Summary Report on Nationwide Audit of Training Contract and

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Summary Report on Nationwide Audit of Training Contract and

Transcript Of Summary Report on Nationwide Audit of Training Contract and

DEPARTMENT OF HEALTH & HUMAN SERVICES

Office of Inspector General

Date From Subject To

.APR 25 1997

Memorandum

June Gibbs Brown [email protected]’@’
Inspector Genera
o
Summary Report on Nationwide Audit of Training Contract and Administrative Costs Charged to Department of Health and Human Services Supported Programs (A-02-95-02002)

John J. Callahan Assistant Secretary for
Management and Budget

The attached summary report, representing audits in seven States, provides you ‘ with the results of the OffIce of Inspector General’s review entitled, “Nationwide . Audit of Training Contract and Administrative Costs Charged to Department of Health and Human Services Supported Programs.” The training costs reviewed were claimed under programs administered by the Administration for Children and Families and the Health Care Financing Administration.

Overall, improper practices for identifying and charging training and administrative costs existed to some extent in all seven States reviewed. result, we have recommended financial adjustments totaling $58,222,453 ($36,866,400 Federal share). Of this amount, $36,732,991 ($24,193,954 share) relates to the State of New York.

As a Federal

In responding to our draft audit report (Appendix B), the Assistant Secretary for Management and Budget (ASMB) was in substantial agreement with our findings and offered comments and corrective actions it anticipated taking in the fkture. In addition, ASMB concurred with our recommendations and indicated it would take appropriate action to not only notifi operating agencies of the findings in the report but also coordinate efforts to periodically review future training expenditures.

We would appreciate the status of any action taken or contemplated on our recommendations within the next 60 days. If you have any questions, please contact me or have your staff contact John A. Ferris, Assistant Inspector General for Administrations of Children, Family and Aging Audits, at (202) 619-1175.

Attachment

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Department of Health and Human Services
OFFICE OF INSPECTOR GENERAL
NATIONWIDE AUDIT OF TRAINING CONTRACT AND ADMINISTRATIVE COSTS CHARGED TO DEPARTMENT OF
HEALTH AND HUMAN SERVICES SUPPORTED PROGRAMS

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GIBBS BRO~T

Inspector General

APRIL 1997 A-02-95-02002

TABLE OF CONTENTS

PAGE

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..i

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1

Scope and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1

RESULTS OF NATIONWIDE REVIEW

......................... .. 4
..

� 1. Allocation of Training Costs to Benefiting Programs. . . . . . . . . . . . . . . . 4

� 2. Federal Shareof Title IV-E Training Activities and Administrative Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . ...11

F 3. Training Contract Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...18 F 4. Third Party In-KindContributions . . . . . . . . . . . . . . . . . . . . . . . ...19

� 5. Supporting Documentationfor Reported Expenditures . . . . . . . . . . . . . . 31 � (j. AllocationofOffice Space Costs. . . . . . . . . . . . . . . . . . . . . . . . ...32

� 7. Dependent Care Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...33 � 8. Revenue as inapplicable Credit -Training Fees . . . . . . . . . . . . . . . . . 34

� 9. Missouri’s CAP -Sampling Methodology . . . . . . . . . . . . . . . . . . . . . 34

� 10. Indirect Castrates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...34

SUMMARY AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . ...38

APPENDICES

A - States’ Comments & Office of Inspector General Responses

B - ASMB Response dated February 25, 1997

EXECUTIVE SUMMARY
This report provides a summary of the results of our nationwide audit of training contract and administrative costs charged to the Department of Health and Human Services supported programs in the States of New York, Illinois, California, Missouri, Oklahoma, Florida and New Jersey. Collectively, these States claimed approximately $310 million in training costs during the audit periods.
The primary objective of the audits performed in the States other than New York was to determine if some or all of the conditions found during our earlier reviews of training practices in New York, including those reported under Common Identification Number: A-02-93-02006, also existed in other States. Specifically, the audit objectives were to determine it
� Contract training costs and related administrative expenses were properly “‘ allocated between Federal participating (FP) and Federal non-participating . (FNP) programs.
� Administrative costs applicable to title IV-E training activities were claimed at the correct Federal f~cial participation (FFP) rate (i.e. 50 percent versus 75 percent).
� Contract training costs were claimed at the appropriate FFP rate.
� Training contractors were able to document costs claimed, including their matching share.
� Third party in-kind contributions were used to meet the State’s share of training costs.
� Revenue received from training activities was accounted for in accordance with applicable Federal regulations.
In New York, the primary objective was to provide audit assistance to the Division of Cost Allocation (DCA) in verifjing that the New York State Department of Social Services (NYSDSS) did not allocate training contract and administrative costs between FP and FNP programs. This information would then be taken into consideration during DCA’S negotiations with NYSDSS to resolve this issue.
Our audits determined that:
� In five States (New York, Illinois, California, Missouri and Oklahoma), training contract and administrative costs were not allocated to all benefiting programs. New York did not equitably charge training contract and

