At Blago’s Place, Hemorrhaging Continues, Updated X1

1 comment May 29th, 2008

With each report released by the state’s chief auditor, it becomes clearer that Illinois government under the administration of Gov. Rod Blagojevich is unravelling.

On Tuesday, it was the governor’s budget office and the Illinois Department of Central Management Services — the state’s central purchasing agency — under scrutiny. And it wasn’t pretty.

First, there’s the Governor’s Office of Management and Budget, or GOMB (pronounced GUM-by by Capitol cynics). According to Auditor General Bill Holland’s report, the office with “management” in its name failed to manage on multiple levels. From the audit summary, here are the highlights:

Bozo the Clown

The Office did not exercise adequate controls over contractual agreements.

The Office did not exercise adequate control over its interagency agreements and related travel expenditures.

The Office did not exercise adequate control over its travel functions.

The Office personnel files did not contain all required information.

The Office did not maintain sufficient controls over the recording and reporting of State property.

The Office did not fully comply with annual financial reporting requirements set forth by continuing disclosure undertakings.

The Office did not comply with provisions of the Accountability for the Investment of Public Funds Act.

The Office did not exercise adequate control over its Cash Management Improvement Act Annual Report.

One might say GOMB failed to “exercise adequate control.”

From the Tribune, here’s a closer look at some of the details:

The audit found 12 significant lapses of adequate controls over such things as contracts with other state agencies, travel expenditures, salary adjustments and the recording and reporting of state property.

In reviewing 21 contracts worth nearly $7.3 million, auditors found that the office failed to bid competitively for legal and other services, did not properly maintain documents and awarded contracts to bidders that did not receive the highest scores under bidding criteria.

For example, two legal services contracts to major law firms were not competitively bid. Freeborn & Peters was awarded a $50,000 contract in September 2005, while Barnes & Thornburg received a $40,000 contract in August 2005. By law, the state must bid all such professional service contracts that cost more than $20,000.

More here from the AP:

Gov. Rod Blagojevich’s Office of Management and Budget improperly awarded state contracts and had difficulty monitoring others, a state audit said today.

The review by Auditor General William Holland found that the budget office did not issue contracts based on required competitive bidding procedures. It also wrongly paid employees for travel expenses and failed to document workers’ pay raises.

“As the management agency of state government, they’re setting a poor example,” Holland said.

Now, on to CMS.

From the summary of Holland’s audit, here’s my personal favorite, which concerns a deal between CMS and the Department of Healthcare and Family Services

In April 2007 an interagency agreement was transacted between the Department and HFS which essentially authorized the Department to expend funds (up to $20 million) from HFS’ appropriation from the Health Insurance Reserve Fund for the payment of medical expenses under the Workers’ Compensation program. During fiscal year 2007, the Department processed $19,998,199 from HFS’ appropriation for State Employees Group Insurance to pay for claims and services related to the Workers’ Compensation Act.

In other words, CMS and HFS — the agency responsible for managing the state’s health care programs — forged an agreement under which CMS raided nearly $20 million set aside for state worker health insurance to pay costs associated with worker’s comp. This is the “health care governor,” after all.

CMS also had trouble keeping its fiscal years straight, Holland’s audit found.

In the fiscal year 2007 lapse period, the Department accepted payments from the Department of Revenue (IDOR), totaling $2,825,621, that were not associated with any billings for services rendered. The Department did apply $614,957 of these payments toward outstanding balances owed by IDOR. IDOR reported expenditure against its current fiscal year appropriations, while the Department was recognizing the receipt as an advance payment against fiscal year 2008 services. This is a violation of the Advance Billings Rules. Although the Department did not specifically issue a billing, the Department did accept and process payments which allowed the IDOR to expend remaining appropriations.

Applying payments toward a wrong fiscal year is a recurring theme. In his recent audit of the state Department of Revenue, Holland cited that agency for this — and for creating “falsified” documents to support its flawed accounting.

The Department paid $1,592,300 out of FY06 appropriations (10 separate invoices) towards the FY07 Department of Central Management Services (DCMS) Internal Service Fund billings.

The Department paid $2,825,621 out of FY07 appropriations (8 separate invoices) towards the FY08 DCMS Internal Service Fund billings.

In FY07, the Department created or falsified six invoices with DCMS headings as supporting documentation in order to make these prepayments. Of these invoices, 1 of the 6 invoices stated it was for FY07 charges or leases when, in fact, it was to prepay FY08 costs. The remaining five invoices stated they were prepayments. All six invoice vouchers (Form C-13) submitted to the State Comptroller stated they were “FY2007 Contracted Prior to July 1.”

