Performance audit, Arizona Department of Veterans' Services, Arizona State Veteran Home, Veterans' conservatorship/guardianship, and Veteran's Services

              State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
Report to the Arizona Legislature
By Debra K. Davenport
Auditor General
ARIZONA DEPARTMENT
OF
VETERANS' SERVICES
Arizona State Veteran Home
Veterans’ Conservatorship/
Guardianship, and
Veteran’s Services
August 2001
Report No. 01-16
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 impar-tial
information and specific recommendations to improve the operations of state and local government
entities. To this end, she provides financial audits and accounting services to the state and political
subdivisions and performance audits of state agencies and the programs they administer.
The Joint Legislative Audit Committee
Senator Ken Bennett, Chairman
Representative Roberta L. Voss, Vice-Chairman
Senator Herb Guenther Representative Robert Blendu
Senator Dean Martin Representative Gabrielle Giffords
Senator Peter Rios Representative Barbara Leff
Senator Tom Smith Representative James Sedillo
Senator Randall Gnant (ex-officio) Representative James Weiers (ex-officio)
Audit Staff
Dale Chapman—Manager
and Contact Person (602) 553-0333
Jay Dunkleberger—Team Leader
Andrea Leder—Team Member
Matthew Winfrey—Team Member
William Parker—Team Member
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.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
August 8, 2001
Members of the Arizona Legislature
The Honorable Jane Dee Hull, Governor
Mr. Patrick Chorpenning, Director
Arizona Department of Veterans Services
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona
Department of Veterans’ Services (Department) Arizona State Veteran Home, Veterans’
Conservatorship/Guardianship, and Veterans’ Services programs. This report is in response
to a June 16, 1999, resolution of the Joint Legislative Audit Committee. The performance audit
was conducted as part of the Sunset review set forth in A.R.S. §41-2951 et seq. I am also
transmitting with this report a copy of the Report Highlights for this audit to provide a quick
summary for your convenience.
As outlined in its response, the Arizona Department of Veterans’ Services has agreed to
implement all the recommendations made in the findings and sunset factors.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on August 9, 2001.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
OFFICE OF THE AUDITOR GENERAL
Program Fact Sheet
Department of Veterans’ Services
Arizona State Veteran Home
Services: The Arizona State Veteran Home (Home) provides the following services to vet-erans
and their spouses: 1) Skilled Nursing Care—Operates three skilled nursing care units
containing 50 beds each; 2) Specialized care for Alzheimer’s residents—Operates an addi-tional
50-bed wandering/dementia unit specializing in the needs of residents suffering from
Alzheimer’s Disease; 3) Integrated Health Services—Provides a full range of rehabilitative
services to residents, including physical, occupational, speech, and respiratory therapy ser-vices;
and 4) Recreational Therapy Program—Provides an extensive community-focused
recreational therapy program for residents.
Program Revenue: $10.2 million
(fiscal year 2001 estimate)
$9,000,000
$9,200,000
$9,400,000
$9,600,000
$9,800,000
$10,000,000
$10,200,000
$10,400,000
2000 2001
Other
Veteran license plate fees
Institutional care and other fees
Personnel: 208 full-time staff
(fiscal year 2001)
Therapists (17)
Administrative
Staff (17)
Physicians, RNs, LPNs,
and CNAs (104)
Facilities:
The five-year-old Arizona State Veteran
Home is located on 4.5 acres of land at
4141 N. 3rd Street in Phoenix. While owned
and operated by the State, this $14.2 mil-lion
facility was purchased with over $9
million in federal funds. The Home is a
200-bed licensed nursing facility that con-tains
both double occupancy and private
rooms, and houses the Home’s administra-tive
office, the Department’s Fiduciary
program, and the Department’s financial,
accounting, human resources, and infor-mation
technology staff.
Also, the Home maintains a nursing pool State Veteran Home
of 20 employees that supplements its full-time
nursing staff.
Operations
Staff (70)
OFFICE OF THE AUDITOR GENERAL
Equipment: The Home, as the largest program
within the Department, uses a large amount of
equipment. For example:
n Vehicles—The Home uses both purchased
and donated vehicles for deliveries, trans-porting
residents, and general Home ad-ministration.
The Home owns a Chevrolet
truck and a 20-passenger bus, valued at
$5,400 and $55,882, respectively. Addition-ally,
the Home owns two Ford Club Wagons
valued at approximately $20,000 each, a
Plymouth Grand Voyager at $24,100, and an
electric-powered transport vehicle worth
$11,196, all donated to the Home.
n Security System—The Home used a grant
to purchase an approximately $17,000 secu-rity
system used to track Alzheimer’s or
other mentally handicapped patients. These
patients are given an electronic device that
triggers the security system when the pa-tients
attempt to leave their nursing care
unit.
n Telephone and voicemail system—The
Home owns a telephone system valued at
approximately $260,000.
n Medical Equipment—The Home owns
various pieces of medical equipment, includ-ing
74 wheelchairs valued at $20,150, 6
shower room whirlpools valued at $30,000,
and 200 resident beds valued at $235,000.
Program Goals (fiscal years 2001—2003):
1. To achieve national recognition for innova-tion
and excellence in long-term care.
2. To develop a caring, committed, and skilled
staff.
3. To attain financial self-sufficiency.
4. To narrow the gap of communication be-tween
upper management and lower-level
employees.
5. To operate the facility so all staff are clear on
purpose and mission and how they relate to
it.
Adequacy of Performance Measures:
The performance measures for the Home appear to
be generally aligned with the Home’s goals. For
example, to develop caring, committed, and skilled
staff, the Home measures progress in reducing
nursing turnover and improving employee atti-tudes.
However, some additional performance
measurements would be appropriate.
n The Department could add a measure that
reports on its compliance with the U.S. De-partment
of Veterans Affairs (VA) annual re-view
of the Home. Currently, under its goal
of achieving national recognition for innova-tion
and long-term care, the Home has a per-formance
measure reporting compliance with
the Arizona Department of Health Services
Annual Relicensing/Recertification Survey.
This survey evaluates the Home for compli-ance
with state nursing home standards.
However, the VA also conducts annual re-views
of the Home for compliance with VA
standards and the Department should report
on compliance with this review as well.
n The Department should consider establishing
separate measures for Alzheimer’s and
skilled-care patient occupancy rates under the
Home’s goal to attain financial self-sufficiency.
Currently, the Department has a
single measure reporting the annual occu-pancy
rate for all 200 patients, which includes
its 150 skilled nursing care and 50 Alz-heimer’s
unit beds. However, reporting occu-pancy
of all beds as a single measure may ac-tually
understate the Home’s occupancy rate
as Department officials state the Alzheimer’s
unit generally keeps the Home’s census low.
Establishing separate measures for skilled-care
patients and Alzheimer’s patients would
more accurately reflect bed vacancy rates
among its units.
OFFICE OF THE AUDITOR GENERAL
Program Fact Sheet
Department of Veterans’ Services
Veterans’ Conservatorship/
Guardianship Program
Services: This program provides the following services to veterans and the dependents of
eligible veterans when no other relative is willing and able to provide these services: 1)
Guardianship—Acts as guardian for incapacitated veterans and their surviving spouses and
dependent children and assumes responsibility for the client’s physical and medical needs;
2) Conservatorship—Manages the property or financial affairs of veterans or their depend-ents
placed under the Department’s care; and 3) Personal Representative—Administers the
estates of deceased veterans and distributes their assets to any heirs.
Program Revenue: $796,500 million
(fiscal year 2001 estimate)
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
2000 2001
Sales and charges for services; and interest
General Fund
Personnel: 19 full-time staff
(fiscal year 2001)
Administrative/
Support Staff (5)
Human Services
Specialists (7)
Accounting Staff (7)
Facilities: Program staff are housed at
the State Veteran Home at 4141 N. 3rd
Street in Phoenix.
State Veteran Home
Additionally, to serve veterans in south-ern
Arizona, the program has two human
services specialists assigned to a state-owned
satellite office in Tucson at 400 W.
Congress.
Equipment: The program primarily uses
computer and other office equipment. This
includes the program’s CompuTrust soft-ware
program, which tracks client assets
and supports the program’s role as fiduci-ary
or conservator for incapacitated veter-ans.
This system is currently valued at
approximately $70,000.
OFFICE OF THE AUDITOR GENERAL
Program Goals (fiscal years 2001-2003):
1. To maximize our clients’ quality of life
through the delivery of a wide array of
professional services.
2. To improve communication within the
Department and program and with out-side
interested parties.
3. To obtain and maintain unrestricted certi-fication
from the Arizona Supreme Court.
4. To capture all client assets, maximize
client monetary benefits, invest and ex-pend
client funds prudently, and to accu-rately
report such financial activity to the
courts in a timely manner.
n The two performance measures estab-lished
under the fourth goal, to capture
all client assets, maximize client mone-tary
benefits, invest and expend client
funds prudently, and to accurately re-port
on this financial activity to the
courts, focus only on the reporting re-sponsibility.
The Department has not es-tablished
other measures that would re-flect
the variety of activities it performs
in safeguarding and managing client as-sets.
However, the Department should
add output and outcome measures that
further report on the program’s work
and results achieved, such as capturing
client assets at intake (when clients are
first received) in an accurate and timely
manner and effectively disposing of cli-ent
assets. Additionally, the program at-tempts
to reconcile its fiduciary client ac-counting
system with the actual funds
held in client investment accounts on a
monthly basis. The Department should
add output performance measurements
ensuring this policy is met and add out-come
measures that report on the results
of these efforts.
Adequacy of Performance Measures:
The program’s seven performance measures
only focus on the program’s quality and
efficiency. The program lacks input, output,
and outcome measures. For example:
n Although the program’s first goal seeks to
maximize program clients’ quality of life,
the program’s two performance measures
under this goal do not directly relate to
maximizing clients’ quality of life. In-stead,
these measurements report on the
timeliness and accuracy of guardian and
estate management plans that must be
submitted to the courts. While these plans
report work done by the Department for
individual clients, the Department should
also develop and establish performance
measures that report the work the pro-gram
does with its clients on an aggregate
level. For example, the Department could
report the total number of staff visits to its
clients.
OFFICE OF THE AUDITOR GENERAL
Program Goals (fiscal years 2001- 2003):
1. To increase the education and training of
program staff and ensure a more proac-tive
appellate service.
2. To improve public awareness of the
agency and veterans’ sacrifices.
3. To acquire communications technology
and other necessary equipment.
4. To increase the availability and accessibil-ity
of veterans’ benefits counseling ser-vices.
