Washington State Auditors Office

Accountability Audit Report

Department of Social and Health Services

Audit Period July 1, 2006 through June 30, 2007 Report No. 6761

Issue Date June 2, 2008

Washington State Auditor Brian Sonntag

June 2, 2008

Robin Arnold-Williams, Secretary Department of Social and Health Services

Report on Accountability
Please find attached our report on the Department of Social and Health Services accountability and compliance with state laws and regulations and its own policies and procedures. We also perform an annual audit of the statewide basic financial statements as required by state law (RCW 43.09.310). We also annually audit federal programs administered by the state of Washington for compliance with federal laws and regulations. The results of these audits are published in reports issued by the Office of Financial Management. Sincerely,

BRIAN SONNTAG, CGFM STATE AUDITOR

Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388 FAX (360) 753-0646 http://www.sao.wa.gov

Table of Contents
State of Washington Department of Social and Health Services
Audit Summary.............................................................................................................................................. 1 Description of the Department ...................................................................................................................... 3 Audit Areas Examined................................................................................................................................... 4 Schedule of Audit Findings and Responses ................................................................................................. 6 Status of Prior Audit Findings...................................................................................................................... 22

Audit Summary
State of Washington Department of Social and Health Services ABOUT THE AUDIT
This report contains the results of our independent accountability audit of the Department of Social and Health Services for the period from July 1, 2006, through June 30, 2007. We evaluated internal controls and performed audit procedures on the financial activities of the Department. We also determined whether the Department complied with state laws and regulations and its own policies and procedures. Our work focused on specific areas that have potential for noncompliance, misappropriation or misuse of public resources.

RESULTS
In most areas, the Department complied with state laws and regulations and its own policies and procedures. However, we identified conditions significant enough to report as findings: The Department does not have adequate controls to ensure all payments through its Social Services Payment System are supported and approved. The Department does not adequately monitor contracts with Crisis Residential Centers to ensure compliance with state law and contract requirements. The Department did not perform adequate monitoring for background checks of foster care providers. Public funds were misappropriated at the Departments Division of Child Support. We

We also noted certain matters that we communicated to Department management. appreciate the Departments commitment to resolving those matters.

RELATED REPORTS
Our opinion on the state of Washingtons basic financial statements is included in the states Comprehensive Annual Financial Report. That report is issued by the Office of Financial Management in December of each year. In accordance with the Single Audit Act, we annually audit major federal programs administered by the state of Washington. Rather than perform a single audit of each agency, we audit the state as a whole. The results of that audit are published in a report issued by the Office of Financial Management. As a result of the federal audit work performed at the Department, we identified 11 conditions significant enough to report as federal findings: eight issues related to the Medicaid program and three related to various other federal programs. The details of these findings, as well as the

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status of the Departments prior federal findings, were published in a report issued by the state Office of Financial Management on March 31, 2008. A link to this report can be found on our Web site. During the audit period, we issued 17 reports pursuant to the State Employee Whistleblower Act (RCW 42.40) which are available on our Web site. The Department was also one of 30 government entities included in a performance audit of Open Public Records Practices. That report can be found on our Web site.

CLOSING REMARKS
We appreciate the Departments attention to resolving prior audit issues and its commitment to addressing conditions reported in this audit. We also thank Department management and personnel for their assistance and cooperation throughout the audit.

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Description of the Department

State of Washington Department of Social and Health Services ABOUT THE DEPARTMENT
The mission of the Department of Social and Health Services is to improve the quality of life for individuals and families in need. The Department works to help people achieve safe, self-sufficient, healthy and secure lives. The Department spends over $9 billion a year, which represents approximately one-third of the state budget, and has more than 18,000 employees. Department resources, most of which flow through the General Fund, are composed of approximately 49 percent federal funds, 46 percent state funds and 5 percent other sources. Based on the most recent data available, every two years the Department serves one in three state residents (or approximately 2.1 million people) and three of every five children in the state. The Department is divided into five administrations plus centralized services: Juvenile Rehabilitation, Health and Recovery Services, Economic Services, Aging and Disability Services and Childrens Services. The Health and Recovery Services Administration, which includes the Medicaid Program, accounts for over half of the Departments total budget.

