Performance audit, Department of Economic Security, Division of Children, Youth and Families, Child Protective Services, contractor payments

              Debra K. Davenport
Auditor General
Performance Audit
Department of
Economic Security—
Division of Children, Youth and Families—Child
Protective Services—Contractor Payments
Performance Audit Division
March • 2011
REPORT NO. CPS-1101
A REPORT
TO THE
ARIZONA LEGISLATURE
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to im-prove
the operations of state and local government entities. To this end, she provides financial audits and accounting services to
the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of school
districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
Dale Chapman, Director
Catherine Dahlquist, Manager and Contact Person
Daniel Hunt
Senator Rick Murphy, Chair
Senator Andy Biggs
Senator Olivia Cajero Bedford
Senator Rich Crandall
Senator Kyrsten Sinema
Senator Russell Pearce (ex officio)
Representative Carl Seel, Vice Chair
Representative Eric Meyer
Representative Justin Olson
Representative Bob Robson
Representative Anna Tovar
Representative Kirk Adams (ex officio)
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
MELANIE M. CHESNEY
DEPUTY AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
March 30, 2011
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Mr. Clarence Carter, Director
Department of Economic Security
Transmitted herewith is a report of the Auditor General, A Performance Audit of the
Department of Economic Security, Division of Children, Youth and Families—Child
Protective Services—Contractor Payments. This report was prepared pursuant to and
under the authority vested in the Auditor General by Arizona Revised Statutes §41-1966.
As outlined in its response, the Department of Economic Security agrees with the findings
and plans to implement all of the recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on March 31, 2011.
Sincerely,
Debbie Davenport
Auditor General
Attachment
Contractor Payments
The Division administers
Arizona’s child welfare
program and related
services, many of which
are provided by contracted
caregivers and community
service providers. In fiscal
year 2010, the Division spent
more than $291.6 million on
contracted and nonrecurring
services. Auditors selected
a sample of 80 payments
for review—15 parent aide
mileage payments and 65
potential duplicate payments
for various other division
services—totaling nearly
$282,000 and paid between
July 2004 and February
2010. They found that 32
of the payments included
errors totaling more than
$39,700. Auditors also
identified an additional
$11,759 in payment errors
for parent aide hours. The
Department and the Division
have taken steps to improve
the processing of contractor
payments and should take
some additional actions
including conducting ongoing
monitoring of contractor
and nonrecurring payments.
Additionally, the Department
paid nearly $1.4 million for
division contractor claims
that were 2 to 4 years old
without following required
procedures, but has taken
action to appropriately
process these types of claims
in the future. Finally, the
Division is more consistently
safeguarding bus passes.
The Department of Economic Security’s (Department) Division of
Children, Youth and Families (Division) administers Arizona’s child
welfare program. The Division uses state and federal monies to provide
services that promote the safety, permanency, and well-being of children.
This includes Child Protective Services (CPS), which investigates
allegations of child abuse and neglect, performs assessments of child
safety, and assesses the imminent risk of harm to children. Other
services include family support, preservation, and reunification services;
family foster care and kinship care services; adoption promotion and
support services; and healthcare services for children in out-of-home
care. The Division contracts with caregivers and community service
providers to provide many of the services. Additionally, the Division pays
for nonrecurring services such as housing assistance and respite care.
In fiscal year 2010, the Division paid more than $291.6 million to
caregivers and service providers for these contracted and nonrecurring
services. The contracted and nonrecurring services payments are
processed by two groups of division staff. Division central office staff
process the adoption subsidy, foster care, residential living and
development, shelter care, and most nonrecurring services payments.
Division district staff process the payments for the other contracted and
nonrecurring services, including parent aide services.
Division spent some monies inappropriately and
should improve contractor payment oversight
(see pages 3 through 10)
Although the Division has several controls to help ensure monies are
spent appropriately, auditors’ review of various payments determined
that the Division inappropriately processed some of these payments.
Specifically, auditors selected a sample of 80 payments for review—15
parent aide mileage payments and 65 potential duplicate payments for
various other division services—totaling nearly $282,000 and paid
between July 2004 and February 2010.1 Auditors found that 32 of these
payments included errors totaling more than $39,700.
1 The 80 payments auditors sampled were selected from a targeted population of 946 parent aide
mileage payments and 5,036 payments with a high likelihood of being duplicate payments. To
determine whether the 65 potential duplicate payments selected for test work duplicated other
payments, auditors reviewed both the potential duplicate payment and associated other payments for
a total of 130 payments reviewed. See Appendix A, pages a-i through a-ii, for additional information
regarding the payments reviewed.
page i
Office of the Auditor General
SUMMARY
Our Conclusion
This audit was conducted
under the authority vested
in the Auditor General by
Arizona Revised Statutes
§41-1966.
Agency Comments
The Department agrees
with the findings and
will implement the
recommendations.
An additional $11,759 in errors that resulted from inaccurate contractor charges for
parent aide hours were also identified during auditors' review of supporting
documents for 1 of the 15 parent aide mileage payments.1 In all, these errors totaled
more than $51,500. Although auditors review of the 80 payments was not designed
to establish the amount of error in the general population, the number of inappropriate
payments found in the auditors’ sample indicates that there is a risk that the Division
made other inappropriate payments. Additionally, auditors noted that vague contract
language in some existing division contracts may allow some contractors to claim
and be paid for excessive or inappropriate mileage costs. For example, not only did
the Division reimburse parent aide contractors for mileage costs associated with
transporting clients, it also reimbursed some contractors for parent aide commute
miles and, in some cases, the travel time and hundreds of miles that parent aides
traveled to pick up and transport clients short distances.
