Audit
of Administrative Costs Claimed by the Maryland State Department
of Education for Its Disability Determination Services - A-13-96-25000
- 6/9/97
This final
report presents the results of our audit of administrative costs
claimed by the Maryland State Department of Education (MSDE), for
its Disability Determination Services (MDDDS). MDDDS performs disability
determinations under the Social Security Administrations
(SSA) Disability Insurance (DI) and Supplemental Security Income
(SSI) programs. The objectives of our audit were to:
determine
whether costs claimed on the State Agency Report of Obligations
for SSA Disability Programs (Form SSA-4513) for the period October 1, 1992
through September 30, 1995, were allowable and properly allocated;
determine
if the aggregate of the Federal funds drawn down agreed with
total expenditures for the Fiscal Years (FY) 1993 through 1995
disability determinations; and
evaluate
internal controls over the accounting and reporting of the administrative
costs claimed, as well as of the drawdown of Federal funds.
We reviewed
the administrative costs of $43,851,173 for SSA disability determinations
claimed as of March 31, 1996 for the years ended September 30,
1993, 1994, and 1995. Our procedures were designed to determine
whether costs were allowable and properly allocated and Federal
funds were accounted for properly. Also, we reviewed internal controls
over the accounting, recording, and reporting of transactions.
The obligations reported to SSA for this period should have been
reduced by a net amount of $604,496 to adjust for overstated disbursements
and unliquidated obligations (see Appendices B, C, and D).
Also, based on its accounting records, as of March 31, 1996, $773,003
of the Federal funds drawn by MSDE were in excess of its audited
cost accounting records and are due back to SSA with applicable
interest. Controls over accounting records, financial reporting,
and Federal funds drawdowns need to be strengthened to minimize
these reporting, accounting, and drawdown deficiencies from recurring.
MSDE submitted
to SSA the final Forms SSA-4513 on October 24, 1996 for the FYs
ended September 30, 1994 and 1995 (FY 1993 was finalized prior
to the audit field work). MSDE also provided us with comments on
our report which generally agreed with our findings and recommendations.
The MSDE final Forms SSA-4513 included adjustments that lowered
expenditures below the amount we audited. Also MSDE made adjustments
to PMS records that show there is no longer funds drawn down in
excess of audited costs. Please refer to the section MSDE COMMENTS
AND OIG CONCLUSIONS for more details.
INTRODUCTION
The DI program
was established in 1954 under title II of the Social Security Act
(the Act). The program is designed to provide benefits to
wage earners and their families in the event the wage earner becomes
disabled. In 1974, the Congress enacted the SSI program (Public
Law 92-603). Title XVI of the Act provides a nationally
uniform program of income to financially needy individuals who
are aged, blind or disabled.
SSA is primarily
responsible for implementing the general policies governing the
development of disability claims under the DI and SSI programs.
Disability determinations under both DI and SSI are performed by
an agency in each State in accordance with Federal regulations.
In carrying out its obligation, each State agency (SA) is responsible
for determining the claimants disabilities and ensuring that
adequate evidence is available to support its determinations. To
assist in making proper disability determinations, each SA is authorized
to purchase medical examinations, x-rays, and laboratory tests
on a consultative basis to supplement evidence obtained from claimants physicians
or other treating sources.
SSA pays the
SA for 100 percent of allowable expenditures. Each year, SSA determines
the amount of funding authorization. Once approved, each SA is
allowed to withdraw Federal funds through the Department of Health
and Human Services (HHS) Payment Management System (PMS)
to meet immediate program expenses. HHS` Division of Payment
Management is responsible for operating this centralized payment
system. Cash drawn from the Department of the Treasury (Treasury)
to pay for program expenditures is to be drawn in accordance with
31 Code of Federal Regulation (CFR), Part 205 and, since July 1, 1994,
a Treasury/State agreement under the Cash Management Improvement
Act. At the end of each quarter of the Federal FY, each SA submits
to SSA a "State Agency Report of Obligations for SSA Disability
Programs" (Form SSA-4513) to account for program disbursements
and unliquidated obligations. An advance or reimbursement for costs
under the program is subject to the requirements set forth in the
Office of Management and Budgets Circular A-87, "Cost
Principles for State and Local Governments."
MDDDS is a
component within the Division of Rehabilitation Services under
MSDE. The agency employs approximately 200 personnel and, for the
3 years audited, has an average annual budget of $14.6 million.
A budget of $43,851,173 was authorized by SSA for disability determinations
for FYs 1993 through 1995 and the only Federal program for which
MDDDS conducts operations is the disability determination program.
MDDDS accounting functions are performed primarily by the
MSDE Accounting Branch. Allocation of indirect costs is done according
to MSDEs indirect cost agreement which is approved by the
U.S. Department of Education.