Program Fact Sheet
Department of Veterans’ Services
Veterans’ Services Program
Personnel: 21 full-time staff
Deputy Director (1) Support Staff (5)
Veterans’ Benefits
Counselors (15)
Facilities: The program has offices located in
Flagstaff, Lake Havasu City, Phoenix, Pres-cott,
Sierra Vista, Tucson, and Yuma. Seven
veterans’ benefits counselors are stationed at
the main office at 3225 N. Central Avenue in
Phoenix, while the remaining counselors
work out of the other offices. Through inter-governmental
agreements, office space in
Phoenix, Prescott, and Lake Havasu is pro-vided
to the Department free of charge. The
Department pays approximately $1,000 each
month for office space in the Tucson state of-fice
building and approximately $2,400 each
month to rent space in Yuma, Flagstaff, and
Sierra Vista.
Services: The Veterans’ Services program provides the following services to veterans, their
dependents, and their survivors: 1) Veteran benefit assistance—Maintains a network of veter-ans’
benefit counselors who give information, counsel, and assistance pertaining to federal
and state disability, pension, insurance, burial, education, home loan, social security, and
other social services benefits; 2) Outreach—Serves the veteran population by coordinating
state patriotic events and participating in community outreach efforts to heighten the aware-ness
of veterans’ benefit issues.
Equipment: The program owns only stan-dard
office equipment.
Program Revenue: $844,400
(fiscal year 2001 estimate)
$820,000
$825,000
$830,000
$835,000
$840,000
$845,000
2000 2001
State General Fund Appropriations
OFFICE OF THE AUDITOR GENERAL
Adequacy of Goals and Performance
Measures:
While this program’s goals appear appropri-ate
for the most part, the Department should
revise one of its goals and needs additional
output, outcome, efficiency, and quality
measures.
First, the Department should consider revis-ing
its program goal to acquire communica-tions
technology and other equipment. In-stead
of focusing a goal on the acquisition of
technology, the Department should revise
the goal to focus on the acquisition of tech-nology
to improve the delivery of benefits
counseling services to veterans. The Depart-ment
should also establish output and out-come
measures for this goal that track the
Department’s efforts to acquire technology
and the results of these efforts. For example,
the Department should establish measures
tracking its efforts to connect benefits coun-seling
staff to the VA’s database. This would
allow the program’s counselors to more effi-ciently
track the progress of federal benefits
claims filed on behalf of veterans.
Additionally, the Department has established
only one performance measure under its goal
to increase the availability and accessibility of
veterans’ benefits counseling services. This is
an output measure that tracks the number of
benefit claims filed by its benefits counselors.
However, the Department should add out-put,
outcome, and efficiency measures to bet-ter
reflect the work this program performs.
n The Department should add output
measures, which report on the work a
program performs. For example, the
Department could establish additional
output measures that track the number of
clients assisted or counseled and the
number of appeals filed with the VA.
n The Department should establish out-come
measures. Outcome measures
would capture the results of the pro-gram’s
counseling efforts, such as the
number of claims accepted and processed
by the VA and the dollar value of the
benefits obtained by the program on be-half
of veterans.
n The Department should establish effi-ciency
measures. Efficiency measures
capture how efficiently program services
are provided, such as the number of
claims processed by each counselor or at
each location, or the number of clients
seen by each counselor.
i
OFFICE OF THE AUDITOR GENERAL
SUMMARY
The Office of the Auditor General has conducted a performance
audit and Sunset review of the Arizona Department of Veterans’
Services (Department) Arizona State Veteran Home, Veterans’
Conservatorship/Guardianship, and Veterans’ Services pro-grams
pursuant to a June 16, 1999, resolution of the Joint Legisla-tive
Audit Committee. This audit was conducted as part of the
Sunset review set forth in A.R.S. §41-2951 et seq.
The purpose of the Department is to assist veterans and their
surviving spouses, minor children, and heirs. To meet this pur-pose,
the Department has the following responsibilities:
n Acts in a fiduciary capacity as guardian or conservator for in-capacitated
or protected veterans, their spouses, or their mi-nor
children when appointed by the Superior Court.
n Provides long-term care services and skilled nursing care to
veterans and their spouses at the Arizona State Veteran
Home (Home).
n Assists veterans and their dependents by providing informa-tion
about benefits and helping them file or appeal claims.
The Department Has Improved
Its Fiduciary Services
(See pages 9 through 14)
The Department has made significant improvements to the fidu-ciary
services it provides to veterans. In its role as conservator,
the Department administers and protects the assets of clients as-signed
to it by the Superior Court. Auditor General reviews in
1997 and 1998 found that the Department failed to adequately
protect its clients’ assets. For example, the Department failed to
completely and accurately catalogue veterans’ assets on a timely
basis and lacked controls protecting these assets from loss or
theft. Additionally, the Department lacked proper controls over
Summary
ii
OFFICE OF THE AUDITOR GENERAL
cash and failed to distribute the assets of deceased clients or rec-oncile
its accounting records to its bank accounts in a timely
manner. As a result, in March 1999, the Arizona Supreme Court
ceased granting the Department fiduciary or conservator respon-sibility
for any additional veterans until the Department ad-dressed
these problems.
The Governor, the Legislature, and the Department all took steps
to correct these deficiencies. For example, the Governor assem-bled
a team to develop recommendations for addressing the
concerns, and the Legislature authorized four additional posi-tions
to help manage the Division and veterans’ assets. These
employees reconciled all current client accounts and identified a
shortfall of $264,210, but no evidence of fraud or theft, that was
subsequently covered through a transfer from the Arizona De-partment
of Administration’s Risk Management Section. The
Department now reconciles its accounts monthly. The Depart-ment
also reduced its backlog of decedent estates and distributed
any remaining assets to heirs, established controls to better pro-tect
client assets, established processes to accurately catalogue
veterans’ assets in a timely manner, and upgraded its computer
system to support more modern fiduciary software. As a result,
on June 22, 2000, the Superior Court lifted its restrictions and has
appointed 30 new fiduciary clients to the Department with 12
additional appointments pending as of July 2001.
The Department Has Improved
Its Quality-of-Care, Medicare Billing,
and Procurement Practices
(See pages 15 through 19)
The Department has made extensive improvements to patient
care, Medicare billing, and department-wide procurement prac-tices
in response to outside reviews that found problems with
these aspects of the Department’s operations. For example, re-views
by the Arizona Department of Health Services (ADHS) in
1998 and the U.S. Department of Veterans Affairs (VA) in Janu-ary
2000 found a number of deficiencies at the Home that af-fected
patient care, health, and sanitation. These deficiencies
were severe enough to indicate that the Home failed to provide a
Summary
iii
OFFICE OF THE AUDITOR GENERAL
safe environment for its residents and meet professional stan-dards.
However, ADHS and VA follow-up reviews and surveys
conducted in 2000 and 2001 found that the Department subse-quently
resolved all of these deficiencies. The Department has
also corrected, or is in the process of correcting, Medicare billing
deficiencies noted in a November 16, 1998, Auditor General pro-cedural
review followup. Because it did not adequately docu-ment
services provided to residents, the Department had to re-pay
Medicare $143,569 in fiscal year 1998. In fiscal year 1999, a
Department consultant found that the Department had signifi-cantly
fewer instances in which claims were not adequately sup-ported.
Additionally, the Department has corrected many concerns re-garding
its procurement practices. In 1999, the State Procurement
Office found that the Department lacked contracts or documen-tation
for many services purchased for the Home, did not have a
consistent requisition process, and needed to modify its purchase
order processes. Because of the seriousness of these problems,
the State Purchasing Office reduced the Department’s independ-ent
purchasing authority by requiring the Department to obtain
approval for any contract exceeding $10,000. In response, the
Department hired skilled individuals to oversee procurement
and developed contracts for services that previously lacked
them. The Department’s purchasing authority has since been
raised to $100,000.
Better Method Needed
for Tracking Employee Time
(See pages 21 through 24)
The Department needs to adopt a time accounting system that
more accurately determines the share of personnel costs that
should be charged to the Home. While statute requires that the
Home’s Trust Fund be used solely for operating and maintaining
the Home, Department management determined that, in some
cases, the Trust Fund inappropriately paid for personnel who
did not work at the Home. To correct this problem, the Depart-ment
requested and received an additional General Fund appro-priation
of approximately $500,000 in both fiscal years 2002 and
2003 to offset personnel costs. However, the estimates used to
Summary
iv
OFFICE OF THE AUDITOR GENERAL
support the Department’s request may be inaccurate, because
they are based on estimates with little supporting evidence and
because employee responsibilities change over time. As a result,
the Department should develop and implement an internal time
accounting system that tracks the time Department personnel
spend on Department and Home activities, and use this system
to more accurately charge personnel costs and prepare its budget
requests.
Other Pertinent Information
(See pages 25 through 30)
The Department has initiated several efforts designed to improve
its nursing staff recruitment and retention at the Arizona State
Veteran Home, and while these efforts have lead to some im-provements,
turnover remains high. Specifically, turnover rates
are high for nursing staff at nursing homes nationally and in
Arizona. For example, in testimony before a U.S. Senate Commit-tee
in May 2001, the U.S. General Accounting Office cited 1997
and 1998 surveys of nursing home chains sponsored by the
American Health Care Association, which found a 51 percent
turnover rate for registered nurses (RNs) and licensed practical
nurses (LPNs) and a 94 percent turnover rate for nursing aides.1
Additionally, for fiscal year 2001, the Department of Administra-tion
reports an annualized turnover rate of approximately 55
percent for RNs and LPNs, and 70 percent for certified nursing
assistants at the Home. To improve its ability to attract and retain
nursing staff, the Department instituted hiring and retention sti-pends,
focused on recruiting efforts, and took steps to build em-ployee
morale. These efforts are still in progress and have re-duced
nursing staff vacancy rates, but they have so far increased
the Department’s nursing costs by an estimated $265,000 for fis-cal
year 2001 and have had a limited effect on nursing staff turn-over.
1 U.S. General Accounting Office, Nursing Workforce: Recruitment and Reten-tion
of Nurses and Nurse Aides Is a Growing Concern, May 17, 2001 (GAO-01-
750T).
Summary
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OFFICE OF THE AUDITOR GENERAL
Sunset Factors
(See pages 31 through 38)
As part of this review, auditors gathered information on 12 fac-tors
set forth in statute for the Legislature to consider in deciding
whether to continue or terminate the Department. In addition to
those findings discussed above, this process identified one other
area needing improvement. The Department should improve its
accountability for general fixed assets through such steps as con-ducting
a physical inventory of fixed assets and accurately track-ing
assets recorded in the Department’s fixed assets listing.
Finally, the Department should terminate its contracts with two
veterans’ service organizations to provide benefits counseling
services. These contracts were established to support the De-partment’s
benefits counseling efforts at a time when the De-partment’s
counseling program was smaller and it referred vet-erans
to these organizations. However, the Department has since
established a large, statewide network of benefits counselors and
no longer requires these services.