AUDIT HISTORY
We audit the Department annually. During the past five audits we reported several areas of concern. Below we have listed the number of total findings in each year. In addition, we audit several federal programs, including Medicaid, at the Department annually. Audit findings related to those programs can be found in the annual Single Audit Reports, which are issued by the Office of Financial Management. Links to those reports can be found on our Web site. Number of Accountability Findings 4 1 3 4 4 Number of Federal Findings Medicaid 10 22 26 18 8 Number of Federal Findings other than Medicaid 5 18 18 12 3

Fiscal Year 2003 2004 2005 2006 2007

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Audit Areas Examined

State of Washington Department of Social and Health Services
In keeping with general auditing practices, we do not examine every portion of the Department of Social and Health Services' financial activities during each audit. The areas examined were those representing the highest risk of noncompliance, misappropriation or misuse. The following areas were examined during this audit period:

ACCOUNTABILITY
We evaluated the Departments accountability and compliance with certain state laws and regulations and its own policies in the following areas: Payments to clients and providers Contracts and agreements Background checks Local funds Agency Financial Reporting System access controls Computer system review Social Service Payment System

FINANCIAL
We perform an annual audit of the statewide basic financial statements as required by state law (RCW 43.09.310). These financial statements are included in the Comprehensive Annual Financial Report (CAFR) prepared by and available from the Office of Financial Management. The CAFR reflects the financial activities of all funds, organizations, institutions, agencies, departments and offices that are part of the state's reporting entity. We tested the Departments account balances and financial activity related to: Due from other governments Human services operating grants and contributions Federal grants in aid Human services

FEDERAL PROGRAMS
Federal grant audit work is performed on a statewide basis, in accordance with the revised Single Audit Act. We select federal programs for audit using risk-based criteria set forth in the U.S. Office of Management and Budget Circular A-133.

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We evaluated internal controls and tested compliance with federal requirements, as applicable, for the following major federal programs at the Department: Food Stamps Cluster Grants CFDA 10.551 and 10.561 Vocational Rehabilitation-Basic CFDA 84.126 Temporary Assistance for Needy Families CFDA 93.558 Child Care Cluster Grants CFDA 93.575 and 93.596* * Administered by the Department of Early Learning Child Support Enforcement CFDA 93.563 Social Services Block Grant CFDA 93.667 Medicaid Cluster Grants CFDA 93.775, 93.777 and 93.778 Block Grant for Prevention and Treatment of Substance Abuse CFDA 93.959 Social Security Disability Insurance CFDA 96.001 and 96.006

Our work also included a centralized review of the Departments Cash Management, Cost Allocation and Random Moment Time Study (RMTS) processes. For RMTS this year, we focused on the Economic Services Administration.

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Schedule of Audit Findings and Responses

State of Washington Department of Social and Health Services
1. The Department of Social and Health Services does not have adequate controls to ensure all payments made through its Social Services Payment System are supported and approved. Background
The Department developed the Social Services Payment System (SSPS) to provide authorization and payment processing for more than $1 billion in services delivered to clients each year. This system is used by the Economic Services, Aging and Disability Services, Health and Recovery Services, Juvenile Rehabilitation and Children's administrations. Approximately 3,800 caseworkers across the state use the system to authorize payments to over 109,000 providers of services to more than 210,000 clients. During our fiscal years 2005 and 2006 audits, we reported control weaknesses in the provider payment process. We identified inappropriate payments totaling $116,912.17 in fiscal year 2005 and $66,079.42 in fiscal year 2006.

Description of Condition
The Department pays providers on an invoiced or noninvoiced basis. For invoiced payments, providers approve or change the invoices and return the information to the Department by interactive voice system or mail. Noninvoiced payments are authorized for a specific time period and paid monthly to the provider. The Department contracts with a private company to manage the data for the SSPS system. The company performs tests on SSPS data to identify inappropriate payments and annually sends reports to SSPS data analysts who validate the accuracy of the payment data. The analysts take a random sample of the transactions and research them to determine if they are valid. If most of the random sample proves to be inappropriate, the data file is sent back to the company, which forwards the invalid payment data to the Office of Financial Recovery (OFR). OFR sends out notifications of overpayment to individual providers. The Department relies on these controls, rather than preventative controls, to identify inappropriate payments. To follow up on the weaknesses previously identified, we selected certain transactions from SSPS for review.

Cause of Condition
The different methods of paying providers coupled with a lack of preventative controls increases the risk of inappropriate payments. The controls the Department relies on do not identify all potentially inappropriate payments. Money processed through the system is susceptible to loss because the Department cannot identify duplicate payments to providers in a timely manner.

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Effect of Condition
We selected 644 potentially inappropriate payments based on risk factors as follows: Multiple payments made to the same provider for the same client at the same time and amount. Multiple payments made to the same provider for the same client at the same time with differing amounts. Multiple manual override payments made to the same provider for the same client at the same time and amount. Multiple payments made to different providers for the same client at the same time for the same service.

