Although substance abuse can result in substantial criminal justice and social service costs, expanding treatment is unlikely to achieve significant savings. We estimated an additional 4,500 to 7,000 individuals are eligible for state-funded treatment and likely to seek it. To provide that treatment, the state would spend between $7 million and $11 million during a three-year period. However, we estimated the state would only reduce spending on other services (i.e. prison, foster care, or state hospitals) by $500,000 to $6 million for those individuals, which would not offset the cost of their treatment. Our results are significantly different from other studies which found greater savings related to providing substance abuse treatment primarily because we focused only on savings to the state and because many of the studies included savings in their estimate that we do not think would be realized.
State law requires an annual financial audit of the Kansas Lottery. RubinBrown, a certified public accounting firm under contract with Legislative Post Audit, conducted this audit. The auditors expressed an unmodified opinion on the financial statements, meaning that the financial statements present the Kansas Lottery’s financial position fairly and in conformity with generally accepted accounting principles in all material respects.
Federal Funds: Evaluating State Spending Required by Federally Funded Programs
In recent years, Kansas agencies spent about $5 billion annually in monetary and nonmonetary support from federally funded programs. Federally funded programs will require Kansas agencies to spend an estimated $2 billion on cost-sharing obligations in fiscal year 2016. Beyond that, we did not identify any significant unfunded mandates, although there are restrictions tied to the use of federal funds. Federally funded programs typically impose administrative requirements on state agencies, although most of these costs can be paid for with program funds. They also often include conditions on how state agencies can spend federal funds. Most programs have penalty or repayment clauses if state agencies fail to meet these conditions or program requirements. In addition, we found examples where the federal government has tied some national policy objectives to federal funds and states’ efforts to challenge those policies have had mixed results.
Kansas Public Employees Retirement System: Financial Audit of Fiscal Year 2015
State law requires an annual financial audit of the Kansas Public Employees Retirement System (KPERS). CliftonLarsonAllen, a certified public accounting firm under contract with Legislative Post Audit, conducted this audit. The auditors expressed an unmodified opinion on the financial statements, meaning that the financial statements present KPERS’ financial position fairly and in conformity with generally accepted accounting principles in all material respects.
The auditors did not report any deficiencies in KPERS’ internal control over financial reporting and disclosed no instances of noncompliance with applicable legal requirements that were material to KPER’s financial statements.
Statewide Financial Compliance Audit--Fiscal Year 2015
Part 1, Office of the Chief Financial Officer Comprehensive Annual Financial Report
State law calls for an annual 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. This first part is the report on the state’s Comprehensive Annual Financial Report (CAFR). The second part, the Report on Federal Awards in Accordance with OMB Circular A-133, will be issued as a separate report.
The auditors expressed an unmodified opinion on the financial statements, meaning that, financial statements present the state’s financial position fairly and in conformity with generally accepted accounting principles in all material respects. However, the auditors did emphasize two matters with regard to the financial statements. First, at the end of fiscal year 2015, the state had a deficit in its general fund of $285 million which raises concerns about the state’s ability to meet its future financial obligations. Second, the financial statements reflect the state having adopted new accounting guidance in accordance with changes to generally accepted accounting principles (GAAP).
The audit disclosed no instances of noncompliance with applicable legal requirements that were material to the state’s financial statements. However, the auditors reported five material weaknesses in the state’s internal control over financial reporting. The material weaknesses included various issues related to errors in journal entries, identification of errors that occurred in prior years, and some universities not having a comprehensive general ledger system. The auditors identified the need for several material adjusting entries as a result of these deficiencies, and several previous fund balances were found to be misstated.
The Kansas Eligibility Enforcement System:
Evaluating Delays in the System’s Implementation
In August 2011, Kansas signed a contract with Accenture to design a new eligibility determination system for medical and social service benefits. Known as the Kansas Eligibility Enforcement System (KEES), the project was originally estimated to take about two years to complete and cost about $138 million to build and $50 million to maintain for five years. Although it appears the main functionality of the KEES project will work as planned, the project has suffered from significant delays, additional costs, and reductions in both savings and functionality. Specifically, as of November 2015, the core of the KEES project was approximately two and a half years behind the original schedule. Further, if completed by August 2016 (as is currently expected), KEES will likely have exceeded the original budget to build, maintain, and operate the system by at least $46 million. In addition, although it appears the main functionality of KEES will work as planned, some important components have been significantly postponed or reduced. The state is also unlikely to realize all the estimated savings expected from KEES because the original estimates of those savings were based on faulty assumptions. It appears that project management issues early in the KEES project and other changes led to many of the current problems we identified. Finally, state oversight bodies do not always receive complete information about IT projects like KEES.
