Audit of Training Contract Costs Claimed for Federal Reimbursement by the Washington State Department of Social and Health Services

EXECUTIVE SUMMARY:

This report presents the results of our audit of training contract costs claimed for Federal reimbursement by the Washington State Department of Social and Health Services. The training was provided to State employees with responsibilities in the social and health service areas to provide the staff with the necessary skills to accomplish the objectives of the various programs administered by the Department. Although many training needs were met through internal resources, a substantial amount of training was obtained through contracts with outside organizations such as educational institutions and independent contractors.

Our objective was to determine if training contract costs claimed by the Department of Social and Health Services for Federal reimbursement were allowable under Federal regulations and policies. Specifically, we wanted to determine if the State:

• claimed third-party contributions as the State's required matching share of training contract costs only as allowed by Federal regulations,
  

• adequately documented and supported the matching share of training contract costs claimed for Federal reimbursement, and
  

• appropriately allocated training contract costs between federally participating and nonparticipating programs.
  

The Department of Social and Health Services claimed Federal reimbursement of $5.6 million for unallowable costs relating to staff training contracts with performance periods during the period July 1, 1989 through June 30, 1995. The unallowable costs related to six contracts with Western Washington University (WWU), which was the largest external resource utilized for the staff training during our audit period. We found that the State (i) used unallowable third-party contributions to meet the matching requirements under certain Federal programs, (ii) claimed costs for WWU employees in excess of actual costs incurred, (iii) claimed unallowable costs for facilities, equipment, and other miscellaneous items, and (iv) did not always properly allocate training costs between federally participating and nonparticipating programs.

We are recommending that the Department of Social and Health Services implement various procedural changes and improvements to ensure that unallowable costs are not claimed for Federal reimbursement under staff training contracts, and that the State refund $5,627,391 to the Federal Government. We are also recommending that the State determine the amount of third-party contributions inappropriately claimed subsequent to our audit period and make a financial adjustment to refund the additional amounts overclaimed.

In response to the draft report, Department of Social and Health Services officials agreed to refund $1,287,158, and disagreed with recommendations for refunding the balance of $4,340,233. The agreed-on amounts included $53,818 of unallowable third-party in-kind contributions; $1,002,109 of overclaimed employee costs; $189,983 of overclaimed or duplicated costs for space, equipment and administration; and, $41,248 of improperly allocated costs. The disagreed-on amount represents recommended refunds for unallowable third-party in-kind contributions. The State officials disagreed with the procedural recommendations in the report involving third-party in-kind contributions except for the recommendations involving the Refugee Resettlement program. The State officials also did not agree with our recommendation for identifying and refunding third-party contributions inappropriately claimed subsequent to our audit period. The basis for disagreement was generally the interpretation of the provisions of Federal regulations and other criteria for the various Federal programs included in the audit.

We have summarized the Department of Social and Health Services comments and the Office of Audit Services response to those comments, as appropriate, after each finding discussed in the report.