We then reviewed support for these payments, which included transactions for the Childrens, Aging and Disability Services and Economic Services. We found: Number of transactions tested 99 215 304 26 644 Number of inappropriate payments 32 36 45 2 115 Dollar amount of overpayment identified $27,030.57 $47,453.84 $12,102.33 $1,643.68 $88,230.42

Administration Childrens Aging and Disability Services Economic Services Other Total

We found the Department made $88,230.42 in inappropriate payments to 115 clients and providers. The Department had identified 28 of these through its review process and our audit identified the remaining 87. The Department has begun recovery proceedings for 110 of the overpayments identified. The overpayments were a combination of state and federal dollars.

Recommendation
We recommend the Department: Strengthen reviews of SSPS payments to help prevent future overpayments. Continue collecting on overpayments identified during the audit. Consult with grantors to determine if funds used for inappropriate payments should be repaid to the federal government.

Departments Response
Childrens Administration (CA) We concur with the finding in that CA does not have adequate controls to prevent all potential inappropriate payments, but we do not agree that the department lacks preventative controls to identify inappropriate payments. Preventive controls that require a structured approval process and positions specifically created to provide segregation of duties exist to strengthen controls over payments made to providers.

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CAs new case management system, FamLink, which comes on-line in December of 2008, will add significant controls to our payments processes. All approvals of payments will occur in FamLink, where the record of the approval will be retained. In addition, FamLink will prevent many duplicate payments by assuring there is only one payment for a specific child for a specific time period for services such as foster care. CA has a process in place to adjust federal claims for inappropriate payments and utilized this process for each overpayment when it was identified. CA will work with the Payment Review Program to ensure algorithms used are sufficient to capture the types of overpayments identified in the review and consider increasing the frequency of running them. Aging and Disability Services Administration (ADSA) ADSA concurs with the auditors findings, and will respond as recommended: ADSA will continue to provide staff training, supervisory overview, and quality review of payment procedures used in the field. ADSA established overpayments on all outstanding duplicate payments and DSHS is pursuing recovery. The Department will consult with the U.S. Department of Health and Human Services in determining if any of the Questioned Costs are unallowable and should be repaid.

Economic Services Administration (ESA) We concur with the finding that the systems currently in place do not identify all potentially inappropriate payments. We do use the following practices and procedures to identify erroneous SSPS authorizations and payments in a timely manner: Conduct mandatory supervisory audits of 1% of worker authorizations, Conduct routine and regular case reviews at the local office level, and Use the services of the Payment Review Program (PRP) contractor to run multiple algorithms designed to identify child care payment errors. The algorithms used to identify duplicate child care payments, is run on a regular basis.

As a result of a similar finding in the 2007 Statewide Single Audit Report, ESA has implemented or is in the process of implementing additional initiatives to further improve the authorization and payment monitoring processes. These initiatives, identified below, will also address the duplicate payment issue identified in this audit. Using information from the Federal Improper Payment Information Act audits conducted by the Quality Assurance Unit as a baseline for determining future Working Connections Child Care audit areas and training needs. Creating a Child Care Review Panel that meets monthly to review and assess child care authorization and payment errors through a root cause analysis to reduce and prevent future errors.

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Conducting monthly meetings for the headquarters Childcare Manager and the regional Child Care Coordinators to improve communication, share best practices, and identify and resolve issues. The committee will work on establishing guidelines and requirements for field staff by August 2008, on identified childcare payment reports.

The Community Services Division established overpayments on outstanding duplicate payments and DSHS is pursuing recovery.

Auditors Remarks
We thank the Departments administrations for their responses and attention to addressing the conditions noted. We will review the status of these issues during our next audit.

Applicable Laws and Regulations

The Office of Financial Managements State Administrative and Accounting Manual, Section 20.20.20.a, states: Each agency director is responsible for establishing and maintaining an effective system of internal control throughout the agency.

