbursable per the program’s parameters and guidelines and relevant statutes. Allowable costs excluded these ineligible services, thereby causing an overstatement of assessment and treatment costs. The SCO recognizes that the cost settlement process with contract providers may not be completed when the claim is due. However, the county is still responsible for using accurate rates to prepare its claim. FINDING 2— The county overstated administrative costs by $697,686 for the audit Overstated period. administrative costs The county claimed administrative costs that it allocated to county and non-county providers whose costs included ineligible therapeutic behavioral services, crisis intervention, residential placements, and adult treatment as discussed in Finding 1. The parameters and guidelines for the Handicapped and Disabled Students program specify that the State will reimburse only actual increased costs incurred to implement the mandated activities and supported by source documents that show the validity of such costs. -8- Alameda County Handicapped and Disabled Students Program The following table summarizes the overstated indirect costs: Fiscal Year 2002-03 2003-04 2004-05 Total Administrative costs: Assessment costs $ 77,479 $ 92,188 $ (26,200) $ 143,467 Treatment costs (418,898) (303,810) (118,445) (841,153) Audit adjustment $ (341,419) $ (211,622) $ (144,645) $ (697,686) Recommendation We recommend that the county ensure that indirect costs are allocated to eligible providers and services. County’s Response We agree with this recommendation. We look forward to resolving this recommendation on our future claims. FINDING 3— The county overstated revenue offsets by $1,250,340 for the audit period. Overstated revenue The county used an incorrect rate to calculate the State funds received offsets under the Early Periodic Screening, Diagnosis, and Treatment (EPSDT) program. Also, the county included $383,940 received for the Special Education Program (SEP) as offsetting revenue in fiscal year (FY) 2002-03, which already was applied in FY 2001-02. We excluded revenue offsets that relate to the unallowable therapeutic behavioral services, crisis intervention, and non-AB 3632 residential placement, parental stress, and adult treatment costs discussed in Finding 1. The parameters and guidelines for the Handicapped and Disabled Students program specify that the State will reimburse only actual increased costs incurred to implement the mandated activities and supported by source documents that show the validity of such costs. The following table summarizes the overstated indirect costs: Fiscal Year 2002-03 2003-04 2004-05 Total Assessment revenues: State categorical funds $ (482,319) $ (544,466) $ (27,187) $(1,053,972) Short-Doyle/Medi-Cal funds (681,817) (740,685) 1,403 (1,421,099) Other: SEP fund 31,586 — — 31,586 Total assessment revenues (1,132,550) (1,285,151) (25,784) (2,443,485) Treatment costs: State categorical funds 1,817,763 446,708 (430,566) 1,833,905 Short-Doyle/Medi-Cal funds 969,821 796,255 (258,510) 1,507,566 Other: SEP fund 352,354 — — 352,354 Total treatment revenues 3,139,938 1,242,963 (689,076) 3,693,825 Audit adjustment $ 2,007,388 $ (42,188) $ (714,860) $ 1,250,340 -9- Alameda County Handicapped and Disabled Students Program Recommendation We recommend that the county ensure that it offsets all applicable reimbursements against reimbursable costs incurred for this program. County’s Response We agree with this recommendation. We look forward to resolving this recommendation on our future claims. Except for the application of the SEP revenue during FY 02-03, the incorrect calculation of offsetting revenues was due to the adjusted calculation from the ineligible services. The cost report settlement for EPSDT for the fiscal year being claimed is not available during the time of the claim submission; therefore, alternate methodology is used to calculate the EPSDT revenue to be offset. As suggested, we will take into consideration in using the prior year’s EPSDT rate to calculate estimated EPSDT revenue in the future. SCO’s Comment The finding and recommendation remain unchanged. The SCO recognizes the interdependent relationship between costs and offsetting revenues. When costs are overstated due to an audit adjustment, there will be a corresponding overstatement of offsetting revenues. Additionally, we recognize the timing issue with the publication of the EPSDT settlement report. We suggest that the county calculate current year offsetting revenue using the percentages from the latest known fiscal year. -10- Alameda County Handicapped and Disabled Students Program Attachment— County’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S07-MCC-006