Marin County

MARIN COUNTY Audit Report HANDICAPPED AND DISABLED STUDENTS PROGRAM Chapter 1747, Statutes of 1984, and Chapter 1274, Statutes of 1985 July 1, 2003, through June 30, 2006 J C OHN HIANG California State Controller November 2008 J C OHN HIANG California State Controller November 5, 2008 Charles McGlashan, President Marin County Board of Supervisors 3501 Civic Center Drive San Rafael, CA 94903 Dear Mr. McGlashan: The State Controller’s Office audited the costs claimed by Marin 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, 2003, through June 30, 2006. The county claimed $5,967,155 for the mandated program. Our audit disclosed that $5,080,543 is allowable and $886,612 is unallowable. The county claimed unallowable costs primarily because it overstated costs and omitted Early Periodic Screening, Diagnosis, and Treatment (EPSDT) and Healthy Families revenues from its revenue calculation. The State paid the county $4,261,865. Allowable costs claimed exceed the amount paid by $818,678. 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/vb Charles McGlashan -2- November 5, 2008 cc: The Honorable Richard Arrow, Auditor-Controller Marin County Bruce Gurganus, Director Division of Mental Health Marin County Health & Human Services Theresa Arrambide, Fiscal Supervisor Division of Mental Health Marin County Health & Human Services 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 Marin 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........................................................................................... 6 Attachment—County’s Response to Draft Audit Report Marin County Handicapped and Disabled Students Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by Marin 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, 2003, through June 30, 2006. The county claimed $5,967,155 for the mandated program. Our audit disclosed that $5,080,543 is allowable and $886,612 is unallowable. The county claimed unallowable costs primarily because it overstated costs, and omitted Early Periodic Screening, Diagnosis, and Treatment (EPSDT) and Healthy Families revenues from its revenue calculation. The State paid the county $4,261,865. Allowable costs claimed exceed the amount paid by $818,678. 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 fiscal year (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- Marin 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 costs 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 claimants re-filing 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, 2003, through June 30, 2006. 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 this performance audit under the authority of Government Code sections 12410, 17558.5, and 17561. We did not audit the county’s financial statements. We conducted the audit in accordance with 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. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 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, Marin County claimed $5,967,155 for costs of the Handicapped and Disabled Students Program. Our audit disclosed that $5,080,543 is allowable and $886,612 is unallowable. -2- Marin County Handicapped and Disabled Students Program For the fiscal year (FY) 2003-04 claim, the State made no payment to the county. Our audit disclosed that $1,390,325 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $1,390,325, contingent upon available appropriations. For the FY 2004-05 claim, the State paid the county $1,899,095. Our audit disclosed that $1,709,804 is allowable. The State will offset $189,291 from other mandated program payments due the county. Alternatively, the county may remit this amount to the State. For the FY 2005-06 claim, the State paid the county $2,362,770. Our audit disclosed that $1,980,414 is allowable. The State will offset $382,356 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 August 6, 2008. Theresa Arrambide, Fiscal Supervisor, responded by letter dated September 10, 2008 Responsible (Attachment), agreeing with the audit results. This final audit report Officials includes the county’s response. Restricted Use This report is solely for the information and use of Marin 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 November 5, 2008 -3- Marin