KANSAS Mark Parkinson, Governor Don Jordon, Secretory ...media.khi.org/news/documents/2012/02/13/ILCNEK_Final_Audit_Rep… · AND REHABILITATION SERVICES January 8, 2010 Re: Final

K A N S A SDEPARTMENT OF SOCIALAND REHABILITATION SERVICES

January 8, 2010

Re: Final Report — Independent Living Center of Northeast Kansas (10ILCNEKS)

Mr. Michael Donnelly, Director, SRS Rehabilitation ServicesDocking State Office Building, 9 '1 1F l o o r915 SW HarrisonTopeka, KS 66612

Dear Mr. Donnelly:

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est regards,,-----B

\ , s ji A ,0 7,1 /\&

C----- Dustin Sherley

Lead Auditor

Mark Parkinson, GovernorDon Jordon, Secretory

www,srskansos.org

The SRS Office o f Audit and Consulting Services has recently completed its audit o f theIndependent Living Center of Northeast Kansas for the period October I, 2006 through June 30,2009. Ou r audit focused on assessing (1) the internal controls over funding awarded throughSRS, (2) compliance with the grant agreement, applicable OMB Circulars and laws andregulations, and (3) whether case file documentation supported billings to SRS made under thegrant. Enclosed i s the Final Report which contains ou r findings, conclusions andrecommendations.

We issued a Draft Report to Independent Living Center of Northeast Kansas on November 12,2009. We received a response to this report dated December 3, 2009. We have reviewed theresponse and other accompanying information. W e modified our findings based on theinformation provided with the response which has been incorporated into the Final Report.OACS w i l l be using TeainCentral to fol low up on the implementation o f the report'srecommendations within six months.

Thank you for all the help you provided throughout the audit. Please convey to your staff ourappreciation for their assistance during the audit. I f you have any questions regarding this auditplease contact me at (785) 296-2040 or electronically at email Dust i [email protected].

cc: Board of Directors, Independent Living Center of Northeast KansasKen Gifford, Executive Director, Independent Living Center of Northeast KansasEunice Thompson, SRS Rehabilitation ServicesMaia Ruby Clemmons, SRS Rehabilitation ServicesMary S. Hoover, Chief Audit Executive, SRS Office of Audit and Consulting ServicesChris Johnson, Audit Manager, SRS Office of Audit and Consulting Services

OFFICE OF AUDIT AND CONSUL:TING SERVICES — MARY HOOVER, CLIIEF AUDIT EXECUTIVEDocking Stale Office Building, 915 SW Harrison Street, 8'h F l o o r , T o p e k a , K S 6 6 6 1 2 - 1 5 7 0

Voice: (785)296-3836 • Fax (785) 368-6498

K A N S A SDEPARTMENT OF SOCIALAND REHABILITATION SERVICES

MARY HOOVER, CIA, CPA, CIE, Chief Audit Executive

Final Audit Report

INDEPENDENT LIVING CENTER OF NORTHEASTKANSAS

For-the period: October 1, 2006 through June 30, 2009

Report Issued: January 8, 2010

For Additional Information, Contact:

Dustin Sherley, Lead AuditorChris Johnson, CIA, CPM, Audit Manager

Office of Audit and Consulting Services

Docking State Office Building, 8th F l o o r915 SW Harrison Street

Topeka, Kansas 66612(785) 296-3836 / Fax (785) 368-6498

Mark Parkinson, GovernorDon Jordon, Secretory

www.srskansasorg

Objective, Relevant & Timely Information for Strategic Decision Making Through Audit and Consulting Services

Executive SummarySRS OFFICE OF AUDIT AND CONSULTING SERVICES

Independent Living Center of Northeast Kansas

Purpose p a g e 1This audit was requested by the Director of Rehabilitation Services and its focus was to assess(1) the internal controls over funding awarded through SRS, (2) compliance with the grantagreement, applicable OMB Circulars and laws and regulations, and (3) whether case fi ledocumentation supported billings to SRS made under the grant.

Background p a g e 1On August 31, 2006, Independent Living Center of Northeast Kansas (hereafter referred to asILCNEKS) applied to the Kansas Department of Social and Rehabilitation Services (SRS) forgrant funds to provide services to consumers. A n agreement was signed by both partiesawarding future payments o f grant funds to ILCNEKS for the service to be provided. Th eservices were to be provided for a grant period of October 1, 2006 through September 30, 2009.An award amount of $124,707 was approved for the first year of the grant, with the second andlast year having amended and approved grant budgets of $215,764 and $219,824, respectively.Concerns were identified when the most recent single audit CPA report for fiscal year end July31, 2008 was submitted by ILCNEKS. The SRS Rehabilitation Services (RS) Director reviewedthe report and it appeared ILCNEKS had received funds for the second grant year which it hadnot spent. According to the grant agreement, all funds reimbursed must represent expensesincurred for the purpose o f the grant. Furthermore, a significant amount of grant funds werebeing spent for payroll. However annual reports completed by the ILCNEKS indicated few SRScustomers were completing Independent Living (IL) Plans and/or having goals set to achieveindependent living skills. To address the concerns, the Office of Audit and Consulting Services(OACS) was requested to conduct an audit of 1LCNEKS expenses and grant revenues with theobjectives noted in the Purpose section of this document.

Results in Brief p a g e s 2 - 3The ILCNEKS had inadequate policies, procedures, and practices to assure grant funds wereaccounted for and appropriately used. Specifically:• SR S was billed for 66.33% of all ILCNEKS staff payroll in Atchison, but the staff didn't

document services to support the amount billed.• Employer share o f taxes and fringe benefits were billed to the grant at a rate o f 39.82%,

much lower than the payroll amounts.• T e n transactions, totaling $1,158.55, billed to the grant were for amounts exceeding the

actual check amount.• A majority of building rent was billed to the IL grant and not other funding sources.• T h e ILCNEKS President/CEO approved reimbursements for his home office expenses

including long distance, phone and internet services.

