Certain State Agencies' Compliance with the Operational Service Division's Audit Resolution Policy

This is a State Auditor performance audit about whether certain Massachusetts agencies followed the Operational Services Division's rules for resolving problems found in audits of human service providers.

“In accordance with Chapter 11, Section 12, of the Massachusetts General Laws, the OSA conducted a performance audit of certain state agencies’ compliance with OSD’s Audit Resolution Policy.”

The Auditor wanted to see whether agencies fixed issues from an earlier audit, followed the audit-resolution rules during this review period, and whether the overall process worked well.

“The objectives of our audit, which covered the period April 5, 2005 through March 31, 2011, included an assessment of the measures taken by state agencies to address the issues raised in our prior audit (No. 2006-5120-15C), the measures state agencies have taken to ensure their compliance with OSD’s Audit Resolution Policy relative to audits conducted by the OSA during our current audit period, and the overall effectiveness of OSD’s audit resolution process.”

This matters because audit problems need to be fixed properly so public money is protected and agencies do not pay contractors for costs the state is not supposed to cover.

“In order to ensure the proper resolution of all problems identified during OSA audits, it is essential that OSD administer an effective audit resolution process and that state agencies that purchase human services continue to take the measures necessary to ensure that they fully comply with this process.”

For an ordinary taxpayer, the issue is whether state agencies are recovering or properly resolving money that contractors should not have charged to state-funded programs.

“This policy removes accountability from the system by creating a disincentive for providers to properly identify and account for their nonreimbursable expenses as required by state regulations and increases the risk that Commonwealth funds are being expended improperly.”

The good news is that agencies had improved their controls and resolved the earlier audit issue; the unresolved concern is that OSD's refiling practice may reduce accountability and let providers avoid direct repayment.

“During our follow-up review, we found that these state agencies have taken measures to address the issues we identified during our prior audit and have implemented more effective controls in this area.”

The Auditor recommended that OSD keep working with agencies to resolve audit findings properly and reconsider whether providers should have to repay the Commonwealth for nonreimbursable expenses found in audits.

“OSD should reevaluate its practice of allowing vendors to adjust and refile their UFRs rather than reimburse the Commonwealth directly for any nonreimbursable expenses identified during OSA audits.”

The report is significant because it says agencies fixed a major prior weakness, but also flags a policy that the Auditor believes could affect millions of dollars and weaken deterrence against improper billing.

“An amended policy that encourages human service providers to be more vigilant in identifying and reporting all of their nonreimbursable expenses and provides consequences for the failure to do so would bring greater accountability over provider billings and, based on the results of our review, could result in millions of dollars in savings to the Commonwealth.”

A Corrective Action Plan is the written plan a provider and state purchasing agency use to say how audit findings will be fixed and when those fixes will happen.

“According to OSD’s Audit Resolution Policy, the CAP must address all audit findings, deficiencies, and uncorrected findings of prior audits; use reference numbers utilized by the OSA to identify the deficiencies; and specify corrective actions that the provider will take to address the deficiencies and the dates by which it will implement those actions.”