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vii
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TABLE OF CONTENTS
Page
Introduction and Background..................... 1
Finding I: The Department
Has Improved Its
Fiduciary Services................................... 9
Fiduciary Referral and
Appointment Process................................................ 9
Previous Reviews Found
Veterans’ Assets Not
Adequately Protected ............................................... 10
Improvements Result in
Resumption of Fiduciary
Appointments ........................................................... 11
Recommendation...................................................... 14
Finding II: The Department Has
Improved Its Quality-of-Care,
Medicare Billing, and
Procurement Practices ........................... 15
The Department Has Addressed
Previously Identified Problems
at the Veteran Home................................................. 15
Department Takes Steps to
Correct Problems Found in
Procurement Practices.............................................. 18
Recommendation...................................................... 19
Table of Contents
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OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Cont’d)
Page
Finding III: Better Method Needed
for Tracking Employee Time................... 21
Inappropriate Use of
Home Monies Identified
and Corrected............................................................ 21
Department Relied on
Inexact Method to
Develop Cost Estimates............................................ 22
Recommendations .................................................... 24
Other Pertinent Information......................... 25
Department’s Efforts to Improve
Nursing Staff Recruitment
and Retention............................................................ 25
Sunset Factors............................................. 31
Agency Response
Table of Contents
ix
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Concl’d)
Page
Items
Item 1 Fiduciary Roles........................................... 2
Item 2 Selected Conditions for Lifting
Arizona Supreme Court
Restrictions................................................. 12
Item 3 Measures of Staffing................................... 25
Item 4 Nursing Staff at the
Arizona State Veteran Home..................... 27
Photo and Table
Photo 1 Arizona State Veteran Home..................... 2
Table 1 Arizona Department of Veterans’ Services
Veterans’ Services, Veterans’
Conservatorship/Guardianship, and
Arizona State Veteran Home Programs
Statement of Revenues, Expenditures, and
Changes in Fund Balance
Years Ended June 30, 2000 and 2001
(Unaudited)................................................ 5
Figures
Figure 1 Arizona Department of Veterans’ Services
Monthly Nursing Staff Salaries
Comparison of Arizona State Veteran
Home and Local Facilities.......................... 28
Figure 2 Arizona Department of Veterans’ Services
Costs for Temporary Nurses for the
First Month of Each Quarter
July 1999 through April 2001..................... 30
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1
OFFICE OF THE AUDITOR GENERAL
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance
audit and Sunset review of the Arizona Department of Veterans’
Services (Department) Arizona State Veteran Home, Veterans’
Conservatorship/Guardianship, and Veterans’ Services pro-grams
pursuant to a June 16, 1999, resolution of the Joint Legisla-tive
Audit Committee. This audit was conducted as part of the
Sunset review set forth in A.R.S. §41-2951 et seq.
History of
Veterans’ Services
Arizona has been involved in veteran affairs since 1925, when it
created the position of Veterans’ Service Officer. This office was
abolished in 1951 and replaced by the Arizona Veterans’ Service
Commission. In 1973, the Commission was integrated into the
Department of Economic Security. Primarily at the request of
various veterans’ organizations, the Governor reestablished the
Commission as a separate agency in 1982. In 1999, the Legisla-ture
separated the Commission from the agency by making the
Commission an advisory body and creating a separate Depart-ment
headed by a Governor-appointed director.
The Department is one of several organizations that provide ser-vices
to Arizona’s estimated 509,000 veterans and their depend-ents.
For example, the U.S. Department of Veterans Affairs (VA)
operates medical facilities nationwide to care for veterans and
provides financial and other assistance to qualified veterans,
such as disability compensation, pensions, and education and
burial benefits. Additionally, several veterans’ service organiza-tions,
such as Veterans of Foreign Wars and Disabled American
Veterans, accept power of attorney for individual veterans, sup-porting
the veteran’s benefits claims both with the VA and
throughout the VA’s appeal process. The Department plays a
similar role, interacting with the VA as it helps veterans file and
appeal claims for federal benefits, and also works with these ser-vice
organizations to support veterans’ issues.
Introduction and Background
2
OFFICE OF THE AUDITOR GENERAL
Photo 1 Arizona State
Veteran Home
The Home is a 200-bed skilled nursing facility
located in Phoenix next to the Carl T. Hayden
VA Medical Center.
Item 1 Fiduciary Roles
Guardians—make decisions about
medical treatment and personal care for
those veterans and dependents assigned
to them by the Superior Court.
Conservators—manage property and
financial affairs for those veterans and
dependents assigned to them by the Su-perior
Court.
Personal Representatives—administer
the estates of deceased veterans and dis-tribute
their assets to any heirs.
Organization
and Staffing
The Department employs
276 full-time equivalent
employees (FTEs), plus 20
seasonal nursing em-ployees,
and is organized
into four divisions:
n Arizona State Veteran
Home (208 FTEs)—
The Arizona State
Veteran Home (Home)
is a 200-bed licensed
and skilled nursing
facility which began operating in November 1995. The Home
consists of four 50-bed units, including 150 skilled nursing
care beds and a 50-bed Alzheimer’s unit. Veterans, their
spouses, and their widows are eligible for admission. As of
April 2001, the Home was filled to 95 percent of its capacity.
The Home also offers programs aimed at meeting long- and
short-term health care needs and encouraging wellness
through preventive and rehabilitative services. It does not re-ceive
any General Fund monies, but is required to operate as
a self-sustaining facility, using revenues generated from resi-dent
fees, Medicare, Medicaid, and federal veteran per diem
payments of approxi-mately
$51 a day to
help cover the cost of
veterans’ care.
n Fiduciary (19 FTEs)—
The Fiduciary Division
employs human serv-ices
specialists, ac-counting,
and admin-istrative
support staff to
serve as guardians or
conservators for inca-pacitated
veterans, sur-viving
spouses, and dependent children of protected veterans
Introduction and Background
3
OFFICE OF THE AUDITOR GENERAL
when no other relative is willing or able to serve and after be-ing
appointed by the Superior Court. They also serve as per-sonal
representatives, distributing the estates of deceased
veterans. In most cases, the Department acts as both the
guardian and the conservator. As of July 2001, the Depart-ment
acted as both for 155 veterans or dependents, as con-servator
only for 98 veterans, as guardian only for 1 veteran,
and as personal representative for 56 veterans.
n Veterans’ Services (21 FTEs)—The Veterans’ Services Divi-sion
provides a network of veterans’ benefits counselors
based in Flagstaff, Lake Havasu City, Phoenix, Prescott, Si-erra
Vista, Tucson, and Yuma, who travel to all 15 counties of
the State. These counselors provide information and assis-tance
to veterans, their dependents, and their survivors re-garding
federal and state benefits earned by honorable ser-vice
in the U.S. armed forces. As part of their duties, the
counselors act as veterans’ legal representatives by develop-ing
and filing claims for disability, pension, insurance, burial,
education, home loan, Social Security, and social service
benefits. During calendar year 2000, the Department reports
that its counselors filed 24,366 claims, pursued 1,252 appeals
of denied claims, and helped veterans collect over $30 million
in federal VA benefits. Additionally, in July 2000, the De-partment
entered into a contract with the American Legion to
file claims on behalf of Legion members. Since this time, the
Department has filed 2,039 claims and pursued 198 appeals
of denied claims on behalf of Legion members in Arizona.
n Administration (28 FTEs)—The Administration program
includes the director’s office, information technology, human
resources, financial services, the Office of Veterans Education,
and coordination for the veterans’ cemetery project in south-ern
Arizona. The Office of Veterans Education is responsible
for approving and supervising all institutions and establish-ments
in Arizona that offer education and training to veter-ans.
The director’s office is also currently overseeing the de-velopment
of a veterans’ cemetery that will be located on 130
acres of land in southern Arizona donated by the federal
Introduction and Background
4
OFFICE OF THE AUDITOR GENERAL
government. While the VA will fund 100 percent of the
construction costs, the State will be responsible for the
cemetery’s ongoing operating costs once it opens, which is
expected to occur in the fall of 2002.
Veterans’ Service
Advisory Commission
In addition to these four divisions, the Department includes the
Veterans’ Service Advisory Commission (Commission), which
as of August 2001 will comprise nine Governor-appointed mem-bers
who serve three-year terms. The Commission is charged
with providing policy advice to the Governor and the Depart-ment
director regarding veterans’ issues. Statutes require that the
Commission’s members be veterans selected from the various
veterans’ service organizations in the State.
Department Budget
For fiscal year 2001, as illustrated in Table 1 (see page 5), the Vet-erans’
Services, Veterans’ Conservatorship/Guardianship pro-grams
were appropriated an estimated over $1.2 million in Gen-eral
Fund monies for program operations. However, the Arizona
State Veteran Home’s revenue is generated substantially through
fees charged by the Home. The Home received an estimated $10
million in fiscal year 2001 from residents, Medicare, Medicaid, and
the VA. The Home also received $250,000 from other sources,
primarily from private gifts and monies generated through the
sale of veteran license plates.1 In addition, the Veterans’ Conserva-torship/
Guardianship program generated an estimated $406,000
from the fees it charged in fiscal year 2001 to serve as guardian,
1 According to statute, the Department of Transportation collects special li-cense
plate fees for motorists purchasing Arizona specialty veterans, for-mer
prisoners of war, Purple Heart recipient, and Pearl Harbor survivor li-cense
plates. These fees were deposited in the State Home for Veterans
Trust Fund, but Laws 2001, Chapter 335 re-directed these fees to the De-partment’s
Veterans’ Donations Fund, used for the benefit of the veterans
within the State.
Table 1
Arizona Department of Veterans’ Services
Veterans’ Services, Veterans’ Conservatorship/Guardianship, and Arizona State Veteran Home Programs
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 2000 and 2001
(Unaudited)
Veterans’ Services
Program
Veterans’ Conservatorship/
Guardianship Programa
Arizona State
Veteran Home
2000 2001 2000 2001 2000 2001
(Actual) (Estimated) (Actual) (Estimated) (Actual) (Estimated)
Revenues:
Sales and charges for goods and services:
Institutional care $ 9,430,570 $ 9,989,000
Other $413,361 $405,600 3,433 67,900
State General Fund appropriations $828,600 $844,400 402,025 388,400 4,260 b
Interest 7 2,500 57,084 15,300
Intergovernmental 73,100
Veteran license plate fees 121,150 67,900
Private gifts 58,626 98,900
Other            27,535    
Total revenues 828,600   844,400 815,393 796,500 9,775,758 10,239,000
Expenditures:
Personal services and employee-related 607,942 669,800 685,338 652,600 6,361,762 7,180,500
Professional and outside services 5,19 4 3,000 5,799 1,000 1,749,677 1,326,700
Travel 26,898 27,000 16,109 19,900 3,206 7,300
Food 345,085 420,000
Aid to organizations and individuals
Other operating and equipment 187,950 144,600 97,865 79,400 1,549,048 1,418,900
Total expenditures 827,984 844,400 805,111 752,900 10,008,778 10,353,400
Excess of revenues over (under) expenditures 616 10,282 43,600 (233,020) (114,400)
Other financing uses c 616     14,986
Excess of revenues over (under) expenditures and other uses 10,282 43,600 (248,006) (114,400)
Fund balance, beginning of year 16,744 27,026 1,002,949 754,943
Fund balance, end of year $ 0  $   0 $ 27,026 $ 70,626 $ 754,943 $ 640,543
a Excludes veterans’ monies that the Department manages in a trustee capacity. The Department estimates that over $18 million was held in trust for veterans as
of June 30, 2001.
b Amount is building and renewal monies for repairing the Home’s air conditioning system.
c Amount includes operating transfers out and reversions to the State General Fund.