EXECUTIVE SUMMARY — Final Report - Independent Living Center of North East KansasSRS Office of Audit and Consulting ServicesJanuary 2010

Executive SummarySRS OFFICE OF AUDIT AND CONSULTING SERVICES

Independent Living Center of Northeast Kansas

Based on the documentation available, audit staff verified 4.16% of payroll hours billed to SRSduring the audit period were documented as being used to complete individual and consumer(grant) services. Many of the files reviewed had inadequate documentation to support and trackservice delivery in the form of individual services, which were distinct from other programs.Likewise with community services, documentation was not maintained to support the hoursreported on quarterly reports submitted to SRS.

As a result, SRS paid $489,870.14 fo r grant services which could not be verified wi thdocumentation, of which $1,158.55 was directly identified as expenses that didn't occur or werenot for the intended purpose of the grant.

Principal Findings p a g e s 3 1 1Please see the report for detailed findings.

Recommendations p a g e s 3 -11Please see the report for detailed recommendations.

Audit ResponseOACS received a response to the Draft Report dated December 3, 2009. Th i s responsequestioned some of the findings and included additional information. Based on the informationprovided, OACS reexamined its findings and made some changes. Specifically, OACS removeda finding regarding the billing of gross wages instead of net. This resulted in a decrease in theamount of payroll billed to the SRS grant.

ILCNEKS also provided information regarding the amount and type of benefits paid on behalf ofits employees. Th is resulted in a recalculation o f the percentage o f benefits charged to SRSgrants. While there was still a difference between the percentage of salaries and the percentageailments charged to the grant, the benefit portion was found to be much lower than the payroll.

The response received from ILCNEKS has been incorporated into the Final Report.

EXECUTIVE SUMMARY - Filial Report - Independent Living Center of North East KansasSRS Office of Audit and Consulting ServicesJanuary 2010

INTRODUCTION

On August 31, 2006, Independent Living Center of Northeast Kansas (hereafter referred to asILCNEKS) applied to the Kansas Department of Social and Rehabilitation Services (SRS) forgrant funds to provide services to consumers. A n agreement was signed by both partiesawarding future payments of grant funds to ILCNEKS for the service to be provided. The terinsof the grant are explained in SRS grant award number IL 07-804.

According to the grant agreement, the ILCNEKS was to provide the following core services toindividuals w i th disabilities, i n addition to standards and indicators expressed i n theRehabilitation Act of 1973:

• Individual and Systems Advocacy • Independent Living Skills Training• Information and Referral • Deinstituti onalizat ion• Peer Support

The services were to be provided for a grant period of October 1, 2006 through September 30,2009. An award amount of $124,707 was approved for the first year of the grant, with the secondand last year having amended and approved grant budgets o f $215,764 and $219,824,respectively. These award amounts reflected approved budgets at the end of the each fiscal yearand included approved adjustments to date during their corresponding year.

Concerns were identified when the most recent single audit CPA report for fiscal year end July31, 2008 was submitted by ILCNEKS. The SRS Rehabilitation Services (RS) Director reviewedthe report and it appeared ILCNEKS had received funds for the second grant year which it hadnot spent. According to the grant agreement, all funds reimbursed must represent expensesincurred for the purpose o f the grant. Furthermore, a significant amount o f grant funds werebeing spent for payroll. However annual reports completed by the ILCNEKS indicated few SRScustomers were completing Independent Living (IL) Plans and/or having goals set to achieveindependent living skills. A combination of these concerns led Vocational Rehabilitation (VR)staff to believe duplicate payments may have occurred with other services such as Home andCommunity Based Services (HCBS) and/or Title I funds provided through a provider agreement.

To address the concerns, the Office of Audit and Consulting Services (OACS) was requested toconduct an audit o f ILCNEKS expenses and grant revenues. The following objectives wereestablished by OACS:

1. D i d the ILCNEKS implement internal controls to account for and appropriately use fundsgranted from SRS?

2. D i d the ILCNEKS comply with requirements specified in the grant agreement andapplicable OMB Circulars, laws and regulations?

3. D i d documentation in ILCNEKS client ease files verify the services provided wereaccurately billed and paid through the grant?

To accomplish the objectives, the grant agreement, OMB Circulars, and applicable laws andregulations were reviewed and interpreted. Policies and procedures o f the ILCNEKS were

Final Audit Report — Independent Living Center of Northeast Kansas AuditSRS Office of Audit and Consulting ServicesJanuary 2010

Page 1 of 11

reviewed and interviews were conducted with appropriate staff to determine ILCNEKS controlactivities. Supporting documentation of expenses and revenues pertaining to SRS grant IL 07--804 were reviewed and compared to controls explained i n the policies, procedures, andinterviews. Client case files were reviewed to compare payroll expenses with the amount of timespent by ILCNEKS staff helping consumers achieve their independent living goals. Managementinformation systems were reviewed as available to audit staff to determine i f payments weremade from the grant for other programs. Supporting documentation of the ILCNEKS was alsocompared to requirements identified in the grant agreement, OMB Circulars, and the applicablelaws and regulations to determine i f compliance was achieved. The audit period was October 1,2006 through June 30, 2009.

This audit was performed in accordance with Government Audit Standards (2007 revision), theStandards for the Professional Practice o f Internal Auditing promulgated by the Institute o fInternal Auditors, generally accepted auditing standards, and all other applicable federal andstate regulations and policies. The audit included such tests o f the records and controls asconsidered necessary under the circumstances to establish our conclusions.

AUDIT RESULTS

CONCLUSION

The ILCNEKS had inadequate policies, procedures, and practices to assure grant funds wereaccounted for and appropriately used. The inadequacy existed because the ILCNEKS did nottrack and report expenses incurred for IL grant activities separately from other programsadministered by the organization. Audit staff identified the following conditions as a result:

• SR S was billed for 66.33% of all ILCNEKS staff payroll in Atchison, but the staff didn'tdocument services to support the amount billed.

• Employer share of taxes and fringe benefits were billed to the grant at 39.82%, an amountmuch lower than the payroll amount billed to SRS.