administrative costs to the Federal titles IV:A, IV-E and XIX programs because it did not allocate costs between FP and FNP programs. In the remaining four States, we found that title IV-E training costs were not equitably allocated between FP and FNP programs. In total, we calculated that $49,360,836 ($33 ,264,270 Federal share) charged to Federal programs should have been allocated to FNP programs.
� In five States (Illinois, Florida, Oklahoma, Missouri and New Jersey), title IV-E foster parent recruitment and administrative costs were claimed at the enhanced FFP rate of 75 percent, rather than the allowable rate of 50 percent. As a result, the States’ claims were overstated by $5,937,263 ($1 ,484,316 Federal share) for Federal reimbursement.
� In Illinois, training costs claimed by universities included unallowable and unsupported expenses totaling $1,740,719 ($1 ,305,539 Federal share).
� In two States (Florida and California), $997,850 ($672,999 Federal share) . of third party in-kind contributions used as the State’s share of training costs did not meet the definition of allowable costs under State and Federal criteria. In addition, in California we have classified $1,333,690 ($725,960 Federal share) of expenses as unresolved costs because of conflicting Regioml and Headquarters Administration for Children and Families policy regarding the allowability of thiid party contributions for meeting the State’s matching requirements.
� In Florida, the State’s accounting records reflected $148,627 less in training costs than the amount which was claimed to the Federal Government. In Illinois, lease costs of $36,450 were inadvertently allocated to the title IV-E program. In Oklahoma, $708 of a dependent care grant was incorrectly charged to titles IV-E and XIX training. In total, the Federal Government was overbilled by $139,276.
� In New Jersey, training costs were not offset by revenue earned from training activities. We did not recommend a financial adjustment because, during the audit period, the State did not include allowable training costs in excess of the amount overstated in the computation of amounts eligible for FFP. In Missouri, the State’s cost allocation plan (CAP) allocated training costs only to Foster Care programs even though other programs such as Emergency Assistance benefited. We did not [email protected] or quantify any potential excess FFP received by the State because these training costs were claimed under an approved CAP. In Illinois, indirect cost rates for two universities were not reviewed by the State agency to ensure that the rates were developed in accordance with Federal cost principles. We did not
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recommend a fmncial adjustment because the propriety of the universities’ indirect cost rates was not included in the scope of the review. Overall, we found improper practices for identifying and charging training and administrative costs existed to some extent in all seven States reviewed. As a result, we have recommended fimncial adjustments totaling $58,222,453 ($36,866,4W Federal share). The Assistant Secretary for Mamgement and Budget (ASMB) has been assigned the responsibility to negotiate all public assistance CAPS through which all administrative costs (direct and indirect) are normally charged to Federal programs. This responsibility also includes resolution of all government-wide accounting issues that impact public assistance programs, such as those identified in this report. Therefore, we recommend that the ASMB advise other entities involved in administering training contracts of the conditions found in this review. We also recommend that the ASMB coordinate efforts to periodically review “” fiture training expenditures claimed by the States to ensure that they continue to adhere to regulations governing the allocation and claiming of training costs. In responding to our draft audit report (Appendix B), ASMB was in substantial agreement with the findings in the report and offered comments and corrective actions it anticipated taking in the future. In addition, ASMB filly concurred with our recommendations and indicated it would take appropriate action to not only notifi operating agencies of the findings in the report but also coordimte efforts to periodically review fiture training expenditures.
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INTRODUCTION
Background
In February 1996, we issued a report which detailed the results of a review we conducted with the Department of Justice (DOJ) of training contract and administrative costs claimed by the New York State Department of Social Services (NYSDSS) in the period April 1, 1983 through June 30, 1994 [Common Identification Number (CIN): A-02-93-02006]. The report also detailed the terms of a December 20, 1994 agreement with New York which settled overbilling made by NYSDSS to Federal programs that were disclosed by the review. The overbilling resulted in part from NYSDSS’:
� Use of third party in-kind contributions from private contractors as the State’s share of training expenditures.
� Failure to credit administrative fees collected from private training contractors against training costs charged to the Federal Government.
� Inclusion of umllowable and unallowable expenses in its claimed training costs .
� Failure to offset training costs charged to the Federal Government for training fees paid by private agencies.
In our earlier report, we stated we had initiated a nationwide review of training contract and admhlistrative costs in six additional States to determine if the improper practices found in our New York review had been adopted elsewhere. Our mtionwide review included the States of Illinois, California, Missouri, Oklahoma, Florida and New Jersey. Also, as part of the mtionwide review, we performed additioml audit work in New York, which included reviewing the allocation of training contract and administrative costs between Federal participating (FP) and Federal non-participating (FNP) programs.
Scope and Methodology
The objective of this report is to provide an overview of the results of our nationwide review of training contract and administrative costs charged to Federal programs in the States of New York, Illinois, California, Missouri, Oklahoma, Florida and New Jersey. The individual State reviews were conducted by respective Office of Audit Services (OAS) regional offices in each State’s geographic area. Each OAS region coordinated the audit work with the responsible State agency, and written reports of results of review were issued to the States under separate CINS. In compiling this report, we requested

