Rushed Contracts

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.

Warning Ignored

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.”

Financial Mess

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.

Unauthorized Contracts

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”

Missing Files

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”

No Budget

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.

Lost Contracts

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.

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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.

Policing Contracts

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.

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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.

Missing Audits

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.

Over Budget

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.

Tracking Kids

DCYF contracted with two agencies to set up networks of providers across the state. According to the audit DCYF did not have adequate procedures for “verifying provider child placement census”—in other words, confirming which service providers were caring for which children.

Tracking Dollars

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.

Erroneous Payments

After the audit found two possible cases of double payments , DCYF officials went back and reviewed other payments and “found many payments made erroneously” in addition to the $45,581 already identified by auditors.

Overstepping Bounds

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.

Court Orders

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.