• T e n transactions billed to the grant were for amounts exceeding the actual check amount.• A majority of building rent was billed to the IL grant and not other funding sources.• Th e ILCNEKS President/CEO approved reimbursements for his home office expenses

including long distance, phone and Internet services.

Due to the control weaknesses, noncompliance was identified with the Grant Agreement andOffice o f Management and Budget (OMB) Circular A-122. The noncompliance identifiedincluded inadequate documenting, allocating, and reasonableness of the expenses reported andpaid through the grant.

Based on the documentation available, audit staff verified 4.16% of payroll hours billed to SRSduring the audit period were used to complete individual and consumer (grant) services. Manyof the files reviewed had inadequate documentation to support and track service delivery in theform of individual services, which were distinct from other programs. Likewise with community

Final Audit Report Independent Living Center of Northeast Kansas AuditSRS Office of Audit and Consulting ServicesJanuary 2010

Page 2 of 11

services, documentation was not maintained to support the hours reported on quarterly reportssubmitted to SRS.

Level.-ofRisk

nsac. Ion-__ - --- -

Sae le _..__ „Duri ng Aud it

Period

Total mount- Ile :

S I tS- - -

_Audi t '

Period

Number.

r_ ansaetio

-P aid- Or-, Sampl e

d_

Tr a ns a ct ions

.

Most Payroll 415 $373,020 55 $50,146Taxes 33 $71,169 8 $17,511

Least Other Expenses 233 $66,756 25 $8,485TOTALS 681 $510,945 88 $76,142

As a result, SRS paid $489,870.14 fo r grant services which could not be verified wi thdocumentation, of which $1,158.55 was directly identified as expenses that didn't occur or werenot for the intended purpose of the grant.

FINDINGS AND RECOMMENDATIONS

The following findings are listed by objective. At the end o f the third objective is a sectionregarding the overbilling of grant funds.

Objective 1: Has 1LCNEKS Implemented Internal Controls To Account For AndAppropriately Use Funds Granted From SRS?

To complete this objective, ILCNEKS accounting policies and procedures were reviewed.Interviews were conducted with ILCNEKS staff to identify practices of recording, tracking, andmonitoring expenses for the grant. The policies and procedures were compared with theinterviews to determine i f differences existed.

Additionally, reconciliation was completed to compare all transactions listed on cash expenditurereports (reports submitted by the ILCNEKS for grant payments) with the general ledger,subledgers, and bank statements. Grant expenses were reviewed as two separate categories:

1. Payroll and Taxes2. Other Expenses (All other expenses excluding payroll and taxes)

Detailed testing of a statistical sample of transactions was completed to understand i f ILCNEKSpolicies, procedures, and practices were followed. The following transactions were selectedbased on the level of risk identified by type:

*Level of Risk is based on 11 e comparison of Tested Comparison Type.

From the reconciliation and detailed testing completed, i t was found ILCNEKS policies,procedures, and practices were followed at a rate greater than 90%. Al l expenses reported by theILCNEKS and paid from the grant were tracked to a check number and amount on the generalledger and bank statements.


Page 3 of 11

However, the ILCNEKS did not have sufficient controls for recording, tracking, and reportingexpenditures by funding source or program to ensure only allowed and documented costs werecharged to the grant. The ILCNEKS President/CEO indicated that he was unaware trackingexpenses by program or funding sources was a requirement of the grant. He also indicated thathe was told by SRS program staff that all budgeted funds were to be used. Coincidentally, theILCNEKS President/CEO billed amounts, regardless of actual expenses, to spend all budgetedamounts for each month (based on annual budget divided by 12 months). Fo r example, i fILCNEKS staff payroll was not going to meet the monthly budgeted amount determined at thebeginning of the grant year, than the full gross amount was reported on the Cash Expenditure listsubmitted to SRS for payment. As a result, incorrect and/or excessive amounts were allocatedand paid for grant services that didn't occur.

The improper allocation o f grant expenses occurred primarily for payroll, taxes, and buildingrent. More specifically the following conditions were identified from the testing completed:

• 66.33% of all ILCNEKS staff payroll in the Atchison Office was billed to the IL grant. I twas verified IL staff did not document 66.33% o f their work hours completing grantservices.

• There were 39.82% o f all ILCNEKS taxes and fringe benefits billed to the IL granttaxes/fringe l i ne i tem. According t o th e ILCNEKS President/CEO, employercontributions for Social Security and Medicare were the only taxes allowable for billingto the grant which resulted in an initial finding of taxes. exceeding payroll expenses by76.82%. However, the audit response indicated employer contributions o f Health andWorkman's Compensation insurances were also included on the taxes/fringe line item.Invoices were provided and applied to testing which resulted in the 39.82% rate. Auditstaff was unable to determine why there was a difference between the percentage o ftaxes/fringe and payroll billed to the grant.

• There were 14 of 32 (43.75%) building rental transactions for the Atchison ILCNEKSoffice billed to the grant at nearly 100% the total rental lease amount (within 2%). Theoffice was used for other services administered by the ILCNEKS but i t appeared thosefunding sources were not billed.

• There were ten transactions (seven in payroll and three in other expenses) billed to thegrant for amounts greater than the amount on the General Ledger and Bank Statement.The three transactions resulted in SRS paying $743.16 more than the actual expenseincurred.

The ILCNEKS had established a Billing o f Grants & Contracts Procedure; however, theprocedure did not specify how the expenses were determined by funding source or program.Furthermore, there were no details on how different types of transactions were to be allocatedand billed, such as payroll, taxes, supplies, etc.

The audit testing also identified that the board did not approve reimbursements of expenses tothe ILCNEKS President/CEO. As a result, the ILCNEKS President/CEO was reimbursed$415.39 grant funds between August 2007 and August 2008 for the operation of an office at hishome address. This included reimbursement for internet, phone, and long distances charges. The


Page Ll of 11

reimbursements required a form, approval, and expense receipts. The required form wascompleted and signed approved by the ILCNEKS President/CEO. The ILCNEKS Presidentstated the reimbursements were not billed to the IL grant however no documentation wasprovided to support the claim.