To address these issues, the Division should implement the following actions in
addition to the activities it has already begun:
• The Division should use its newly allocated internal auditors to conduct ongoing
monitoring of division contractor and nonrecurring payments, including
conducting targeted reviews of payments made between July 2004 and
February 2010. As part of this monitoring, the Division should also take steps to
recover the more than $51,500 paid in error if it determines that it is cost-effective
to do so. As of March 9, 2011, the Division had recovered $30,004.
• The Division should finalize its development and implementation of written
payment-processing policies and procedures and ensure they address all
critical payment-processing functions.
• The Division should establish unique service authorization codes in its
automated system, i.e., Children’s Information Library and Data Source
(CHILDS) system, for all new client-specific invoiced services to improve the
Division’s ability to better detect duplicate payments. In October 2010, the
Division modified the CHILDS system to automatically create all of the
appropriate service authorization codes for parent aide and intensive family
services.
• The Department and the Division should ensure that division contracts clearly
identify what costs the Division will reimburse.
1 Although auditors did not sample and review payments for parent aide hours, these errors were brought to the
Department’s attention. The Department verified the errors and recovered the monies.
page ii
State of Arizona
Department paid nearly $1.4 million in late claims without
following required procedures, but has taken action to
help ensure it appropriately processes these claims in
the future (see pages 11 and 12)
The Department paid nearly $1.4 million for division contractor claims that were 2 to
4 years old using fiscal years 2008 through 2010 appropriations without following
procedures required by state law. Two factors contributed to the Department’s
inappropriately processing the claims. First, the Division did not consistently require
contractors to submit claims in a timely manner for processing. Second, the
Department’s accounting unit lacked policy and procedures for processing prior
year claims. In response, the Department has established policy and procedures to
ensure these types of claims are appropriately processed when submitted. The
Department should ensure that its staff comply with the policy and procedures. In
addition, the Division should develop and implement policies and procedures to
ensure payment-processing staff monitor contractors’ adherence with contractual
time frames for submitting payment claims and alert their supervisors when a pattern
of noncompliance occurs so that corrective action can be taken.
Division more consistently managing and safeguarding
bus passes (see pages 13 through 15)
In September 2010, the Division adopted formal policy and procedures to more
consistently manage and safeguard bus passes from loss and misuse. Between
fiscal years 2005 and 2010, the Division spent more than $3 million on bus passes
to assist its clients with their local transportation needs. Although the Division had
reasonably managed and safeguarded the bus passes, the methods for doing so
were inconsistent among its CPS field offices. To ensure greater consistency, the
Division developed formal policy and procedures for securing and issuing the bus
passes. The Division should ensure that its CPS staff follow the policy and procedures
and periodically reconcile the bus passes to help detect any loss or misuse of the
passes.
page iii
Office of the Auditor General
page IV
State of Arizona
Division spends millions annually on
contracted child welfare services
The Division administers
Arizona’s child welfare
program. It uses state and
federal monies to provide
services that promote the
safety, permanency, and
well-being of children.
The Division contracts with
caregivers and community
service providers to provide
many of these services.
Additionally, the Division
pays for nonrecurring
services such as housing
assistance and respite
care. In fiscal year 2010,
the Division paid more than
$291.6 million for these
contracted and
nonrecurring services.
The Department of Economic Security’s (Department) Division of
Children, Youth and Families (Division) administers Arizona’s child
welfare program. The Division uses state and federal monies to provide
services that promote the safety, permanency, and well-being of
children such as Child Protective Services, which investigates allegations
of child abuse and neglect, performs assessments of child safety, and
assesses the imminent risk of harm to children. Other services include
family support, preservation, and reunification services; family foster
care and kinship care services; adoption promotion and support
services; and healthcare services for children in out-of-home care.
The Division contracts with caregivers and community service providers
to provide many of the services. Additionally, the Division pays for
nonrecurring services such as housing assistance and respite care. As
shown in Table 1 on page 2, the Division paid more than $291.6 million
for these contracted and nonrecurring services in fiscal year 2010.
These payments are processed by two groups of division staff.
Specifically, in fiscal year 2010, division central office staff processed
approximately $213.7 million for adoption subsidy, foster care, residential
living and development, shelter care, and most nonrecurring services
payments. During this same period, division district staff processed
nearly $77.9 million for payments for the other contracted and
nonrecurring services, including parent aide services. Although there
are some procedural differences in how the two groups handle their
respective payments, they are all processed through the Division’s
Children's Information Library and Data Source (CHILDS) system.
Auditors’ targeted review of contractor and nonrecurring payments
included payments processed by both division central office staff and
division district staff.
page 1
Office of the Auditor General
BACKGROUND
page 2
State of Arizona
Table 1: Division-Related Expenditures for
Contracted and Nonrecurring Services
Fiscal Year 2010
Source: Auditor General staff summary of division financial data for fiscal year 2010 maintained in the CHILDS system.
