San Diego County

SAN DIEGO COUNTY Audit Report HANDICAPPED AND DISABLED STUDENTS PROGRAM Chapter 1747, Statutes of 1984, and Chapter 1274, Statutes of 1985 July 1, 2000, through June 30, 2002 J C OHN HIANG California State Controller March 2007 J C OHN HIANG California State Controller March 21, 2007 Tracy Sandoval Assistant Chief Financial Officer/Auditor-Controller San Diego County 1600 Pacific Highway, Room 166 San Diego, CA 92101 Dear Ms. Sandoval: The State Controller’s Office audited the claims filed by San Diego County for costs of 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, 2000, through June 30, 2002. The county claimed $7,289,769 ($7,290,769 less a $1,000 penalty for filing a late claim) for the mandated program. Our audit disclosed that $5,236,714 is allowable and $2,053,055 is unallowable. The unallowable costs occurred because the county claimed ineligible costs, did not include all relevant offsetting revenues, and inaccurately computed administrative costs. The State paid the county $1,030,761. Allowable costs claimed exceed the amount paid by $4,205,953. If you disagree with the audit findings, you may file an Incorrect Reduction Claim (IRC) with the Commission on State Mandates (COSM). 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 COSM’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, Compliance Audits Bureau, at (916) 323-5849. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB/vb Tracy Sandoval -2- March 21, 2007 cc: Gil Enriquez, Senior Accountant Fiscal Services Health and Human Services Agency San Diego County Lisa Macchione Senior Deputy County Counsel San Diego County Marilyn Flores, Cost Analyst Auditor-Controller’s Office San Diego County Laura Colligan, Chief Children’s Mental Health Health and Human Services Agency San Diego County Todd Jerue, Program Budget Manager Corrections and General Government Department of Finance Robin Ulesich-Foemmel 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.......................................................................................................................... 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 San Diego County Handicapped and Disabled Students Program Audit Report Summary The State Controller’s Office (SCO) audited the claims filed by San Diego County for costs of 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, 2000, through June 30, 2002. The last day of fieldwork was July 13, 2004. The county claimed $7,289,769 ($7,290,769 less a $1,000 penalty for filing a late claim) for the mandated program. Our audit disclosed that $5,236,714 is allowable and $2,053,055 is unallowable. The unallowable costs occurred because the county claimed ineligible costs, did not include all relevant offsetting revenues, and inaccurately computed administrative costs. The State paid the county $1,030,761. Allowable costs claimed exceed the amount paid by $4,205,953. 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 (COSM) determined that this legislation imposed a state mandate reimbursable under Government Code Section 17561. Parameters and Guidelines establishes the state mandate and defines reimbursement criteria. The COSM 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 for mandated programs, to assist local agencies and school districts in claiming reimbursable costs. 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 COSM 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 COSM adopted the Parameters and Guidelines for this new program on December 9, 2005, and made technical corrections to it on July 21, 2006. Parameters and Guidelines for the Handicapped and Disabled Students II Program states 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, We conducted the audit to determine whether costs claimed represent increased costs resulting from the Handicapped and Disabled Students Scope, and Program for the period of July 1, 2000, through June 30, 2002. Methodology Our audit scope included, but was not limited to, determining whether costs claimed were supported by appropriate source documents, not funded by another source, and 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 Section 17558.5. 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 $7,289,769 ($7,290,769 less a $1,000 penalty for filing a late claim) for costs of the Handicapped and Disabled Students Program. Our audit disclosed that $5,236,714 is allowable and $2,053,055 is unallowable. -2- San Diego County Handicapped and Disabled Students Program For the FY 2000-01 claim, the State paid the county $438,763. Our audit disclosed that $340,343 is allowable. The county should return $98,420 to the State. For the FY 2001-02 claim, the State paid the county $591,998. Our audit disclosed that $4,896,371 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $4,304,373, contingent upon available appropriations. Views of We issued a draft audit report on October 27, 2006. Tracy M. Sandoval, Assistant Chief Financial Officer/Auditor-Controller, responded by letter Responsible dated November 16, 2006, (Attachment) agreeing with the audit results Officials except for Finding 2. This final audit report includes the county’s response. Restricted Use This report is solely for the information and use of San Diego 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 -3- San Diego County Handicapped and Disabled Students