Our audit was
conducted in accordance with generally accepted government auditing
standards. The objectives of our audit were to:
determine
whether costs claimed on the Form SSA-4513 for the period October 1, 1992
through September 30, 1995, were allowable and properly allocated;
determine
if the aggregate of the Federal funds drawn down agreed with
total expenditures for the FYs 1993 through 1995 disability determinations;
and
evaluate
internal controls over the accounting and reporting of the administrative
costs claimed, as well as of the drawdown of Federal funds.
To accomplish
the audit objectives, we:
reviewed
Federal laws, regulations, and instructions pertaining to administrative
costs incurred by MDDDS and to the drawdown of Federal funds;
reviewed
MDDDS policies and procedures, and internal controls regarding
the administration of the disability determination activities;
performed
an examination of the administrative expenditures (personnel,
medical service, indirect and all other nonpersonnel costs) incurred
by MDDDS and claimed by MSDE for the period October 1, 1992 through
September 30, 1995;
reviewed
the reconciling of the official accounting records to the administrative
costs reported by MSDE to SSA on the Form SSA-4513 report for
the period October 1, 1992 through September 30, 1995; and
compared
the amount of Federal funds drawn for support of program operations
to the allowable expenditures.
We did a test
of documentation supporting the costs claimed by MSDE for the period
October 1, 1992 through September 30, 1995, as reported to SSA
as of March 31, 1996. Except as noted under "FINDINGS AND
RECOMMENDATIONS," the results of our tests indicated that,
with respect to the items tested, MSDE complied in all material
respects with the Federal cost principles and regulations. For
those items not tested, nothing came to our attention to indicate
that the untested items were not in compliance with applicable
laws and regulations.
The field work
was performed from February to October 1996 at the sites of MDDDS,
and MSDE`s Accounting Branch located in the Baltimore, Maryland,
area. We held discussions with the MSDE internal auditor, and Arthur
Andersen & Company (Single Audit Certified Public Accounting
firm for Maryland), and SSA`s Philadelphia Regional Office
(see Appendix F for organization of SSA).
The reconciliation
of the accounting records to the administrative costs claimed by
MDDDS showed that disbursements and unliquidated obligations were
overstated. During FYs 1993 through 1995, MDDDS overstated disbursements
by $273,543 and unliquidated obligations by $330,953. As a result,
total obligations reported to SSA by MDDDS for the period should
be reduced by a net amount of $604,496 (see Appendices B, C, and
D). Also, MDDDS had drawn Federal funds of $773,003 in excess of
its audited accounting records for FYs 1993 through 1995.
ACCOUNTING
FOR DISBURSEMENTS
MDDDS costs
claimed on Form SSA-4513 were $273,543 more than the audited accounting
records reported for the period FYs 1993 through 1995. We compared
the line item costs reported on the Form SSA-4513 to the audited
cost accounting records for MDDDS. The differences between the
costs claimed on Form SSA-4513 and the audited cost accounting
records are shown below:
DISBURSEMENTS
FOR FYS 1993 - 1995
FORM SSA-4513
LINE ITEMS
MDDDS
COSTS CLAIMED
MSDE
COST
ACCOUNTING RECORDS
AUDIT
ADJUSTMENTS
PERSONNEL
COSTS
$25,084,913
$25,001,805
($83,108)
MEDICAL
SERVICE COSTS
10,227,546
9,867,266
(360,280)
INDIRECT
COST
4,241,295
4,280,480
39,185
ALL OTHER
NONPERSONNEL COST
3,746,144.00
3,876,804
130,660
TOTAL DISBURSEMENTS
$43,299,898
$43,026,355
($273,543)
See our Appendices
B, C, and D for the amounts adjusted for each FY line item.
ACCOUNTING
FOR UNLIQUIDATED OBLIGATIONS
Unliquidated
obligations are cost commitments for orders placed, contracts awarded,
and services received that have not been paid. Our review showed
that MDDDS costs reported to SSA on Form-4513 as of March 31, 1996,
were overstated by $330,953 for unliquidated obligations that were
either invalid or no longer needed. We found controls were inadequate
in detecting the overstatement. MDDDS did not follow procedures
over the approval and monitoring of unliquidated obligations. The
errors occurred in the following line item categories:
UNLIQUIDATED
OBLIGATIONS FOR FYS 1993 - 1995
FORM SSA-4513
LINE ITEMS
FORM
SSA-4513
COST CLAIMED
AUDITED
COST
ACCOUNTING RECORDS
AUDIT
ADJUSTMENT
MEDICAL
SERVICE COSTS
$68,884
$0
($68,884)
INDIRECT
COST
4,251
4,251
0
ALL OTHER
NONPERSONNEL COST
478,140
216,071
(262,069)
TOTAL UNLIQUIDATED
OBLIGATIONS
$551,275
$220,322
($330,953)
Invalid
Purchase Orders
We reviewed
the unliquidated obligation line item - All Other Nonpersonnel
Costs for FY 1994. MDDDS obligated $250,000 to buy modular
furniture (workstations). We obtained a copy of the purchase order
and found the purchase order had no specific details of the number
and cost of modular furniture. Also, the vendor informed us that
the purchase order had never been placed.