Source: Auditor General staff analysis of the Arizona Financial Information System (AFIS) Accounting Event Transaction File; Revenues and Expenditures by Fund, Program, Or-ganization,
and Object; Trial Balance; and Status of Appropriations and Expenditures reports; and Department-provided financial information for the Veterans’ Conserva-torship/
Guardianship Program for the year ended June 30, 2000. The Department provided the estimates for the year ended June 30, 2001 (actual amounts were not
available at the time of this report).
Introduction and Background
OFFICE OF THE AUDITOR GENERAL
5
Introduction and Background
6
OFFICE OF THE AUDITOR GENERAL
conservator, or personal representative for veterans. The Division
charges $35 a month to act as a guardian; 5 percent of a client’s
monthly income, such as VA and Social Security income, to serve
as a conservator; and a minimum of $250 to serve as a personal
representative.
Audit Scope
and Methodology
Audit work focused on the Department’s response to previously
identified concerns regarding quality-of-care, management, and
nursing staff levels at the State Veteran Home, as well as con-cerns
related to the Department’s contracting and fiduciary func-tions.
This audit also included a review of the State Veteran
Home’s financial information, including the appropriateness of
the Department’s expenditure of Home monies for non-Home
expenses. This performance audit and Sunset review includes
findings and recommendations in four areas:
n The progress made by the Department’s Fiduciary Division
in improving its accounting for and control of veterans’ as-sets,
including cash and physical assets.
n The extensive improvements made by the Department to pa-tient
care, Medicare billing, and its procurement practices.
n The need for the Department to establish a time-accounting
system to better record how staff spend time.
n In addition, within the Sunset Factors (see pages 31 through
38), the report recommends needed improvements to the
Department’s controls regarding fixed assets and the need for
the Department to terminate its contracts with two veterans’
service organizations.
The report also contains Other Pertinent Information (see pages
25 through 30) regarding the Department’s efforts to improve
nursing staff recruitment and retention at the Arizona State Vet-eran
Home.
Introduction and Background
7
OFFICE OF THE AUDITOR GENERAL
Auditors used a variety of methods to study the issues ad-dressed
in this report, including interviewing the Advisory
Commission chairman, representatives from private veterans’
organizations, such as the Disabled American Veterans, the Para-lyzed
Veterans of America, and the American Veterans of World
War II, officials from the VA, and State Supreme Court and Su-perior
Court representatives; reviewing statutes, rules, and De-partment
policies and procedures; and observing Department
staff to document their performance. The following methods
were also used:
n To assess the Fiduciary Division’s progress in improving its
accounting of veterans’ assets, auditors reviewed current in-ternal
controls, policies, and procedures; sampled the De-partment’s
current process for new guardian, conservator,
and personal representative cases by selecting six veterans to
verify that appropriate documentation had been completed
and that the inventories of assets were complete and accu-rate;
and reviewed the 31 cases as of January 2001 in which
the Department has yet to complete the final paperwork after
a veteran’s death or discharge.
n To assess improvements at the Arizona State Veteran Home
and in Department procurement practices, auditors inter-viewed
nine veterans and their dependents regarding their
perceptions of the quality of care provided; reviewed the
1998 and 2000 Annual Relicensing/Recertification Surveys
conducted by the Arizona Department of Health Services
(under contract with the Federal Health Care Financing Au-thority,
which administers Medicare), and the 2000 and 2001
U.S. Department of Veterans Administration Nursing Home
Inspection Reports and their follow-up documentation; and
reviewed the Medicare Cost Reports for fiscal years 1998,
1999, and 2000. In addition, auditors reviewed State Pro-curement
Office (SPO) and Department nursing service re-cords,
including the Request for Proposals and eight
awarded contracts, and procurement reviews published by
SPO in 1999 and the Department of Administration General
Accounting Office in 2001.
n To assess the adequacy of the Department’s method for
charging personnel costs, auditors reviewed the Home’s fi-
Introduction and Background
8
OFFICE OF THE AUDITOR GENERAL
nancial information, including the fiscal year 2001 budget,
revenue projections for fiscal years 2002 and 2003, cost per
patient day calculations for fiscal years 1998, 1999, 2000, and
the first half of 2001, and historical fund balances for fiscal
years 1998, 1999, and 2000; and examined the Department’s
August 2000 survey regarding what portion of staff time is
spent on Home and non-Home activities.
n To assess the impact of nursing recruitment and retention ef-forts
at the Arizona State Veteran Home, auditors reviewed
Arizona Department of Administration turnover reports for
fiscal years 1998, 1999, and 2000, and the first three quarters
of 2001; interviewed six members of the Home’s nursing
staff; reviewed literature on nursing staff turnover nationally
and in Arizona; interviewed officials at two private nursing
homes in the Phoenix metropolitan area; and reviewed the
Department’s monthly registry use and nursing payroll costs.
This audit was conducted in accordance with government audit-ing
standards.
The Auditor General and staff express appreciation to the direc-tor
and staff of the Department of Veterans’ Services for their co-operation
and assistance throughout this audit.
9
OFFICE OF THE AUDITOR GENERAL
FINDING I THE DEPARTMENT
HAS IMPROVED ITS
FIDUCIARY SERVICES
The Department has made significant improvements to the fidu-ciary
services it provides to veterans. One of the Department’s
primary responsibilities is to administer and protect the assets of
court-protected veterans assigned to its care. However, in 1997
and 1998, the Auditor General identified serious deficiencies
with the Department’s process for managing and safeguarding
veterans’ assets. As a result, the Arizona Supreme Court ceased
appointing new veterans to the Department. In response to these
concerns, the Governor, the Legislature, and the Department
have significantly improved the Department’s ability to safe-guard
veterans’ assets, and it is currently receiving new court-appointed
clients.
Fiduciary Referral and
Appointment Process
The Department is responsible for administering and protecting
the assets of veterans or their dependents who, through a referral
and assessment process, have been deemed unable to handle
their own financial affairs. Veterans are referred to the Depart-ment
from a variety of sources, including the U.S. Department of
Veterans Affairs, the Arizona Department of Economic Security’s
Adult Protective Services, county Public Fiduciary Offices, the
Arizona State Hospital, family members, and, occasionally, the
veterans themselves. When one of these agencies believes a vet-eran
is unable to handle his or her own financial affairs, they ap-proach
the Department concerning the veteran. The Department
then assigns a human service specialist to visit the veteran and
determine if the Department can provide the needed services. If
the Department determines it can assist the veteran, it petitions
the Superior Court seeking appointment as conservator. If the
court agrees, it appoints the Department as conservator.
Finding I
10
OFFICE OF THE AUDITOR GENERAL
Previous Reviews Found
Veterans’ Assets Not
Adequately Protected
A 1997 Auditor General review and a 1998 follow-up report
identified several concerns with the Department’s ability to
properly safeguard and manage veterans’ assets. Specifically,
these reviews noted deficiencies in the Department’s accounting
for veterans’ assets and reporting to the Superior Court. As a re-sult,
the Arizona Supreme Court temporarily restricted the De-partment
from accepting new fiduciary clients until it complied
with court-mandated changes.
Department failed to safeguard assets—The 1998 and 1999
Auditor General reviews noted that the Department failed to sat-isfy
legal obligations to administer and safeguard the personal
assets of approximately 400 veterans assigned to its care and to
annually report to the Superior Court on the status of these as-sets,
as required. Specifically:
n Inadequate listing—Despite being required to first obtain an
accurate and complete listing of a veteran’s assets within 90
days of gaining responsibility for this individual and thereaf-ter
annually reporting all assets and transactions to the Supe-rior
Court, the Department failed to maintain adequate and
timely listings of assets entrusted to its care. For example, in
seven of ten cases reviewed by auditors, the Department was
late in reporting client assets to the Superior Court. This de-lay
ranged from 37 to 274 days, limiting the court’s ability to
properly execute its oversight responsibilities.
n Improper controls—Although required to protect and man-age
veterans’ assets, the Department did not have adequate
controls in place to do so. The Department lacked controls to
prevent veterans’ assets from being stolen, misused, or re-placed
with lesser-valued items, and failed to record or jus-tify
the disposal of veterans’ physical assets. For example, one
veteran’s automobile and mobile home were recorded on his
referral/intake form, but the Department sold the home and
disposed of the automobile without recording the home’s
The Arizona Supreme
Court prohibited the De-partment
from receiving
new clients.
Finding I
11
OFFICE OF THE AUDITOR GENERAL
selling price or the disposition of the automobile. Addition-ally,
the Department did not have adequate controls over the
approximately $550,000 to $650,000 disbursed on behalf of its
clients each month. Specifically, the Department failed to en-sure
that all cash received was recorded in its accounting re-cords
and deposited in the bank, did not properly separate
cash-handling duties, and did not ensure that all cash dis-bursements
were properly authorized and for the veterans’
benefit. Because the Department lacked proper controls, em-ployees
could not easily detect any loss or theft of cash.
n Untimely services—The Department failed to distribute the
assets of deceased clients and reconcile its records in a timely
manner. For example, in one case, a veteran died in June
1997, but as of February 1998, the Department still had not
distributed all of the veteran’s assets. Further, the Depart-ment
had not reconciled its accounting records to its checking
account bank records for over a year, despite having a fiduci-ary
checking account balance of nearly $2 million.
Courts stopped appointing new fiduciary clients—Due to the
problems identified in these reports, in March and November
1998, the Superior Court for Maricopa and Pima Counties, re-spectively,
ordered that no further fiduciary appointments be
made to the Department. In March of 1999, the Arizona Supreme
Court, which certifies the Department as a fiduciary, imposed re-strictions
prohibiting the Department from receiving new court
appointments as a guardian or conservator. As illustrated in Item
2 (see page 12), the Court required the Department to meet sev-eral
conditions before it lifted this restriction.
