Ventura County

VENTURA 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 January 2009 J C OHN HIANG California State Controller January 23, 2009 The Honorable Peter C. Foy, Chair Ventura County Board of Supervisors 980 Enchanted Way, #203 Simi Valley, CA 93063 Dear Mr. Foy: The State Controller’s Office audited the costs claimed by Ventura 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 $7,207,518 for the mandated program. Our audit disclosed that $5,348,372 is allowable and $1,859,146 is unallowable. The costs are unallowable primarily because the county miscalculated administrative costs and overstated treatment costs. The State paid the county $5,188,680. Allowable costs claimed exceed the amount paid by $159,692. 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 cc: The Honorable Christine L. Cohen, Auditor-Controller Ventura County Raja Perera, Fiscal Manager II, Behavioral Health Ventura County Todd Jerue, Program Budget Manager Corrections and General Government Department of Finance Stacey Wofford Special Education Program Department of Mental Health Carol Bingham, Director Fiscal Policy Division Cynthia Wong, Manager Special Education Division California Department of Education Ventura 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.................................................................................................................... 3 Schedule 1—Summary of Program Costs............................................................................ 4 Findings and Recommendations........................................................................................... 6 Attachment—County’s Response to Draft Audit Report Ventura County Handicapped and Disabled Students Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by Ventura 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 $7,207,518 for the mandated program. Our audit disclosed that $5,348,372 is allowable and $1,859,146 is unallowable. The costs are unallowable primarily because the county miscalculated administrative costs and overstated treatment costs. The State paid the county $5,188,680. Allowable costs claimed exceed the amount paid by $159,692. 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) requires 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- Ventura 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 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 January 26, 2006, CSM amended the parameters and guidelines for the Handicapped and Disabled Students Program allowing reimburse- ment for out-of-home residential placements 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, 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 gain an understanding of the transaction flow and claim preparation process as necessary to develop appropriate auditing procedures. -2- Ventura County Handicapped and Disabled Students Program 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, Ventura County claimed $7,207,518 for costs of the Handicapped and Disabled Students Program. Our audit disclosed that $5,348,372 is allowable and $1,859,146 is unallowable. For the fiscal year (FY) 2003-04 claim, the State made no payment to the county. Our audit disclosed that $1,733,683 is allowable. The State will pay allowable costs claimed that exceed the amount paid, totaling $1,733,683, contingent upon available appropriations. For the FY 2004-05 claim, the State paid the county $2,714,093. Our audit disclosed that $1,487,941 is allowable. The State will offset $1,226,152 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 $2,474,587. Our audit disclosed that $2,126,748 is allowable. The State will offset $347,839 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 November 5, 2008. Christine L. Cohen, Auditor-Controller, responded by letter dated December 12, 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 Ventura 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 January 23, 2009 -3- Ventura 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 Direct costs: Assessment/case management costs $ 1,101,440 $ 1,102,427 $ 987 Finding 1 Administrative costs 167,938 121,925 (46,013) Finding 2 Offsetting revenues: Short-Doyle/Medi-Cal funds (157,648) (154,005) 3,643 Finding 3 State categorical funds — (63,884) (63,884) Finding 3 Other (657,004) (595,674) 61,330 Finding 3 Net assessment/case management costs 454,726 410,789 (43,937) Treatment costs 3,915,337 3,865,598 (49,739) Finding 1 Administrative costs 595,207 384,430 (210,777) Finding 2 Offsetting revenues: Short-Doyle/Medi-Cal funds (620,187) (592,611) 27,576 Finding 3 State categorical funds — (245,824) (245,824) Finding 3 Other (2,334,770) (2,088,699) 246,071 Finding 3 Net treatment costs 1,555,587 1,322,894 (232,693) Total program costs $ 2,010,313 1,733,683 $ (276,630) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 1,733,683 July 1, 2004, through June 30, 2005 Direct costs: Assessment/case management costs $ 1,101,841 $ 1,110,837 $ 8,996 Finding 1 Administrative costs 199,486 125,999 (73,487) Finding 2 Offsetting revenues: Short-Doyle/Medi-Cal funds (127,944) (101,364) 26,580 Finding 3 State categorical funds (13,780) (51,974) (38,194) Finding 3 Other (593,084) (674,227) (81,143) Finding 3 Net assessment/case management costs 566,519 409,271 (157,248) Treatment costs 4,318,600 3,503,451 (815,149) Finding 1 Administrative costs 796,254 419,167 (377,087) Finding 2 Offsetting revenues: Short-Doyle/Medi-Cal funds (568,939) (474,315) 94,624 Finding 3 State categorical funds (61,277) (243,201) (181,924) Finding 3 Other (2,328,539) (2,126,432) 202,107 Finding 3 Net treatment costs 2,156,099 1,078,670 (1,077,429) Total program costs $ 2,722,618 1,487,941 $ (1,234,677) Less amount paid by the State (2,714,093) Allowable costs claimed in excess of (less than) amount paid $ (1,226,152) -4- Ventura 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 Direct costs: Assessment/case management costs $ 1,262,066 $ 1,286,907 $ 24,841 Finding 1 Administrative costs 262,206 