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Schedule of Audit Findings and Responses

State of Washington Department of Social and Health Services
2. The Department of Social and Health Services does not adequately monitor contracts with Crisis Residential Centers to ensure compliance with state law and contract requirements. Background
State law requires the Department to establish, through contracts with private or public vendors, secure and semi-secure regional Crisis Residential Centers to provide safe, temporary housing for runaway and other at-risk youth who may be involved in family or home conflict. In addition to providing temporary shelter, the Centers are to counsel and support juveniles admitted to the Centers and work toward reconciliation with the family so the juvenile may return home. Nine Secure Crisis Residential Centers (SCRC) and seven regional Crisis Residential Centers (CRC) are licensed by the Department and subject to Department rules. The Department pays the Centers a per-bed, per-day fee regardless of the number of residents in the Centers. The number of beds, or slots, varies by Center. Slot payments are made to ensure services are available when needed. The contracts require the Centers to provide the Department with a monthly report on the number of juveniles they admit and the duration of their stay. These reports are to be sent to the Departments Childrens Administration headquarters; however, contract payments are made by the Departments regional offices. The Department paid approximately $6.7 million to these Centers in fiscal year 2007. Under state law, youth admitted to the Centers are not to remain in them for more than five consecutive days. If certain criteria are met, documented and approved, the five-day limit may be extended; however, space must be available and any other juvenile needing the temporary shelter is to have priority over the proposed extension. State law also prohibits the Department from paying for services rendered to a juvenile admitted to a SCRC for more than five days. Contract language for both SCRCs and CRCs also states that juveniles are not to be admitted to the Centers for more than five days.

Description of Condition
During our 2007 audit, we selected the following Center contracts and payments to test for compliance with state law and for proper monitoring of support and approval prior to payment: 1. 2. 3. 4. 5. Kitsap County Regional Crisis Residential Center Spokane Regional Crisis Residential Center King County Secure Crisis Residential Center Kitsap County Secure Crisis Residential Center Snohomish County Secure Crisis Residential Center

These providers were selected based on the amount of slot payments they received as a portion of total slot payment expenditures in 2007 and other risk factors.

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We found the following number of clients who exceeded the five-day maximum allowable stay by at least 24 hours:
Hours over 120 24 - 72 73 - 100 101 - 200 201 - 300 301 - 400 401 - 500 501 - 600 601 - 700 701 - 800 801 - 900 901 - 1000 1000+ Total Kitsap Secure CRC 2 0 1 0 1 0 0 1 0 0 0 0 5 Spokane Regional CRC 30 9 26 12 4 2 0 1 0 0 1 1 86

We also noted the five-day maximum allowable stay at the King County, Snohomish County CRC and the Kitsap Regional CRC was exceeded, but for less than 24 hours. Although the law does identify five days as 120 hours, we recognize circumstances could delay release for a couple of hours.

Cause of Condition
The Department does not adequately monitor the Centers compliance with state law and contractual requirements by reviewing client listings prior to authorizing payment. In addition, contract language requires client lists to be submitted to Childrens Administration headquarters and invoices to be submitted to and paid by regional offices. The five Centers we examined are located in four different regions and are paid by four separate offices. Each of the five Centers provided copies of the client attendance lists they sent to headquarters and to the regional offices. We found: Two regional offices did not review the lists. One regional office stated it reviewed the lists; however, we found exceptions at one of the Centers it pays. One regional office stated it performed a review of the lists. We found residents had overstayed by just a few hours.

Effect of Condition
The Department is not in compliance with state law or its own contract. By paying a provider who has allowed clients to stay beyond five days, the Department is not receiving the services open available space for at-risk youth agreed on in the contract. These facilities are designed to be short-term residences for emergency situations. Allowing extended stays poses a risk that services may not be available for all who need them.

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Recommendation
We recommend the Department: Improve contract and payment monitoring to ensure the maximum allowable stay is not exceeded. Only pay for services as specified in the contract.

Departments Response
We concur with this finding and have begun the process to address the payment structure of these contracts and to strengthen contract language. We will amend contracts outlining a monitoring process that provides assurance that we are not violating policy and/or law with our payments under these contracts. Childrens Administration (CA) anticipates the process to correct this condition will be complex. It will require work with regional CA staff and Crisis Residential Centers to identify and address the many contributing factors. Although we agree with this finding and are taking action to correct the condition, we would like to note that there was no actual occurrence of the identified risk that services would not be available to at-risk youth as a result of placements that extended beyond five days. No at-risk youth were denied access to services offered by the Crisis Residential Centers.

Auditors Remarks
We appreciate the Departments actions to address this issue. We will review the status of the corrective action during our next audit.

Applicable Laws and Regulations

RCW 13.32A.130, Child admitted to secure facility Maximum hours of custody, states: A child admitted to a secure facility shall remain in the facility for at least twentyfour hours after admission but for not more than five consecutive days. If the child admitted under this section is transferred between secure and semi-secure facilities, the aggregate length of time spent in all such centers or facilities may not exceed five consecutive days per admission.