Improvements Result in
Resumption of Fiduciary
Appointments
In response to the deficiencies noted by the Auditor General, the
Department has made significant improvements, and has been
authorized to receive new fiduciary appointments. With the help
Finding I
12
OFFICE OF THE AUDITOR GENERAL
Item 2 Selected Conditions for Lifting
Arizona Supreme Court Restrictions
1. The Department satisfies the concerns of the Superior Court in Mari-copa
and Pima Counties and these Courts lift restrictions on appoint-ing
new clients to the Department.
2. The Department demonstrates continued progress toward the recon-ciliation
of individual estates held in the collective trust account.
3. The Department’s client/staff ratios remain at or better than March
1999 levels. As of March 1999, the Department reports that it had 316
clients assigned to 5 social workers, a ratio of approximately 63:1.
4. The Department demonstrates continued progress toward the installa-tion
and implementation of the new CompuTrust accounting system,
which tracks ward assets and has financial accounting capabilities.
5. The Department demonstrates continued progress toward the accurate
and timely filing of reports with the Superior Court.
Source: June 22, 2000, Supreme Court letter to the Department of Veterans’ Ser-vices.
of a Governor’s corrective action team, the Department has sig-nificantly
improved its ability to safeguard and manage the as-sets
under its care. As a result, the Supreme Court lifted its re-strictions
in June 2000.
Changes made to improve fiduciary process—With the help of
the Governor, the Department has made several changes that
have improved its provision of fiduciary services. To assist the
Department, in October 1998, the Governor assembled a correc-tive
action team to review and make recommendations for re-solving
the Auditor General’s concerns. This team included a
representative from the Governor’s Office of Strategic Planning
and Budgeting, an accountant from the Department of Admini-stration’s
General Accounting Office, and a human resources
manager from the Arizona Department of Transportation. Based
on the team’s recommendations and the findings of the Auditor
General and the corrective action team, the Legislature and the
Department instituted a number of changes:
n Changing Department Organization—Laws 1999, Chapter
164 transferred responsibility for the Department from a
Commission to a Governor-appointed director and made the
Finding I
13
OFFICE OF THE AUDITOR GENERAL
Commission an advisor to the Department. This change
made the Department more accountable to the Governor and
provided the Governor with greater oversight. Further, the
new Governor-appointed director received formal certifica-tion
as a court-appointed fiduciary in June 1999.
n Adding Staff—The Legislature authorized an additional four
FTEs to augment the staff in the Fiduciary Services Division.
Specifically, the Department added accounting, asset, and
technical staff to help manage, safeguard, and oversee these
assets.
n Reconciling Active Accounts—The Department reconciled
all of its accounts and now reconciles them on a monthly ba-sis.
First, the Department reviewed the accounts of its exist-ing
veterans to ensure current balances and historical records
were correct. According to the Department, it eliminated its
backlog of 200 accounts for active clients in July 1999. Fur-ther,
the corrective action team determined that the Depart-ment
had not reconciled its accounting records with the ac-tual
monies held in client investment and banking accounts
in ten years. In attempting to reconcile these accounts, the
Department found a shortfall of $264,210, but there was no
evidence of theft or fraud. The Arizona Department of Ad-ministration’s
Risk Management Section subsequently trans-ferred
$264,210 to the Department to cover the shortfall.
n Obtaining Accurate Asset Listings—The Department has
established adequate procedures to properly account for
client assets and report these accountings to the Court. Based
on a review of all six clients appointed to the Department
from August 2000 to January 2001, the Department
appropriately inventoried and accounted for client assets in a
timely manner and has accurate listing of these assets. The
Department has also filed required reports listing these assets
with the Court in a timely manner.
n Closing Decedent Accounts—The Department has also re-duced
its backlog for decedent estates from approximately
200 in July 1999 to 21 cases in May 2001. These cases are in
various stages of resolution, including the Department
searching for the heirs of the deceased veterans, waiting on
After several Department
improvements, the Su-preme
Court removed its
restrictions in June 2000.
Finding I
14
OFFICE OF THE AUDITOR GENERAL
court hearings, and awaiting the conclusion of legal disputes,
such as determining the ownership of estate property or con-firming
that a client’s relative is a legal heir.
n Improving Cash Controls—The Department instituted a
number of cash-processing policies and procedures to better
safeguard veteran monies. Specifically, the Department has
segregated the cash receipt and disbursement functions so
that one employee is no longer solely responsible for these
functions, and restricted access to the signature facsimile ma-chine
to appropriate personnel only.
In addition to these changes, the Department has upgraded its
computer system, and its client-to-staff ratios have improved.
Specifically, the Department received funding to complete up-grades
to the Department’s aging computer system and updated
its fiduciary and accounting software. Further, since the courts
were no longer appointing new clients, the Department’s client-to-
human services staff ratio fell to 41:1 from 63:1, primarily be-cause
some of the existing clients passed away.
Court lifts restrictions—On June 9, 2000, the Department re-ported
that it was meeting the requirements necessary to lift
court-imposed restrictions. The Superior Court for both Pima
and Maricopa Counties, which had monitored the Department’s
progress through monthly updates, contacted the Department
and the Supreme Court indicating that they were satisfied with
the Department’s progress in improving controls over veterans’
assets. As a result of these efforts, on June 22, 2000, the Supreme
Court lifted fiduciary restrictions on the Department and the Su-perior
Court resumed appointing new clients to the Department.
As of July 2001, the courts have appointed 30 new fiduciary cli-ents
to the Department with 12 additional appointments pend-ing.
Recommendation
This finding provides information only. Therefore, no recom-mendations
are presented.
Since the restrictions were
lifted, the Department has
gained 30 new clients.
15
OFFICE OF THE AUDITOR GENERAL
FINDING II THE DEPARTMENT HAS
IMPROVED ITS
QUALITY-OF-CARE,
MEDICARE BILLING, AND
PROCUREMENT PRACTICES
After outside reviews found many problems with patient care,
Medicare billing, and its procurement function, the Department
made extensive improvements in these areas. Specifically, the
Department has made a number of changes to address concerns
that it was not providing a safe environment for residents and
not meeting professional quality-of-care standards at the Arizona
Veteran Home. It has also improved oversight of the Home’s
Medicare billing records. Additionally, it has addressed many
deficiencies that were described in a 1999 review of its procure-ment
process.
The Department Has Addressed
Previously Identified Problems
at the Veteran Home
The Department has corrected many of the identified deficien-cies
at its nursing home. Past reviews of the Arizona State Vet-eran
Home (Home) by the Arizona Department of Health Ser-vices
(ADHS) and the U.S. Department of Veterans Affairs (VA)
cited numerous resident care concerns, which the Department
has taken steps to resolve. A 1998 Auditor General review also
noted deficiencies in Home Medicare billing processes that re-sulted
in the Home repaying Medicare $143,569 for overbilled
services. The Department has since improved oversight of its
billing processes.
Quality of patient care improved—In response to concerns
raised by the ADHS and VA reviews, the Department has made
significant progress in addressing concerns regarding resident
care at the Home. Specifically:
Finding II
16
OFFICE OF THE AUDITOR GENERAL
n ADHS identifies quality-of-care concerns; subsequently
notes improvements—In a 1998 review, ADHS identified a
number of problems affecting patient quality-of-care. ADHS,
operating under contract with the federal government, re-views
all nursing homes in Arizona that accept Medicare and
Medicaid patients to determine whether they meet minimum
quality and performance standards. During its 1998 review,
ADHS inspectors determined that the Home did not provide
a safe environment for residents and failed to meet profes-sional
standards.1 The review noted 14 deficiencies, which is
double the average number noted for nursing homes in Ari-zona.
These deficiencies included using physical restraints
without first determining if they were necessary, and failing
to properly monitor residents, meet their physical and emo-tional
needs, and provide proper patient care.
In a series of subsequent reviews, ADHS found that the De-partment
had addressed many of these concerns. The ADHS
followup to its 1998 report noted that the Home imple-mented
policies and procedures to reduce the use of physical
restraints. Additionally, the Home implemented behavioral
assessments and resident monitoring that enables staff to bet-ter
ensure it meets its residents’ well-being. Finally, the Home
addressed patient care issues by instituting audit processes to
ensure staff followed physicians’ orders. As a result, the July
2000 review noted only seven deficiencies, including three in-stances
where Home policies were violated when staff al-lowed
patients to self-administer medication by using inhal-ers
without obtaining proper administrative approval, and
failure to ensure physician orders were followed. However, a
follow-up ADHS review conducted on September 26, 2000,
noted that the Department had implemented a corrective ac-tion
plan addressing the remaining deficiencies.
1 Annual Relicensing/Recertification Survey dated July 24, 1998, conducted
by the Arizona Department of Health Services under contract with the
Federal Health Care Financing Administration (which administers Medi-care).
Initial ADHS and VA
studies note problems, but
later reports show im-provements
at the Home.
Finding II
17
OFFICE OF THE AUDITOR GENERAL
n VA also notes problems, then improvement at the
Home—The U.S. Department of Veterans Affairs has also
identified problems in Home sanitation and safety proce-dures.
The VA annually certifies state veterans’ homes using
VA standards to justify federal financial support for veterans’
care. In a January 2000 report, the VA found that while the
Home met VA nursing home standards in the majority of ar-eas
reviewed, it failed to meet food-processing and drug
distribution standards.1 The VA noted that inspectors could
not locate documents verifying that professional staff had re-viewed
and approved pharmacy policies, and the Home
needed improvements in food sanitation and safety proce-dures.
Subsequent VA reports cited several improvements at the
Home. In response to the VA’s followup to the January 2000
report, the Home’s staff developed a corrective action plan
that included appropriate policies regarding drugs, and re-quired
additional staff training regarding sanitation and dis-posal
of damaged kitchen utensils. Later, a January 2001 VA
survey found that the Home needed to revise personnel files
for physicians, develop additional policies for isolating in-fected
patients, and obtain certification for the Home’s social
worker, but none of the reported conditions related to patient
care. Through a follow-up inspection, the VA confirmed that
the Department met all standards.
Improvements in billing procedures reduce Medicare refunds—
The Department has improved deficiencies in its Medicare bill-ing
process. A November 1998 Auditor General review noted
that many expenses for Medicare patients were not billed prop-erly
or may not have been billed at all; staff lacked the expertise
to prepare healthcare accounting reports; and the Home’s com-puterized
accounting system was not fully utilized. As a result,
the Home had to repay Medicare $143,569 in fiscal year 1998 be-cause
it lacked documentation supporting the provision of these
services. In fiscal year 1999, a consultant retained by the Depart-ment
found that the Department had significantly fewer in-stances
in which claims were not adequately supported. The con-sultant
attributes this improvement primarily to stronger over-sight
of billing records.