Program Schedule 1— Summary of Program Costs July 1, 2000, through June 30, 2002 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustments Reference 1 July 1, 2000, through June 30, 2001 Assessment/case management costs $ 1,024,159 $ 174,865 $ (849,294) Finding 1 Administrative costs — 13,307 13,307 Finding 3 Offsetting revenues: State categorical funds (72,398) (9,614) 62,784 Finding 2 Short-Doyle/Medi-Cal funds (442,434) (13,682) 428,752 Finding 2 Other (158,503) (136,413) 22,090 Finding 2 Net assessment/case management costs 350,824 28,463 (322,361) Treatment costs 9,049,909 5,029,253 (4,020,656) Finding 1 Administrative costs — 136,068 136,068 Finding 3 Offsetting revenues: State general/realignment funds (5,937,799) (1,591,318) 4,346,481 Finding 2 State categorical funds (740,878) (1,665,747) (924,869) Finding 2 Short-Doyle/Medi-Cal funds (1,424,718) (1,213,091) 211,627 Finding 2 Other — (382,285) (382,285) Finding 2 Net treatment costs 946,514 312,880 (633,634) Total costs 1,297,338 341,343 (955,995) Late claim penalty (1,000) (1,000) — Total program costs $ 1,296,338 340,343 $ (955,995) Less amount paid by the State (438,763) Allowable costs claimed in excess of (less than) amount paid $ (98,420) July 1, 2001, through June 30, 2002 Assessment/case management costs $ 1,484,507 $ 1,318,904 $ (165,603) Finding 1 Administrative costs — 114,299 114,299 Finding 3 Offsetting revenues: State categorical funds (39,158) (315,924) (276,766) Finding 2 Short-Doyle/Medi-Cal funds (41,352) (291,319) (249,967) Finding 2 Net assessment/case management costs 1,403,997 825,960 (578,037) Treatment costs 6,198,798 6,976,614 777,816 Finding 1 Administrative costs — 187,113 187,113 Finding 3 Offsetting revenues: State general/realignment funds (21,970) — 21,970 Finding 2 State categorical funds (774,118) (1,717,714) (943,596) Finding 2 Short-Doyle/Medi-Cal funds (813,276) (1,272,065) (458,789) Finding 2 Other — (103,537) (103,537) Finding 2 Net treatment costs 4,589,434 4,070,411 (519,023) -4- San Diego County Handicapped and Disabled Students Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustments Reference 1 July 1, 2001, through June 30, 2002 (continued) Total costs $ 5,993,431 $ 4,896,371 $(1,097,060) Late claim penalty — — — Total program costs $ 5,993,431 4,896,371 $(1,097,060) Less amount paid by the State (591,998) Allowable costs claimed in excess of (less than) amount paid $ 4,304,373 Summary: July 1, 2000, through June 30, 2002 Assessment/case management costs $ 2,508,666 $ 1,493,769 $(1,014,897) Finding 1 Administrative costs — 127,606 127,606 Finding 3 Offsetting revenues: State categorical funds (111,556) (325,538) (213,982) Finding 2 Short-Doyle/Medi-Cal funds (483,786) (305,001) 178,785 Finding 2 Other (158,503) (136,413) 22,090 Finding 2 Net assessment/case management costs 1,754,821 854,423 (900,398) Treatment costs 15,248,707 12,005,867 (3,242,840) Finding 1 Administrative costs — 323,181 323,181 Finding 3 Offsetting revenues: State general/realignment funds (5,959,769) (1,591,318) 4,368,451 Finding 2 State categorical funds (1,514,996) (3,383,461) (1,868,465) Finding 2 Short-Doyle/Medi-Cal funds (2,237,994) (2,485,156) (247,162) Finding 2 Other — (485,822) (485,822) Finding 2 Net treatment costs 5,535,948 4,383,291 (1,152,657) Total costs 7,290,769 5,237,714 (2,053,055) Late claim penalty (1,000) (1,000) — Total program costs $ 7,289,769 5,236,714 $(2,053,055) Less amount paid by the State (1,030,761) Allowable costs claimed in excess of (less than) amount paid $ 4,205,953 _________________________ 1 See the Findings and Recommendations section. -5- San Diego County Handicapped and Disabled Students Program Findings and Recommendations FINDING 1— The county claimed costs for the program that were not based on actual costs. The county, in its automated system, did not implement unique Overstated procedure codes for all mandate-related services. To determine the assessment and claimed costs, the county commingled provider services and allocated a treatment costs portion of the total to the mandate. As a result, the county included ineligible clients—such as adults over the age of 22 years—and ineligible services—medication monitoring (FY 2000-01 only) and crisis intervention services. For FY 2000-01, the county allocated a portion of treatment costs to assessment/case management because unique service function codes for assessment/case management were not operative. In response to our preliminary findings, the county identified additional assessment and case management costs, adding a total of $2,517,681 to the claims. We found that the assessment units identified were already included in the audit adjustments in the initial draft report. The assessment procedure codes were not fully operational during the audit period; the county used other mental health service codes that have the same unit cost to record units. So, all of the additional assessment units identified were already included in the initial draft report under other mental health services. The additional case management units identified by the county were not included in the initial draft report. The SCO adjusted the audit finding to include the additional case management costs. We determined allowable costs using the appropriate unit cost, based on actual units of service provided to eligible clients. This calculation resulted in