Amount
Adoption subsidy (support for adopted special needs children)
Foster care monthly maintenance payments
Residential living and development (foster/group care facilities)
Foster/adoptive home recruitment and support
Family support services (e.g., parent aide services)
Specialized services (e.g., interpreters, program evaluation)
Shelter care (temporary emergency placement)
Foster care allowances (e.g., clothing, personal)
Intensive family services (e.g., assessment, safety planning)
Independent living (e.g., educational vouchers, skills training)
Transportation
Psychological services (e.g., counseling, evaluations)
Miscellaneous (e.g., childcare, drug testing)
Receive and visitation (supervised visitation)
Nonrecurring services (e.g., housing assistance, respite care)
$ 127,965,807
37,051,518
31,342,063
23,112,531
20,887,163
11,523,779
6,703,871
6,517,989
5,980,476
5,299,651
4,931,951
3,213,423
2,449,312
281,250
4,351,360
Total $ 291,612,144
Division spent some monies
inappropriately and should improve
contractor payment oversight
The Division made some
inappropriate payments to
contractors and needs to
improve its contractor
payment oversight. The
Division is responsible for
having the controls in place
to ensure monies are spent
properly, as required by
federal and state laws and
regulations. Auditors
selected a sample of 80
payments for review—15
parent aide mileage
payments and 65 potential
duplicate payments for
various other division
services—paid between
July 2004 and February
2010. They found that 32 of
the payments included
errors totaling more than
$39,700. Auditors also
identified an additional
$11,759 in payment errors
for parent aide hours. As a
result, the Division should
conduct ongoing
monitoring of contractor
and nonrecurring
payments, including
targeted reviews of
payments made between
July 2004 and February
2010, finalize development
and implementation of
payment-processing
policies and procedures,
ensure that its CHILDS
system has proper service
authorization codes for all
new client-specific invoiced
services, and ensure that
cost reimbursement
language within its
contracts clearly specifies
what services can be
reimbursed.
The Department of Economic Security’s (Department) Division of Children,
Youth and Families (Division) is responsible for having the necessary
controls in place to ensure monies are spent properly, as required by
federal and state laws and regulations. Internal controls serve as the first
line of defense in safeguarding assets and preventing and detecting
payment errors and fraud.1 According to the U.S. Government Accountability
Office, internal controls are a fundamental component of an organization’s
management that provides reasonable assurance that the following
objectives are being achieved: effective and efficient operations, reliable
financial reporting, and compliance with applicable laws and regulations.2
Inadequate internal controls can result in improper disbursing of public
monies, including incorrect payment amounts, duplicate payments, and
payments for unallowable costs.
The Division has several internal controls to help ensure monies are spent
appropriately. For example, the Division’s Children’s Information Library
and Data Source (CHILDS) system, which is used to process contractor
payments, has system edits to ensure that the providers are on contract
and that the clients are appropriately authorized to receive the services,
and will suspend payment claims that appear to be duplicative so that they
can undergo a second review. In addition, the personnel assigned to input
contractor payments into CHILDS receive on-the-job training and are
supervised by assigned staff. The Division has also appropriately
segregated contractor payment duties. For example, no single employee
authorizes, approves, and processes payments.
Division spent some monies inappropriately
Despite establishing several controls over payment processing, auditors
identified several inappropriate contractor payments. Auditors selected a
sample of 80 payments for review—15 parent aide mileage payments and
65 potential duplicate payments for various other division services—
totaling nearly $282,000 and paid between July 2004 and
1 Auditors did not detect any instances of fraud in the sample of payments reviewed.
2 United States General Accounting Office. (1999). Standards for internal control in the federal government
[GAO/AIMD-00-21.3.1]. Washington, D.C.: Author
page 3
Office of the Auditor General
FINDING 1
page 4
State of Arizona
February 2010.1 Auditors found that 32 of these payments included errors totaling
more than $39,700. An additional $11,759 in errors that resulted from inaccurate
contractor charges for parent aide hours were also identified during auditors' review
of supporting documents for 1 of the 15 parent aide mileage payments.2 In all, these
errors totaled more than $51,500. Specifically:
• Division paid nearly $24,000 in unsupported parent aide mileage—The
Division contracts with parent aide contractors to deliver services such as parent
education, supervised visitation, and transportation to families throughout the
State who are involved with CPS. Auditors examined invoices and supporting
documents for 15 parent aide mileage payments from 7 contractors totaling
$213,961 and found that 7 of the payments included reimbursement for
contractor mileage that lacked adequate supporting documentation.3 The
Division paid a total of $23,694 for the unsupported mileage. The Division had
recovered $12,084 of the monies paid for the unsupported mileage as of March
9, 2011.
• Division paid more than $6,500 for duplicate payments—Auditors examined
130 transactions related to 65 potential duplicate payments totaling $68,002
and found that 15 of these payments were actual duplicate payments totaling
$6,576. The Division had recovered $6,160 of the monies paid for the duplicate
payments as of March 9, 2011.
• Division processed more than $21,000 in inaccurate payments—Based on
their review of the 80 payments, auditors also found additional errors and
inaccuracies totaling $21,236. Specifically:
° Supporting documents for 1 of the 15 parent aide mileage payments
contained inaccuracies regarding the number of hours a parent aide
worked and an unallowable charge for training. The document showed a
parent aide worked 654 hours for the month instead of the actual 164.5
hours worked and included an unallowable charge for 45 hours of training.
