Summary of Report 03-023

March 2003

Report Number 03-023

The Department of Health (Department) has not made significant progress in implementing important initiatives related to its core administrative support functions in its Business Improvement Plan. Since finalizing its plan in December 2001, the Department has spent more than a year performing tasks that have not significantly strengthened its administrative support functions. The lack of progress in implementing its Business Improvement Plan has contributed to serious ongoing weaknesses in the Department's financial operations.

The Department has not achieved the intent of the consultant's Business Practices Evaluation Report on which it based its Business Improvement Plan. In attempting to implement its plan, the Department has developed a reorganization proposal without conducting a functional review of its operations. Conducting this type of review was a critical recommendation in the Business Practices Evaluation Report. Rather than increase efficiency and consolidate operations, the Department's planned reorganization will add an additional layer of management to its organizational structure.

The Department's serious financial weaknesses significantly reduce the reliability of its financial information. These weaknesses have resulted in the Department's understatement of its accounts payable, its failure to reconcile its internal accounting system with the Uniform Statewide Accounting System (USAS), its underreporting of fiscal year 2002 total expenditures, and other financial management and bookkeeping errors. During the last ten years, more than a dozen audit reports by the State Auditor's Office and others have identified weaknesses in the Department's financial operations. These weaknesses continue to persist and significantly reduce the reliability of the Department's financial information. The condition of the Department's financial information prevents us from determining the effect of these weaknesses on the Department's budget.

• The Department has not achieved the intent of the Business Practices Evaluation Report.
  

  The Department has not performed the functional review that its Business Practices Evaluation Report recommended. This review is critical because it can identify efficiencies, eliminate unnecessary activities, and assess the appropriateness of staffing levels. Therefore, the Department is poised to implement a reorganization plan without ever having considered these critical factors.

• The Business Improvement Plan initiatives the Department has completed are considerably less complex than the initiatives on which it has not acted.
  

  The Department has fully implemented 37 (39 percent) of the 94 initiatives in its Business Improvement Plan. Of the remaining 57 initiatives, the Department chose to eliminate 7, and 50 initiatives are partially implemented or have been delayed.

• The Department's continuing financial weaknesses significantly reduce the reliability of its financial information.

  The Department still has not corrected most of the financial weaknesses we identified in our previous audit reports.
  Examples of the financial weaknesses include the following:

  • The Department understated in its Annual Financial Report the amount of its fiscal year 2002 accounts payable by at least $136 million.
  • The Department has not reconciled the information in its internal accounting system with the information in USAS. As a result, as of February 4, 2003, we estimated that the Department must make adjustments of $318 million (with a net effect of $122 million) to reconcile the cash balance recorded in USAS with the cash balance recorded in the Department's internal accounting system.
  • The Department underreported in its Annual Financial Report its fiscal year 2002 total expenditures of federal funds by $214 million.
  • The Department's internal auditor has reported that the Department's internal accounting system lacks adequate system auditing, user function restrictions, and user account and maintenance controls.
  • The Department still has not complied with federal requirements related to the indirect cost recovery plans. According to the U.S. Department of Health and Human Services, this puts the Department at risk for losing an estimated $30 million in federal indirect costs reimbursements.
  • The Department continues to incur a state interest liability to the federal government when it makes expenditure transfers that change a transaction's method of financing from federal to state funds. When we calculated the interest liability as the federal government instructed, we estimated it could be at least $762,000 for fiscal year 2002. However, because the Department failed to provide complete information to the Comptroller of Public Accounts, this liability should be higher.
  • The Department also continues to code expenditure vouchers incorrectly and use expenditure adjustments to correct bookkeeping errors. These issues impair the comparability of the Department's expenditure information.
    

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