MDDDS and MSDE
have the responsibility to ensure obligations are proper. The Program
Operations Manual System (POMS) 39506.809 states that obligations
should be supported by a valid purchase order or other binding
agreement for the purchases of supplies, equipment, and other contractual
services. For a purchase order to be a valid unliquidated obligation,
it must be issued and agreed to in writing by the vendor. MDDDS
and MSDE should strengthen internal controls over the approval
of purchases to ensure they are valid.
Canceled
Unliquidated Obligations
As of March
31, 1996, the FYs 1994 and 1995 unliquidated obligations were respectively
$257,940 and $293,335 (Appendices C and D). We reviewed the unliquidated
obligations balances and found $80,953 was no longer necessary.
The $80,953 consists of the following line items:
UNLIQUIDATED
OBLIGATIONS
FYS 1993 - 1995
CANCELLATIONS
BALANCE
MEDICAL
SERVICE COSTS
$68,884
ALL OTHER
NONPERSONNEL COSTS
12,069
TOTAL CANCELLATIONS
$80,953
As a result
of our review of unliquidated balances, MSDE did a review of outstanding
unliquidated obligations in FYs 1994 and 1995. Subsequently, MSDE
canceled $80,953 of unliquidated obligations from MSDE`s accounting
records.
POMS 39506.812
states that valid unliquidated obligations should be supported
by documents and records describing the nature of the obligations
and supporting the amounts recorded. POMS further indicates SAs
should review unliquidated obligations at least once each month
and cancel those no longer valid. However, we found MSDE does not
review the unliquidated obligations as a monthly routine. Internal
controls over the monitoring of unliquidated obligations should
be improved so that funds obligated and not needed can be reduced.
DRAWDOWNS
OF EXCESS FEDERAL FUNDS
Our review
of the accounting records showed the MDDDS drawdown of Federal
funds exceeded its expenditures. The MDDDS funds drawn down should
represent actual expenditures that require payment advance or reimbursement.
We found MDDDS drawdowns were $20,250 less than its costs for the
FY ended September 30, 1993, and drawdowns for the FYs ended September
30, 1994 and 1995 respectively were in excess of its cost by $436,573
and $356,680. The total net excess drawdowns amount to $773,003.
The excess drawdowns occurred because internal controls were not
effective.
The funds authorized
and allocated are to be drawn down by MDDDS when an actual expenditure
is incurred and it is necessary to be paid. Funds received must
be for immediate needs as cited in 31 CFR 205.7. To receive funds
with no immediate need is contrary to the regulations. POMS 39506.212
further states all expenditures are deemed to be necessary if they
are incurred by the disability determination process, in accordance
with standards and other written guidelines of the Commissioner,
approved by SSA, and within the limits of the approved MDDDS budget.
Use of 1 year`s
disability determination services appropriation to pay for other
years` expenses is not allowed. According to the Supplemental
Appropriation Act of 1955, section 1311(d), an appropriation is
limited for obligation to the appropriation period. Liquidation
of expenditures after the expiration can only take place if obligations
occurred during the appropriation period. And no appropriations
or funds will remain available after the appropriation period authorized
by law. In addition, MSDE Policy 02.200.01 explains that any portion
of the Federal funds provided to a State in the current FY and
not obligated by the State during that year shall be returned to
the authorized Federal Agency.
MDDDS drawdowns
of Federal funds exceeded its expenditures by $773,003 for the
FYs ending September 30, 1993, 1994, and 1995. We determined the
excess drawdowns by comparing MDDDS expenditure records of $43,026,355
to the total drawdown amount of $43,799,358. While further investigating
the overdraws, MSDE accounting officials told us that $584,794
of FY 1995 funds were improperly spent in FY 1996. Listed below
for comparison purposes are the amounts drawn down as compared
to MSDE cost records.