an overstatement of $4,869,950 for FY 2000-01 and $612,213 for FY 2001-02. Parameters and Guidelines for the program specifies that only actual increased costs incurred in the performance of the mandated activities and adequately documented are reimbursable. Furthermore, Parameters and Guidelines specify that only the following treatment services are reimbursable: individual therapy; collateral therapy and contacts; group therapy; day treatment; and the mental health portion of residential treatment in excess of California Department of Social Services payments for residential placement. On December 9, 2005, the Commission on State Mandates (COSM) adopted Parameters and Guidelines for the Handicapped and Disabled Students II Program. Under the newly adopted mandate, medication support costs are allowable beginning FY 2001-02. We revised this finding, allowing medication support costs for FY 2001-02. -6- San Diego County Handicapped and Disabled Students Program As a result of claiming costs that are not based on actual cost per unit, the county overstated its claims as follows. Fiscal Year 2000-01 2001-02 Total Assessment $ (849,294) $ (165,603) $ (1,014,897) Treatment (4,020,656) 777,816 (3,242,840) Audit adjustment $ (4,869,950) $ 612,213 $ (4,257,737) Recommendation We recommend that the county ensure that it uses the actual units of service and costs per unit and that it claims only eligible services, in accordance with the mandated program. Furthermore, we recommend that the county implement unique procedure codes for all eligible services in its automated system, so that the system can accurately accumulate and report all mandate-related units of service. County’s Response The county agrees with the finding. SCO’s Comment The finding remains unchanged. FINDING 2— The county applied incorrect offsetting revenues. For FY 2000-01, the county overstated offsetting revenues by $3,764,580 and for FY 2001-02, Incorrect offsetting the county understated the offsetting revenues by $2,010,685. For FY 2000- revenues 01, the overstatement was primarily due to the significant reductions in allowable costs discussed in Finding 1. The county did not include Early Periodic Screening Diagnosis and Treatment (EPSDT) and third-party payer funds during the audit period, and it applied revenues based on allocations that were not supported by actual units of service provided for certain programs. We recalculated the offsetting revenues by allocating EPSDT funds across all eligible clients, based on a percentage, and applied the correct funding percentages for Short Doyle/Medi-Cal Federal Financing Participation (FFP) to actual units of service provided to eligible mandate clients. As the county elected to offset costs claimed with the realignment funds for FY 2000- 01, we applied offsetting revenues consistent with this election. Parameters and Guidelines specifies that any direct payments (categorical funds, Short Doyle/Medi-Cal FFP, and other offsets) received from the State that are specifically allocated to the program, as well as any other reimbursement received as a result of the mandate, must be deducted from the claim. -7- San Diego County Handicapped and Disabled Students Program Because it excluded EPSDT and third-party payer funds and did not allocate revenues based on actual services provided, the county misstated its offsetting revenues as follows. Fiscal Year 2000-01 2001-02 Total Assessment: State categorical funds $ 62,784 $ (276,766) $ (213,982) Short-Doyle/Medi-Cal funds 428,752 (249,967) 178,785 Other 22,090 — 22,090 Total assessment offsetting revenues 513,626 (526,733) (13,107) Treatment: State general/realignment funds 4,346,481 21,970 4,368,451 State categorical funds (924,869) (943,596) (1,868,465) Short-Doyle/Medi-Cal funds 211,627 (458,789) (247,162) Other (382,285) (103,537) (485,822) Total treatment offsetting revenues 3,250,954 (1,483,952) 1,767,002 Audit adjustment $ 3,764,580 $(2,010,685) $ 1,753,895 Recommendation We recommend that the county ensure that all applicable revenues are offset against actual costs incurred for this program. We also recommend that the county calculate applicable reimbursements based on actual units of service provided for a particular program. County’s Response The County concurs with this finding with respect to incorrectly applied offsetting Early, Periodic, Screening, Diagnosis and Treatment (EPSDT) and third-party payer revenues during the audit period. However, the County disagrees with the finding regarding costs that were offset with realignment funds for Fiscal Year (FY) 2000/01. (Please see County’s attached Schedule A for an illustration of County’s true offsetting revenues.) For FY 2000/01, the County mistakenly offset costs claimed with realignment funds and should not be penalized for its mistake. It did not claim such offsetting revenues in the subsequent FY 2001/02. As you state in your revised report, the Parameters and Guidelines specify that direct payments received from the State that are specifically allocated to the program, as well as any other reimbursement received as a result of the mandate must be deducted from the claim. This would include categorical funds, ShortDoyle/Medi-Cal FFP and EPSDT. It does not include money received from the Local Revenue Fund (realignment). In fact, Section 5701.6 of the Welfare and Institutions Code supports