State law calls for an annual financial-compliance audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” CliftonLarsonAllen, under contract with Legislative Post Audit, conducted this two-part audit. The first part was the report on the state’s Comprehensive Annual Financial Report (report R-14-018, released in December 2014). This second part, the Report on Federal Awards in Accordance with OMB Circular A-133, reports on compliance with laws, regulations, and provisions of contracts and grant agreements.
The auditors concluded that, except for the Foster Care program, the state complied, in all material respects, with the requirements applicable to each of the federal programs audited. The auditors found material non-compliance in the requirements regarding subrecipient monitoring in the Foster Care program. The auditors reported 27 deficiencies in internal control, including five material weaknesses. The auditors also identified questioned costs for a number of programs. Five of the findings were repeated from prior years.
State Agency Information Systems: Sensitive Datasets and IT Security Resources
Overall, we identified most state agencies maintain computer systems which hold a variety of sensitive data or process payments that must be protected. Although the state is responsible for these sensitive data or payment systems, it lacks an enterprise-level approach to IT security. We also found that 17 of 45 agencies (38%) that process payments or maintain large amounts of highly sensitive data have not had an independent evaluation of their security measures in the past three years. In addition, we learned the state lacks a complete set of three-year IT Plans as required by law, and that agencies’ submitted plans have been made public despite containing sensitive security information.
We also reviewed IT security resources at 10 selected agencies. As part of that review, we found the reporting structures at seven agencies created a risk that important security issues may not be communicated to top management. Additionally, three agencies’ lead IT security positions were not filled with sufficiently qualified staff, and two agencies lacked enough staff to perform necessary IT security tasks. Lastly, IT security software products agencies reported using in five security categories appeared to be adequate except for one agency, which lacked software to back up its system databases and electronic files stored on its network since November 2013.
State of Kansas: OMB Circular A-133 Audit of Fiscal Year 2012
State law calls for an annual financial-compliance audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” RubinBrown, under contract with Legislative Post Audit, conducted this two-part audit. The first part was the report on the state’s Comprehensive Annual Financial Report (report R-13-005, released in March 2013). This second part, the Report on Federal Awards in Accordance with OMB Circular A-133, reports on compliance with laws, regulations, and provisions of contracts and grant agreements.
The auditors concluded that, except for the Unemployment Insurance program, the state complied, in all material respects, with the requirements applicable to each of the federal programs audited. However, the auditors reported 28 deficiencies in internal control, two of which were material weaknesses. The auditors also projected up to $73.4 million in questioned costs ($65,000 in known questioned costs). Six of the findings were repeated from prior years.
State Agency Information Systems: Reviewing Selected Controls in Selected State Agencies (CY 2012)
We evaluated six important IT security controls and the comprehensive IT security management process at nine state agencies. We found that most agencies’ IT security controls we reviewed were not strong enough to help ensure that confidential information was adequately protected. Moreover, most agencies had weak controls to help ensure strong and secure staff passwords, and almost all agencies did a poor job of patching software vulnerabilities for both workstations and servers. Most agencies did not adequately train staff on IT security issues, and none of the agencies had fully developed and tested a continuity of operations plan. While most agencies adequately controlled their IT inventory, four agencies were missing or had lost track of computers. On the other hand, we found only a few problems with network access points, which were largely controlled by the Office of Information Technology Services. None of the agencies had a fully developed security management process, but all nine had at least some process components. Finally, security controls were far stronger at agencies where management made IT security a priority.