State Agency Information Systems: Reviewing Security Controls in Selected State Agencies – Department of Agriculture (CY 2015)
The Kansas Juvenile Correctional Complex’s (KJCC) primary responsibility is the daily care, custody, management, and treatment of juvenile offenders. Our July 2012 audit of KJCC identified numerous problems that compromised the safety and security of offenders and staff, including a poor security environment and poor personnel practices. KJCC has made progress since our 2012 audit, but some safety and security problems remain. Specifically, KJCC has taken many actions that substantially addressed nine of 12 recommendations from the 2012 audit. It implemented a new process to track investigations into abuse, neglect, and sexual assault of juvenile offenders. Additionally, KJCC now has a process to internally review critical incidents. Officials have also improved personnel practices related to background checks, staff training, and staffing analyses. Further, KJCC has greatly improved its processes to inventory, track, and secure keys and tools. KJCC’s process also ensures searches are generally frequent and documented. KJCC implemented a new process to address prohibited items, although some items did not make it into that process as they should. Finally, medical staff generally were notified when juvenile offenders were found with alcohol or drugs, but we could not verify if other staff were also notified. KJCC’s actions failed to adequately address two of the 12 audit recommendations. Specifically, as was the case in 2012, KJCC staff did not adequately supervise juvenile offenders. In addition, not all KJCC policies have been updated as needed since our 2012 audit. Finally, officials described taking actions to address our 2012 audit recommendation on staff discipline. Officials believe these actions improved their overall disciplinary process. However, we could not fully evaluate whether officials’ actions addressed our audit recommendation on staff discipline. We did however have several concerns regarding officials’ process in this area.
Kansas Public Employees Retirement System: Evaluating Controls to
Detect and Prevent Fraud and Abuse
The Kansas Public Employees Retirement Plan (KPERS) was created in 1962 to provide a financial foundation for Kansas public employees to retire. KPERS has about $16 billion in assets and administers three statewide defined-benefit retirement plans for about 295,000 state and local public employees. Because of the volume of applications, contributions and benefit payments handled on a regular basis, public pension plans are at risk for fraud and abuse, including the risk of making inaccurate benefit payments or that the plans will not collect enough in contributions. However, these risks can be mitigated by implementing controls such as requiring proof of identity, regularly monitoring to ensure that benefits are calculated correctly, and segregating duties. Our test work showed that KPERS had many, but not all, controls to help prevent and detect fraud and abuse. We found that since late 2013, KPERS has not conducted field audits to verify the accuracy of employer-reported information. Further, KPERS could strengthen its efforts to identify disability recipients who may be ineligible for those benefits. In addition, we found seven teachers who were incorrectly awarded KPERS service credits while working for education associations.
We also found that when calculating members’ retirement benefits, KPERS handled final average salary calculations appropriately. Legislation considered during the 2015 Legislative Session would have substantially limited the opportunity for retirees to include unused leave when calculating benefits. Finally, restricting or eliminating the inclusion of unused leave could reduce KPERS’ unfunded liability up to $80 million, but the actual impact likely would be far less.
State Agency Information Systems: Reviewing Security Controls in Selected State Agencies – Kansas Commission on Peace Officers' Standards and Training (CY 2015)
Pursuant to K.S.A. 46-1133, we randomly selected the Auburn-Washburn school district for an audit of its operations to help identify potential efficiencies and cost savings. We identified a number of opportunities for the district to operate more efficiently and reduce its costs or generate additional revenue. First, we identified options that would have little to no impact on students or the community. We estimated the district could save between $233,000 and $391,000 if it implemented all savings options in this category. These options are: eliminating 5.0 to 8.5 FTE custodial positions, aligning supplemental pay with similar districts, and increasing usage of cash-back purchasing cards. Next, we identified one option that could have a moderate impact on students or the community. The district could save $68,000 annually by replacing four nurses with health aides. Last, we identified one savings option that could have a significant impact on students or the community. We estimated the district could reduce or offset about $215,000 to $335,000 in annual transportation costs by changing its policies on busing students who live less than 2.5 miles from school.