These errors totaled $11,759. Because division parent aide contracts
require that contractors provide only summary information with their
invoices, division staff did not detect these errors. The Division has
recovered this amount.
1 The 80 payments auditors sampled were selected from a targeted population of 946 parent aide mileage payments
and 5,036 payments with a high likelihood of being duplicate payments. To determine whether the 65 potential
duplicate payments selected for test work duplicated other payments, auditors reviewed both the potential duplicate
payment and associated other payments for a total of 130 payments reviewed. See Appendix A, pages a-i through a-ii,
for additional information regarding the payments reviewed.
2 Although auditors did not sample and review payments for parent aide hours, these errors were brought to the
Department’s attention. The Department verified the errors and recovered the monies.
3 Unsupported mileage included miles claimed that were not reported in the detailed mileage logs and miles claimed for
serving non-CPS clients.
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Office of the Auditor General
° In reviewing the 65 potential duplicate payments, auditors found 5 instances
of double payments totaling $9,499. In 2007, a division employee entered
into a verbal agreement with several contractors to increase service rates
by allowing for the double payments. However, division contracts neither
supported nor authorized paying these increased rates. Additionally, these
payments violated A.R.S. §41-2513(E), which allows payment for services
to be made only under a fully approved written contract. In November 2010,
the Department amended all 9 of its District 1 (Maricopa County) parent
aide contracts to authorize the increased rates.
° Finally, auditors identified 5 other errors associated with the 65 potential
duplicate payments. Specifically, due to lack of supporting documentation,
there were 2 payments that could not be ruled out as duplicate payments.
Additionally, there were 3 other payments that had calculation errors. The
combined errors for these 5 payments netted an underpayment of $22.
Division should perform reviews of contractor payments
To address the risk that errors may exist in other payments, the Division should
conduct targeted reviews of contractor payments made between July 2004 and
February 2010 to determine if any additional monies should be recovered. Although
auditors reviewed a sample of parent aide mileage and potential duplicate payments,
the types of errors auditors identified could have occurred for other payments
because they undergo similar payment processing and were subject to similar
control weaknesses. The Division should use the 3.5 internal auditors it was recently
allocated by the Department to conduct the reviews. Targeted reviews of payments
that appear to be improper would allow the Division to more effectively focus its
limited resources. Additionally, the Division should analyze and investigate, as
appropriate, the potential duplicate payments auditors identified but did not review
and recover any monies paid in error. Finally, the Division should take steps to
recover the more than $51,500 paid in error if it determines that it is cost-effective to
do so. As of March 9, 2011, the Division had recovered $30,004.
Department and Division have taken some steps to
address control weaknesses, but additional actions
needed
The Department and the Division have taken some steps to improve the processing
of contractor payments, but the Division should take additional actions to address
control weaknesses that allowed improper contractor payments. Specifically, the
Division should finalize the development and implementation of written payment-
page 6
State of Arizona
processing policies and procedures and ensure that these policies and procedures
address all critical payment-processing functions. The Division should also use its
newly allocated internal auditors to conduct ongoing monitoring of division contractor
payments and automated payment data. Finally, the Division modified the CHILDS
system to improve its ability to detect potential duplicate parent aide and intensive
family services payments and should similarly modify the CHILDS system for all new
client-specific invoiced services.
Lack of written payment-processing policies and procedures
contributed to inappropriate and inaccurate contractor
payments—Despite their importance, the Division lacked adequate written
policies and procedures to help its staff prevent and detect billing and payment
errors. For example, CHILDS suspends contractor claims that appear to be
duplicates until a second review is conducted by designated staff to either deny
or approve the claims for payment. Because the Division lacked written policies
and procedures outlining the supervisor’s responsibility to review these pending
claims, one supervisor reported relying on payment-processing staff to conduct
the reviews and deny the duplicate claims. According to federal internal control
standards and the Arizona Accounting Manual, internal control policy needs to be
clearly documented and readily available. It should appear in management
directives, administrative policies, or operating manuals. Additionally, accounting
policies and procedures make it possible to exercise effective accounting control
over assets, liabilities, revenues, and expenditures.
The Division has drafted payment-processing policies and procedures to help
ensure that payments are uniformly and appropriately processed. The Division
should finalize the development and implementation of these payment-processing
policies and procedures and ensure that they address all critical payment-processing
functions such as verifying that accurate contracted rates are used
when processing payments, when and how to check for potential inaccuracies in
claims, and ensuring payments are made in the appropriate time period. Although
the Division provided training to its staff on its payment-processing practices in
December 2010, once it has established payment-processing policies and
procedures, the Division should ensure that all payment-processing staff are
trained on these policies and procedures.
Inadequate monitoring contributed to inappropriate and inaccurate
contractor payments—The Division did not adequately monitor its payment-processing
functions. For example, the Division did not conduct post-payment
audits of supporting documentation to verify the accuracy of contractor claims.
This contributed to the Division’s paying for unsupported and inaccurate claims.