1 VA State Nursing Home Inspection report dated January 10, 2000.
The Medicare billing
process was improved by
better patient care docu-mentation.
Finding II
18
OFFICE OF THE AUDITOR GENERAL
Department Takes Steps to
Correct Problems Found in
Procurement Practices
The Department has also corrected procurement practice defi-ciencies
that were identified in a 1999 review by the State Pro-curement
Office (SPO). In addition, the Department has resolved
more recent concerns with its procurement of nurse registry ser-vices
by establishing a contract for these services.
Procurement problems addressed—The Department has taken
steps to address numerous problems with its procurement proc-ess
that were identified in a 1999 SPO report, including a lack of
contracts or supporting documentation for a variety of purchased
services at the Home; lack of a standard requisition process re-quiring
all units or functions to process and approve requisitions
in a similar manner; and the need to modify purchase order
documentation and processes. As a result of these problems, SPO
required the Department to seek its approval for any contract
over $10,000, and recommended that the Department modify its
contracting practices to ensure compliance with the procurement
code and improve and standardize its purchasing processes.
Following the 1999 SPO review, the Department took several
steps to ensure that it follows the procurement code. Specifically,
the Department has hired skilled individuals to conduct and
oversee procurement; trained unit managers in the procurement
process; developed contracts in areas previously lacking; and
provided continuing education opportunities for its procurement
staff. After the Department instituted these changes, SPO in-creased
the amount it allowed the Department to purchase with-out
first receiving the SPO’s approval from $10,000 to $100,000 in
July 2000.
Temporary nursing services contract established—The Depart-ment
has also resolved concerns with its use of temporary nurs-ing
services, or nurse registries, by establishing a contract for
these services and developing procedures for when it is unable to
use these contracted services. In its 1999 review, SPO reported
that although the Department spent approximately $1 million per
year for temporary nursing services, it lacked a contract for these
services. After the review, SPO and the Department took steps to
The Department also cor-rected
several problems
with its procurement
process.
Finding II
19
OFFICE OF THE AUDITOR GENERAL
remedy the situation. In June 2000, SPO issued a request for pro-posal
for these services, and the Department entered into con-tracts
with eight registry vendors effective in September 2000. By
October 1, 2000, the Department had fully transitioned to using
these vendors.
Recommendation
This finding provides information only. Therefore, no recom-mendations
are presented.
20
OFFICE OF THE AUDITOR GENERAL
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21
OFFICE OF THE AUDITOR GENERAL
FINDING III BETTER METHOD NEEDED
FOR TRACKING
EMPLOYEE TIME
The Department should adopt a time accounting system to en-sure
that the Home is charged only for the time employees
spend on Home activities. By obtaining legislative approval for
an additional approximately $500,000 in General Fund monies,
the Department ended the improper use of Home revenues to
support non-Home personnel costs. However, to correctly de-termine
the Home’s share of personnel costs when developing
future budgets, the Department should adopt a time accounting
system that records the time employees actually spend on Home
activities.
Inappropriate Use of
Home Monies Identified
and Corrected
Department management determined that some employee sala-ries
were being inappropriately paid with money that was lim-ited
to the Arizona State Veteran Home (Home). According to
A.R.S. §41-608.01(A), the State Home for Veterans Trust Fund
(Trust Fund) is administered “for the sole purpose of operating
and maintaining state operated nursing and domiciliary homes
for Arizona veterans.” To comply with these requirements, the
Department has tried to separately account for and charge costs
shared by both the Home and other Department functions. For
example, many staff employed by the Department provide ser-vices
for both the Home and other Department activities. How-ever,
in some cases, the charges for these personnel costs were
incorrect, resulting in the Trust Fund inappropriately paying for
personnel who do not work at the Home. Additionally, the De-partment
added positions without receiving funding and
charged the costs of these positions to the Home, even though
Some employee salaries
were inappropriately
paid by the Home.
Finding III
22
OFFICE OF THE AUDITOR GENERAL
these positions performed very limited or no work for the Home.
For fiscal years 1999 and 2000, the personnel costs inappropri-ately
charged to the Home amounted to nearly $700,000.
The Department recognized that the Home was inappropriately
funding some personnel costs and requested and received an ad-ditional
General Fund appropriation of approximately $500,000
each year in fiscal years 2002 and 2003 to cover these costs. The
Legislature approved the Department’s budget request for ap-proximately
$500,000 annually to pay the personnel costs of ap-proximately
12 FTEs who had been paid inappropriately by the
Trust Fund.
Department Relied on
Inexact Method to
Develop Cost Estimates
The Department relied on a survey to determine the amount of
personnel costs inappropriately charged to the Home. The sur-vey
results are based on estimates and subject to additional error
because job responsibilities change over time. A time accounting
system would more accurately capture the time personnel spend
on various Department activities, including the Home.
Department estimates of personnel costs may be inaccurate—In
August 1999 and again in August 2000, the Department sur-veyed
its staff, asking them to estimate what percentage of time
they spend on Home versus other Department activities. The
August 2000 estimate reported by these staff then served as the
basis for the Department’s calculations of the inappropriate per-sonnel
costs charged to the Home, and its budget request of an
additional approximately $500,000 annually from the General
Fund to cover these costs.
While the survey offered an initial view of how staff spent their
time, it did not represent the most effective or most accurate
means for making this determination. First, it provided limited
Finding III
23
OFFICE OF THE AUDITOR GENERAL
evidence supporting the actual time staff spend on Home versus
other Department activities. Specifically, employees completed a
one-page survey in which they estimated the percentage of their
job time spent working for each division. While some employees
provided rough summaries of their job duties, they did not pro-vide
any evidence or calculations that supported how they ar-rived
at their estimates. Additionally, the survey results are lim-ited
by the staff’s changing job responsibilities. For example:
n Human Resources Manager—This employee’s estimates of
the time spent on Home versus other Department activities
changed from 1999 to 2000. On the 1999 survey, this em-ployee
reported spending 90 percent of her time on Home ac-tivities,
while in the 2000 survey, this estimate was lowered to
60 percent. This 30 percent difference reflected $16,740 of this
position’s salary and related expenditures.
n Strategic Planner—Changes in the role of this position im-pacted
the Home’s share of this position’s salary. This posi-tion
was originally an administrative position at the Home,
which paid for 100 percent of this position’s salary and re-lated
expenditures. However, in 2000 the strategic planner
reported actually spending 90 percent of her time on non-
Home activities because she became responsible for organiz-ing
the Department’s strategic plan and coordinating special
projects, such as the Southern Arizona Veterans’ Cemetery.
As a result, the Home Fund paid for all of the strategic plan-ner’s
approximately $50,000 salary and related expenditures,
even though she spent only approximately 10 percent of her
time on Home functions.
These changing responsibilities resulted in very different survey
estimates of inappropriate personnel costs charged to the Home.
For instance, through the 1999 survey, the Department deter-mined
that the Home inappropriately paid approximately
$168,000 in personnel costs, while through the 2000 survey, the
Department determined that the Home inappropriately paid
approximately $500,000 in personnel costs. The 2000 survey then
served as a basis for the Department’s request of an additional
approximately $500,000 annually in General Fund monies.
Finding III
24
OFFICE OF THE AUDITOR GENERAL
More accurate time accounting system needed—The Department
should implement a time accounting system that would more
accurately capture the time personnel spend on Home activities
versus other Department duties. A time accounting system
would enable employees to distribute their hours between each
of the Department’s programs as they report their time, allow the
Department to more accurately charge personnel costs and pre-pare
future budgets, and is consistent with practices at other
state agencies. For example, staff at the Office of the Attorney
General divide their time among different court cases within that
agency’s time accounting system, and some programs in the De-partment
of Transportation use activity codes to track the num-ber
of hours staff spend working on different activities.
Before implementing a time accounting system, the Department
should evaluate its time accounting needs to help determine
what type of system is needed. It should determine how often
and which staff need to record their time, how many activity
codes would need to be developed and used, what approval
mechanisms need to be established, and what additional systems
a time accounting system would need to interface with. Addi-tionally,
the Department would need to decide between a man-ual
or automated time accounting system, and, if automated,
whether to purchase an existing system or develop one in-house.
Recommendations
1. The Department should implement an internal time account-ing
system to better track the time that Department personnel
spend on various Department activities, including those re-lated
to the Home.
2. Once the time accounting system is in place, the Department
should use the system to more accurately charge personnel
costs and prepare its budget requests.
The Department should
use a more accurate time
accounting system to
track employee time.
25
OFFICE OF THE AUDITOR GENERAL
Item 3 Measures of Staffing
For the purposes of this report:
Turnover Rate—While the exact method of calculation var-ies,
a turnover rate is a percentage indicating the portion of
agency staff that separate or terminate in a year.
Vacancy Rate—A percentage of unfilled positions within an
organization.
OTHER PERTINENT INFORMATION
During the audit, other pertinent information was gathered re-garding
the Department’s efforts to improve nursing staff re-cruitment
and retention at the Arizona State Veteran Home.
Department’s Efforts to Improve
Nursing Staff Recruitment
and Retention
The Department has initiated several efforts to improve its nurs-ing
staff recruitment and retention at the Home, and while these
efforts have led to some improvements, goals have yet to be real-ized
and turnover remains high. Turnover is a significant prob-lem
at nursing homes nationally and locally, and the Home has
historically had high vacancy rates among its nursing staff. In re-sponse,
the Department has taken several steps to improve nurs-ing
staff retention, including increasing nursing salaries and en-hancing
employee morale. While these efforts have reduced
nursing vacancies and reliance on temporary nursing services,
they have increased the Department’s nursing costs and have
had a limited effect on nursing staff turnover.
Nursing staff turnover a significant problem for nursing
homes—For the past few years, nursing homes and other long-term
care facilities in Arizona and nationwide have struggled to
Other Pertinent Information
26
OFFICE OF THE AUDITOR GENERAL
attract and retain nursing staff. This industry typically operates
with high nursing staff turnover and vacant nursing positions.
For example, as of March 31, 2001, the Department of
Administration reports an annualized turnover rate of
approximately 55 percent for registered nurses (RNs) and
licensed practical nurses (LPNs) and 70 percent for certified
nursing assistants (CNAs) at the Home during fiscal year 2001.
Additionally, in testimony before the U.S. Senate Committee on
Health, Education, Labor, and Pensions in May 2001, the U.S.
General Accounting Office (GAO) cited two separate surveys on
nursing staff turnover.1 First, the GAO cited a 1997 survey spon-sored
by the American Health Care Association (AHCA) of 13
nursing home chains, which reported a 51 percent turnover rate
for RNs and LPNs.2 The GAO also cited a second survey spon-sored
by AHCA in 1998 of 12 nursing home chains, which found
a 94 percent turnover rate for nursing aides (similar to CNAs).3
These various studies report that a nationwide shortage of
nursing staff, low wages, and the stressful working environment
of nursing homes contribute to these high turnover rates.