173,298 (88,908) Finding 2 Offsetting revenues: Short-Doyle/Medi-Cal funds (191,350) (178,725) 12,625 Finding 3 State categorical funds (64,758) (107,055) (42,297) Finding 3 Other (694,633) (658,741) 35,892 Finding 3 Net assessment/case management costs 573,531 515,684 (57,847) Treatment costs 4,317,475 4,242,125 (75,350) Finding 1 Administrative costs 952,191 540,366 (411,825) Finding 2 Offsetting revenues: Short-Doyle/Medi-Cal funds (667,388) (625,375) 42,013 Finding 3 State categorical funds (225,861) (374,596) (148,735) Finding 3 Other (2,475,361) (2,171,456) 303,905 Finding 3 Net treatment costs 1,901,056 1,611,064 (289,992) Total program costs $ 2,474,587 2,126,748 $ (347,839) Less amount paid by the State (2,474,587) Allowable costs claimed in excess of (less than) amount paid $ (347,839) Summary: July 1, 2003, through June 30, 2006 Direct costs: Assessment/case management costs $ 3,465,347 $ 3,500,171 $ 34,824 Administrative costs 629,630 421,222 (208,408) Offsetting revenues: Short-Doyle/Medi-Cal funds (476,942) (434,094) 42,848 State categorical funds (78,538) (222,913) (144,375) Other (1,944,721) (1,928,642) 16,079 Net assessment/case management costs 1,594,776 1,335,744 (259,032) Treatment costs 12,551,412 11,611,174 (940,238) Administrative costs 2,343,652 1,343,963 (999,689) Offsetting revenues: Short-Doyle/Medi-Cal funds (1,856,514) (1,692,301) 164,213 State categorical funds (287,138) (863,621) (576,483) Other (7,138,670) (6,386,587) 752,083 Net treatment costs 5,612,742 4,012,628 (1,600,114) Total program costs $ 7,207,518 5,348,372 $ (1,859,146) Less amount paid by the State (5,188,680) Allowable costs claimed in excess of (less than) amount paid $ 159,692 _____________________________ 1 See Findings and Recommendations section. -5- Ventura County Handicapped and Disabled Students Program Findings and Recommendations FINDING 1— The county overstated costs claimed by $905,414 for the audit period. Overstated The county claimed costs that are not fully based on actual costs to assessment and implement the mandate program. For treatment costs, the county included treatment costs ineligible costs, used incorrect rates for contract services providers, and overstated units in all three years. The county understated assessment costs because the county did not include all in-state residential placement costs in the FY 2004-05 and FY 2005-06 claims. We recalculated costs based on the actual units of eligible service and applied the appropriate cost per unit, and confirmed the amounts of contracted services for in-state residential placement. The program’s parameters and guidelines specify that only actual increased costs incurred in the performance of the mandated activities that are adequately documented are reimbursable. The following table summarizes the overstated assessment and treatment costs: Fiscal Year 2003-04 2004-05 2005-06 Total Assessment $ 987 $ 8,996 $ 24,841 $ 34,824 Treatment (49,739) (815,149) (75,350) (940,238) Total adjustment $ (48,752) $ (806,153) $ (50,509) $ (905,414) Recommendation We recommend that the county implement policies and procedures to ensure that it utilizes the actual units of service and applies appropriate costs. County’s Response The county agreed with the finding. FINDING 2— The county overstated administrative costs by $1,208,097 for the audit period. Overstated administrative costs The county miscalculated its administrative cost rates by not reducing the administrative costs by related administrative revenues, and allocating inconsistent pools of cost. During the audit, the county provided a recalculated administrative percentage that included administrative revenues and applied an allocation methodology that is consistent with the cost report allocation. The parameters and guidelines specify that adequately documented administrative costs incurred in the performance of the mandated activities are reimbursable. -6- Ventura County Handicapped and Disabled Students Program The parameters and guidelines further specify that to the extent the State Department of Mental Health has not already compensated reimbursable indirect costs from categorical funding sources, they may be claimed. The following table summarizes the overstated administrative costs: Fiscal Year 2003-04 2004-05 2005-06 Total Assessment $ (46,013) $ (73,487) $ (88,908) $ (208,408) Treatment (210,777) (377,087) (411,825) (999,689) Total adjustment $ (256,790) $ (450,574) $ (500,733) $ (1,208,097) Recommendation We recommend that the county apply a methodology that is consistent with the cost report submitted to the State Department of Mental Health. In doing so, the county should 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 overstated offsetting revenues by $254,365 for the audit period. Overstated offsetting The county miscalculated revenues by not applying Early and Periodic revenues Screening, Diagnosis, and Treatment (EPSDT) in its FY 2003-04 claim, and applying Short-Doyle/Medi-Cal (SD/MC) administrative revenues to direct costs. The county also did not include the correct amount of Individuals with Disabilities Act (IDEA) funding in its claims. We recalculated total revenues applying the appropriate cost per unit to eligible units of service and using the correct funding percentages for SD/MC and EPSDT. We also applied SD/MC administrative revenues as an offset to administrative costs. The 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 overstated offsetting revenues: Fiscal Year 2003-04 2004-05 2005-06 Total Assessment $ 1,089 $ (92,757) $ 6,220 $ (85,448) Treatment 27,823 114,807 197,183 339,813 Total adjustment $ 28,912 $ 22,050 $ 203,403 $ 254,365 -7- Ventura County Handicapped and Disabled Students Program Recommendation We recommend that the county include all relevant offsetting revenues when preparing its claims, using the appropriate funding percentages and grant amounts. County’s Response The county agreed with the finding. -8- Ventura 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-036