San Diego County

SAN DIEGO COUNTY Audit Report HANDICAPPED AND DISABLED STUDENTS PROGRAM Chapter 1747, Statutes of 1984, and Chapter 1274, Statutes 1985 July 1, 2002, through June 30, 2005 J C OHN HIANG California State Controller February 2008 J C OHN HIANG California State Controller February 15, 2008 Tracy M. Sandoval Assistant Chief Financial Officer/Auditor and Controller San Diego County 1600 Pacific Highway, Room 166 San Diego, CA 92101 Dear Ms. Sandoval: The State Controller’s Office audited the costs claimed by San Diego County for the legislatively mandated Handicapped and Disabled Students Program (Chapter 1747, Statutes of 1984, and Chapter 1274, Statutes 1985) for the period of July 1, 2002, through June 30, 2005. The county claimed $12,897,313 ($12,900,313 less a $3,000 penalty for filing late claims) for the mandated program. Our audit disclosed that $12,808,420 is allowable and $88,893 is unallowable. The unallowable costs resulted primarily because the county overstated its assessment and treatment costs, administrative costs, and offsetting revenues. The State paid the county $3,167,500. Allowable costs claimed exceed the amount paid by $9,640,920. 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 Tracy M. Sandoval -2- February 15, 2008 cc: Gil Enriquez Senior Accountant San Diego County Lisa Macchione Senior Deputy County Counsel San Diego County Alfredo Aguirre, Director Mental Health Services San Diego County Todd Jerue, Program Budget Manager Corrections and General Government Department of Finance Robin Foemmel-Bie Special Education Program Department of Mental Health Cynthia Wong, Manager Special Education Division California Department of Education San Diego County Handicapped and Disabled Students Program Contents Audit Report Summary............................................................................................................................ 1 Background........................................................................................................................ 1 Objective, Scope, and Methodology................................................................................. 2 Conclusion.......................................................................................................................... 3 Views of Responsible Officials.......................................................................................... 3 Restricted Use.................................................................................................................... 4 Schedule 1—Summary of Program Costs............................................................................ 5 Findings and Recommendations........................................................................................... 8 Attachment—County’s Response to Draft Audit Report San Diego County Handicapped and Disabled Students Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by San Diego 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 $12,897,313 ($12,900,313 less a $3,000 penalty for filing late claims) for the mandated program. Our audit disclosed that $12,808,420 is allowable and $88,893 is unallowable. The unallowable costs resulted primarily because the county overstated its assessment and treatment costs, administrative costs, and offsetting revenue. The State paid the county $3,167,500. Allowable costs claimed exceed the amount paid by $9,640,920. 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 them 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- San Diego 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 to fund assessments, psychotherapy, and other mental health services . . . ” and that the finding by the Legislature is “declaratory of existing law” (emphasis added.) 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. On May 26, 2005, the CSM also adopted a statement of decision on reconsideration of Handicapped and Disabled Students. The CSM found that the 1990 statement of decision for Handicapped and Disabled Students correctly concluded that the test claim legislation imposes a reimbursable state-mandated program on counties pursuant to Article XIII B, section 6, of the California Constitution. The CSM determined, however, that the 1990 statement of decision does not fully identify all of the activities mandated by the statutes and regulations pled in the test claim or the offsetting revenue applicable to the claim. In addition, the existing parameters and guidelines reflect prior law enacted by the Short- Doyle Act, whereby counties were entitled to 10% reimbursement for mental health treatment services. This prior finding is not consistent with current law or the CSM’s decision. Thus, the CSM, on reconsideration, identified the activities expressly required by the test claim legislation and the offsetting revenue that must be identified and deducted from the costs claimed. The CSM adopted the parameters and guidelines on reconsideration of Handicapped and Disabled Students on January 26, 2006, with a reimbursement period beginning July 1, 2004. 