RCW 74.13.034, Crisis residential centers Removal to another center or secure facility Placement in secure juvenile detention facility, states: A child taken into custody and taken to a crisis residential center established pursuant to RCW 74.13.032 may, if the center is unable to provide appropriate treatment, supervision, and structure to the child, be taken at department expense to another crisis residential center, the nearest regional secure crisis residential center, or a secure facility with which it is collocated under RCW 74.13.032. Placement in both locations shall not exceed five consecutive days from the point of intake as provided in RCW 13.32A.130.

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RCW 74.13.0321, Crisis residential centers Limit on reimbursement or compensation, states: No contract may provide reimbursement or compensation to a crisis residential center's secure facility for any service delivered or provided to a resident child after five consecutive days of residence. Regional and Secure CRC Boilerplate Contract, General Terms and Conditions: Compliance with Applicable Law, states in part: At all times during the term of this Contract, the Contractor shall comply with all applicable federal, state, and local laws and regulations . . . . Regional and Secure CRC Boilerplate Contract, Special Terms and Conditions: Payment Only for Authorized Services, states: DSHS shall pay the Contractor only for authorized services provided in accordance with this Contract. Regional CRC Boilerplate Contract, Exhibit A, Statement of Work, Length of Stay, states: Youth may stay in any CRC for up to five (5) days, including Saturdays and Sundays and holidays. If a youth has been transferred between CRCs, the cumulative total number of days spent in both CRCs may not exceed five (5) days. Secure CRC Boilerplate Contract, Exhibit A, Statement of Work, Length of Service, states: Youth admitted to a Secure CRC must remain in the Secure CRC for, at a minimum, 24 hours, unless the youths parent(s) removes the youth from the Secure CRC. RCW 74.13.034(3) limits a youths stay in any CRC for up to a maximum of five (5) days, including Saturday and Sunday and holidays. If a youth has been transferred between CRCs, the cumulative total number of days spent in both CRCs may not exceed five days.

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Schedule of Audit Findings and Responses

State of Washington Department of Social and Health Services
3. The Department of Social and Health Services, Childrens Administration, did not perform adequate monitoring for background checks of foster care providers. Background
The Departments Childrens Administration licenses foster care providers and adoptive parents. During fiscal year 2007, the state paid approximately $57 million to foster care providers and approximately $65 million to adoptive parents. State law requires foster care providers and adoptive parents to undergo criminal background checks prior to placing a child in the home. Providers are not to be added into the provider payment system prior to passing the background check. Adoptive parents must undergo a background check just once, while foster care providers must be rechecked every three years. In our audits of fiscal years 2003 through 2006, we reported weaknesses related to the criminal background check process. When foster care providers and adoptive parents apply for a license, Childrens Administration submits a request for a criminal background check to the Background Check Central Unit (BCCU). The Unit conducts the background check and notifies Childrens Administration of the results. A supervisor must review the background check process and sign off before placement of the child can occur. The Department has been using the BCCU database to track background check records since August 2000. Some providers are paid for foster care services even though the child is not placed with them. These services may include transportation of a foster child or respite care, where the provider cares for the child temporarily. These types of providers also are required to undergo background checks before they can be licensed to provide services.

Description of Condition
We obtained the names of all individuals the Department ran background checks for from the BCCU database since its inception. We also obtained foster care and adoption support payment data from fiscal year 2007 from the Social Service Payment System (SSPS). SSPS is used to authorize and issue payment to providers of foster care and adoption support services. We cross-matched the names of individuals who received payments for foster care and adoption support with the names in the BCCU database to identify individuals who may not have had a background check prior to receiving payment. We selected 453 of the 5,498 provider names, which were identified as having received payments during fiscal year 2007, yet did not show up in the database. We found: 116 payments were related to adoptions that took place prior to 2002. Records retention requirements permit destruction of background check records after six years, so we were unable to pursue a further review of these payments. 212 names were recorded in the database with name changes, slightly different spellings or other minor differences (e.g. Bob and Robert). We consider these resolved.
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93 were foster and adoptive parents who lived out of state and were subject to the other states background check requirements. 20 were individuals who provided other types of service (dentists, attorneys and court-appointed special advocates) and did not have unsupervised access to children. No background check was required. Two providers had background checks on file that were conducted by other entities, which is allowable per state law. Four were respite care providers who had background checks conducted prior to 2002. State law requires licensed foster care providers to undergo background checks every three years; however, there is no such requirement for respite care providers.

However, we also found: One respite care provider had no record of a criminal background check. Two foster care providers had no record of a criminal background check. Both providers were relatives of the child; however, the background check requirement still applies.