There was one policy not tested by audit staff because, based on the interview with theILCNEKS President/CEO, i t appeared i t wasn't followed. According to the ILCNEKSPresident/CEO, the purchase of office supplies were approved directly and the Wal-Mart creditcard was issued to whichever staff needed supplies. The ILCNEKS Purchase & PaymentProcedure explained how purchases for office necessities were to be handled and indicated ashopping list was to be maintained by the Administrative Specialist for the request o f officenecessities. Because the policy was not followed, ILCNEKS staff could have purchasedunnecessary items without reconciliation to what was requested.

Recommendations:The ILCNEKS should develop controls to address the following:

• Develop procedures and a report for tracking staff hours completed by service or programrelated to the funding source. Staff should record time completed by service or programbased on time increments listed in the procedure.

• Based on the time reported by staff, develop a cost distribution table for all otherexpenses (all expenses excluding payroll and taxes) related to the business. The costdistribution table should deterrnine the amount of expense which can be billed by lineitem to the various funding sources of the organization.

• Report grant expenses based on the payroll time reported by staff and the cost distributiontable for all other expenses. This wil l ensure payroll and other costs (all other thanpayroll) are billed to the funding source for actual work completed.

• Reevaluate the accuracy o f the cost distribution table at least quarterly based on theaverage number of hours being reported by the staff completing various services for eachfunding source. Make adjustments to the table as determined necessary from theevaluations.

• Evaluate and make adjustments accordingly to accounting software and chart of accountsto align with the new practices implemented for recording, tracking, and reporting actualexpenses incurred for actual work completed.

• Wh e n submitting expense statements for payment to the grant, provide informationregarding what percent o f the total expense was billed to the grant. Provide costdistribution tables quarterly to verify the amounts being charged for the upcomingquarter.

Objective 2: Has ILCNEKS Complied With Requirements Specified In The Grant AgreementAnd Applicable OMB Circulars, Laws And Regulations?

Audit staff determined compliance for this objective based on the costs reported and paid. Toevaluate compliance with requirements, the grant agreement was reviewed. Research over theInternet and interviews were conducted to identify other criteria which applied to the grant.

Final Audit Report — Independent Living Center of Northeast Kansas AuditSRS Office of Audit and Consulting ServicesJanuar), 2 0 10

Page 5 of 11

The insufficient policies, procedures, and practices caused the ILCNEKS to be noncompliantwith requirements specified in the grant agreement and OMB Circular A-122.

Specifically, the grant agreement was noncompliant with the following sections:Sedion u t r e n t e n 1 of t

Section 2.4:This section was determined to be partiallyfollowed. The section indicates the requiredreports t o be submitted fo r monitoringpurposes.

Section 4.0:"In no event shall the Grantee be entitled topayments for costs incurred in excess of theamount set forth in this Grant without priorwritten approval o f the Grantor. Unlessmodified by written Amendment, there shallbe no allowance for costs incurred outsidethe Scope of Work set forth in Section 2.0.The Grantee shall only be paid for actualwork performed and services delivered."Section 7.2:"By acceptance o f this Grant, ILCNEKSdeclares and assures tha t n o costs o rexpenditures which have been funded byother federal or state Grant funds have beenduplicated or otherwise included as part o fthe funding request in this Grant."

Section 30.2:"The Grantee shall maintain books, recordsand other documents in such a manner so asto readily identify them directly with thedelivery o f services outlined in the Grantaward."

Monthly and Yearly reports were provided. Therewere 3 quarterly Grant Project Program reportsrequested by audit staff that were not provided bythe ILCNEKS or VR program staff. The quarterlyreports not provided were reports starting January,April, and July 2007. This could be significant inthe monitoring o f service delivery as i t relates toexpenses incurred and reported. Because thereports were not received, expenses could havebeen paid without verifying the delivery o fservices occurred.The ILCNEKS received payment for expenses notrelated to the "work performed". For example,66.33% o f al l sta ff payroll i n Atchison wascharged to the grant but only 4.16% o f theILCNEKS Sta ff work hours during the auditperiod were documented a s util ized fo r I LServices.

There were several log entries in client case fileswhich involved both IL and HCBS activities buttime was not tracked separately. Additionally,66.33% of all staff payroll in Atchison was billedto the IL Grant. However, on the ILCNEKS'smost recent independent CPA report completedand submitted the business' primary source o fincome was for HCBS which was approximately85% of all program service fees.Based on observations of documents reviewed forcontrol testing and service delivery, records anddocuments were not maintained to readily identifythem with the reimbursed expenses for servicedelivery.


Page 6 of I I

Noncompliance was also identified with OMB Circular A-122. Referenced i n the GrantAgreement Exhibit B is the requirement o f the ILCNEKS to adhere to a series o f Code o fFederal Regulations (CFR) and Office o f Management and Budget (OMB) cost principles.Specifically, OMB Circular A-122 is listed and contains cost principles for regulating andreporting costs for non-profit organizations receiving grant funds. The Circular's definitions forallowability o f costs were applied to testing and found not followed by the ILCNEKS withregard to:

1. The reasonableness and allocation of costs billed.2. The adequacy of documentation to support cost.

Recommendations:To address findings of noncompliance with the grant agreement and OMB Circular A-122, theILCNEKS should:

• Review the grant agreement and all applicable laws, regulations, and circulars to verifyand assure compliance is being achieved. I f it appears is not being achieved, reevaluateapplicable policies, procedures, and/or practices to assure compliance will be achieved.

• I f unable to identify applicability of the requirements of compliance criteria, consult withprogram staff who oversees the corresponding funding source.

Objective 3: Does Documentation In ILCNEKS Client Case Files Verifj) The ServicesProvided Were Accurately Billed And Paid Through The Grant?

A major concern of SRS Program Management was the applicability of expenses paid in relationto the actual service delivered to customers. Therefore, services provided by the ILCNEKS wereevaluated and compared with expenses reported to determine i f they documented amounts billedto SRS.

Based on reviewing the grant agreement and research, audit staff identified the ILCNEKS couldhave provided two different types of services:

1. Individual Services - providing services directly to an individual for which a case filewas to be maintained.

2. Community Services — providing services to a group of individuals or in a group settingwhich a case file was not required to be maintained.