According to federal internal control standards, internal controls should generally
be designed to ensure that ongoing monitoring occurs in the course of normal
operations. Ongoing monitoring includes regular management and supervisory
activities, comparisons, and reconciliations.
page 7
Office of the Auditor General
The Department and the Division have taken steps to improve the monitoring of
division contractor payments. Specifically, the Department allocated 3.5 internal
auditors to conduct ongoing reviews of division contractors, identify overpayments,
and develop recommendations for operational improvements. To help create a
more manageable workload for payment-processing staff and improve monitoring
of payment-processing functions, the Division has developed a plan to consolidate
its six district payment-processing operations and staff into two units, with one in
Phoenix and one in Tucson, by March 2011. The Division also received Department
of Administration approval to hire two claims specialist supervisors and a
payment-processing manager to oversee these units and ensure staff process
payments in compliance with policies and procedures, contracts, and state and
federal regulations. The Division should ensure that it finalizes the implementation
of the steps it has taken by using its internal auditors to conduct ongoing reviews
of division contractors, to identify overpayments, and to develop recommendations
for operational improvements; consolidating payment-processing operations; and
hiring personnel to oversee its payment-processing units and the staff within these
units. Additionally, the Division should use its newly allocated internal auditors to
conduct ongoing monitoring of the Division’s automated payment data, including
producing and reviewing a quarterly report listing potential duplicate payments.
Insufficient service authorization codes in CHILDS system contributed
to some duplicate payments—Although the Division has established
payment-processing controls within its CHILDS system, the lack of unique service
authorization codes for some client-specific invoiced services reduced the
effectiveness of these controls and contributed to the processing of some
duplicate payments. According to federal internal control standards, system
application controls are designed to help ensure contractor claims’ completeness,
accuracy, authorization, and validity. The CHILDS system has application controls
to suspend contractor claims that appear to be duplicates so they can undergo a
second review. However, because the Division had not established unique service
authorization codes for some client-specific invoiced services within the CHILDS
system, the same service authorization code was used to authorize multiple
services. For example, if staff wanted to authorize parent aide services, the same
service authorization code was used to authorize payment for the referral, the
assessment, and the case closure. In some cases, this caused the CHILDS
system to flag the second and third claims, which were valid, as potential duplicate
claims and suspend their processing. Designated division staff then had to
manually review and release the valid claims for payment. Because of the large
volume of inappropriately suspended valid claims, the designated staff person for
the most populated district, i.e., Maricopa County, reported releasing the claims
for payment, including duplicate claims, without reviewing supporting
documentation unless the claims looked unusual.
In October 2010, the Division modified the CHILDS system to automatically create
all of the appropriate service authorization codes for parent aide and intensive
family services. For example, division staff will now need to enter only one service
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State of Arizona
authorization code for parent aide services, and the system will automatically set
up the three needed service authorization codes to pay for the referral, the
assessment, and the case closure. This action will allow the CHILDS system’s
application controls to better detect duplicate claims and reduce the number of
suspended valid claims that must undergo a secondary review. The Division
should establish unique service authorization codes in the CHILDS system for all
new client-specific invoiced services.
Department and Division should ensure contract
language clearly specifies reimbursable costs
Finally, the Department and the Division should ensure that division contracts clearly
specify the types of costs that the Division will reimburse. For example, the Division’s
parent aide contracts reimburse mileage for transporting clients.1 However, the
contracts do not clearly specify what this entails, whether it means reimbursement
for only those miles driven when a client is in the vehicle, or includes commute miles,
miles driven to pick up clients, or miles driven between client trips. Interviews with
division management and department procurement officials provided varying
interpretations of the language, ranging from “miles driven when a client is in the
vehicle” to “all business miles for delivering parent aide services, excluding commute
miles to and from an employee’s home.”
Auditors’ review of parent aide mileage logs noted variations in how contractors
claimed mileage reimbursement for costs such as commute miles and mileage to
attend training. In addition, auditors noted a few instances where workers traveled
long distances to transport clients short distances and contractors claimed
reimbursement for these long distances. Although the following examples are not
typical and are based on the mileage and time logs of one provider, they do illustrate
how lack of clear contract language on reimbursable costs may lead to excessive or
inappropriate cost reimbursement claims for mileage.
• A parent aide lived in Brawley, California, and commuted 75 miles to work in
Yuma, where the contractor had an office. Based on her mileage log, the parent
aide always claimed her travel time and miles to Yuma, where she would pick
up and transport clients, but not her return trip home. During January 2009, the
parent aide claimed 1,425 miles and 28.5 hours for travel time to commute to
Yuma. The contractor claimed and the Division paid the contractor $1,289 for
this employee to commute to work in January 2009.
• The contractor, which has offices in East Mesa and Phoenix as well as other
locations around the State, assigned a parent aide who lived in Casa Grande to
1 The Division’s parent aide contracts for Districts 2 through 6 also reimburse contractors an hourly rate to provide client
services, including transporting clients.
page 9
Office of the Auditor General
transport a client from Apache Junction to East Mesa. The parent aide drove 62
miles from his home in Casa Grande to Apache Junction to pick up the client
and transported the client 17 miles to a location in East Mesa. The parent aide
then drove 53 miles to return home to Casa Grande. Within 30 minutes after
arriving home, the parent aide drove 53 miles back to East Mesa to pick up the
client and drive him/her 17 miles to Apache Junction. The parent aide then
drove another 62 miles to return home. The parent aide recorded 264 miles and
4.75 hours in travel time to drive the client a total of 34 miles round-trip. The
contractor claimed and the Division paid $222 for this trip. Of the $222 claimed,
$91 alone was for the parent aide’s mid-trip return home to Casa Grande. Since
this trip occurred twice in January 2009, the Division paid $444 in travel time and
mileage to transport the client a total of 68 miles.