County Handicapped and Disabled Students Program Schedule 1— Summary of Program Costs July 1, 2003, through June 30, 2006 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 July 1, 2003, through June 30, 2004 Assessment/case management costs $ 1,300,129 $ 1,023,478 $ (276,651) Finding 1 Administrative costs 171,714 192,319 20,605 Finding 2 Offsetting revenues: State categorical funds (EPSDT and IDEA) (495,716) (573,062) (77,346) Finding 3 Short-Doyle/Medi-Cal funds (381,041) (212,391) 168,650 Finding 3 Other (Healthy Families) (14,393) (34,932) (20,539) Finding 3 Net assessment/case management costs 580,693 395,412 (185,281) Treatment costs 2,386,878 2,412,292 25,414 Finding 1 Administrative costs 315,246 361,380 46,134 Finding 2 Offsetting revenues: State categorical funds (EPSDT and IDEA) (910,073) (1,296,857) (386,784) Finding 3 Short-Doyle/Medi-Cal funds (628,803) (426,507) 202,296 Finding 3 Other (Healthy Families) (38,652) (55,395) (16,743) Finding 3 Net treatment costs 1,124,596 994,913 (129,683) Total program costs $ 1,705,289 1,390,325 $ (314,964) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 1,390,325 July 1, 2004, through June 30, 2005 Assessment/case management costs $ 1,179,614 $ 1,155,485 $ (24,129) Finding 1 Administrative costs 153,896 226,135 72,239 Finding 2 Offsetting revenues: State categorical funds (EPSDT and IDEA) (455,114) (608,489) (153,375) Finding 3 Short-Doyle/Medi-Cal funds (269,665) (207,367) 62,298 Finding 3 Other (Healthy Families) (7,313) (33,020) (25,707) Finding 3 Net assessment/case management costs 601,418 532,744 (68,674) Treatment costs 2,412,204 2,502,136 89,932 Finding 1 Administrative costs 314,702 416,504 101,802 Finding 2 Offsetting revenues: State categorical funds (EPSDT and IDEA) (930,668) (1,262,277) (331,609) Finding 3 Short-Doyle/Medi-Cal funds (485,077) (381,778) 103,299 Finding 3 Other (Healthy Families) (13,484) (97,525) (84,041) Finding 3 Net treatment costs 1,297,677 1,177,060 (120,617) Total program costs $ 1,899,095 1,709,804 $ (189,291) Less amount paid by the State (1,899,095) Allowable costs claimed in excess of (less than) amount paid $ (189,291) -4- Marin County Handicapped and Disabled Students Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 July 1, 2005, through June 30, 2006 Assessment/case management costs $ 1,237,230 $ 1,182,270 $ (54,960) Finding 1 Administrative costs 171,165 237,733 66,568 Finding 2 Offsetting revenues: State categorical funds (EPSDT and IDEA) (422,455) (601,002) (178,547) Finding 3 Short-Doyle/Medi-Cal funds (292,740) (228,152) 64,588 Finding 3 Other (Healthy Families) (16,158) (42,744) (26,586) Finding 3 Net assessment/case management costs 677,042 548,105 (128,937) Treatment costs 2,821,266 2,782,249 (39,017) Finding 1 Administrative costs 390,310 480,956 90,646 Finding 2 Offsetting revenues: State categorical funds (EPSDT and IDEA) (963,328) (1,320,109) (356,781) Finding 3 Short-Doyle/Medi-Cal funds (529,814) (422,149) 107,665 Finding 3 Other (Healthy Families) (32,705) (88,638) (55,933) Finding 3 Net treatment costs 1,685,729 1,432,309 (253,420) Total program costs $ 2,362,771 1,980,414 $ (382,357) Less amount paid by the State (2,362,770) Allowable costs claimed in excess of (less than) amount paid $ (382,356) Summary: July 1, 2003, through June 30, 2006 Assessment/case management costs $ 3,716,973 $ 3,361,233 $ (355,740) Administrative costs 496,775 656,187 159,412 Offsetting revenues: State categorical funds (EPSDT and IDEA) (1,373,285) (1,782,553) (409,268) Short-Doyle/Medi-Cal funds (943,446) (647,910) 295,536 Other (Healthy Families) (37,864) (110,696) (72,832) Net assessment/case management costs 1,859,153 1,476,261 (382,892) Treatment costs 7,620,348 7,696,677 76,329 Administrative costs 1,020,258 1,258,840 238,582 Offsetting revenues: State categorical funds (EPSDT and IDEA) (2,804,069) (3,879,243) (1,075,174) Short-Doyle/Medi-Cal funds (1,643,694) (1,230,434) 413,260 Other (Healthy Families) (84,841) (241,558) (156,717) Net treatment costs 4,108,002 3,604,282 (503,720) Total program costs $ 5,967,155 5,080,543 $ (886,612) Less amount paid by the State (4,261,865) Allowable costs claimed in excess of (less than) amount paid $ 818,678 _________________________ 1 See the Findings and Recommendations