INVESTIGATION: Severe Financial Problems Plague State Agency
Thursday, September 24, 2015
GoLocalProv obtained the audit after it was reported last week that two senior officials at the financially distressed agency had been put on paid leave. One of them was Brian Peterson, the associate director of financial management. A DCYF source tells GoLocalProv that the action against Peterson was related to the audit findings. An agency spokesman would not comment.
But the spokesman, Michael Raia, did confirm that the audit has now led to a State Police investigation into “potential financial issues.”
The audit, issued later in the summer, uncovered systemic problems in the financial operations of the state agency. Among its findings: 10 out of 22 contracts had been awarded without going out to bid and more than half of them were signed after the contractors had already started the work. In some instances contractors may have been twice for the same work. Other payments were issued in error.
DCYF was even missing some of its contracts and had “limited fiscal monitoring” information for just 3 out of the 22 contracts reviewed.
“Without adequate efforts dedicated to the monitoring process, DCYF may not detect provider noncompliance with contract terms or State and Federal regulations; there is potential for misuse of funds. More importantly, there is a risk that children may not receive the appropriate quality of care,” states the audit, dated July 30.
A top state lawmaker expressed dismay and surprise at the audit.
“Granted the kids come always come first, but when you can’t get the administration and finances right they will suffer,” state Rep. Joseph McNamara, a Warwick Democrat who chairs the House Committee on Health, Education, and Welfare.
He said lawmakers once had been under the impression that DCYF’s long-running deficits were the result of a rising case load. The audit has instead revealed that they are the result of what McNamara described as “administrative blunders,” such as not being able to accurately predict when federal reimbursements for services would be received.
In the summer, Governor Gina Raimondo announced a total overhaul of DCFY, aimed not just at rectifying its many financial troubles, but also improving the quality of services it provides to children and families, according to Raia, who is officially the spokesman for the Executive Office of Health and Human Services, which oversees DCYF.
“A strong, well-functioning DCYF is essential to strengthen Rhode Island families and ensure all Rhode Island children have the opportunity to make it in Rhode Island. Immediately upon taking office, the Governor ordered an overhaul of DCYF to address inherited managerial and operational challenges. No one in the administration will be satisfied until the challenges we inherited are resolved. We have the right team in place to lead a turnaround and we will continue to measure progress on the goals set in the DCYF turnaround plan,” said Marie Aberger, a spokeswoman for Raimondo.
The audit does not provide a full accounting of how much money may have been wasted or misspent.
But two of the most troublesome contracts are among the agency's largest: the $35.6 million a year it pays to each of two agencies that help DCYF manage a statewide network of nonprofit and private service providers.
Spending on the contracts, which were set to run from mid-2012 to this summer, had consistently gone over budget. The agency attempted to terminate the contracts but was unable to because it did not have the authority. The audit does not explain why the state Division of Purchases did not support the termination.
Raia confirmed that the two agencies—Family Service of Rhode Island and Child and Family Service—received a contract extension until December 31, 2015 while a turnaround team of state officials oversees the overhaul of the state agency. The contractors' duties have been narrowed but information on how much of a reduction in payment comes with that was not available in time for publication.
Poor record keeping and lack of financial oversight resulted in a $15.7 million budget deficit for DCYF by the time Raimondo took office. Raimondo was able to eliminate $4 million of that. The rest had to be covered by a one-time allocation of funds from the state legislation to “stabilize” the agency, according to Raia.
“The audit of DCYF ordered by the Raimondo administration has uncovered the most widespread, egregious fiscal mismanagement of a government department that can be imagined short of someone outright embezzling the entire budget,” said Monique Chartier, spokeswoman for the RI Taxpayers group. “This is scandalous and fulfills a taxpayer’s worst nightmare: that all government does is collect hard-earned tax dollars and carelessly squanders them—in this case, on a wholesale scale.”
“We appear to reaching some sort of critical mass of evidence of that government simply isn't working in Rhode Island—from 38 Studios to the Department of Transportation to collapsing cities and fire districts to the DCYF. The underlying reason seems likely to be that the people responsible for the day-to-day operation of government agencies fully understand that elected officials, one, are in office above all to support their interests and, two, have an electoral lock on all of the key positions,” said Justin Katz, the research director at the Rhode Island Center for Freedom and Prosperity.