Accounts Receivable: Reviewing Agencies' Efforts To Collect Amounts Owed to the State (A K-GOAL Audit)
For the State, accounts receivable represent moneys expected to be collected for unpaid taxes, overpayments, fines, or goods and services provided. Our survey of 53 State agencies with significant accounts receivable found that many State agencies could improve their debt collection efforts if they strengthened their collection policies and adopted other collection best practices. Four of the six programs we reviewed in detail failed to meet many of the collection best practices applicable to their operations; three of those four also had inadequate collection policies. Overall, the four poor-performing programs had deficiencies in some or all of the following areas: monitoring receivables, aggressively pursuing debts, using enforcement tools, and using outside collection options, including the State’s Setoff Program. If those four programs improve their collection efforts, they might be able to collect a significant amount of additional revenue: collecting just 5% more of those programs’ delinquent receivables would generate almost $3 million in one-time revenues. We also noted that not all of the $2 billion accounts receivable shown in the State’s financial report is collectible because it includes aged, and therefore doubtful, receivables for a number of agencies.
State Hiring Practices: Determining Whether Requirements Related To Veterans’ Preferences Are Being Met
State law provides that eligible veterans who meet the minimum and preferred qualifications for a State classified job be offered an interview. Of the 426 veterans’ applications reviewed, there were only two instances where a veteran should have been interviewed, but wasn’t—both times because of an oversight acknowledged by agency officials. The reasons most veterans weren’t interviewed were because they didn’t meet minimum and preferred qualifications for the job or submitted incomplete application materials. In addition, we couldn’t conclude whether agencies mailed a certified letter to each veterans’ preference applicant as required by State law and identified several smaller issues that need to be addressed to make the veterans’ preference law more efficient and cost effective. These include considering eliminating the statutory requirement that State agencies have to mail certified letters to veterans not hired, giving guidance to State agencies on what documentation they should keep to show they mailed a certified letter to each veteran applicant, and advising State agencies to wait a certain period of time after a job closes to print a list of applicants to be considered for the job.
Department of Labor: Reviewing Error Rates for Unemployment Benefit Payments, A K-GOAL Audit of the Department
For 2005, the U.S. Department of Labor reported that Kansas had the highest unemployment benefit overpayment rate in the nation; nearly 45% of all unemployment benefits were paid in error. Almost all of Kansas’ payment errors occurred because unemployed workers didn’t register for job services –an eligibility requirement contained in State law. Historically, Kansas’ Department of Labor hasn’t enforced the requirement to register for job services, and there have been no consequences at either the federal or State level. To help reduce the unemployment benefit overpayment rate, in November 2006 the Department implemented a new regulation that requires only the “highest need” unemployed workers to register for job services. The regulation eliminates the registration requirement for more than 90% of the unemployed Kansans who previously were required to register. Although Kansas’ error rate likely will drop sharply as a result of the new regulation, the lower error rate is being achieved at the expense of the broader goal of helping unemployed workers find jobs through the registration process. Other states we contacted require most unemployed workers to register, but have taken different approaches to keeping their error rates low, including cutting off benefits for workers who fail to register, and looking for ways to automatically register unemployed workers when they apply for benefits.
Department of Labor: Reviewing the Effectiveness of Accident Prevention Programs Required Under the Workers’ Compensation Law (limited-scope audit)
The Legislature created the Accident Prevention Program in 1993 to improve workplace safety and reduce accident claims. In our 1999 audit of the Program, we concluded that the Department of Human Resources (now Labor) was doing almost nothing to ensure that insurance companies complied with this aspect of the State’s workers’ compensation law. As a result, the 2000 Legislature imposed a higher standard on insurance companies and strengthened the Department’s oversight role for the Program. However, this audit found that the Department still is providing inadequate oversight regarding the Accident Prevention Program. Department officials haven’t made any significant changes to their oversight of insurance companies’ accident prevention services since the law was changed in 2000.
Unemployment Benefit Payments: Reviewing Benefit Payouts and Changes in the Number of Employees Determined To Be Eligible (limited-scope audit)
From 2002 to 2004, unemployment benefit payments in Kansas increased dramatically. In 2003, when the unemployment rate was 5.3%, payments peaked at $375 million or more than twice the amount paid out in 1994, the last time the unemployment rate was similar. Concerns had been expressed that the increase in payments was attributable to the Department of Labor adopting a more employee-friendly philosophy in deciding claims and appeals. This does not appear to be the case. There were no significant increases in recent years in the rate at which applicants were granted benefits, or in the rate of appeals being decided in favor of employees. More likely, the increase was caused by the combination of more people being unemployed, their benefits being based on higher wage levels, and their periods of unemployment lasting longer than in the past.
