Summary Report on Nationwide Audit of Training Contract and Administrative Costs Charged to Department of Health and Human Services Supported Programs

EXECUTIVE SUMMARY:

This report provides a summary of the results of our nationwide audit of training contract and administrative costs charged to the Department of Health and Human Services supported programs in the States of New York, Illinois, California, Missouri, Oklahoma, Florida and New Jersey. Collectively, these States claimed approximately $310 million in training costs during the audit periods.

The primary objective of the audits performed in the States other than New York was to determine if some or all of the conditions found during our earlier reviews of training practices in New York, including those reported under Common Identification Number: A-02-93-02006, also existed in other States. Specifically, the audit objectives were to determine if:

• Contract training costs and related administrative expenses were properly allocated between Federal participating (FP) and Federal non-participating (FNP) programs.

• Administrative costs applicable to title IV-E training activities were claimed at the correct Federal financial participation (FFP) rate (i.e. 50 percent versus 75 percent).

• Contract training costs were claimed at the appropriate FFP rate.

• Training contractors were able to document costs claimed, including their matching share.

• Third party in-kind contributions were used to meet the State's share of training costs.

• Revenue received from training activities was accounted for in accordance with applicable Federal regulations.

In New York, the primary objective was to provide audit assistance to the Division of Cost Allocation (DCA) in verifying that the New York State Department of Social Services (NYSDSS) did not allocate training contract and administrative costs between FP and FNP programs. This information would then be taken into consideration during DCA'S negotiations with NYSDSS to resolve this issue.

Our audits determined that:

• In five States (New York, Illinois, California, Missouri and Oklahoma), training contract and administrative costs were not allocated to all benefitting programs. New York did not equitably charge training contract and administrative costs to the Federal titles IV-A, IV-E and XIX programs because it did not allocate costs between FP and FNP programs. In the remaining four States, we found that title IV-E training costs were not equitably allocated between FP and FNP programs. In total, we calculated that $49,360,836 ($33,264,270 Federal share) charged to Federal programs should have been allocated to FNP programs.

• In five States (Illinois, Florida, Oklahoma, Missouri and New Jersey), title IV-E foster parent recruitment and administrative costs were claimed at the enhanced FFP rate of 75 percent, rather than the allowable rate of 50 percent. As a result, the States' claims were overstated by $5,937,263 ($1,484,316 Federal share) for Federal reimbursement.

• In Illinois, training costs claimed by universities included unallowable and unsupported expenses totaling $1,740,719 ($1,305,539 Federal share).

• In two States (Florida and California), $997,850 ($672,999 Federal share) of third party in-kind contributions used as the State's share of training costs did not meet the definition of allowable costs under State and Federal criteria. In addition, in California we have classified $1,333,690 ($725,960 Federal share) of expenses as unresolved costs because of conflicting Regional and Headquarters Administration for Children and Families policy regarding the allowability of third party contributions for meeting the State's matching requirements.

• In Florida, the State's accounting records reflected $148,627 less in training costs than the amount which was claimed to the Federal Government. In Illinois, lease costs of $36,450 were inadvertently allocated to the title IV-E program. In Oklahoma, $708 of a dependent care grant was incorrectly charged to titles IV-E and XIX training. In total, the Federal Government was overbilled by $139,276.

• In New Jersey, training costs were not offset by revenue earned from training activities. We did not recommend a financial adjustment because, during the audit period, the State did not include allowable training costs in excess of the amount overstated in the computation of amounts eligible for FFP. In Missouri, the State's cost allocation plan (CAP) allocated training costs only to Foster Care programs even though other programs such as Emergency Assistance benefitted. We did not identify or quantify any potential excess FFP received by the State because these training costs were claimed under an approved CAP. In Illinois, indirect cost rates for two universities were not reviewed by the State agency to ensure that the rates were developed in accordance with Federal cost principles. We did not recommend a financial adjustment because the propriety of the universities' indirect cost rates was not included in the scope of the review.

Overall, we found improper practices for identifying and charging training and administrative costs existed to some extent in all seven States reviewed. As a result, we have recommended financial adjustments totaling $58,222,453 ($36,866,400 Federal share).

The Assistant Secretary for Management and Budget (ASMB) has been assigned the responsibility to negotiate all public assistance CAPs through which all administrative costs (direct and indirect) are normally charged to Federal programs. This responsibility also includes resolution of all government-wide accounting issues that impact public assistance programs, such as those identified in this report. Therefore, we recommend that the ASMB advise other entities involved in administering training contracts of the conditions found in this review. We also recommend that the ASMB coordinate efforts to periodically review future training expenditures claimed by the States to ensure that they continue to adhere to regulations governing the allocation and claiming of training costs.

In responding to our draft audit report, ASMB was in substantial agreement with the findings in the report and offered comments and corrective actions it anticipated taking in the future. In addition, ASMB fully concurred with our recommendations and indicated it would take appropriate action to not only notify operating agencies of the findings in the report but also coordinate efforts to periodically review future training expenditures.