Overhauling a state agency
The problems uncovered this summer were not unforeseen. In May 2014, a top DCYF official has recommended “control improvements to the contracting and financial oversight processes” which would have resolved some of the findings in the audit. Ironically, that official was Peterson, one of the top staffers placed on paid leave last week.
DCYF is now in the midst of a major restructuring of its operations, with Jamia McDonald, the Chief Strategy Officer at the Executive Office of Health and Human Services, heading up the effort and handling the day-to-day operations of the agency. Presently, DCYF does not have an official director. Former director Janice DeFrances was not reappointed by Raimondo and announced her retirement earlier this year.
In the wake of the audit, DCYF officials set a number of deadlines for when the issues identified within it would be addressed. Some were due to be completed by the end of the summer. Others will not be fixed until the end of this month or next. Raia said state authorities are confident that the overhaul is keeping to schedule.
McNamara says the agency also needs new kind of leadership. Presently state law requires that the director have a graduate degree in social work. He filed legislation in the last session that he said would allow the director to be someone with an advanced degree in business or administration.
In an interview, he stressed that he did not mean to criticize social workers. “Social workers do a great job,” McNamara said. “They do a tremendous job for the citizens of Rhode Island.”
However, a different skill set is needed to actually run DCYF, he said. “We need to have individuals that have the administrative skills, the financial background ... to be leading this multimillion-dollar agency,” McNamara said.
But the bill faced a storm of opposition from the social worker community in a hearing in the last session and ended up not even passing the committee that McNamara chairs.
Tips on potential corruption at the local or state level, misspending, abuse of power, and other issues of public interest can be sent to [email protected]. Follow Stephen Beale on Twitter @bealenews
Related Slideshow: State Audit of The Department of Children, Youth & Families
Below is a synopsis of the major findings of a state audit of the Rhode Island Department of Children, Youth, and Families (DCYF). The audit was conducted by the state Bureau of Audits and released on July 30, 2015. The findings are now coming under renewed scrutiny after two top DCYF officials were put on paid leave last week. Note that some of the issues identified in the audit were expected to be corrected by this month. Many others are still in the process of being resolved. Many of the issues revolve around the many outside nonprofit agencies and private groups DCYF hires to provide certain services.
Because the Department of Childen, Youth and Familes (DCYF) faces pressure to provide services to children in a timely fashion, compliance with financial and contract rules are being pushed to the side, the audit found. As a result, many contracts have been approved without authority or without following proper procedures. “Management has made unilateral decisions without appropriate segregation of duties, acted outside the scope of its approved purchasing authority, and executed contracts without adequate supporting documentation or authority,” the audit states.
Pay, No Questions Asked
The audit uncovered a division between the financial management staff and those making decisions about contracts at DCYF. That means that there was no oversight and control over spending on contracts, according to the audit. Consequently, payments were being issued on contracts without confirming that “services [had been] delivered prior to payment.
A senior official at DCYF recommended reform one year ago but his warning about financial mismanagement appears to have gone unheeded according to the audit.
“Internal DCYF correspondence dated May 2014 to the then-director evidenced the former Associate Director of Financial Management had suggested control improvements to the contracting and financial oversight processes which would have addressed some of the deficiencies noted above. However, during our audit, we did not find evidence that these control improvements were implemented.”
DCYF managers conceded in a response to the audit that finances had been poorly managed.
“As of January of 2015, there was limited organizational clarity, minimal departmental communication, and unclear spans of control regarding contract management oversight and approval. These problems persisted throughout the majority of financial activities.”
Agency officials say reforms have been made, but state auditors say more is needed.
The audit found that numerous DCYF contracts had been improperly approved. In particular it revealed:
■ 10 out of 22 contracts: “had no evidence that advertising and bidding procedures had been performed”
■ 12 out of 22 contracts: “contracts were executed without obtaining an approved [Purchase Order in violation of purchasing regulations”
• 15 out of 22 contracts: “were signed after the start of the period of performance”
DCYF’s files on its contracts were missing so many documents that state authorities could not construct a “complete audit trail.” Missing documents included the following:
■ “Bid documentation, including bid collection and assessment results”
■ “Records of program and fiscal monitoring”
■ “Notations of whether the services covered by the contract fell within DCYF’s delegated purchasing authority”
The missing files allowed purchasing regulations to be “circumvented” and resulted in payments being “made for contracts prior to execution.” The lack of records ultimately meant that “[a] complete and accurate budget cannot be created” for DCYF, according to the audit. Perhaps not surprisingly, then, the state agency ended its last fiscal year with a $6 million deficit.