Reviewing the Implementation of the 1993 Changes to the Worker’s Compensation Laws: A K-GOAL Audit of the Department of Human Resources
The Department hasn't improved its workers' compensation information system; it gathers the same kinds of information that it did five years ago. As a result, the Department doesn't have certain information—primarily related to costs—that the Legislature and others need to make good policy decisions. Further, because its computer system is outdated, the Department wouldn't be able to handle additional information effectively, even if it were gathered. The Division needs to complete the upgrade of its computer system and it needs to work toward having more data submitted electronically. The Department has taken steps to implement each of the amendments to the Workers' Compensation Act passed by the 1993 Legislature. However, in three specific areas we reviewed, the Department hasn't effectively implemented those changes. First, the Department's Fraud Unit isn't actively pursuing the allegations of fraud it receives, and it doesn't have the basic information that's needed to effectively manage the Unit or assess what it has accomplished over the years. Second, the Department's Accident Prevention Program isn't actively enforcing the statutory requirement that insurance companies providing workers' compensation coverage maintain accident prevention programs for their clients. And third, the Department hasn't completed a cost study of workers' compensation claims, as the 1993 Legislature required.
Compliance and Control Audit: Kansas Department of Human Resources
From 1993 - 1996, Heartland Works (in Service Delivery Area II--northeast Kansas) produced the second best results of the five service delivery areas in Kansas, but its performance slipped to fourth place in 1997. Heartland also operated Service Delivery Area III (Kansas City) during fiscal year 1996, but it didn’t improve that Area’s performance. Two independent audits of Heartland confirmed problems with some of Heartland’s practices. The audits initially questioned about $440,000 of Heartland’s expenditures. As of August 1, 1997, only about $25,000 of those costs were still in question. The Department acted well within its authority in deciding not to renew Heartland’s contract to administer Service Delivery Area III for fiscal year 1997, but the Department didn’t manage the release of information contained in the first audit very well. By discussing matters involving Heartland in an executive session, Area III’s private industry council may have violated the Kansas Open Meetings Act. In fiscal year 1997, the Department spent a greater percentage of its Wagner-Peyser moneys for job service centers on “non-field” operations than it had in any of the three previous years, but the Wagner-Peyser Act doesn’t limit the amount that can be spent for administrative costs. Kansas’ spending for non-field costs isn’t out-of-line with amounts spent by three other states that provided information.
Reviewing State Agencies’ Use of Cost Savings From the Kansas Quality Program (100-hour audit)
The Legislature first enacted the Kansas Quality Program in 1994, which allowed participating agencies to give employees cash and non-cash awards for improving State operations through specific quality initiatives. A second program was started the following year, which allowed agencies participating in the first program to keep half the money they were appropriated but didn’t spend. Agencies have retained about $5.3 million that they didn’t spend in fiscal years 1995 and 1996. Most of their purchases with those moneys have been for capital outlay items, such as computers or parole office automation technology. In fiscal year 1997 five agencies spent $38,000 for employee bonuses. Most of the expenditures we reviewed were appropriate; however, bonuses paid by two agencies didn’t meet the program requirements, and one of those agencies exceeded the $1,000 limit established by the Legislature. The Governor proposes expanding the program to all agencies and eliminating any tie to the original Kansas Quality Program. Positive aspects to this proposal include increased spending flexibility for agencies and less incentive to spend all moneys at year-end. Examples of risks include possible overbudgeting, the potential for cutting back on needed services to generate savings, and less up-front accountability for expenditures.