Cause of Condition
Controls at the Department are inadequate to ensure background checks are performed on all foster care providers upon licensing and every three years thereafter.

Effect of Condition
The Department licensed and paid foster care providers without evidence showing a required criminal background check was completed and cleared. The lack of background checks for all required individuals increases the chance of people with disqualifying criminal backgrounds having access to children served by the Department.

Recommendation
We recommend the Department reinforce existing controls to ensure compliance with the background check requirements and safety of Department clients.

Departments Response
We concur with this finding and will work to reinforce existing controls to ensure compliance with the background check requirements and the safety of our clients. We will also establish record keeping requirements that document the completion of the required background checks for every placement. In addition, we will specifically address each provider identified during the review and by May 30, 2008 either conduct a new background check for them or remove them from our list of available foster parents.

Auditors Remarks
We appreciate the Departments response and the steps it is taking to address the condition noted. We will follow up on this issue during our next audit.

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Applicable Laws and Regulations

RCW 26.33.150, Petition for adoption Filing Preplacement report required, states: (1) An adoption proceeding is initiated by filing with the court a petition for adoption. The petition shall be filed by the prospective adoptive parent. (2) A petition for adoption shall contain the following information: (a) The name and address of the petitioner; (b) The name, if any, gender, and place and date of birth, if known, of the adoptee; (c) A statement that the child is or is not an Indian child covered by the Indian Child Welfare Act; and (d) The name and address of the department or any agency, legal guardian, or person having custody of the child. (3) The written consent to adoption of any person, the department, or agency which has been executed shall be filed with the petition. (4) The petition shall be signed under penalty of perjury by the petitioner. If the petitioner is married, the petitioner's spouse shall join in the petition. (5) If a preplacement report prepared pursuant to RCW 26.33.190 has not been previously filed with the court, the preplacement report shall be filed with the petition for adoption. RCW 26.33.190, Preplacement report Requirements Fees, states in part: (3) All preplacement reports shall include a background check of any conviction records, pending charges, or disciplinary board final decisions of prospective adoptive parents. The background check shall include an examination of state and national criminal identification data provided by the Washington state patrol criminal identification system including, but not limited to, a fingerprint-based background check of national crime information databases for any person being investigated. It shall also include a review of any child abuse and neglect history of any adult living in the prospective adoptive parents' home. The background check of the child abuse and neglect history shall include a review of the child abuse and neglect registries of all states in which the prospective adoptive parents or any other adult living in the home have lived during the five years preceding the date of the preplacement report. WAC 388-06-0110, Who must have background checks? The department requires background checks on individuals who will have unsupervised access to children or to individuals with a developmental disability in homes, facilities, or operations licensed, relicensed, or contracted by the department to provide care as required under chapter 74.15 RCW. The department requires background checks on the following people: (1) A person licensed, certified, or contracted by us to care for children (chapter 74.15 RCW and RCW 43.43.832);

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(2) A prospective or current employee for a licensed care provider or a person or entity contracting with us; (3) A volunteer or intern with regular or unsupervised access to children who is in a home or facility that offers licensed care to children; (4) A person who is at least sixteen years old, is residing in a foster home, relatives home, or child care home and is not a foster child; (5) A relative other than a parent who may be caring for a child or an individual with a developmental disability; (6) A person who regularly has unsupervised access to a child or an individual with a developmental disability; (7) A provider who has unsupervised access to a child or individual with a developmental disability in the home of the child or individual with a developmental disability; and (8) Prospective adoptive parents as defined in RCW 26.33.020. WAC 388-06-0130, Does the background check process apply to new and renewal licenses, certification, contracts, and authorizations to have unsupervised access to children or individuals with a developmental disability? These regulations apply to all applications for new and renewal licenses, contracts, certifications, and authorizations to have unsupervised access to children and individuals with a developmental disability that are processed by the department after the effective date of this chapter. WAC 388-06-0150, What does the background check cover? (1) The department must review the following records: (a) Criminal convictions and pending charges. (b) For children's administration, child protective service case file information (CAMIS) for founded reports of child abuse or neglect; and (c) For children's administration, administrative hearing decisions related to any DLR license that has been revoked, suspended or denied. (2) The department may also review any civil judgment, determination or disciplinary board final decisions of child abuse or neglect. (3) The department may review law enforcement records of convictions and pending charges in other states or locations if: (a) You have lived in another state; and (b) Reports from credible community sources indicate a need to investigate another state's records.