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. -2- San Diego County Handicapped and Disabled Students Program 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, San Diego County claimed $12,897,313 ($12,900,313 less a $3,000 penalty for filing late claims) for costs of the Handicapped and Disabled Students Program. Our audit disclosed that $12,808,420 is allowable and $88,893 is unallowable. For the fiscal year (FY) 2002-03 claim, the State made no payments to the county. Our audit disclosed that $7,401,948 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $7,401,948, contingent upon available appropriations. For the FY 2003-04 claim, the State made no payments to the county. Our audit disclosed that $2,327,865 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $2,327,865, contingent upon available appropriations. For the FY 2004-05 claim, the State paid the county $3,167,500. Our audit disclosed that $3,078,607 is allowable. The State will offset $88,893 from other mandated program payments due to the county. Alternatively, the county may remit this amount to the State. Views of We issued a draft audit report on Handicapped and Disabled Students Program for the period July 1, 2002, through June 30, 2005, on Responsible November 14, 2007. Terry Hogan, Group Finance Director, Health and Officials Human Services Agency, and Christopher P. Gilmore, Deputy Controller responded by letter dated January 10, 2008, agreeing with the audit results except for Finding 3. The final audit report includes the county’s response. -3- San Diego County Handicapped and Disabled Students Program Restricted Use This report is solely for the information and use of the San Diego County, 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 February 15, 2008 -4- San Diego 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/case management costs $ 1,470,327 $ 1,671,991 $ 201,664 Finding 1 Administrative costs 163,525 130,531 (32,994) Finding 2 Offsetting revenues: State categorical funds — (256,684) (256,684) Finding 3 Short-Doyle/Medi-Cal funds (320,574) (319,823) 751 Finding 3 Other (242,516) — 242,516 Finding 3 Net assessment/case management costs 1,070,762 1,226,015 155,253 Treatment costs 9,258,410 9,062,978 (195,432) Finding 1 Administrative costs 362,782 285,638 (77,144) Finding 2 Offsetting revenues: State general/realignment funds (1,430,054) 1,430,054 Finding 3 State categorical funds — (1,315,153) (1,315,153) Finding 3 Short-Doyle/Medi-Cal funds (1,890,345) (1,638,652) 251,693 Finding 3 Other (100,523) (76,681) 23,842 Finding 3 Net treatment costs 6,200,270 6,318,130 117,860 Subtotal 7,271,032 7,544,145 273,113 Adjustment for costs claimed under wrong mandate 2 131,916 — (131,916) Late claim penalty (1,000) (1,000) — Adjustment to reduce allowable costs to claimed costs 3 — (141,197) (141,197) Total program costs $ 7,401,948 7,401,948 $ — Less amount paid by the State — Allowable costs in excess of (less than) amount paid $ 7,401,948 July 1, 2003, through June 30, 2004 Assessment/case management costs $ 2,023,360 $ 1,710,054 $ (313,306) Finding 1 Administrative costs 172,435 153,954 (18,481) Finding 2 Offsetting revenues: State categorical funds — (806,930) (806,930) Finding 3 Short-Doyle/Medi-Cal funds (333,741) (327,140) 6,601 Finding 3 Other (818,125) — 818,125 Finding 3 Net assessment/case management costs 1,043,929 729,938 (313,991) -5- San Diego 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) Treatment costs 8,738,686 8,639,392 (99,294) Finding 1 Administrative costs 322,124 293,142 (28,982) Finding 2 Offsetting revenues: State general/realignment funds (5,002,511) — 5,002,511 Finding 3 State categorical funds — (4,949,911) (4,949,911) Finding 3 Short-Doyle/Medi-Cal funds (1,966,457) (1,952,304) 14,153 Finding 3 Other (806,906) (20,825) 786,081 