COMPARISON
OF DRAWDOWNS FOR FYS 1993 - 1995
FY 1993
FY 1994
FY 1995
TOTAL
AMOUNTS
MSDE DRAWDOWNS
$13,630,073
$14,844,712
$15,324,573
$43,799,358
LESS: MSDE
COSTS
13,650,323
14,408,139
14,967,893
43,026,355
DRAWDOWNS
IN EXCESS OF COSTS
($20,250)
$436,573
$356,680
$773,003
We found MSDE
controls over drawdowns recording need improvement. Funds drawn
down were recorded as another year or program. Inadequacy of controls
over tracking and recording drawdowns led to funds being applied
to other programs or FYs than appropriated. The drawdown is a violation
of rules that require all funds be restricted to MDDDS expenditures
and the authorized FY.
The MDDDS FY
1993 Form SSA-4513 showed in its final report all expenditures
were paid with no funds remaining. This final report showed total
expenditures of $13,649,632 equaled the amount authorized. Our
review of the PMS allotment account balance showed $13,630,073
drawn down leaving a difference of $19,559. Since no unliquidated
obligations exist, SSA should review the matter with PMS and adjust
the account balances to its proper outstanding amounts.
RECOMMENDATIONS
We recommend
that SSA instruct MSDE to:
1. require
MDDDS to amend Forms SSA-4513 for FYs 1993 to 1995 to decrease
disbursements by $273,543;
2. require
MDDDS to amend the Forms SSA-4513 for FYs 1994 and 1995 to decrease
obligations representing unliquidated obligations by $330,953;
3. refund
SSA $773,003 with applicable interest for the funds over drawn
by MDDDS in excess of its audited costs;
4. improve
internal controls over fund drawdowns, expenditures, and unliquidated
obligations; and
5. require
MDDDS to review unliquidated obligation balances to assure that
proper balances are reported on Form SSA-4513.
MSDE COMMENTS
AND OIG CONCLUSIONS
The Assistant
State Superintendent in Rehabilitation Services provided comments
in response to our draft report, dated May 5, 1997. The full text
of the comments are in Attachment A of this report. We appreciate
the cooperation and prompt action by the State of Maryland to resolve
the issues identified in our draft report.
The MDDDS generally
agreed with our recommendations. Subsequent to our field work,
MDDDS submitted final Forms SSA-4513 for FYs 1994 and 1995 and
incorporated audit adjustments applicable to recommendations 1
and 2 by reducing disbursements by $273,543 and unliquidated obligations
by $330,953. MDDDS also addressed recommendation 3 by refunding
and adjusting PMS records by $897,693. The effect of the MDDDS
adjustments also reduced unliquidated obligations to agree with
recommendation 5.
We continue
to believe that MDDDS needs to improve internal controls over fund
drawdowns, expenditures, and unliquidated obligations. Although
we did not verify the amounts reported on the final Forms SSA-4513
for FYs 1994 and 1995, they do not reconcile to the State records
we audited. And while the adjusted costs are lower than audited
costs, it shows that internal control weaknesses exist in the reconciliation
of Forms SSA-4513 to State records and in drawdown records
as reflected in the following schedules:
MDDDS
OBLIGATIONS AFTER FINAL FORMS SSA-4513
FY 1993
FY 1994
FY 1995
TOTAL
AMOUNTS
ALLOWED
OBLIGATIONS
$13,650,323
$14,408,139
$15,188,215
$43,246,677
FINAL SSA-4513
REPORTS FILED BY MSDE
13,649,632
14,653,049
14,627,880
42,930,561
DIFFERENCES
$691
($244,910)
$560,335
$316,116
DRAWDOWNS
IN EXCESS FOR FYS 1993 - 1995
AFTER ADJUSTMENTS
FY 1993
FY 1994
FY 1995
TOTAL
AMOUNTS
DRAWDOWNS
IN EXCESS PER AUDIT REPORT
($20,250)
$436,573
$356,680
$773,003
SUBSEQUENT
PERIOD DRAWDOWNS ADJUSTMENTS
(135,533)
(762,160)
(897,693)
SUBSEQUENT
EXCESS AFTER ADJUSTMENTS
($20,250)
$301,040
($405,480)
($124,690)
The schedules
show that FY balances for drawdowns and expenditures are either
over or understated. The final Forms SSA-4513 should agree with
allowed obligations and the differences should be zero. This reinforces
our recommendation 4. SSA needs to work with the MSDE to develop
a corrective action plan to improve internal controls over recording
and reporting obligations and drawdowns.
Pamela J. Gardiner
Assistant Inspector General
for Audit
This audit
report was prepared by the Office of Audit, Central Operations
Audit Group in Baltimore, under the direction of Gary Kramer, Director.
Audit staff included:
Albert Darago,
Acting Director
Lance Chilcoat, Acting Team Leader
Sigmund Wisowaty, Auditor in Charge
Steve Sachs
Bill Richardson