• The contractor, which also had offices in Flagstaff and Show Low as well as
other areas around the State, assigned a parent aide who lived in Sedona to
cases in the Show Low area. In January 2009, the parent aide drove 180 miles
from Sedona to Show Low to pick up a client and transport him/her 13 miles to
Snowflake and then oversaw a 6-hour supervised visitation. After the visit, the
parent aide drove the client 13 miles back to Show Low and then drove another
180 miles to return home. The parent aide recorded 386 miles and 8 hours of
travel time to drive round-trip from Sedona to Snowflake, which the Division
paid. The reimbursement for travel time and mileage was $348, which was
approximately $300 more than it would have cost if the contractor had used a
parent aide from its Show Low office.
Without clear contract language specifying reimbursable costs, the Division cannot
ensure the appropriate use of limited state and federal monies. Contracting best
practices includes defining key words and terms in the contract, assigning technical
and legal personnel to review the draft solicitation to ensure that it makes sense, and
identifying and correcting any unclear, vague, inaccurate, or contradictory language
that may exist in the draft.1 Therefore, the Department and the Division should ensure
that its contracts clearly specify the type of costs that the Division will reimburse.
Recommendations:
1.1 The Division should use its newly allocated internal auditors to:
a. Conduct ongoing reviews of contractor and nonrecurring payments,
including targeted reviews of contractor payments made between July
2004 and February 2010, identify and recover overpayments, and develop
recommendations for operational improvements;
1 Garrett, G.A. (2010). Contract administration, part 3: Contract interpretation guidelines and best practices. Retrieved
November 30, 2010, from http://www.ncmahq.org/publications/CMMArticleDetail.cfm?ItemNumber=6772
page 10
State of Arizona
b. Analyze and investigate, as appropriate, the potential duplicate payments
auditors identified but did not review and recover any monies paid in error;
and
c. Conduct ongoing monitoring of division automated payment data,
including producing and reviewing a quarterly report listing potential
duplicate payments.
1.2 The Division should take steps to recover the more than $51,500 paid to
contractors in error if it determines that it is cost-effective to do so.
1.3 The Division should finalize its development and implementation of written
payment-processing policies and procedures and ensure all payment-processing
staff are trained on the policies and procedures.
1.4 The Division should complete consolidating its payment-processing operations
and hire additional supervisory personnel to ensure payment-processing staff
are properly supervised.
1.5 The Division should establish unique service authorization codes in the CHILDS
system for all new client-specific invoiced services to improve the Division’s
ability to better detect duplicate payments.
1.6 The Department and the Division should ensure that division contracts clearly
identify the types of costs that the Division will reimburse.
Department paid nearly $1.4 million in late
claims without following required
procedures, but has taken action to help
ensure it appropriately processes these
claims in the future
The Department paid
nearly $1.4 million for a
division contractor's claims
that were 2 to 4 years old
using fiscal years 2008
through 2010
appropriations without
following procedures
required by state law. Two
factors contributed to the
Department’s
inappropriately processing
the division contractor
claims: (1) the Division did
not consistently require
contractors to submit the
claims in a timely manner
so that they could be
processed through the
Division’s normal payment
process and (2) the
Department’s accounting
unit lacked policy and
procedures detailing the
appropriate processing of
prior year claims. In
response to this report’s
findings, the Department
developed policy and
procedures to ensure prior
year claims are processed
appropriately. In addition,
the Division should develop
policies and procedures to
ensure payment-processing
staff monitor
contractors’ adherence
with contractual time
frames for submitting
payment claims and alert
their supervisors when a
pattern of noncompliance
occurs so that corrective
action can be taken.
Department used current year appropriations to
pay prior year claims
Between June 2008 and May 2010, the Department of Economic Security
(Department) paid nearly $1.4 million to a division contractor using fiscal
years 2008 through 2010 appropriated monies for claims that were 2 to 4
years old without obtaining the necessary approvals from the Arizona
Department of Administration and/or the Legislature as required by
Arizona Revised Statutes (A.R.S.) §35-191(C). These statutorily required
approvals are needed because agencies have the authority to use their
appropriated funds to pay expenses only in the time period for which the
appropriation is made.
Auditors reviewed a random sample of 10 of the 379 manual payment
vouchers that constituted the nearly $1.4 million that the Department paid
contrary to state law and determined that these claims had not been
previously paid. The Department paid the claims 23 to 43 months after the
services were rendered. Although 5 of the claims did not have supporting
invoices, the Division was able to provide the reconciliation worksheets it
used to investigate the claims. For these payment vouchers, auditors
found that the services were provided and had not been previously
processed or paid.
Two factors contributed to Department’s
inappropriately processing claims
Two factors contributed to inappropriately processing these claims. First,
the Division did not consistently require contractors to adhere to contractual
time frames for submitting payment claims. For example, division contracts
generally require contractor monthly invoices to be accurate and submitted
within 15 days of the end of the service month, and final invoices, which
include all adjustments to prior claims submitted during the contract
period, to be submitted within 30 days following the end of the contract.
page 11
Office of the Auditor General
FINDING 2
page 12
State of Arizona
These requirements are designed to ensure claims are paid in a timely manner using
the correct appropriated funds. However, because the contractor was allowed to
submit claims more than 2 years after the services were rendered, the claims could
no longer be processed through the Division’s normal payment process and had to
be submitted to the Department’s accounting unit for processing.
