Nevada County

NEVADA COUNTY Audit Report HANDICAPPED AND DISABLED STUDENTS II PROGRAM Chapter 1128, Statutes of 1994, and Chapter 654, Statutes of 1996 July 1, 2002, through June 30, 2005 J C OHN HIANG California State Controller May 2008 J C OHN HIANG California State Controller May 16, 2008 Ted S. Owens, Board Chairman Nevada County Board of Supervisors Eric W. Rood Administrative Center 950 Maidu Avenue Nevada City, CA 95959 Dear Mr. Owens: The State Controller’s Office audited the costs claimed by Nevada County for the legislatively mandated Handicapped and Disabled Students II Program (Chapter 1128, Statutes of 1994, and Chapter 654, Statutes of 1996) for the period of July 1, 2002, through June 30, 2005. The county claimed $68,662 for the mandated program. Our audit disclosed that the entire amount is unallowable primarily because the county claimed costs that were already allocated to another mandated program. The State made no payments to the county for fiscal year (FY) 2002-03 through FY 2004-05. 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 Ted S. Owens -2- May 16, 2008 cc: The Honorable Marcia Salter Auditor-Controller County of Nevada Martin Polt Administrative Services Officer Health & Human Services Agency Behavioral Health 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 Nevada County Handicapped and Disabled Students II 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 Nevada County Handicapped and Disabled Students II Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by Nevada County for the legislatively mandated Handicapped and Disabled Students II Program (Chapter 1128, Statutes of 1994, and Chapter 654, Statutes of 1996) for the period of July 1, 2002, through June 30, 2005. The county claimed $68,662 for the mandated program. Our audit disclosed that the entire amount is unallowable primarily because the county claimed costs that were already allocated to another mandated program. The State made no payments to the county for fiscal year (FY) 2002-03 through FY 2004-05. 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- Nevada County Handicapped and Disabled Students II 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 identifies 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, we 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 II 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, Nevada County claimed $68,662 for costs of the Handicapped and Disabled Students II Program. Our audit disclosed that the entire amount is unallowable. The State made no payments to the county. -2- Nevada County Handicapped and Disabled Students II Program Views of We issued a draft audit report on March 12, 2008. Michael Heggarty, Director, Nevada County Department of Mental Health, responded by Responsible letter (Attachment) agreeing with the audit results. The final report Officials includes the county’s response. Restricted Use This report is solely for the information and use of Nevada 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 May 16, 2008 -3- Nevada County Handicapped and Disabled Students II 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 Direct costs: Interagency agreements $ 1,602 $ — $ (1,602) Referral and mental health assessments 1,632 — (1,632) Transfers and interim placements 753 — (753) Psychotherapy or other treatment services 10,912 — (10,912) Total direct costs 14,899 — (14,899) Finding 1 Indirect costs 7,439 — (7,439) Finding 2 Total program costs 2 $ 22,338 — $ (22,338) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ — July 1, 2003, through June 30, 2004 Direct costs: Referral and mental health assessments $ 1,994 $ — $ (1,994) Transfers and interim placements 920 — (920) Psychotherapy or other treatment services 12,419 — (12,419) Total direct costs 15,333 — (15,333) Finding 1 Indirect costs 7,464 — (7,464) Finding 2 Total program costs $ 22,797 — $ (22,797) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ — July 1, 2004, through June 30, 2005 Direct costs: Referral and mental health assessments $ 2,462 $ — $ (2,462) Transfers and interim placements 1,136 — (1,136) Psychotherapy or other treatment services 13,566 — (13,566) Total direct costs 17,164 — (17,164) Finding 1 Indirect costs 6,363 — (6,363) Finding 2 Total program costs $ 23,527 — $ (23,527) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ — -4- Nevada County Handicapped and Disabled Students II Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 Summary: July 1, 2002, through June 30, 2005 Direct costs: Interagency agreements $ 1,602 $ — $ (1,602) Referral and mental health assessments 6,088 — (6,088) Transfers and interim placements 2,809 — (2,809) Psychotherapy or other treatment services 36,897 — (36,897) Total direct costs 47,396 — (47,396) Indirect costs 21,266 — (21,266) Total program costs $ 68,662 — $ (68,662) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ — _________________________ 1 See the Findings and Recommendations section. 2 The county claimed costs relating to the Handicapped and Disabled Students (HDS) II Program under the HDS Program. We moved the entire FY 2002-03 claimed amount of $22,338 to the correct mandated program. -5- Nevada County Handicapped and Disabled Students II Program Findings and Recommendations FINDING 1— The county overstated direct costs by $47,396. For fiscal year Overstated direct (FY) 2002-03, the costs related to the Handicapped and Disabled Students (HDS) Program. Therefore, we moved the costs to that costs program. For FY 2003-04 and FY 2004-05, the county claimed certain costs under the cost-report method when it filed the HDS Program claims and under the direct-cost method when it filed the HDS II Program claims. The duplicated costs claimed related to Interagency Agreements, Referral and Mental Health Assessments, Transfer and Interim Placements, and Psychotherapy or Other Treatment Services. As all of these costs are included in the total costs in the cost reports, they are already allocated to the HDS Program as a unit-of-service cost and/or administrative cost. Allowing the above costs as direct costs in the HDS II Program claims would result in duplicate reimbursement. The following table summarizes the understated offsetting revenues: Fiscal Year 2002-03 2003-04 2004-05 Total Direct costs: Interagency agreements $ (1,602) $ — $ — $ (1,602) Referral and mental health assessments (1,632) (1,994) (2,462) (6,088) Transfers and interim placements (753) (920) (1,136) (2,809) Psychotherapy or other treatment services (10,912) (12,419) (13,566) (36,897) Audit adjustment $ (14,899) $ (15,333) $ (17,164) $ (47,396) Recommendation We recommend that the county ensure that it claims only eligible services in accordance with the mandated program and uses consistent claim preparation and submission methods. County’s Response The county agreed with the finding. -6- Nevada County Handicapped and Disabled Students II Program FINDING 2— The county overstated administrative costs by $21,266. For FY 2002-03, the costs related to the HDS Program; therefore, we moved the costs to Overstated this program. For FY 2003-04 and FY 2004-05, the county miscalculated administrative costs the indirect cost rate. We reviewed the indirect cost rates and noted inconsistencies with the method the county used to prepare the Indirect Cost Rate Proposals (ICRPs). However, we did not recalculate ICRP rates, as none of the direct costs were allowed (see Finding 1). The following table summarizes the understated administration costs: Fiscal Year 2002-03 2003-04 2004-05 Total Administrative costs $ (7,439) $ (7,464) $ (6,363) $ (21,266) Total adjustment $ (7,439) $ (7,464) $ (6,363) $ (21,266) Recommendation We recommend that the county prepare its claims consistent with the cost report submitted to the Department of Mental Health (DMH) and ensure that the indirect (administrative) rate is applied only to eligible direct costs. County’s Response The county agreed with the finding. -7- Nevada County Handicapped and Disabled Students II 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-040