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(4) If you have lived in Washington state less than three years immediately prior to your application to have unsupervised access to children or to individuals with a developmental disability, the department requires that you be fingerprinted for a background check with the Washington state patrol (WSP) and the Federal Bureau of Investigation (FBI), as mandated by chapter 74.15 RCW.

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Schedule of Audit Findings and Responses

State of Washington Department of Social and Health Services
4. Public funds were misappropriated at the Department of Social and Health Services Division of Child Support. Background
The Departments Division of Child Support is located in Olympia and processes approximately $685 million in child-support payments every year. On March 27, 2007, a client notified the Division that a payment, that had been made, was not posted to their child-support account. The client contacted their bank and found the payment was deposited into a personal bank account, not the Department account. The Department recognized the name on the personal bank account as a temporary employee and terminated the individual on March 27, 2007. The Department immediately filed a police report with the Olympia Police Department, which referred it to the Washington State Patrol. The Patrol conducted an investigation and interviewed the former employee on June 6, 2007. During the interview, the individual stated she misappropriated the payment. After further investigation, the Patrol concluded the former employee had misappropriated at least $25,571.58 in public funds between December 1, 2006 and March 27, 2007. As a result of this loss, the Division has made improvements in its internal controls regarding processing of child-support payments.

Description of Condition
We reviewed the investigation performed by the Patrol and agreed with its conclusion that at least $25,571.58 in public funds was misappropriated by the former employee, who took 68 money orders that were mailed to the Division and deposited them into her personal bank account instead of posting them to the appropriate client accounts. No federal funds were involved in this case.

Cause of Condition
The former employee circumvented the Departments internal controls over cash receipting. The cash receipting activities performed by the former employee were inadequately monitored by the Department.

Effect of Condition
Inadequate internal controls led to the misappropriation of funds at the Division and deprived the Department and the legitimate recipient of the use of these funds.

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Recommendation
We referred this matter to the Thurston County Prosecuting Attorneys Office for any action deemed appropriate. We recommend the Department seek recovery of the $25,571.58 in misappropriated public funds and $612.00 of related audit/investigation costs from the former employee and/or its insurance bonding company, as appropriate. Any compromise or settlement of this claim must be approved in writing by the Attorney General and State Auditor as directed by RCW 43.09.330. Assistant Attorney General Marta DeLeon is the contact person for the Attorney Generals Office and she can be reached at (360) 753-3168 or martad@atg.wa.gov. The contact for the State Auditors Office is Jan Jutte, Director of Legal Affairs and she can be reached at (360) 902-0363 or juttej@sao.wa.gov. Insurance coverage for employees is as follows: Insurance Company: Policy Number: Policy Type: Amount of Coverage: Coverage Period: Travelers 104238506 Commercial Crime Policy $10,000,000/ $ 500,000 deductible August 1, 2004 until cancelled

We also recommend the Department continue to establish, follow and monitor an effective system of internal controls designed to ensure the protection of public assets from loss.

Departments Response
The Department concurs with this finding. The Department took immediate and appropriate personnel action on this matter as soon as the theft was discovered. The Department also took the following immediate actions to strengthen internal controls in the secured processing area: Reconfigured the Workflow Coordinators cube with glass panels to provide a better view of the work area; Added extra Proxy readers to the four secured area doors and assigned a unique access code; Reviewed internal control processes with all staff and posted them prominently in the secured area; Added five additional cameras to the area; Assigned a leadership team member the responsibility to review the videos on a daily basis and report any items immediately to management; Completed software upgrades of the OPEX rapid extraction machines providing immediate endorsement of negotiables; Reviewed hiring practices for non-permanent staff, and Established more thorough reference checks.

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The Department was informed by the Thurston County Prosecutor that the terminated employee pled guilty. On April 22, 2008, the Department received a copy of the sentencing order filed February 19, 2008. The order requires the employee to pay $25, 571.58 in restitution to DSHS and serve 90-days of confinement. The sentencing order, received prior to the State Auditors finding, does not include the $612 of related audit/investigation costs. The Department is researching its options for collecting the $612 mentioned in the Recommendation section of this report.

Auditors Remarks
We thank the Department for its response and the actions taken to improve internal controls. We will review these improvements during our next audit.