this position and states in relevant part as follows: Counties may utilize money from the Local Revenue Fund [realignment] . . . to fund the costs of any part of those services provided pursuant to Chapter 26.5 (commencing with Section 7570) of Division 7 of Title 1 of the Government Code. If money is used by counties for those services, counties are eligible for reimbursement from the State for all allowable costs to fund assessments, psychotherapy, and other -8- San Diego County Handicapped and Disabled Students Program mental health services allowable pursuant to Section 300.24 of Title 34 of the Code of Federal regulations [IDEA] and required by Chapter 26.5 . . . of the Government Code. In addition, in light of this law, the Commission on State Mandates found in its Decision on the Handicapped and Disabled Students Program (Case No.: 04-RL-4282-10) that realignment funds used by a county for this mandated program are not required to be identified as an offset and deducted from the costs claimed. Consequently, the County asserts that for FY 2000/01, the realignment funds offset of $1,591,318 should not be considered offsetting revenues and should be reinstated as allowable reimbursable costs. SCO’s Comment The finding remains unchanged. The county elected to deduct realignment funds from claimed costs for FY 2000-01. Government Code Section 17561 allows the county to amend its claim within one year of the filing deadline specified in the SCO claiming instructions. The county did not amend its FY 2000-01 claim. Parameters and Guidelines states that besides direct payments, any other reimbursement received as a result of the mandate must be deducted from the claim. The document does not specifically exclude realignment funds. Chapter 1167, Statutes of 2002 (Assembly Bill 2781), amended Section 5701.3 of the Welfare and Institutions Code. This legislation states that for FY 2001-02 and thereafter, counties are not required to provide any share of psychotherapy and other mental health services or fund any part of these services with realignment funds. Chapter 493, Statutes of 2004 (Senate Bill 1895), added Section 5701.6 to the Welfare and Institution Code. This legislation states that if a county uses realignment funds for assessments, psychotherapy, and other mental health services, then the county is eligible for reimbursement from the state for all allowable costs to fund mental health services. This legislation further states that this section is declaratory of existing law. The Legislative Counsel’s Digest states that this provision applies to FY 2001-02 and thereafter. The COSM adopted a Statement of Decision for the Handicapped and Disabled Students II Program on May 26, 2005, and related Parameters and Guidelines on December 9, 2005 (02-TC-40/02-TC-49). This mandate incorporates the provisions of Assembly Bill 2781 and Senate Bill 1895, which states that realignment funds are not required to be deducted from claimed costs effective July 1, 2001. The COSM reconsidered the prior Statement of Decision for the Handicapped and Disabled Students Program and adopted amended Statement of Decision on May 26, 2005, and Parameters and Guidelines on January 26, 2006 (04-RL-4282-10). The amendments, effective beginning July 1, 2004, does not require realignment funds to be deducted from claimed costs. -9- San Diego County Handicapped and Disabled Students Program The COSM adopted amendments to Parameters and Guidelines for the Handicapped and Disabled Students Program (CSM 4282) on January 25, 2007. The COSM affirmed that eligible claimants will be allowed to be reimbursed for realignment funds deducted in claims filed for FY 2001-02 through FY 2003-04. The COSM has not adopted any Parameters and Guidelines that would allow a county to be reimbursed for realignment funds deducted in claims filed for FY 2000-01. FINDING 3— The county omitted offsetting revenues when determining administrative costs. In its claim, the county had commingled the direct and Inaccurate administrative costs and reported the costs as direct costs. administrative costs The omitted offsetting revenues include Short Doyle/Medi-Cal FFP administration and utilization review revenues. We recalculated the administrative rates, reducing the administrative costs by applicable offsetting revenues. We applied the recalculated rates to the eligible direct costs. Parameters and Guidelines for the program specifies that any direct payments (Short/Doyle-Medi-Cal revenues) received from the State that are specifically allocated to the program, as well as, any other reimbursements received as a result of the mandate, must be correctly deducted from the claims. The audit adjustment resulting from the separation of indirect costs from direct costs claimed and the application of offsetting revenues is as follows. Fiscal Year 2000-01 2001-02 Total Assessment $ 13,307 $ 114,299 $ 127,606 Treatment 136,068 187,113 323,181 Audit adjustment $ 149,375 $ 301,412 $ 450,787 Recommendation We recommend that the county prepare an indirect cost rate proposal that includes an adjustment for offsetting revenues and then apply the rate to eligible direct costs. County’s Response The county agrees with the finding. SCO’s Comment The finding remains unchanged. -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, California 94250-5874 http://www.sco.ca.gov S04-MCC-020