Audit of the Operational Services Division Objectives, Scope, and Methodology

An overview of the purpose and process of auditing the Operational Services Division

Overview

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of certain activities of the Operational Services Division (OSD) for the period July 1, 2011 through December 31, 2017.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Below is our audit objective, indicating the question we intended our audit to answer, the conclusion we reached regarding the objective, and where the objective is discussed in this report.

Objective	Conclusion
Has OSD adequately reviewed the Uniform Financial Statements and Independent Auditor’s Reports (UFRs) submitted by human-service vendors providing services to the Commonwealth?	No; see Finding 1

To achieve our audit objectives, we gained an understanding of OSD’s internal control environment that was relevant to our audit objectives by reviewing applicable laws, regulations, policies, and procedures and by performing interviews and observations with OSD’s staff and management.

In addition, we performed the following procedures to obtain sufficient, appropriate audit evidence to address our audit objective.

UFR Desk Reviews

We obtained OSD’s database of UFR filings, including the UFRs for fiscal years 2012–2017, and, using Audit Command Language (ACL) software, summarized OSD’s review activity for the various filings and prepared an analysis of the UFR reviews performed by OSD’s staff.

Surplus Revenue Retention and Nonreimbursable Costs

• We analyzed all UFR filings for fiscal years 2012–2017 (as of December 31, 2017) from the UFR database and identified 112 UFR filings that reported excess yearly surplus revenue amounts totaling $18,844,138, 164 UFR filings that reported excess cumulative surplus revenue amounts of $95,989,769, and 825 UFR filings that reported total program nonreimbursable costs of $86,813,090. Using ACL, we summarized yearly and cumulative surplus revenue and nonreimbursable costs³ reported by providers.
• Using ACL, we selected a nonstatistical random sample of 25 UFR filings, totaling $15,924,194, from a population of 262 filings, totaling $298,401,212, with reported nonreimbursable expenses and requested OSD’s documentation of its determinations for potential state fund recoupment or contract price. Because we used nonstatistical sampling, we did not project the results to the population.
• From the UFR database, we identified all nonreimbursable costs that contracted human-service providers reported in their UFRs for fiscal years 2012–2017 to identify (1) situations where providers had used state funds to pay for nonreimbursable expenses and (2) amounts that OSD could potentially recover from nonreimbursable costs. We also interviewed OSD staff members to determine whether they had reviewed the UFRs to identify potential recoupments.

Data Reliability Assessment

• To determine the reliability of the Microsoft Access–based UFR database, we selected one UFR submitted by a service provider, using the Microsoft Excel–based UFR eFile system, for each year under review and compared data in the Excel UFR documents to the data in the UFR database maintained by OSD.⁴
• To verify general filing information, we randomly selected six providers and compared contractor federal employer identification numbers, fiscal years, filing dates, filing types, and filing statuses in the OSD database to the UFR Excel data and file page in the UFR eFile system.
• For surplus revenue reliability, we compared data from 30 randomly selected UFRs obtained from the UFR eFile system to data in OSD’s UFR database.
• For nonreimbursable costs, we selected 30 providers and checked for agreement between Excel UFR document amounts in the UFR eFile system and amounts in OSD’s UFR database.

We also performed data validity and integrity tests, including testing for missing data and scanning for duplicate records and hidden rows, columns, and formulas. Based on the analysis conducted, we determined that the data obtained were sufficiently reliable for the purposes of this audit.

3.    Until fiscal year 2016, Commonwealth social-service providers were allowed to retain the current year’s surplus up to 5% of the current year’s revenue from the Commonwealth and a cumulative surplus not exceeding 20% of the previous year’s Commonwealth revenue. OSD changed the regulation on November 4, 2016 by increasing the limit on yearly surplus retention to 20% and eliminating the ceiling on cumulative surpluses. OSD regulations allow reimbursement to providers only for costs reasonably incurred in providing services described in their contracts. Other costs are considered nonreimbursable. Section 1.05 of Title 808 of the Code of Massachusetts Regulations lists 28 types of nonreimbursable costs.

4.    Human-service providers log in to a Web-based system (UFR eFile) and enter information in an Excel-based template. UFR eFile information is downloaded to an Access database, which contains the UFR information in various data tables.

Date published:	December 19, 2018