Second, the Department’s accounting unit lacked written policy and procedures
addressing the appropriate processing of prior year claims. Instead, its practice was
to process claims if they had appropriate program approval. Because of this
practice, the Department did not obtain the statutorily required approvals to pay the
prior year claims with current year appropriated monies.
Department has taken action to address processing of
prior year claims
In response to this report’s findings, the Department has taken action to appropriately
process prior year claims that contractors submit. In September 2010, the Department
established written policy and procedures detailing the proper processing of prior
year claims to ensure appropriate approvals are obtained from the Arizona
Department of Administration and/or the Legislature. The Department should ensure
that its staff comply with the policy and procedures. In addition, the Division should
develop and implement policies and procedures to ensure payment-processing staff
monitor contractors’ adherence to contractual time frames for submitting payment
claims and alert their supervisors when a pattern of noncompliance occurs so that
corrective action can be taken.
Recommendations:
2.1 The Department should ensure that its staff comply with its policy and
procedures on processing prior year claims, including obtaining Department of
Administration and/or legislative approval, as needed.
2.2 The Division should develop and implement policies and procedures to ensure
payment-processing staff monitor contractors’ adherence with contractual time
frames for submitting payment claims and alert their supervisors when a
pattern of noncompliance occurs so that corrective action can be taken.
Division more consistently managing and
safeguarding bus passes
In September 2010, the
Division adopted formal
policy and procedures on
securing and issuing bus
passes to ensure it
consistently manages and
safeguards the passes
from loss and misuse.
Between fiscal years 2005
and 2010, the Division
spent more than $3 million
on bus passes to assist its
clients with their local
transportation needs. For
example, a bus pass may
be issued to a parent
without transportation who
is required to participate in
drug testing and treatment
as part of his/her case plan.
Although the Division had
reasonably managed and
safeguarded the bus
passes, among its CPS
field offices, the methods
for doing so were
inconsistent. To ensure
greater consistency, the
Division developed formal
policy and procedures on
securing and issuing the
bus passes. The Division
should ensure that its staff
follow the policy and
procedures and periodically
reconcile the bus passes to
help detect any loss or
misuse of the passes.
Division obtains and issues bus passes to meet
clients’ local transportation needs
The Division of Children, Youth and Families (Division) purchases bus
passes and issues them to division clients to meet their local transportation
needs. Between fiscal years 2005 and 2010, the Division spent more than
$3 million to purchase bus passes from municipalities and transportation
companies that operate bus services within the State. The Division
distributes the bus passes to its Child Protective Services (CPS) field
offices. CPS specialists may then issue the bus passes to parents,
guardians, and custodians based on the needs identified in their CPS case
plans. For example, a bus pass may be issued to a parent without
transportation who is required to participate in drug testing and treatment
as part of his/her case plan. Bus passes may also be issued to youths who
are seeking employment or working part-time.
As shown in Table 2, division expenditures for bus passes increased from
$124,000 in fiscal year 2005 to nearly $1 million in fiscal year 2008. Division
staff reported that expenditures decreased in fiscal years 2009 and 2010
because of state budget cuts and the decision to purchase 1-day passes
instead of weekly or monthly passes.
page 13
Office of the Auditor General
Source: Auditor General staff analysis of division financial
data maintained in the Children's Information
Library and Data Source system.
Table 2: Expenditures for Bus Passes
Fiscal Years 2005 through 2010
FINDING 3
2005
2006
2007
2008
2009
2010
$ 124,009
412,862
742,931
977,908
677,068
115,949
Total $ 3,050,727
Division reasonably managed and safeguarded bus
passes, but used inconsistent practices
The Division reasonably managed and safeguarded bus passes, but its practices
were inconsistent. Auditors’ observation of division practices in three CPS field
offices in Maricopa County and interviews with CPS staff during the summer of 2010
determined that the Division reasonably managed and safeguarded bus passes. For
example, division staff in all three offices generally stored unissued bus passes in a
locked drawer or room to keep them secure. However, auditors also noted
inconsistencies in how the three offices managed and safeguarded bus passes. For
example, CPS specialists in only one of the three offices signed a log acknowledging
their receipt of bus passes. However, the CPS specialists in this office entered
inconsistent information on the log. Specifically, some CPS specialists would list the
name of the client who received the bus pass and some staff would list their own
name. CPS specialists in the three offices were also inconsistent in how they had
clients acknowledge receipt of the bus passes and in whether they documented the
client’s acceptance of the bus pass in their automated case record. Finally, CPS
specialists in one office obtained bus passes for clients based on anticipated rather
than actual need, requiring them to secure passes for up to 2 weeks.
Division has taken action to ensure more consistent
management and control of bus passes
After auditors’ work in this area, the Division established formal policy and procedures
for securing and issuing bus passes in its CPS field offices state-wide to ensure it
consistently managed and safeguarded the passes. The policy and procedures
went into effect in September 2010. Consistent with federal internal control standards,
which indicate that agencies should establish physical controls to secure and
safeguard assets, the Division’s new policy and procedures require division staff to
record the assigned bus passes in a log and store the log and any unissued bus
passes in a locked, secure location.1 The policy and procedures also require that
clients issued a bus pass sign and date a uniform bus pass affidavit that specifies
the client’s case number and the bus pass unique identifier. This information must
also be recorded on the bus pass log. Further, a note must be entered into the
automated case record indicating that the client was issued a bus pass. The Division
should ensure that its staff comply with this policy and procedures.