Finding 3 Net treatment costs 1,284,936 2,009,494 724,558 Subtotal 2,328,865 2,739,432 410,567 Late claim penalty (1,000) (1,000) — Adjustment to reduce allowable costs to claimed costs 3 — (410,567) (410,567) Total program costs $ 2,327,865 2,327,865 $ — Amount paid by the State — Allowable costs in excess of less than amount paid $ 2,327,865 July 1, 2004, through June 30, 2005 Assessment/case management costs $ 2,337,395 $ 2,337,395 $ — Finding 1 Administrative costs 189,372 189,372 — Finding 2 Offsetting revenues: State categorical funds — (988,803) (988,803) Finding 3 Short-Doyle/Medi-Cal funds (292,888) (264,677) 28,211 Finding 3 Other (1,128,799) — 1,128,799 Finding 3 Net assessment/case management costs 1,105,080 1,273,287 168,207 Treatment costs 7,766,576 7,766,576 — Finding 1 Administrative costs 187,895 187,895 — Finding 2 Offsetting revenues: State general/realignment funds (4,334,035) — 4,334,035 Finding 3 State categorical funds — (4,562,925) (4,562,925) Finding 3 Short-Doyle/Medi-Cal funds (1,543,792) (1,572,002) (28,210) Finding 3 Other (13,224) (13,224) — Finding 3 Net treatment costs 2,063,420 1,806,320 (257,100) Subtotal 3,168,500 3,079,607 (88,893) Late claim penalty (1,000) (1,000) — Total program costs $ 3,167,500 3,078,607 $ (88,893) Amount paid by the State (3,167,500) Allowable costs in excess of less than amount paid $ (88,893) -6- San Diego 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 Assessment/case management costs $ 5,831,082 $ 5,719,440 $ (111,642) Administrative costs 525,332 473,857 (51,475) Offsetting revenues: State categorical funds — (2,052,417) (2,052,417) Short-Doyle/Medi-Cal funds (947,203) (911,640) 35,563 Other (2,189,440) — 2,189,440 Net assessment/case management costs 3,219,771 3,229,240 9,469 Treatment costs 25,763,672 25,468,946 (294,726) Administrative costs 872,801 766,675 (106,126) Offsetting revenues: State general/realignment funds (10,766,600) — 10,766,600 State categorical funds — (10,827,989) (10,827,989) Short-Doyle/Medi-Cal funds (5,400,594) (5,162,958) 237,636 Other (920,653) (110,730) 809,923 Net treatment costs 9,548,626 10,133,944 585,318 Subtotal 12,768,397 13,363,184 594,787 Adjustment for costs claimed under wrong mandate 2 131,916 — (131,916) Late claim penalty (3,000) (3,000) — Adjustment to reduce allowable costs to claimed costs (by fiscal year) 3 — (551,764) (551,764) Total program costs $ 12,897,313 12,808,420 $ (88,893) Amount paid by the State (3,167,500) Allowable costs in excess of less than amount paid $ 9,640,920 _________________________ 1 See the Findings and Recommendations section. 2 The county claimed in-state residential costs relating to the Handicapped and Disabled Students Program under the Seriously Emotionally Disturbed Out-of-State Mental Health Services Program. The adjustment moves the claimed costs to the correct mandated program. 3 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 and FY 2003-04. -7- San Diego County Handicapped and Disabled Students Program Findings and Recommendations FINDING 1— The county prepared the claims based on preliminary unit of service Overstated assessment reports prior to the final settlement. In some cases, the county applied an and treatment costs inaccurate cost per unit. The county claimed ineligible services, including crisis intervention, unbilled services, and FY 2003-04 residential board and care costs. We adjusted costs based on actual units of service provided to eligible clients using the appropriate unit cost, representing the actual cost to the county. The adjustment resulted in a net overstatement of $406,368 for FY 2002-03 and FY 2003-04. The program’s parameters and guidelines for the program specify that only actual increased costs incurred in the performance of the mandated activities and adequately documented are reimbursable. The parameters and guidelines specify that only the following services are reimbursable: case management, assessment, individual therapy, collateral therapy and contacts, group therapy, and day treatment. The parameters and guidelines for the Handicapped and Disabled Students II Program added medication support costs; therefore, these costs are not considered in audit adjustments. The CSM adopted the parameters and guidelines for the reconsideration of Handicapped and Disabled Students on January 26, 2006, allowing residential board and care costs effective July 1, 2004. The following table summarizes the