These two types of services were tested based on definitions found in 34 CFR Section 364 andthe United States Department of Education Onsite Review Guide (specifically Part One).

Testing of both Individual and Community Services were completed separately and to differentextents based on the availability of documentation. The testing completed verified the servicesoccurred rather than the adequacy of service provided.

For Individual Services, a l ist o f consumers served and contact dates (service dates) wasprovided. Accord ing to the ILCNEKS President/CEO, the provided l ist contained a l lindependent living consumers served by the organization. A random sample was selected from


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the list containing 40 o f the 155 consumers. Al l individual services listed for the sampledconsumers were reviewed which resulted in approximately 166 (of 633) service dates.

Community Services d id not require a consumer fi le to be maintained, so additionaldocumentation was requested to support these activities. According to the ILCNEKSPresident/CEO, staff of the organization maintained community service reports which were usedto complete quarterly Grant Project Program reports submitted to SRS. Both community servicereports and quarterly Grant Project Program reports were requested and provided for testing.

Audit testing was completed based on the concerns identified by VR program staff. Th econcerns were addressed as follows:

Did the consumer file contain an Independent Living (IL) Plan, IL Plan Waiver, or Neither?

There were 2 of the 38 (5.26%) with neither an IL Plan nor an IL Plan Waiver (two of the 40sample were not evaluated for this criterion). This occurred because files were maintained inWichita o r Atchison, depending on the geographic location o f the consumer. A l l fi ledocumentation, according to the ILCNEKS President/CEO, was to be provided to the Atchisonoffice. Fo r the two files identified, the documentation had not been provided to the Atchisonoffice in accordance with the record retention practice.

What was the location (county) of consumers being served through the grant?

According to SRS Program Management the ILCNEKS should have been serving consumers infour counties: Atchison, Brown, Doniphan, and Jackson. There were 13 o f 39 (33.33%)consumers served outside the geographic area desired by program management (one of the 40sampled was not evaluated for this criterion). The ILCNEKS was serving consumers outside thedesired geographical area because the grant agreement indicated they could serve customers inthe State of Kansas.

Did documentation found in the sampled consumer file support the consumer services provided?

There were 160 service dates reviewed to determine i f consumer files verified the IL serviceprovided. There were 40 of 160 (25.00%) of service dates reviewed which could not be verifiedas IL Services. This was caused by the following reasons:

• Documentation logs were not in the file.• H C BS was provided on the date and IL services could not be distinguished as provided.• There was no log entry in the file for the date being reviewed. This would indicate the

service was not provided or the case worker didn't log actions taken.

Does time logged in the consumer case files veri th e expenses incurred and billed to the grant?

To determine the amount of time spent on IL services, there were 122 of 160 service dates usedfrom the sample. For the other 38 of 160 service dates, the time spent completing the IL service

Final Audit Report —Independent Living Center of Northeast Kansas AuditSRS Office of Audit and Consulting ServicesJanuary 2010

Page 8 of 11

could not be determined based on insufficient documentation. For individual services, the timereviewed was summed and extrapolated to the complete consumer service list provided.

• i t Testing-Results t of SerViceTested - 'I nd iv idua l SeieeS-

,iumity- S e ri i i ce s -,

Total Hours CompletingService 692 301

Total Hours Based on 66.33%of Payroll Billed to SRS Grant 23,857Percent of Time Verified asCompleting IL IndividualServices

2.90% 1.26%

Additionally, quarterly Grant Project Program reports were used to verify time spent completingcommunity services. The community services hours listed below are reflective of actual hoursspent completing those services during the audit period.

The following was the result of the time logged for individual and community services:

The table above indicates that SRS was billed for 66.33% of staff payroll at the Atchison office.However, consumer case files and quarterly Grant Project Program reports verified ILCNEKSstaff documented spending 4.16% o f their work hours completing IL grant services. Thisdiscrepancy occurred because:

• There were insufficient controls fo r billing to the funding source for actual workcompleted.

• Documentation was inadequately maintained to verify time spent completing anddistinguishing between IL grant and other funded programs.

• Individual and community service documentation was reviewed infrequently b yILCNEKS Management to verify content and sufficiency.

Was there duplicate billing between the IL grant and other programs with different findingsources administered by the ILCNEKS?

The ILCNEKS also provided a variety of consumer services during the audit period which haddifferent funding sources. Another service provided by the ILCNEKS, and a primary source offunding to the organization, was Home and Community Based Services (HCBS). Billing forHCBS is conducted through an automated system known as Medicaid Management InformationSystem (MMIS).

The consumer sample and service dates were compared to the MMIS to determine i f anyduplicate billing occurred. Based on the documentation available and limited time frameinformation was contained within MMIS, audit staff was unable to verify i f services billed wereduplicated.


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However, audit staff was able to determine i f HCBS was provided on the same date as the ILservice date sampled by reviewing the same date on the MMIS. There were 41 o f the 161(25.47%) IL service dates reviewed where HCBS was also billed on the same date. Furthermore,there were several consumer file logs where HCBS and IL services were logged on the same dateand even the same log entry. On these dates there was higher potential risk that IL Services andHCBS were billed as duplicate.

_ ,de nt ifi e d-R e iS i in o r c t i ar O v er b i l le d A ni i6 ul f : ; ' -',1 :1; : _ :: - ,

Amount..ILCNEKS President/CEO Reimbursements for Home Office $415.39Amount Billed in Excess o f Actual Expense Incurred on Ledger forOther Expenses (seven payroll transaction and three other transaction)

$743.16

Total of Actual Overbilled Expenses $1,158.55

Type of x ensesl e u l a t i O n ofEx t r a p o l a t e d -I l n a l l o w n - .-A m o u n t

Amount_

Total Expenses Paid by SRS to the I L Grantee during AuditPeriod

$511,083.00

Less Actual Over Claimed Expenses Identified Above $1,158,55Sub Total of Expenses Less Actual Over Claimed Expenses $509,924.45Amount Allowable Based on Applying 4.16% of Time VerifiedCompleting IL Individual and Community Services

$21,212.86

Extrapolated Amount of Unallowable Expenses $488,711.59

RecommendationsTo address the findings for consumer services, the ILCNEKS should implement the following:

• Develop procedures fo r identifying and tracking different services and time spentcompleting those services. Within the procedures reference a case log and how theservices will be tracked based on type and amount of time spent. I f the service provideddoes not require a consumer case file, develop an additional log and procedures fortracking and recording time for these types o f services. Train staff on the proceduresdeveloped and use of the logs.