In Arizona, turnover rates among nursing homes and long-term
care facilities are also high. According to the Department of Ad-ministration
(DOA), nursing staff turnover rates at the state-owned
Arizona Pioneers’ Home exceed 58 percent for CNAs.
Further, the Nursing Home Care Unit at the U.S. Department of
Veterans Affairs Phoenix Medical Center reports turnover of
nearly 37 percent for RNs, 23 percent for LPNs, and 25 percent
for CNAs. These problems also appear in private nursing homes
contacted by audit staff. For example, a Phoenix metropolitan
area home with nearly 200 beds reports a current turnover rate of
85 percent annually for all its nursing staff.
1 United States General Accounting Office, Nursing Workforce: Recruitment
and Retention of Nurses and Nurse Aides Is a Growing Concern, May 17, 2001,
(GAO-01-750T).
2 American Health Care Association, Facts and Trends 1999, The Nursing Fa-cility
Sourcebook (Washington D.C.: ACHA, 1999).
3 AHCA, Staffing of Nursing Services in Long Term Care: Present Issues and
Prospects for the Future (Washington, D.C.: AHCA, 2001).
Nationwide, nursing staff
turnover in the nursing
home industry is high.
Other Pertinent Information
27
OFFICE OF THE AUDITOR GENERAL
Item 4 Nursing Staff at
the Arizona
State Veteran Home
When fully staffed, the Home
employs:
n 8 Registered Nurses (RNs)
n 25 Licensed Practical
Nurses (LPNs)
n 70 Certified Nursing Assis-tants
(CNAs)
Source: Arizona Department of Vet-erans’
Services.
Department expands efforts to hire and retain nursing staff—
While the Department has traditionally experienced high va-cancy
rates among its nursing staff, it has expanded its efforts to
recruit and retain these staff at the Home. As noted in Item 4, the
Home employs over 100 nursing staff. However, in March 2000,
the Department reports that
vacancy rates among this staff
were high, reaching approxi-mately
38 percent for RN/LPN
positions, and approximately
41 percent for CNAs. While the
nationwide shortage of nurses
partially contributed to this high
vacancy rate, the Department’s
nursing salaries, which were
below the market average, also
affected its ability to retain
nursing staff. To address these
problems, the Department insti-tuted
hiring and retention stipends, focused on recruiting efforts,
and took steps to build employee morale. Specifically:
n Stipend program—The Department instituted a stipend
program for all nursing staff in April 2000 to make their sala-ries
more competitive. According to the Arizona Department
of Administration, monthly salaries for the Home’s nursing
staff were below the average salaries for comparable posi-tions
in Maricopa County. For example, monthly salaries for
the Home’s registered nurses were as much as $815 a month
below the salaries for registered nurses working in Maricopa
County. In response to this salary difference, the Department
requested, and the Department of Administration approved,
authority for the Home to use Home monies to add a re-cruitment
and retention stipend for all nursing staff, aug-menting
normal nursing salaries. As illustrated in Figure 1,
(see page 28), when the monthly stipends for RNs, LPNs, and
CNAs are included, the Department now pays monthly sala-ries
greater than the county average for two of these three
positions. For example, with their $693 monthly stipend, RN
monthly salaries at the home are only $122 less than the
county average.
Other Pertinent Information
28
OFFICE OF THE AUDITOR GENERAL
n Recruiting and employee morale efforts—The Depart-ment
has also focused on improving nursing recruiting ef-forts
and employee morale. For example, the Department
hired a recruiter to identify and hire permanent nursing staff,
and conducted a job fair in November 2000 to attract quali-fied
nursing candidates to the Home. However, although the
Department sent invitations to 2,500 potential applicants,
only 18 people attended the job fair and the Department only
Figure 1
Arizona Department of Veterans’ Services
Monthly Nursing Staff Salaries
Comparison of Arizona State Veteran Home1
and Local Facilities
$3,190
$3,883 $4,005
$2,526
$3,046 $2,873
$1,676
$2,023 $1,951
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
Registered Nurses Licensed Practical Nurses Certified Nursing
Assistants
Home salary without stipend Home salary with stipend (2) Other facilities
1 Salaries paid at local facilities are the highest average amounts paid in public and private facilities in Mari-copa
County as of April 1, 2000. Salaries paid at the Arizona State Veteran Home are the highest paid as of
May 6, 2000.
2 The stipend is added to an employee’s base hourly wage. The Department of Administration authorized
the stipend, which is paid by the Home.
Source: Auditor General staff analysis of nursing staff salary information provided by the Arizona Depart-ment
of Veterans’ Services Personnel Listing Report and the Arizona Department of Administra-tion,
Joint Governmental Salary and Benefits Survey 2000.
Other Pertinent Information
29
OFFICE OF THE AUDITOR GENERAL
hired 4 staff. The Department also focused on team-building
and instituted a number of programs, such as providing uni-forms
and adopting performance recognition awards, to help
raise employee morale.
Efforts produce mixed benefits—Although successful in reducing
nursing staff vacancies and the use of temporary nursing ser-vices,
Department efforts, which are still in progress, have re-sulted
in increased nursing costs, while turnover rates have re-mained
high. Specifically, as a result of the salary stipend and
Department recruiting efforts, nursing staff vacancies have
dropped from 38 and 41 percent in March 2000 for RNs/LPNs
and CNAs, respectively, to under 10 percent as of May 2001. De-spite
this reduction, the Home continues to experience high
turnover rates. As noted previously, the Home has a current
turnover rate of approximately 55 percent for LPNs and RNs,
and 70 percent for CNAs. However, Department management
indicates it has been able to keep the vacancy rates low through
its recruiting stipend.
The Department has also significantly reduced its use of tempo-rary
nursing services at the Home. For example, as illustrated in
Figure 2 (see page 30), the Department paid $131,029 for tempo-rary
nursing services in July 1999 to maintain adequate nursing
levels at the Home. However, since implementing the salary sti-pend
program in April 2000, the Department’s use of temporary
nursing services has dropped significantly, amounting to only
$3,185 in April 2001. Additionally, the Department projects that it
will save approximately $685,000 in temporary nursing services
costs in fiscal year 2001 as compared to fiscal year 2000.
Even though the Department has decreased its temporary nurs-ing
services costs, these savings have been more than offset by
increases in permanent nursing staff costs. Specifically, based on
the Department’s fiscal year 2001 personnel costs projections, it
will spend an additional $954,656 in salaries and related expendi-tures
for permanent nursing staff, including the stipends for
these staff, resulting in approximately $265,000 in increased nurs-ing
costs.
The Department reduced
vacancies and the use of
temporary nurses, but
nursing costs have in-creased
and turnover re-mains
high.
Other Pertinent Information
30
OFFICE OF THE AUDITOR GENERAL
Figure 2
Arizona Department of Veterans’ Services
Costs for Temporary Nurses for the First Month of Each Quarter
July 1999 through April 2001
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01
Source: Auditor General staff summary of the Department of Veterans’ Services monthly Nurse Registry Reports, July 1999
through April 2001.
31
OFFICE OF THE AUDITOR GENERAL
SUNSET FACTORS
In accordance with A.R.S. §41-2954, the Legislature should con-sider
the following 12 factors in determining whether the Ari-zona
Department of Veterans’ Services should continue or be
terminated.
1. The objective and purpose in establishing the
agency.
The purpose of the Department is to assist veterans and
their surviving spouses, minor children, and heirs. To
meet its purpose, the Department has the following re-sponsibilities:
n Acts as guardian and/or conservator for incapacitated
or protected veterans, their spouses, or their minor
children when appointed by the Superior Court;
n Assists veterans and their dependents by providing
information about benefits and helping them file or
appeal claims; and
n Provides long-term care services and skilled nursing
care to veterans and their spouses at the Arizona State
Veteran Home.
2. The effectiveness with which the agency has met its
objective and purpose and the efficiency with which
the agency has operated.
Since 1998, the Department has demonstrated significant
operational improvements, and generally operated effi-ciently
and effectively. Specifically, the Department has
improved its Medicare reimbursement process (see Find-ing
II, pages 15 through 19); worked with the State Pro-curement
Office to ensure that it follows state procure-
Sunset Factors
32
OFFICE OF THE AUDITOR GENERAL
ment requirements (see Finding II, pages 15 through 19);
and provided effective benefits counseling services and
assistance to veterans, their dependents, and their survi-vors
for developing and filing claims for federal veterans’
benefits. Further, the Department has taken steps to im-prove
its ability to attract and retain permanent nursing
staff at the Arizona State Veteran Home (Home) (see
Other Pertinent Information, pages 25 through 30).
Despite the general improvement in effectiveness with
which the Department operates, it should develop and
implement an internal time accounting system that better
tracks the time personnel spend between Home and
other Department activities. Not only would such a sys-tem
enable the Department to more accurately charge its
personnel costs to the appropriate fund, it would enable
the Department to develop more accurate budget re-quests
in the future (see Finding III, pages 21 through 24).
3. The extent to which the agency has operated within
the public interest.
The Department of Veterans’ Services has generally oper-ated
in the public interest, and in some areas improved its
efforts to support Arizona’s veteran population. Specifi-cally,
the Department has made significant progress in
addressing concerns raised in the Auditor General’s 1997
and 1998 reports regarding its failure to adequately safe-guard
and manage fiduciary client assets and cash mon-ies
(see Finding I, pages 9 through 14). Additionally, the
Department has made substantial progress in resident
care and management of the Home as demonstrated by
recent ADHS and VA reviews that found the Department
had addressed all of the previously cited concerns. Fur-ther,
the Department has made substantial progress in
improving its Medicare billing process (see Finding II,
pages 15 through 19).
Sunset Factors
33
OFFICE OF THE AUDITOR GENERAL
Despite these improvements, this audit determined the
Department could better protect the public interest by
improving controls over fixed assets. Specifically, the De-partment
has not performed a physical inventory of fixed
assets in the last three years, although it plans to conduct
an inventory in the fall. Further, the Department did not
retain cost documentation to support the land and build-ing
dollar amounts for the Home reported to the State’s
General Accounting Office, maintained incomplete asset
listings, and failed to identify or accurately track assets re-corded
in the agency’s fixed assets listing. To properly
control and report state resources and reduce the risk of
theft and loss, the Department should follow policies and
procedures described in the State of Arizona Accounting
Manual, section G.
4. The extent to which rules and regulations promul-gated
by the agency are consistent with the legisla-tive
mandate.