The Kansas Racing and Gaming Commission: Evaluating Selected Regulatory Processes and Standards
The Kansas Racing and Gaming Commission regulates state-owned casinos to ensure compliance with state and federal laws. The Kansas Racing and Gaming Commission must approve any changes to a casino’s internal controls or table games. Some of these requests likely affect revenues (slot machine and table game changes) making it important for Racing and Gaming staff to respond timely to these requests. We found that about 70% of slot machine requests and 23% of table game change requests were not approved in a timely manner. In addition, 34% of the remaining internal control change requests were not approved within three months by the Kansas Racing and Gaming Commission. Finally, unlike Kansas, other states that we reviewed use a risk-based approach for reviewing change requests.
We identified several areas where Kansas’ gaming standards required more review or were more stringent than several other states. These areas include slot machine payouts, review of table games changes, and approval of advertising and promotional materials. Also, we found that Kansas has not adopted the most recent electronic gaming standards recommended by its contractor, Gaming Laboratories International.
State Agency Information Systems: Reviewing Security Controls in Selected State Agencies – Department of Corrections (CY 2015)
Pursuant to K.S.A. 46-1133, we randomly selected the Marais des Cygnes Valley school district for an audit of its operations to help identify potential efficiencies and cost savings. Because the district appears to operate efficiently compared to its peer districts, we identified only a few opportunities for the district to operate more efficiently and reduce its costs. First, we identified one option that would have little to no impact on students or the community. We estimated the district could generate up to $5,200 in revenue annually by switching to a cash-back procurement card and maximizing its usage. Next, we identified two options that would have a moderate impact on students or the community. We estimated the district could save about $21,000 annually by replacing a full-time teaching position with a paraprofessional. The district could also generate up to $18,000 in savings and increased revenue by eliminating free meals for staff and increasing meal prices. Finally, we found that the district lacked adequate policies and procedures for several of its financial controls.
Larned State Hospital: Reviewing the Operations of the Sexual Predator Treatment Program
In 1994 the Legislature created an involuntary civil commitment program for sexual predators at Larned State Hospital. The goal of the Sexual Predator Treatment Program is to prevent sexual predators from reoffending after their release. The recommended practices for sexual predator programs emphasize individualized treatment. However, Kansas’ program generally did not adhere to the recommended practices, while other states programs we reviewed generally did. The Kansas’ program met many legal requirements, although there were several exceptions related to education and rehabilitation. In addition, residents may not have necessarily arrived at the reintegration facilities with the skills to be successful. Further, we found that program officials had not maintained appropriate records and documentation to effectively manage the program and policies and program guidance were outdated and not adhered to. Until recently, KDADS had not filed annual reports with the legislature as required by statute.
Unless changes are made, the Sexual Predator Treatment Program will exceed capacity at Larned in the next few years and will continue to grow for the foreseeable future. We evaluated the impact of six different options to potentially reduce the program’s resident population.
• Treat low-risk residents in a community setting, which would reduce the resident population at Larned State Hospital and reduce program costs.
• Treat medically infirm residents in a secured nursing facility, which would reduce the resident population at Larned but would not significantly affect program costs.
• Treat residents on the “parallel track” in a separate secured facility, which would reduce the resident population at the Larned facility, but potentially increase costs.
• Expand the number of reintegration slots at Osawatomie and Parsons State Hospitals from 16 to 32, which would not reduce the resident population at Larned.
• Limit the time a resident can occupy a slot in a reintegration facility, which would not significantly reduce the resident population at Larned.
• Begin sexual predator treatment before the offender is released from prison, which would not significantly impact resident population and could increase costs.
Finally, we found that statutory housing restrictions make it difficult for residents to leave the program.
Kansas Insurance Department: Evaluating the State’s Workers’ Compensation Insurance Plan Contract
State law requires the Kansas Workers’ Compensation Insurance Plan, a plan to provide workers’ compensation insurance for high-risk companies. In early 2014, the board that oversees the plan reviewed bids from two vendors interested in administering the plan. As a result of that review, the board awarded the contract to the National Council on Compensation Insurance (NCCI). We compared the cost estimate in NCCI’s bid to requirements in the state’s request for proposal (RFP) and determined that it appeared to include the required costs. However, we also found that NCCI receives other administrative payments related to the plan that were not captured in its cost estimate. Although inclusion of those payments did not appear to be required by the RFP, the RFP language was not entirely clear and resulted in inconsistent cost estimates between the two vendors.