information from each participating OAS regional office. The individual reports issued to each State included in the nationwide review are shown below.

STATE New York
Illinois Illinois California Missouri Oklahoma Florida New Jersey

AUDIT PERIOD 04/01/87-03/3 1/95 01/01/92-12/3 1/94 01/01/92-12/3 1/94 04/01/92-03/31/95 07/01/91-06/30/94 07/01/93-06/30/94 07/01/93-06/30/95 07/01/92-06/30/93

~ A-02-96-02000 A-05-96-00013 A-05-95-00022 A-09-95-00056 A-O7-95-O1OO8 A-06-95-00037 A-04-95-00085 A-02-95-02003

REPORT Final Final Final Final Final Final Final Final

ISSUE DATE May 1996
August 1996 February 1996 August 1996 February 1996 October 1996 March 1996
May- 1996

All of the individual State reviews were made in accordance with generally accepted government auditing standards. We made limited studies and evaluations of internal controls to ensure the accuracy of training claims and conducted such tests and other auditing procedures as were considered necessary. The specific objectives of the audits performed in the States other than New York were to determine if

� Contract training costs and related administrative expenses were properly allocated between FP and FNP programs. 1

� Administrative costs applicable to title IV-E training activities were claimed at the correct Federal fmcial participation (FFP) rate (i.e. 50 percent versus 75 percent).

� Contract training costs were claimed at the appropriate FFP rate.

� Training contractors were able to document costs claimed, including their matching share.

� Third party in-kind contributions were used to meet the State’s share of training costs.

‘This issue was identified during our review of training practices within New York State, but was not included in the settlement agreement dated December 20, 1994 that finalized the DOJ and Office Inspector General review (CIN: A-02-93-02006).
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c Revenue received from training activities was accounted for in accordance with applicable Federal regulations.
In New York, the primary objective was to provide audit assistance to the Division of Cost Allocation (DCA) in verifying that NYSDSS did not allocate training contract and administrative costs between FP and FNP programs. This information would then be taken into consideration during DCA’s negotiations with NYSDSS to resolve this issue. To accomplish our objectives, we:
� Met with Department of Health and Human Services (HHS) officials and State personnel to discuss how State training programs operated.
� Reconciled training costs claimed for the audit periods to accounting records and other supporting documentation.
� Obtained and reviewed training contracts with both public and private contractors.
� Reviewed Federal regulations, Departmental Appeals Board (DAB) decisions, Administration for Children and Families (ACF) guidelines and State Plans.
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RESULTS OF NATIONWIDE REVIEW

Training costs were not allocated to all benefiting programs. As summarized in the following table, $49,360,836 ($33,264,270 Federal share) was improperly claimed to the Federal Government:

STATE

RECOMMENDED

FEDERAL

ADJUSTMENT SHARE

% TO TOTAL

New York I Illinois
California Missouri I

$36,732,991 I $8,283,904 $4,007,083 $289,877 I

$2491939954 I $5,812,360 $3,005,312 $217,408 I

74.42% II 16.78%
8.12% .59% II

Federal regulations and program policy require that training costs be allocated to benefiting programs in such a manner as to ensure that each participating program is charged its proportiomte share of costs.
Attachment A, Paragraph C.2.a. of Office of Management and Budget (OMB) Circular No. A-87, stipulates that “A cost is allocable to a particular cost objective to the extent of benefits received by such objective. ” Also, Attachment A, Paragraph C.3.a. states costs of goods or services are chargeable to a particular cost objective in accordance with relative benefits received. And, Attachment A, Paragraph J. 1. requires that: “A plan for allocation of costs will be required to support the distribution of any joint costs related to the grant program. All costs included in the plan will be supported by formal accounting records which will substantiate the propriety of eventual changes. ”
The Administration for Children, Youth and Families (ACYF), predecessor to ACF, issued two Policy Announcements that dealt directly with the allocation of costs to both FP and FNP programs. Policy Announcement ACYF-PA-87-05, issued October 22, 1987, stated that allowable administrative costs including
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CostsTraining CostsProgramsYorkTraining Contract