• Sample and review consumer case files and logs at least quarterly to compare the timelogged in the file with the amount recorded on the staff hour tracking reports to determinethe accuracy cost distribution tables and payroll being charged to various fundingsources.

OVERBILLED GRANT FUNDS: BASED ON THE FINDINGS OF OBJECTIVES ONE, TWO, AND THREE

The overbilling of grant funds has been determined based on the service delivery verifiable fromthe case reviews and findings. Some o f overbilled amounts are based on actual amountsidentified by audit staff and the rest is based on extrapolated 'amounts. Below is how theoverbilled funds have been calculated:

Actual Amounts:

Extrapolated Amounts (Does not include actual amounts above):


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The total amount overbilled fo r the I L Grant was $489,870.14 based on findings anddocumentation reviewed for the audit period. The total amount was determined based on the sumof the actual and extrapolated amounts unallowable.

RecommendationsVocational Rehabilitation Services within SRS should take actions to recoup $489,870.14 whichwas the result of the audit findings,

ustin S lerley, Lead Auditor


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M i n d ' Office:

400 N. Woodlawn,Ste 24Wichita, KS 672083 I 6-52/4-6955 WI TY3 16-524-5774 Fax

MISSION STATEMENT

The Mission of theIndependent Living Center47f Northeast Kansas, Inc. •0 to assist people withdisabilities live onintegrated, quality lifewith dignitm respect andindependence,

CORE SERVICES

AdvocacyPeer SupportIndependent Living SkillsTrainingInformation and Referral

Deinstitutionalization

December 3, 2009

- Dustin SherleyLead AuditorSRS Office of Audit and Consulting Services915 SW Harrison, 8th F l o o rTopeka, Ks 66612

Dear Mr..Sherley:

OF NORTHEAST KANSAS, INC.521 Commercial, Suite C • Atchison, KS 66002

913-367-1830 \ M Y • 913-367-1430 Fax

This letter is being written in response to the letter/draft report sent to me byyou with regards to the ILCNEK's State audit of the 2006-2009 Traditionalgrants for Kansas Rehabilitation Services.

The responses below are following the draft Audit Report page by page.Each section identifies, in bold type, the page number and topic heading ofthe draft Audit report for each response.

Page 1 of 11 — IntroductionWe at ILCNEK were confused by the issue raised in this section regardingreports indicated few SRS customers were completing Independent LivingPlans and/or having goals set to achieve independent living skills. At notime has the ILCNEK been aware of any provision of the grant, StateRegulation or Statute which requires a Center for Independent Living (CIL)receiving funds to ensure that a certain number of SRS customers were tobe worked with for achieving IL Skills.

Page 2 of 11 — Audit ResultsSRS was billed for 87.67% of all &MEI< staff payroll in Atchison. We havenot computed the actual percentage, however, we accept this as the axiomfor this response. The ILCNEK designed it's annual grant budget each year(even the years previous to the reviewed period) in accordance with ourunderstanding from the SRS "grant overseers" at the time, which wasCommunity Supports and Services (CSS).

Each budget and budget narrative Was figured, written and submitted toCSS for their review. These budgets included administrative payroll costsas well as for service provision costs and at no time was this questioned byCSS. (More information regarding the ILCNEK's grant budget and how itwas designed is explained in the "Other Items/Issues" section of thisresponse letter.)

Page 1 of 9

Staff payroll was billed for gross amount and not net. When I, Ken Giffordstarted working for ILCNEK in 2002 I had a several discussions with theCSS representative at the time on how the grant dollars were to be billed byILCNEK and how SRS would pay this. One area covered was whetherbilling for payroll was done based on "gross pay" or by "net pay" and it wastold to me that it is always based on the "gross pay" since that is the totalamount of actual wages received by the staff member for the time period.So, with this information, ILCNEK has typically based the staff payroll billingbased on the "gross pay" and not the net.

Employer taxes billed were charged at 76.82% more than payroll amounts. Iam unsure of how this conclusion was come to when the amounts billedwere within the grant budget broken down for payroll. The amounts billedwere generally based on a 1112th fi g u r e o f t h e t o t a l f o r t h e l i n e i t e m a m o un t

listed in the grant as was explained to do by SRS staff.

Three transactions billed to the grant were for amounts exceeding the actualcheck amount. I requested the information on this. This is cOrrect. Theseare outlined below.

August, 2007 to AT&T $482 was billed on the grant but bill was only$251April, 2008 to Westar Energy $46 was billed on the grant but bill wasonly $37.47May, 2009 to AT&T $479 was billed on the grant but bill was only$456.75

I am unable to explain why this happened outside of the fact that a humanerror was made. At no time was ILCNEK trying to bilk the State of Kansasout of any money on these items.

A majority of building rent was billed to the IL grant and not other fundingsources. This is an issue of "understanding" for ILCNEK. Prior to grant year2006/2007 ILCNEK's grant allotment was $25,940 each year. Theunderstanding that was had by myself originally upon beginning work withILCNEK was that the grant dollars were "up front" dollars for services andnot "reimbursement" dollars. According to my understanding ofconversations with CSS originally, ILCNEK would set the amount of rent andthen bill it at a rate of 11121h e a c h m o n t h .

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Beginning with the 2006/2007 grant year, when ILCNEK was preparing itsgrant budget for submission this was a question we asked of CSS as to howwe would be allowed to spend the increase in funds (change was from$25,940 to $124,707) and we were told to do the best we could. I diddiscuss the fact that since a majority of the ILCNEK's building expenseswere basically low this would create a problem. As it was told to me wecould charge the building costs to the grant which would not be a problem.