section. -5- Marin County Handicapped and Disabled Students Program Findings and Recommendations FINDING 1— The county overstated assessment and treatment costs by $279,411 for the audit period. The county did not claim costs based on actual costs to Overstated implement the mandated program. In some cases, the county used incorrect assessment and cost-per-unit amounts to compute costs. For fiscal year (FY) 2003-04, the treatment costs county used a preliminary unit-of-service report that overstated units. We recalculated costs based on the actual units of eligible services and applied the appropriate cost per unit. The program’s parameters and guidelines specify that only actual increased costs incurred in the performance of the mandated activities and adequately documented are reimbursable. The following table summarizes the overstated assessment and treatment costs: Fiscal Year 2003-04 2004-05 2005-06 Total Assessment $ (276,651) $ (24,129) $ (54,960) $ (355,740) Treatment 25,414 89,932 (39,017) 76,329 Total adjustment $ (251,237) $ 65,803 $ (93,977) $ (279,411) Recommendation We recommend that the county ensure that it uses the actual units of service and apply appropriate costs per unit. County’s Response The county agreed with the finding. FINDING 2— The county understated administrative costs by $397,994 for the audit period. The county did not reduce the administrative costs by related Miscalculated administrative revenues. The county also allocated county administrative administrative costs costs to contractor expenditures in its calculations. We recalculated the administrative costs using the correct costs net of offsetting revenues and applied an allocation methodology that is consistent with the cost report allocation. The program’s parameters and guidelines specify that administrative costs incurred in the performance of the mandated activities and adequately documented are reimbursable. The program’s parameters and guidelines further specify that to the extent that the State Department of Mental Health has not already compensated reimbursable indirect costs from categorical funding sources, these costs may be claimed. -6- Marin County Handicapped and Disabled Students Program The following table summarizes the understated administrative costs: Fiscal Year 2003-04 2004-05 2005-06 Total Assessment $ 20,605 $ 72,239 $ 66,568 $ 159,412 Treatment 46,134 101,802 90,646 238,582 Total adjustment $ 66,739 $ 174,041 $ 157,214 $ 397,994 Recommendation We recommend that the county apply a methodology that is consistent with the cost report submitted to the State Department of Mental Health and ensure that the information used to allocate administrative costs is complete and accurate. County’s Response The county agreed with the finding. FINDING 3— The county understated its offsetting revenues by $1,005,195 for the audit Understated offsetting period. The county miscalculated revenues by not applying Early Periodic Screening Diagnosis and Treatment (EPSDT), and Healthy Families (HF) revenues revenues in its calculations. The county also used an incorrect Short/Doyle Medi-Cal (SD/MC) funding percentage rate for FY 2004-05. We recalculated total revenues, applying the appropriate cost per unit to eligible units of service and using the correct funding percentages for EPSDT, HF, and SD/MC. The program’s parameters and guidelines specify that any direct payments (categorical funds, Short Doyle/Medi-Cal FFP, and other offsets such as private insurance) received from the State that are specifically allocated to the program, and/or any other reimbursement received as a result of the mandate, must be deducted from the claim. The following table summarizes the understated offsetting revenues: Fiscal Year 2003-04 2004-05 2005-06 Total Assessment $ 70,765 $ (116,784) $ (140,545) $ (186,564) Treatment (201,231) (312,351) (305,049) (818,631) Total adjustment $ (130,466) $ (429,135) $ (445,594) $ (1,005,195) Recommendation We recommend that the county include all direct payments (categorical funds, Short Doyle/Medi-Cal FFP, and other offsets such as private insurance) when computing offsetting revenues. County’s Response The county agreed with the finding. -7- Marin 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 S08-MCC-023