In addition to the policy and procedures, the Division needs to reconcile the bus
passes purchased against the bus passes issued to clients. Federal standards
indicate that assets should periodically be counted and compared to control records.
1 United States General Accounting Office. (1999). Standards for internal control in the federal government [GAO/AIMD-
00-21.3.1]. Washington, D.C.: Author.
page 14
State of Arizona
Therefore, the Division should periodically reconcile information on the number of
issued bus passes and those remaining in its control with information on the number
of passes purchased to help detect any loss and misuse of the passes.
Recommendations:
3.1 The Division should ensure that its staff comply with its policy and procedures
on securing and issuing bus passes.
3.2 The Division should periodically reconcile bus pass logs and supporting
documents to ensure that the number of passes purchased is reconciled to the
number of distributed and undistributed passes.
page 15
Office of the Auditor General
page 16
State of Arizona
Office of the Auditor General
Sampling methodology
This appendix provides
information on the
sampling methodology
auditors used to select
contractor and
nonrecurring payments for
review. Specifically, auditors
sampled:
•15 parent aide mileage
payments
•65 potential duplicate
payments
These payments totaled
nearly $282,000 and were
paid from July 2004
through February 2010.
Auditors selected a sample of 80 division contractor and nonrecurring
payments from a targeted population of parent aide mileage payments and
potential duplicate payments for review.
Parent aide mileage payments
• Analytical procedures—Auditors reviewed division controls for
processing parent aide mileage payments and found that the Division
did not require contractors to submit supporting documentation along
with their summary invoices.
• Test work—Auditors performed test work to establish the significance
of the risk for errors. Auditors stratified the parent aide mileage
payments made from July
2004 through February
2010 by contractor and
selected 15 payments to
test from 7 of the highest-paid
contractors. For each
of these payments,
auditors reviewed the
invoice and supporting
documentation to
determine the adequacy
and appropriateness of the
payment amount.
Potential duplicate payments
• Analytical procedures—Auditors employed a data mining technique
to find potential duplicate payments by searching the Division’s
automated payment records to find records that matched on key fields
that are typically associated with duplicate payments, i.e., service type,
dollar amount, number of units, service start date. Additionally, for
payments that were client specific, the records were also matched on
client identification number. If the payments were not client specific,
the records were also matched on provider identification number. This
procedure identified 5,036 potential duplicate payments.
APPENDIX A
Table 3: Parent Aide Mileage Payments
Targeted Population and Sample
July 2004 through February 2010
Source: Auditor General staff analysis of division financial
data maintained in the Children's Information Library
and Data Source (CHILDS) system.
Payments Number Amount
Population
Sample
946
15
$ 8,333,783
$ 213,961
page a-i
• Test work—Auditors selected a sample of 65 potential duplicate payments and
reviewed associated supporting documentation. To determine whether the 65
potential duplicate payments selected for test work
duplicated other payments, auditors reviewed a total of 130
transactions, which consisted of both the potential duplicate
payment and associated other payments. Auditors did not
design the test work to establish the number of duplicate
payments or the amount at risk in the general population,
but to confirm if the Division is at risk for failing to detect
and prevent duplicate payments.
page a-ii
State of Arizona
Source: Auditor General staff analysis of division financial data
maintained in the CHILDS system.
Table 4: Potential Duplicate Payments
Targeted Population and Sample
July 2004 through February 2010
Payments Number Amount
Population
Sample
5,036
65
$ 2,096,440
$ 68,002
AGENCY RESPONSE
AGENCY RESPONSE
AGENCY RESPONSE
AGENCY RESPONSE
AGENCY RESPONSE
AGENCY RESPONSE
AGENCY RESPONSE
AGENCY RESPONSE
CPS Reports Issued
Performance Audits
CPS-0501 CHILDS Data Integrity
Process
CPS-0502 Timeliness and
Thoroughness of
Investigations
CPS-0601 On-the-Job Training and
Continuing Education
CPS-0701 Prevention Programs
CPS-0801 Complaint Management
Process
CPS-0901 Congregate Care
CPS-0902 Relative Placement
Information Briefs
IB-0401 DES’ Federal IV-E Waiver
Demonstration Project
Proposal
IB-0501 Family Foster Homes and
Placements
IB-0502 Revenue Maximization
IB-601 In-Home Services Program
IB-0701 Federal Deficit
Reduction Act of 2005
IB-0702 Federal Grant Monies
IB-0801 Child Removal Process
IB-0901 CPS Client Characteristics
Future CPS Reports
Questions and Answers
QA-0601 Substance-Exposed
Newborns
QA-0701 Child Abuse Hotline
QA-0702 Confidentiality of CPS
Information
QA-0703 Licensed Family Foster
Homes
QA-0801 Child and Family
Advocacy Centers
QA-0802 Processes for Evaluating and
Addressing CPS Employee
Performance and Behavior
QA-0901 Adoption Program
QA-1001 CPS Central Registry
Performance Audits
In-Home Services Program