For Immediate Release - October 30, 2012

Audit Calls for Actual Recovery of Misspent Funds

BOSTON, MA —In an audit announced today, State Auditor Suzanne Bump challenged a state practice that allows some human services vendors who have received state payment for “unallowable expenses” to avoid repaying the state.

The Office of the State Auditor (OSA) regularly performs audits of businesses and nonprofits that are contracted by the state to provide goods and services.  When such audits identify instances of unallowable expenses, the reports are provided to the human service provider’s state contracting agency for resolution which could include the recovery of any misspent funds.

The Operational Services Division (OSD), which works with state agencies to regulate and oversee state contracts, allows service providers that have sufficient non-state revenue to adjust and refile their financial statements to show that non-state funds covered the non-reimbursable expenses. This action resulted in over $2.6 million in non-reimbursable expenses being resolved through accounting adjustments during the audit period rather than actual recovery, delivery of in-kind services, or rate adjustment.

“This policy is essentially giving providers an accounting do-over, creating a disincentive to properly identify and account for their expenses,” said Auditor Bump. “The policy is also inequitable toward smaller providers which may not have the level of non-state funds to cover the non-reimbursable expenses.”

Non-reimbursable expenses include items such as fundraising expenses, certain fringe benefits, excessive salaries, non-program expenses, undocumented expenses and lobbying costs.

The audit recognizes the rationale of allowing amendments in the case of error or in the case of non-state revenue becoming unrestricted and eligible for use late in the process, but recommends that OSD reconsider its policy of allowing vendors to amend their financial reports as a matter of practice to address non-reimbursable costs rather than seeking mitigation in the form of repayment, in-kind services or rate adjustment.

Additionally, the audit reported that five agencies in the Executive Office of Health and Human Services – the Department of Children and Families, the Department of Mental Health, the Department of Developmental Services, the Department of Transitional Assistance and the Massachusetts Rehabilitation Commission – as well as the Department of Elementary and Secondary Education and the Department of Early Education and Care had taken the proper steps to resolve findings in 30 of 33 SAO audits as required by OSD. In a prior audit, only 11 of the 33 audits had approved corrective action plans.

The Office of State Auditor Suzanne Bump conducts financial, performance, and technical assessments of state government’s programs, departments, agencies, authorities, contracts, and vendors. With its reports, the OSA issues recommendations to improve accountability, efficiency, and transparency.

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Audit: Certain State Agencies' Compliance with the Operational Service Division's Audit Resolution Policy pdf format of State Agencies' Compliance with the Operational Service