In December 2000, the Governor’s Regulatory Review
Council (GRRC) reviewed the Department’s rules and de-termined
that all of the Department’s current rules are
consistent with state statutes; however, several rules fail
to reflect Laws 1999, Chapter 164, which changed the
Veterans’ Service Commission into the Department of
Veterans’ Services and granted a director operational con-trol
over the Department. Therefore, the Department
agreed to revise these rules and submit them to GRRC for
approval by the end of March 2002.
At the request of the Auditor General, GRRC again re-viewed
the Department’s rules and determined that
while the Department has promulgated many of the rules
required by statute, it needs to make additional rules. For
example, the Department needs rules for determining the
eligibility of Pearl Harbor survivors and their spouses for
special license plates and rules outlining procedures for
registering veterans organizations soliciting money or
support on behalf of American veterans.
Sunset Factors
34
OFFICE OF THE AUDITOR GENERAL
5. The extent to which the agency has encouraged in-put
from the public before promulgating its rules and
regulations, and the extent to which it has informed
the public as to its actions and their expected impact
on the public.
The Department has encouraged public input before
promulgating rules and regulations. For example, the
Department reported circulating proposed rule changes
for the Arizona State Veteran Home in the summer of
2000 to the major veterans’ service organizations in the
State, soliciting their comments on the proposed changes.
The Department indicated that it would continue this
process with rules regarding a proposed Veterans’ Me-morial
Cemetery in Sierra Vista. The Department plans to
promulgate rules governing eligibility for interment, the
application process, fees, and general cemetery opera-tions
by establishing a workgroup of internal and exter-nal
stakeholders to draft the rules and circulate multiple
drafts to other affected agencies and interested stake-holders.
Further, it will hold public meetings to discuss
and debate the rules.
The Veterans’ Service Advisory Commission also gener-ally
complies with the State’s open meeting laws by post-ing
public meeting notices at least 24 hours in advance at
the required location and making agendas available to
the public. However, the Department is required to file a
statement with the Secretary of State indicating where
meeting notices will be posted, but has failed to keep this
statement current. The Department has indicated it will
file an updated statement with the Secretary of State.
6. The extent to which the agency has been able to in-vestigate
and resolve complaints that are within its
jurisdiction.
While the Department does not have authority to investi-gate
and resolve complaints, it has forwarded complaints
received regarding veterans’ organizations that solicit
money or support in the name of U.S. veterans to the At-torney
General for review.
Sunset Factors
35
OFFICE OF THE AUDITOR GENERAL
7. The extent to which the attorney general or any other
applicable agency of state government has the au-thority
to prosecute actions under the enabling legis-lation.
The Department’s statutes provide that any person who
knowingly makes a false statement under oath, orally or
written, referring to any claim filed under the Depart-ment’s
enabling statutes is guilty of a class 5 felony. This
statute was passed in 1929, when the Veterans’ Commis-sion
provided relief to “indigent ex-service men and their
dependents” through a claims process. While the De-partment
no longer provides these services, the Depart-ment’s
current statutes require it to assist veterans in es-tablishing
claims for benefits under state law. The possi-bility
exists that the State could prosecute a false state-ment
under oath relating to benefits claims.
8. The extent to which the agency has addressed defi-ciencies
in the enabling statutes that prevent it from
fulfilling its statutory mandate.
The Department has supported and undergone signifi-cant
statutory changes during the 1999 and 2001 legisla-tive
sessions. In 1999, the Legislature enacted Laws 1999,
Chapter 164, transforming the Veterans’ Service Commis-sion
into the Department of Veterans’ Services headed by
a director who is appointed by and answerable to the
Governor. Additionally, the Veterans’ Service Commis-sion
was changed to an advisory commission that pro-vides
policy advice to the Governor and the director re-garding
veterans’ issues.
The Department proposed several changes to its enabling
statutes that were enacted in the 2001 legislative session.
First, the Department drafted and supported Laws 2001,
Chapter 355, which made a variety of changes to the De-partment’s
statutes. Specifically, this legislation:
n Transfers revenues from special veteran license plate
fees that had previously been deposited in the State
Sunset Factors
36
OFFICE OF THE AUDITOR GENERAL
Home for Veterans Trust Fund to the Veterans’ Dona-tion
Fund;
n Increases membership of the Veterans’ Service Advi-sory
Commission from seven to nine members, allow-ing
for greater participation of veterans’ service or-ganizations;
n Improves the Department’s oversight of organizations
seeking donations in the name of veterans by ena-bling
the Department to approve or disapprove veter-ans’
organizations seeking to solicit monies in Ari-zona;
and
n Allows the Department to write off uncollected debt
owed to the Home after collecting at least 75 percent
of the account balance.
Additionally, the Department supported Laws 2001,
Chapter 348, which granted the Department General
Fund monies and authority to acquire new state-run vet-erans’
cemeteries. Currently, the Department plans to es-tablish
a cemetery in Sierra Vista, and possibly another
one in northern Arizona.
9. The extent to which changes are necessary in the
laws of the agency to adequately comply with the fac-tors
listed in the Sunset Laws.
The audit did not identify any needed changes to the
Department’s statutes.
10. The extent to which termination of the agency would
significantly harm the public health, safety, or wel-fare.
While terminating the Department would not signifi-cantly
harm the general public’s safety, health, or welfare,
terminating the Department could impact both the resi-dents
of the Arizona State Veteran Home and the State of
Arizona. The Home is a skilled, long-term care nursing
Sunset Factors
37
OFFICE OF THE AUDITOR GENERAL
facility constructed in partnership with the U.S. Depart-ment
of Veterans Affairs (VA). If the Department was
terminated and the Home transferred to private hands,
the Department reports that residents could be displaced,
forcing them to seek alternative arrangements for long-term
nursing care and losing ready access to the nearby
VA Medical Center. Also, the Department indicates the
State would be required to repay the federal government
over $9 million in Home construction costs paid by the
VA.
Termination would have less of an impact on the 254
wards of the Department’s Fiduciary Division since coun-ties
and private fiduciaries provide similar services.
However, the Department indicates that if it were termi-nated,
these clients would need to be considered for reas-signment
to counties or private fiduciaries who might
lack special knowledge and familiarity with the needs of
veterans and experience with state and federal organiza-tions
serving these needs.
Terminating the Department would also affect veterans
who receive benefits counseling services from the De-partment.
Specifically, the Department provides federal
and state veterans benefits counseling services to veterans
through its network of 15 benefits counselors based in 7
locations across the State. According to one VA official,
the Department is the best organization capable of pro-viding
these services. However, other organizations, such
as the VA itself, the American Veterans of World War II
(AMVETS), the Veterans of Foreign Wars (VFW), and the
Disabled American Veterans (DAV), also provide these
services, and sometimes these services are offered by sev-eral
organizations at the same locations.
11. The extent to which the level of the regulation exer-cised
by the agency is appropriate and whether less
or more stringent levels of regulation would be ap-propriate.
Audit work suggests the Department’s current regulatory
authority is appropriate.
Sunset Factors
38
OFFICE OF THE AUDITOR GENERAL
12. The extent to which the agency has used private con-tractors
in the performance of its duties and how e f-fective
use of private contractors could be accom-plished.
The Department has several contracts for the provision of
services at the Arizona State Veteran Home. For example,
the Home sends its linens to the nearby VA Medical Cen-ter
for laundering. The Home also uses the VA to supply
medicines and pharmaceutical supplies to Home resi-dents.
Finally, the Home contracts with private nurse reg-istries
to supplement its own full-time nursing staff.
The Department should terminate its contracts with two
veterans’ service organizations. Specifically, the Depart-ment
contracts with the American Veterans of World War
II (AMVETS) for up to $7,200 annually and the Veterans
of Foreign Wars (VFW) for up to $10,800 annually to
support its benefits counseling operations. According to
Department management, these contracts originated
when the Department’s benefits counseling program was
smaller and it referred veterans to these organizations
due to excessive state caseloads. However, since that
time, the Department’s staff has increased and, according
to Department officials, referrals are no longer necessary.
Further, these contracts do not obligate the organizations
to perform any specific action for the State beyond regu-larly
reporting their activity to the Department.
OFFICE OF THE AUDITOR GENERAL
AGENCY RESPONSE
OFFICE OF THE AUDITOR GENERAL
(This Page Intentionally Left Blank)
JANE DEE HULL STATE OF ARIZONA PATRICK F. CHORPENNING
GOVERNOR DEPARTMENT OF VETERANS’ SERVICES DIRECTOR
3225 NORTH CENTRAL AVENUE, SUITE 910
PHOENIX, ARIZONA 85012-2410
(602) 255-3373 FAX (602) 255-1038
August 1, 2001
Debbie Davenport
Auditor General
2910 N. 44 Street, Suite 410
Phoenix, AZ 85018
Dear Mrs. Davenport:
Thank you and your staff for acknowledging the significant progress the Department has made over the
past 2½ years. Vast improvements within the agency would not have been possible without the support
provided by the Governor and the Legislature.
ADVS continues to build its fiduciary client base since the court moratorium was lifted in June 2000.
The Home has reached and is maintaining its census targets, while further enhancing fiscal controls.
Since December 1998, the entire executive team – the Director and all eleven of his direct reports - has
changed. The Sunset Audit Report accurately describes the history of the agency, recent challenges,
and progress towards its objectives.
As requested, a formal response to each recommendation contained within in the revised preliminary
report is provided. Findings I and II required no response. Recommendations in Finding III are outlined
below:
1. The Department should implement an internal time accounting system to better track the time
that Department personnel spend on various Department activities, including those related to the
Home.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented. The system will be used to determine the Home’s share of personnel and
related costs for certain administrative and managerial personnel.
2. Once the time accounting system is in place, the Department should use the system to more
accurately charge personnel costs and prepare its budget requests.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented. At a minimum, ADVS will review the cost allocation annually on January
1 and June 30.
Sunset Audit
August 1, 2001
Page Two
Recommendations from the sunset factors are outlined below:
·  Factor 3: Physical inventory of fixed assets, cost documentation to support the land and building
dollar amounts for the Home.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented. The agency is implementing a centralized warehouse system to account
for State assets, scheduled to be completed within the next six months.
·  Factor 4: “…the Department needs rules for determining the eligibility of Pearl Harbor survivors
and their spouses for special license plates and rules outlining procedures for registering
veterans organizations soliciting money or support on behalf of American veterans..”
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
·  Factor 5: “…the Department is required to file a statement with the Secretary of State indicating
where meeting notices will be posted.
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
·  Factor 12: “The Department should terminate its contracts with two veterans’ service
organizations.
The finding of the Auditor General is agreed to and a different method of dealing with
the finding will be implemented.
On behalf of the agency, thank you for your staff’s objectivity and professionalism throughout the review
process. The ADVS executive team stands ready to provide you with implementation status reports as
requested.
Sincerely,
Patrick F. Chorpenning
Director
PFC/gf
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