Reviewing the Workers’ Compensation Claim By Former Insurance Commissioner Fletcher Bell
Mr. Bell’s workers' compensation claim was not handled appropriately by either the State Self-Insurance Fund or the Division of Workers’ Compensation. Self-Insurance Fund staff failed to investigate the claim’s compensability, did not ask doctors whether Mr. Bell’s preexisting back condition contributed to the injury, used an unfamiliar doctor to obtain a second opinion on Mr. Bell’s injury, and failed to seek assistance from the Workers’ Compensation Fund in paying the claim. The administrative law judge responsible for Mr. Bell’s award did not order an independent medical evaluation of Mr. Bell even though the law allowed him to do so. Changes made in 1993 to the Worker’s Compensation statutes would have reduced Mr. Bell’s $94,000 award to no more than $50,000 and possibly less.
Reviewing the Accuracy of Job Placement Information the Department of Human Resources Is Reporting About the Kan Work Program (100-hour audit)
Although the Department of Human Resources records some information about clients’ employment status after-the-fact, it does not appear that those actions were intended to be misleading. In most cases we reviewed, the Department could not have conducted follow-up activities when required because client referrals from the Department of Social and Rehabilitation Services were late. Nevertheless, conducting follow ups late may affect the interpretation of program information, client employment assistance, and program effectiveness. In addition, the Department of Human Resources has job placement follow-up information that the Department of Social and Rehabilitation Services could use to track job-retention rates and provide the Legislature with meaningful program information. However, the Department of Social and Rehabilitation Services does not ask for this information.
Reviewing Selected Issues Related to Workers’ Compensation
For the most part, Kansas’ workers’ compensation benefits are neither high nor low when compared with other states. Based on available information, Kansas’ premiums also were slightly below the median for other states and increased at about the same rate as premiums nationally. Over the past few years, laws have been enacted that increased maximum payments for disabilities and death benefits, and required vocational rehabilitation to be provided for many workers’ compensation cases. No information exists to determine their exact cost impact. Other states have enacted a number of measures aimed at reducing litigation, controlling medical costs, reducing fraud and improving workplace safety. Those measures include using arbitration services, implementing medical fee schedules, performing utilization and bill reviews, creating fraud hotlines and investigation units, and overseeing workplace safety. Finally, we found that workers’ compensation agencies in some states have developed extensive data collection systems that allow them to answer basic questions about workers’ compensation, such as which injuries are most frequent or most expensive.
Examining Increases in Expenditures from the State Workers’ Compensation Fund
Between fiscal years 1983 and 1992, expenditures from the Fund more than quadrupled to nearly $33 million. The Fund’s expenditures increased primarily because more claims were opened than closed each year, creating an ever-growing pool of active claims for which expenses are being incurred. In addition, medical costs have skyrocketed, and amounts that can be paid in compensation for lost wages have increased over the years. Because of legislative actions and judicial decisions, Kansas currently has one of the most liberal second-injury funds of all the states we contacted. Limiting the Fund’s coverage would not reduce workers’ compensation costs. It would simply shift those costs from the Fund back to the insurance companies and employers. Other states have implemented a number of alternatives to control workers’ compensation costs, but Kansas does not have the basic management information needed to take similar measures. Although administrative costs have increased more slowly than benefit-related costs, the Department could do more to control attorney costs.
Examining the Effectiveness of the Kan Work Program
Clients in the KanWork Program got more jobs and earned more money than clients who were not participating in the Program, but still did not earn enough to stay off welfare. Over the two-year period we reviewed, KanWork did not appear to make a significant difference in the number of people getting off welfare. However, the Program may need to be viewed over a longer time period to show results. Coordination between the Departments of Social and Rehabilitation Services and Human Resources staff who work with clients is good, but coordination and cooperation between upper-level management of the agencies is poor. The KanWork Program generally conforms to all major federal regulations and State laws. However, Department of Social and Rehabilitation Services staff have not followed all procedures for operating the Program.
Reviewing the Capacity and Use of the State’s Mainframe Computers
Four of the nine mainframes reviewed were operating at or near capacity. The five remaining computers, which generally were in the early to middle years of their life expectancy, appeared underused at this time. In those cases, agency officials generally indicated that planned applications would increase mainframe use in the future or that federal funding used to acquire and operate their computers limited the possible uses. Finally, available data storage for several main frames was full or nearly full, and the affected agencies may need to take some action to acquire more storage capacity soon.