overstated assessment and treatment costs: Fiscal Year 2002-03 2003-04 Total Assessment costs $ 201,664 $ (313,306) $ (111,642) Treatment costs (195,432) (99,294) (294,726) Total $ 6,232 $ (412,600) $ (406,368) Recommendation We recommend that the county use the actual units of service, costs per unit, and claim only eligible services in accordance with the mandate program. County’s Response The county agreed with the audit finding. -8- San Diego County Handicapped and Disabled Students Program FINDING 2— The county overstated administrative costs by $157,601 for FY 2002-03 and FY 2003-04 because it did not include all offsetting revenue in its Overstated calculation. The county included Short Doyle/Medi-Cal utilization administrative costs review costs in administrative costs but did not offset these costs with appropriate revenues. We adjusted costs by the offsetting revenue, reducing the administrative rate and administrative costs. The indirect rate changed from 12.52% to 9.99% for FY 2002-03, and from 15% to 14.03% for FY 2003-04. The parameters and guidelines for the program specify that administrative costs incurred in the performance of the mandated activities and adequately documented are reimbursable. The parameters and guidelines further specify that if the State Department of Mental Health has not already compensated reimbursable indirect costs from categorical funding sources, the indirect costs may be claimed. The following table summarizes the overstated administration costs: Fiscal Year 2002-03 2003-04 Total Assessment costs $ (32,994) $ (18,481) $ (51,475) Treatment costs (77,144) (28,982) (106,126) Total $ (110,138) $ (47,463) $ (157,601) Recommendation We recommend that the county include all related offsetting revenue in the calculation of the administrative costs rate and then apply the rate to eligible direct costs. County’s Response The county agreed with the audit finding. FINDING 3— The county overstated offsetting revenues by $1,158,756 for the audit Overstated offsetting period because it used preliminary unit of service reports to compute revenues offsetting revenues. In some cases, the county applied an inaccurate cost per unit, and applied revenues to ineligible services. The county applied all relevant offsetting revenues, including Short Doyle/Medi-Cal (SD/MC), Early Periodic Screening Diagnosis and Treatment (EPSDT), Individuals With Disabilities Education Act (IDEA), and third-party payer funds. We recalculated the offsetting revenues by using correct units and costs per unit, including all relevant revenues. The county overstated its revenues by $377,019 for FY 2002-03 and by $870,630 for FY 2003-04. The overstatements for FY 2002-03 and 2003-04 are primarily due to the county using preliminary SD/MC reports, its miscalculation of the reimbursement percentage for EPSDT, and its inclusion of revenues -9- San Diego County Handicapped and Disabled Students Program related to unallowable costs. In addition, the overstatement for FY 2003-04 is due to inaccurate third party payer revenue reports. The county understated its revenue by $88,893 for FY 2004-05 by using an estimated EPSDT reimbursement rate. The parameters and guidelines specify that any direct payments (categorical funds, SD/MC, 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 overstated offsetting revenue: Fiscal Year 2002-03 2003-04 2004-05 Total Assessment costs $ (13,417) $ 17,796 $ 168,207 $ 172,586 Treatment costs 390,436 852,834 (257,100) 986,170 Totals $ 377,019 $ 870,630 $ (88,893) $1,158,756 Recommendation We recommend that the county ensure that all applicable reimbursements are offset against reimbursable costs incurred for this program. County’s Response The county agreed with the audit adjustment identified in the finding but disputed the overall adjustment to reduce total costs to the claimed amount for FY 2002-03 and FY 2003-04. For the county’s full response, refer to the attachment. SCO’s Comment The finding remains unchanged. We agree that the costs claimed are understated for FY 2002-03 and FY 2003-04, largely due to the county’s use of incorrect third-party revenue reports. However, the obligation of the State to reimburse the county is limited to costs claimed by the county. Government Code section 17561, subdivision (d)(3), 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 and FY 2003-04. -10- San Diego 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 S06-MCC-033