Not only did DCYF have missing documents for its contracts, but it lost track of some contracts altogether. State auditors found two contracts that were “never formally executed” and had no recorded payments. “Additionally, staff could not immediately locate all of the requested files, and one file was never provided,” the audit states.
Photo courtesy of unmatched style/flickr
Impact on Child Services
The systemic financial mismanagement and poor record-keeping has had an impact on DCYF’s ability to serve children, according to the audit. Staff who are charged with connecting children to the services they need were not able to review contracts to determine which service provider would best be able to meet those needs, the audit says.
DCYF is also failing to check up on the outside agencies it has hired once those agencies have been awarded a contract. “The Department does not conduct reviews of providers prior to contract renewal, increasing the importance of routine risk assessments. There are inadequate efforts dedicated to the monitoring process, and providers who may be considered ‘high risk’ are not receiving the appropriate type and extent of monitoring,” the audit states.
Photo courtesy of Juli/flickr
Potential Misuse of Funds
DCYF also does not conduct routine monitoring of those nonprofits and businesses that provide services. In fact, “limited fiscal monitoring documentation” was available for only 3 out of 22 contracts that were reviewed by state auditors.
“Without adequate efforts dedicated to the monitoring process, DCYF may not detect provider noncompliance with contract terms or State and Federal regulations; there is potential for misuse of funds. More importantly, there is a risk that children may not receive the appropriate quality of care,” auditors wrote.
Under federal regulations, any private provider of services to the government that receives over $500,000 in federal funds must be audited. The audits are essential for keeping track of contractors’ financial operations. But DCYF was not collecting all of them and was not making adequate use of the ones it had according to the audit.
“Without appropriate review of independent financial audit reports, management may be unaware of financial control deficiencies that increase the risk of misuse of funds. Additionally, there is no reasonable assurance that providers are compliant with Federal regulations and contract terms,” the audit states.
DCYF hired to agencies to oversee its provider network. Each was to receive $35.6 million a year for their services, starting July 1, 2012. Expenditures for the networks went over budget by an undisclosed amount. DCYF tried and failed to terminate the contracts for reasons that remain unclear in the audit.
DCYF’s inadequate record-keeping likewise meant it did not have the supporting documentation necessary to justify the salaries, overhead expenses, fringe allocations, and other expenses incurred by the two agencies. “As a result, management lacks assurance that charges are appropriate and in compliance with contract terms and budget,” the audit states.
1 Service, 2 Checks
Poor record keeping led to double payments of subcontractors. “DCYF erroneously made payments of $45,581 directly to two lead agency subcontractors. Due to a lack of supporting documentation for amounts paid to the lead agencies, the Bureau was unable to determine if the amounts paid to the contractors were also included in the payments to the lead agency. It is possible that DCYF may have paid twice for the same service,” the audit reveals.
About 20 years ago, DCYF was given limited authority to make purchases on its own, without the approval of the state Division of Purchases. Since then, “DCYF … has been operating over the years as though it has unlimited delegated authority.” As a result, “Purchases may be made by DCYF without properly going through the competitive bidding process,” the audit states.
When Family Court orders a service be provided to a child, DCYF is the state agency that has to step up to the plate and deliver. It does—but it isn’t really keeping track of the costs.
“DCYF does not track or budget court-ordered payments; however, management attributes a portion of their overspending to these court-ordered expenditures. Without accounting for court-ordered payments individually, it is difficult for DCYF to determine the portion of budget overrides outside its realm of control,” the audit states.
13 Questionable Payments
In some cases, services providers were receiving payments without any verification that services had been delivered. Out of 40 invoices reviewed from the last fiscal year, nearly a third “did not contain evidence of confirmation of service delivery,” according to the audit.
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