Reviewing the Way State Agencies Collect Delinquent Accounts
Statewide requirements for collecting, reporting, and writing off amounts owed to the State have improved somewhat in the past 11 years, but complete information about agencies’ accounts receivable is just beginning to be collected. Most of the six agency programs reviewed are required to follow additional collection procedures that go beyond the State’s minimum requirements, and all of them use the State’s set-off program as part of their collection procedures. Statewide procedures for the management of delinquent accounts and specific agencies’ collection procedures can both be improved.
Job Training Programs in Kansas, Part II: Longer-Term Results For Program Participants
The audit shows that the Work Incentive Training program increased the likelihood that successful clients would be working, but it did not improve the wages of those who were employed. Clients who successfully completed the Job Training Partnership Act program were more likely to be employed two years later than individuals who did not successfully complete the program, and they also earned higher wages. Parolees who completed vocational training while they were in prison were no more likely to be employed after two years, and their wages were no higher. And companies that received assistance from the Kansas Industrial Training program were well pleased with its results. Changes can be made to improve the occupational information available to agencies that provide training, and to improve the quality of information those agencies gather to evaluate program results.
The State’s three major training programs are well coordinated, but the audit raises administrative concerns about each one. The Job Training Partnership Act, which primarily serves economically disadvantaged people or those who have other barriers to employment, is being administered in compliance with federal requirements. But funding inmate programs with Job Training Partnership Act funds may create a potential liability for the State if the Department of Labor disallows the expenditure of those funds for inmates who are not released within a reasonable period of time.
Wage Rates for Construction of the Coliseum at Kansas State University
For Riley County, some of the specific hourly wage rates developed through surveys by the Department of Human Resources are significantly higher or lower than rates for surrounding and similar counties. Several rates also changed significantly from 1985 to 1986. The use of data supplied by one contractor for individual rate determinations and other weaknesses in the Department’s methodology have helped cause such variations.
Four State agencies lease space in the Wichita State Offie Building. A large percentage of employees are dissatisfied with the building’s overcrowding, noisiness, temperature, and parking lot. In a related issue, the Department of Human Resources’ acquisition of office space in Wichita was consistent with the permitted uses of the funds spent. That acquistion consolidated most of the Department’s employment security programs in one central location in Wichita.
Reviewing Accountability for Protesting Unemployment Claims
In seven of the eight agencies reviewed, a specific person has been assigned to review unemployment claims. Little training and few guidelines have been provided for properly responding to claims. The audit describes steps planned by the Department of Human Resources to assist agencies in responding to unemployment claims.
Although no federal or State laws require State agenices to correct asbestos problems, the Department of Human Resources voluntarily conducts asbestos inspections in public buildings. If the proposed Asbestos Control Program were funded, all asbestos duties would be transferred to the Department of Health and Environment through an agreement between the two agencies.
Personnel Policies and Practices of the Department of Human Resources
Some department actions--particularly those related to filling positions--were either not in compliance with State and federal requirements or there was insufficient documentation to tell. In addition, such actions as non-competitive appointments, reclassifications, and employee grievances are not consistently handled or help create employee dissatisfaction. The report recommends needed change in the Department’s personnel practices.
Guidelines developed by the Department of Human Resources can help reduce the amount of judgment involved in deciding who is qualified for unemployment claims, but they cannot eliminate it. Most employers say they protest questionable claims, but fewer will appeal the decision if their protest is over-ruled. The State agencies that fail to protest or respond to questionable claims generally do not understand about when a response is warranted.
Analyzing the Performance Evaluation System in Kansas
The system is well designed, but performance standards often are not written so they can be objectively measured, ratings often are not adequately justified, performance improvement goals are rarely used, and the system is not always uniformaly applied. The evaluation system is addressing problems of poor performers , but without the merit pay incentive, its effectiveness at reinforcing good performers has deminished.