Page 5 of 11 — Audit ResultsThe audit testing also identified that the board did not approvereimbursement of expenses to the ILCENKS President/CEO.The ILCNEK Board of Directors and myself In an executive session of aBoard meeting discussed and made decisions on Issues related to this in2007.The reason the reimbursements were made was based on the fact that therewas not sufficient office space within the ILCNEK office for staff to work andto also meet with consumers. So, it was determined that the President/CEOwould find a new place to live, then office out of his home and use thebasement area as storage for ILCNEK's medical equipment loan and alsoother items which could not currently be stored in the office itself. Thenthere would need to be an added phone line and Internet service for theILCNEK office within his home,

When I researched having an ILCNEK line extension and Internet added tomy house the cost was to be right over $125 per month. In discussions Ihad with the Board on this [proposed that I could add a second line to myprimary line (913-367-8437)_for only $8.00 more than I was paying. Thesecondary line (913-367-3709) would be added. The long-distance chargeon the original service for (913-367-8437) was $20.00 per month forunlimited long-distance calling. When the second line (913-367-3709) wasadded the $20.00 remained the same yet was split by the two phone lines byAT&T. The internet was added at the time due to the fact that I was theprimary Medicaid biller for the ILCENK and had to have high-speed accessin which to do so.. The Internet was added to the 913-367-3709 phonenumber (which was for ILONEK) and not my personal primary phone line. Ialways maintained my primary and secondary lines separately and used apersonal laptop computer for my personal dial-up access to the Internet onmy primary line.

The reimbursement forms for this were not signed by a Board member,however the amount of reimbursement never affected the amount billed onthe Traditional Grant,

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Page 5 of 11 — Audit ResultsW a l-M a rt c re di t card issue.

The way ILCNEK has handled it's supplies purchases is as follows:Staff members inform the administrative specialist or President/CEO of any -needed supplies. These are usually kept on a scrap paper, we use as ashopping list. A majority of the time the President/CEO has made thepurchases necessary, not other staff members. Staff members on occasiondo make these purchases using the Wal-Mart credit card if the needed itemis available at Wal-Mart. •A review of the three (3) years worth of receipts shows that over 96% of thetime the purchases were made by the President/CEO not staff.

ILCNEK has never at any time had anyone go and frivolously purchasesupplies on a "just because" reason. We assume it is a matter ofinterpretation, but ILCNEK follows it's policy on the purchasing of supplies.

Page 5 of 11 — RecommendationsThe ILCNEK is currently working to develop these recommended changesas well as instituting other changes as well.

Page 7 of 11 — RecommendationsILLNEK is currently in the process of reviewing all items listed in the currentgrant unsigned grant agreement to ensure compliance with all items. ADquestions regarding the applicability of the requirements and the process tofollow these will be addressed with KRS staff.

Page 7 of 11 — Definitions of ServicesThe definitions of individual Services and Community Services is at issuehere. ILCNEK will agree that Individual Services are provided directly to anindividual. However, we disagree with the definition, as we have alwaysunderstood it, of "Community Services".

The ILCNEK has always understood that "Community Services" are servicesprovided to the community as a whole, such as accessibility technicalassistance, maintaining registries, accessibility advocacy, providing disabilityawareness/sensitivity training, etc. are what "Community Services" are to be.At no point in time, to our knowledge, has SRS' divisions of CSS or KRSprovided a US Department of Education Onsite Review Guide (specificallyPart One) to ILCNEK at any time prior to or during the first two and a quarteryears of the reviewed grant period. Just for clarification, at no time prior to2006 was this Review Guide ever presented to ILCNEK for review, nor wasany indication made that we were to obtain a copy for our records.

Page 4 of 9

Page 8 of 11 — Did the consumer -file contain an IL PlanThe statement that 2 of 38 did not have an IL Plan nor an IL Plan Waiver isInaccurate. I requested from SRS Office of Audit and Consulting the namesof the consumers where these was the case. One is accurate and does notcontain neither an ILP nor an 1LP Waiver, however the other identified file isthat of a Casual Consumer and according to our understanding of FederalRegulations does not require an ILP nor an ILP Waiver. ILCNEK will requestfurther clarification on this from KRS.

Page 8 of 11 — What was the location of consumers servedWe are unsure how to respond to this as we are not sure if this is a criticismor just -a s t at e me n t that we did what was appropriate through the grant.

Page 8 of 11 — Did documentation found in the sampled consumer filesupport the consumer service providedWe have a major concern over the statements made as to the findings underthis item. Our primary concern is that at no point before this audit was any1LCNEK staff member asked on how the files were maintained nor howdocumentation was recorded,

Another concern is that the individuals who did the reviewing of the filesactually have no CIL/Independent Living Services experience to differentiatein certain directions when a service is more than just what it appears to beon the surface by reading the consumer logs. A good example of this couldbe that a consumer who is under an HCBS Waiver could have also receivedother IL Services which are not chargeable to the HCBS Waiver but thiswould have been in the log notes yet not discernable by the reviewers.

An issue here is that, each OIL funded within the State of Kansas has had tomake its own determination as to how to count the service(s) beingprovided. Not all services provided to a consumer at a time are singularlycountable to only one funding source and since there were no set guidelinesILCNEK had no choice but to established our own.

Also, there are still many questions that not only ILCNEK, but other KansasCiLs have regarding when a service is considered "Traditional Grant" andwhen it is considered "Other Funding" (specifically referring to potentialHCBS services) which have currently not been addressed by KRS withKansas ClLs.

Page 5 of 9

Page 9 of 11 — Does time logged in the consumer case files verify theexpenses incurred and billedOne issue we have on this section is regarding "Community Services'.Again, there is the definition difference of what is a "Community Service".Outside of this issue, when asked by Office of Audits and Consulting forinformation on IL.C1SJEK's Community Services we sent exactly what we wereasked for... "a sample" not 100% of the complete information. We believethat this causes an issue as there is a amount of time discrepancy betweenwhat Office of Audits and Consulting looked at and what ILCNEK hascompletely for these 3 years.