Applicable Laws and Regulations

RCW 43.09.185 states: State agencies and local governments shall immediately report to the state auditors office known or suspected loss of public funds or assets or other illegal activity. RCW 43.09.330 states: If any audit of a state agency discloses malfeasance, misfeasance, or nonfeasance in office on the part of any public officer or employee, within thirty days from the receipt of his or her copy of the report, the attorney general shall institute and prosecute in the proper county, appropriate legal action to carry into effect the findings of such post-audit. It shall be unlawful for any state agency or the responsible head thereof, to make a settlement or compromise of any claim arising out of such malfeasance, misfeasance, or nonfeasance, or any action commenced therefore, or for any court to enter upon any compromise or settlement of such action without the written approval and consent of the attorney general and the state auditor.

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Status of Prior Audit Findings

State of Washington Department of Social and Health Services
The status of findings contained in the prior years audit reports of the Department of Social and Health Services is provided below: 1. The Department of Social and Health Services does not have adequate controls over the processing of expenditures through the Agency Financial Reporting System. Audit Report 6663, dated July 13, 2007 Background The Agency Financial Reporting System is the state of Washington's official accounting system. State agencies are required to enter their financial data, including accounts payable, into this system. When used effectively, the systems security features can reduce the risk of error or fraud in financial transactions. The Department does not use the systems security features to segregate duties, but rather relies on detection of inappropriate payments through quarterly monitoring. These control weaknesses increase the risk that error or misappropriation could occur and not be detected by management in a timely manner if at all. Status The finding is partially resolved. management. 2. Remaining issues were relayed via a letter to Department

The Department of Social and Health Services Division of Developmental Disabilities does not include required insurance language in contracts with individuals and agencies who provide transportation for clients of supported living services. Audit Report 6663, dated July 13, 2007 Background The Departments Division of Developmental Disabilities contracts with individuals and agencies to provide supported living services to some of its clients. These services include transportation to emergency medical care, medical appointments and therapy. Any vehicle the service provider uses to transport clients must be in safe operating condition and properly insured. The contracts to provide these services fail to provide assurance that vehicles are properly insured to meet sate regulations and Department policy. Status The finding is resolved.

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3.

The Department of Social and Health Services does not have adequate controls to ensure all payments made through its Social Services Payment System are supported and approved. Audit Report 6663, dated July 13, 2007 Background The Department developed the Social Services Payment System to provide authorization and payment processing for more than $1 billion in services delivered to clients each year. This system is used by the Economic Services Administration, Aging and Disability Services Administration, Health and Rehabilitative Services Administration, Juvenile Rehabilitation Administration, Medical Assistance Administration and Children's Administration. The Department does not have adequate internal controls to prevent overpayments. We found the Department made $66,079.42 in inappropriate payments. Status The finding is not resolved. We are repeating this finding in our current audit report as Finding 1.

4.

DSHS, Division of Child Care and Early Learning, did not perform adequate monitoring for background checks. Audit Report 6663, dated July 13, 2007 Background License applicants, and anyone 16 or older who will have unsupervised or regular access to children in care, are required to undergo a criminal background check. This includes assistants, volunteers and members of the applicants household. A Criminal Background Check Authorization form must be completed and is used to check whether these individuals have criminal backgrounds that would disqualify them from becoming licensed child care providers, associates or volunteers. During licensor monitoring, the Department does not verify all employees and relatives of providers have had background checks. Status On July 1, 2006, administration of this program was taken over by a newly created agency, the Department of Early Learning. We repeated this finding for the Department of Early Learning. At the Department, we reviewed this area for foster and adoptive parents and found a similar condition exists. We are again issuing a finding regarding background checks in our current audit report as Finding 3.

Washington State Auditors Office 23

ABOUT THE STATE AUDITOR'S OFFICE

The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office has 300 employees who are located around the state to deliver our services effectively and efficiently. Approximately 65 percent of our staff are certified public accountants or hold other certifications and advanced degrees. Our regular audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. We also perform fraud and whistleblower investigations. In addition, we have the authority to conduct performance audits of state agencies and local governments. The results of our audits are widely distributed through a variety of reports, which are available on our Web site. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive program to coordinate audit efficiency and to ensure high-quality audits. State Auditor Chief of Staff Chief Policy Advisor Director of Administration Director of State and Local Audits Director of Performance Audit Director of Special Investigations Director for Legal Affairs Local Government Liaison Communications Director Public Records Officer Main number Toll-free hotline for government efficiency
Web Site

Brian Sonntag, CGFM Ted Rutt Jerry Pugnetti Doug Cochran Chuck Pfeil, CPA Linda Long, CPA, CGFM Jim Brittain, CPA Jan Jutte Mike Murphy Mindy Chambers Mary Leider (360) 902-0370 (866) 902-3900
www.sao.wa.gov

(SAO FACTS.DOC - Rev. 05/08)