State Agency Information Systems: Reviewing Security Controls in Selected State Agencies – Department of Wildlife, Parks and Tourism (CY 2015)
In 2014, the City of Topeka developed a proposal to expand an existing STAR bond redevelopment district and issue new bonds to purchase the Heartland Park racetrack. We evaluated eight areas of the city’s proposal and found all eight areas appeared to meet the requirements of the STAR Bond Financing Act. However, we also identified several issues based on that review. For example, we noted concerns about whether the current Heartland Park STAR bond proposal is the type of project the Kansas Legislature envisioned for STAR bonds and about the independence and reliability of the studies that demonstrate Heartland Park’s statewide economic impact. Additionally, we identified several areas where current statutes could be strengthened or made clearer.
State of Kansas: OMB Circular A-133 Audit of Fiscal Year 2014
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.
K-12 Education: Efficiency Audit of the Prairie Hills School District
The Prairie Hills school district volunteered for an audit of its operations to help identify potential efficiencies and cost savings. We identified a number of opportunities for the district to operate more efficiently and reduce its costs. First, we identified options that would have little to no impact on students or the community. We estimated the district could generate $125,000 in savings and revenue by adopting more efficient food service practices and increasing meal prices. Next, we identified two options that would have a moderate impact on students or the community. We estimated the district could save $85,000 by consolidating certain classes not filled to capacity and could save about $12,000 annually by ending its current practice of busing students who live less than 2.5 miles from their school. Finally, we identified three actions that would have a significant impact on students or the community. We estimated the district could save about $460,000 annually by closing the Wetmore school and moving the students to Sabetha schools. The district could also save $80,000 by eliminating two low-enrollment programs and could save $60,000 by consolidating four Sabetha kindergarten classes to three.
We also found that the boundaries created by the Prairie Hills school district consolidation make achieving significant savings difficult. Moreover, we found the district has inadequate controls and written policies for processing payroll, making purchases with credit cards, processing cash transactions, and maintaining an inventory, any of which could result in theft, fraud, or loss.
State Agency Information Systems: Reviewing Security Controls in Selected State Agencies – Kansas Neurological Institute
Since 2006, the Kansas State Employees Health Care Commission has contracted with Caremark to provide pharmacy benefit management services for the prescription drug portion of the Kansas State Employee Health Plan. Because a pharmacy benefit manager controls many aspects of a prescription drug plan, there is a risk that it may not manage the program in the state’s best interest. To mitigate this risk, the commission has negotiated numerous contractual provisions to reduce the risks associated with using a pharmacy benefit manager. However, the Kansas Department of Health and Environment (KDHE) does not routinely take the steps needed to verify that Caremark is complying with the contractual provisions. Specifically, KDHE does not adequately check claims data for spread pricing, does little to ensure it receives its share of drug rebates, and does little to independently verify how the drug formulary is managed. In addition, KDHE does not take steps to ensure it receives all claim recoupments that Caremark collected from pharmacies. We also found that the state’s contract with Caremark includes few controls related to mail-order prescriptions; however state spending for mail-order is minimal. Finally, we found that although specialty drugs comprise 32% of total prescription drug costs for the State Employee Health Plan, we could not verify whether KDHE is proactively monitoring this area.
K-12 Education: Reviewing Virtual Schools Costs and Student Performance
Our audit identified three different models of virtual education in Kansas: a full-time K-12 model, an adult diploma completion model, and a part-time K-12 model. Schools in each model provided a full curriculum and a variety of support services such as guidance counseling and at-risk services in the 2013-14 school year. We estimated the cost of operating a full-time K-12 virtual school is about $4,500 to $5,600 per FTE student or about $400 to $1,500 more per FTE student than the state provides in funding. We estimate the cost of operating an adult diploma completion program is about $3,300 to $4,100 per FTE student or about $4,800 to $5,600 per FTE student less than the state provides. We estimate the cost of providing individual courses to K-12 students is about $1,700 per FTE student or about $2,500 less per FTE student than the state provides. In terms of outcomes, full-time K-12 virtual school students performed similarly to traditional school students on state assessments whereas the adult students in our sample made little progress in earning their high school diploma.
We also found that including virtual school students in the calculation for assessed valuation per pupil allows some districts to receive more funding than intended, that state statute includes a non-proficient weighting that should be removed, and that districts do not fully account for all of their virtual school expenditures in the appropriate fund.
The Kansas State Department of Education has implemented most, but not all, of our 2007 virtual school audit recommendations. KSDE approved two districts to operate virtual schools even though they identified problems with the operation of those schools. Finally, school districts are not complying with state law to provide health services to virtual school students or to submit training reports for virtual school teachers.