Another issue is the fact that an "extrapolation" is used to determine theamount of time ILCNEK staff actually performed grant type services. Theextrapolation indicates an idea that all consumer services and time spent onservices would be generally the same. This is an unfair assumption, at best.

This extrapolation would have us to believe that service provision is an"assembly line" type•of work (1 consumer = 1 service = 1 unit of timeequally). Out of the total amount of service hours and the total amount ofservices provided by ILCNEK there. could be consumers who received moreservices that are grant geared than are accounted for in the extrapolationsample. To state that only 3.15% of the total time spent by ILCNEK staff ongrant types services without a 100% review of all consumer files is wrongand completely unfair to the ILCNEK in this review.

Page 9/10 of 11 — Was there duplicate billing between the IL grant andother programs with different funding sourcesThere was never an intention on ILCNEK's part to "duplicate bill" anyservices provided to any consumer. We refer back to the isSue raisedearlier in this response that our understanding of the grant funding fromSRS/CSS is now apparently, to us, different than the understanding we havewith SRS/KRS.

Page 10 of 11 — RecommendationsThe ILCNEK is currently working to develop these recommended changesas well as instituting other changes as well.

Page 10/11 of 11 — Overbilled Grant Funds: Based on the findings ofObjectivesWe do not agree with the amounts in the chart of "Identified Reasons forActual Overbilled Amount" due to several reasons.

Page 6 of 9

The first reason we disagree is that at no time has there ever been an •identification of there not being the possibility of "cross-over" in funding for aconsumer due to the fact that some consumers who could be HCBSMedicaid consumers would start services with us without actually havingtheir services covered by Medicaid.

Secondly, it has always been our understanding that payroll checks chargedwere to be at gross not net amounts.

Thirdly, the ILCNEK President/CEO reimbursement should not be taken intoconsideration in this as it has absolutely no bearing on this audit at all.

Fourthly, the computation of 87.67% regarding taxes is not accurate as the"fringe and benefits" in the ILLNEK's annual grant budget narrativeexplained that items covered were Medicare, Social Security, HealthInsurance and Workers Compensation. This is clearly outlined and, at thetime, approved by SRS as part of the ILCNEK's Traditional Grant budget.

ILCNEK does not dispute that an amount of $261.77 was overbilled duringthe 3 year period on utilities for the ILCNEK. This is referenced earlier inthis response.

Page 11 of 11 'RecommendationsWe, the ILCNEK, completely disagree with the recommendation of arecoupment of $497,054.54 for the following reasons:

1. This amount is in error due to the fact that how it was arrived at byerror in the auditors understanding of how payroll is billed to thegrant.

2. The use of an extrapolation based on a minimal percentage ofconsumer service records is at best an unreliable way to determinewhat the ILCNEK did or did not do for the grant dollars.

3. The SRS/KRS has never presented to ILCNEK, nor to our knowledgeany other Kansas OIL, a manual detailing the specific items to becharged to the grant (i.e. gross vs. net pay, consumer service typesthat have no original funding yet become another funding sourcelater, etc.).

4. The fact that each annual budget, and then monthly billing statement,was approved and paid by SRS/KRS.

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OTHER ITEMS/ISSUES:As mentioned earlier in this response the ILCNEK has always had anunderstanding that the Traditional Grant was "up-front" dollars as opposed to"reimbursement type" dollars. Many times during the course of the time thegrants were overseen by Community Supports and Services (CSS) when aquestion was raised regarding how ILCNEK would be paid for certainservices which were for Medicaid consumers, but not reimbursed byMedicaid, we were told "this is why you receive your grant". A goodexample of this is when case managers were Independent LivingCounselors as opposed to currently being Targeted Case Managers. At thetime they were "Counselors" ILCNEK counted the time to do initialassessments on consumers as these initial assessments were not paid forby Medicaid.

In the budget narratives for the Traditional grant each year it specified eachposition to be paid under the grant as well as what the employer share oftaxes and benefits were. These taxes/benefits were the employer's share ofSocial Security and Medicare taxes, workman's compensation Insuranceand also health insurance. At no time was this questioned or rejected byCSS nor by KRS when these grant budget narratives were submitted.Therefore the above items of taxes and benefits were charged to the grantas listed in each approved budget.

We have contacted other Kansas CILs to inquire as to how they are doingsome of the things mentioned in the report. Our understanding from theseother CILs is basically the same as ours. Which then bring into question forus whether or not Kansas CiLs have a different understanding on some ofthe issues raised than what the State understands is, since there has neverbeen a manual/guideline set down by the state on how to do, and not do,things mentioned in this report.

An issue with this audit which is of great concern to ILONEK is that theauditors who did both the financial and services records reviewing have avery limited understanding of CU much less how the ILCNEK conductedit's business. An important part of this is that on the day the consumerrecords were to be reviewed at no time was a "scope of the review"discussed with any ILCNEK staff member. Also, no questions were askedas to how ILCNEK maintained it's consumer files was asked until nearly five(5) hours after the reviewers started their process. The question asked wasbased on how our "intake form" worked. This is of grave concern becausewithout an understanding of how the ILCNEK maintains and documents inconsumer files how could these reviewers accurately review these without

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making their own assumptions as to how our files are kept and how ILCNEKstaff do or do not log items in these files.

As stated before, ILCNEK had always been under the understanding thatthe Traditional Grant funds were "up-front" dollars and not "reimbursement"dollars. A good example of this is when SRS did the makeup of over $4,000to ILCNEK with SSR funds to replace the match that was lost due to the lossof Title I funds. We were told by CSS to spend the money any way weneeded to on supplies or equipment so long as the money was spent.

Thanluou for the opportunity to respond to this audit report.

Ken GiffordPresident/CEO

7:2?

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Documents

KANSAS Mark Parkinson, Governor Don Jordon, Secretory ...media.khi.org/news/documents/2012/02/13/ILCNEK_Final_Audit_Rep… · AND REHABILITATION SERVICES January 8, 2010 Re: Final