The Three Stooges

In FY07, the Department created two invoices on Department of Revenue letterhead, in essence charging itself, in order to prepay two invoices to DCMS. Both invoices appeared to be for FY07 charges and did not clearly state they were prepayments for FY08. Both invoice vouchers (Form C-13) submitted to the State Comptroller stated they were “FY2007 Contracted Prior to July 1.”

What was going on over there? This is the agency responsible for collecting — and keeping track of — your tax dollars.

Then there was that doozy of an audit a couple weeks ago of HFS, the health care agency formerly known as the Illinois Department of Public Aid.

From the Register Star:

The Illinois Department of Healthcare and Family Services has carried an average of $1.5 billion in unpaid medical bills over from one fiscal year to the next since fiscal 2005, the audit found. And while the agency generally took less than a week to process claims for payment, it took an average of 57 days to submit those claims to Comptroller Dan Hynes, who distributes the payments, according to the audit.

The agency’s failure to pay bills on time means it owes providers upwards of $81 million in interest for in late-payments, the audit found.

Again, this is the state agency in charge of administering health care — the governor’s longstanding chief policy focus.

When the agency fails to pay doctors and other health care providers on time, state law requires it pay those providers interest — hence the potentially $81 million in interest owed. Yet, Holland reported that HFS “did not have a system in place to pay automatically owed interest (interest greater than $50) to providers until May 2007 – almost eight years after the inclusion of Medicaid claims” in the state law mandating interest payments.

Holland also noted HFS required health care “providers to follow a cumbersome process to request interest” and that it had been “excluding certain claims from interest payments, some of which are not supported by Administrative Rule.”

And when providers asked the agency to reimburse them for their costs, HFS routinely rejected their claims by citing “error codes” that providers may not have recognized since HFS didn’t include those codes in its provider handbook, Holland reported.

We identified 123 error codes HFS used for rejected services that were reported to providers in 2006 that were not on the list of error codes found in HFS’ provider handbook. These error codes are used by providers to determine why a service was rejected so they can make the appropriate corrections in order to resubmit the rejected services within the required 12 month period.

Then again, some providers just had to ask when they needed some cash. HFS doled out at least $5.7 million in “one-time drop payments” to providers who called up to “declare their emergency,” even though auditors could not substantiate how exactly the agency determined whether to make such payments.

No policies or procedures exist to delineate the process for providers requesting or HFS’ review and approval of the need for a one-time drop payment. HFS does not require providers to submit a written request documenting their need or keep a log of one-time drop payment requests. According to HFS officials, these providers usually contact HFS by phone and declare their emergency need to be paid.

During testing, auditors found that generally the only documentation to support one-time drop payments were the e-mails between HFS employees changing the payment parameters for these providers and an internal HFS spreadsheet which tracked the one-time drop payment requests. There was no log or consistent documentation showing who outside HFS requested the payment or whether HFS determined that an emergency need existed.

UPDATE 1

Blago’s administration has been marked by such audits since shortly after taking office in 2003. In 2005, Holland cited CMS for wasteful spending and widespread contract irregularities.

State auditors Tuesday accused the Illinois Department of Central Management Services of wasteful spending, skirting its own rules when awarding contracts and failing to document claims that it had saved the state hundreds of millions of dollars.

Auditor General William Holland did not allege any criminal wrongdoing at the giant administrative services agency, but he did forward his report to Attorney General Lisa Madigan and Gov. Rod Blagojevich’s inspector general. […]

“There clearly was some inappropriate activity,” he said.

Asked if CMS oversight was sloppy, Holland said, “Sloppy is a very kind word. It’s above sloppy. I don’t know that it’s sinister, but I don’t know that it’s not.”

During the audit, CMS staff launched their own “audit” of Holland’s office — an apparent attempt by CMS to somehow retaliate or pre-empt the force of Holland’s investigation.

When Holland released his audit, CMS staff worked feverishly to undermine its credibility.

Holland responded by defending his audit in a Capitol news conference — a highly unusual move for a guy who does remarkable well at staying out of the political limelight.

The audit covered the two years ending June 30, 2004, which included the administration’s first 18 months. The CMS director, Michael Rumman, resigned at the time. Blago brushed off the audit as a fight between “bean counters.”