SOCIAL SECURITY ADMINISTRATION
September
2003
A-15-02-12025
AUDIT REPORT
MEMORANDUM
Date: September 3, 2003
To: Carl L. Rabun
Regional Commissioner Seattle
From: Assistant Inspector General for Audit
Subject: Administrative Costs Claimed by the State of Washington Division of Disability Determination Services (A-15-02-12025)
OBJECTIVES
The objectives of our audit of the Washington Division of Disability Determination Service (WA-DDDS) were to:
• evaluate the adequacy of the internal controls over the accounting and reporting of administrative costs claimed and the draw down of Social Security Administration (SSA) funds to determine whether the controls were sufficient to ensure the proper accounting and reporting of administrative costs, as well as draw down of funds;
• determine whether
costs claimed on the State Agency Report of Obligations for SSA Disability Programs
(Form SSA-4513) for the period October 1, 1997 through September 30, 2000, were
allowable and properly allocated; and
• determine whether the aggregate of the SSA funds drawn down agreed with
total expenditures for Fiscal Years (FY) 1998 through 2000.
BACKGROUND
The Disability Insurance (DI) program was established in 1956 under Title
II of the Social Security Act (Act). The program provides a benefit to wage
earners and their families in the event the wage earner becomes disabled. The
Supplemental Security Income (SSI) program was created as a result of the Social
Security Amendments of 1972 with an effective date of January 1, 1974. SSI
(Title XVI of the Act) provides a nationally uniform program of income to financially
needy individuals who are aged, blind, and/or disabled.
SSA is primarily responsible for implementing policies governing the development
of disability claims under the DI and SSI programs. Disability determinations
under both DI and SSI are performed by Disability Determination Services (DDS)
in each State according to Federal regulations. In carrying out its obligation,
each DDS is responsible for determining claimants’ disabilities and ensuring
that adequate evidence is available to support its determinations. To assist
in making proper disability determinations, each DDS is authorized to purchase
consultative medical examinations, x-rays, and laboratory tests to supplement
evidence obtained from the claimants’ physicians or other treating sources.
SSA pays the DDS for 100
percent of allowable expenditures. Each year, SSA approves a DDS budget.
Once approved,
the DDS withdraws Federal funds through
the Department of the Treasury’s (Treasury) Automated Standard Application
for Payments system. Cash drawn from the Treasury to pay for program expenditures
is to be drawn according to Federal regulations and in accordance with intergovernmental
agreements entered into by Treasury and the States under the authority of the
Cash Management Improvement Act (CMIA). At the end of each fiscal quarter,
each DDS submits to SSA a Form SSA-4513 to account for program disbursements
and unliquidated obligations.
The designated agency for the State of Washington is the WA-DDDS, a division
within the Washington Department of Social and Health Services (WA-DSHS).
Parent agencies, such as WA-DSHS, often provide administrative services (accounting,
purchasing, personnel, etc.) to the State designated DDS agency. SSA reimburses
each DDS for 100 percent of the allowable expenditures reported quarterly
on Form SSA-4513.
SCOPE AND METHODOLOGY
To accomplish our objectives, we obtained evidence to evaluate recorded financial transactions in terms of their being allowable under Office of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, and appropriateness as defined by SSA’s Program Operations Manual System (POMS).
We reviewed the administrative
costs totaling $75,826,448 reported for the period October 1, 1997 through
September
30, 2000, as of March 31, 2001. This
amount included costs associated with SSA’s Automation Investment Funds
and Information Technology System funding activities.
We also:
• reviewed applicable Federal regulations and pertinent parts of SSA’s POMS, section DI 39500, DDS Fiscal and Administrative Management, and other instructions pertaining to administrative costs incurred by WA-DDDS and the draw down of SSA funds covered under the CMIA;
• interviewed WA-DSHS and WA-DDDS staff;
• documented our understanding of the WA-DSHS’ and WA-DDDS’ systems of internal controls over the accounting and reporting of administrative costs;
• evaluated and tested internal controls regarding accounting and financial reporting;
• traced the administrative expenditures WA-DDDS reported on Forms SSA-4513 to its accounting records;
• documented our understanding of the WA-DSHS’ procedures and internal controls for drawing down SSA funds;
• analyzed WA-DSHS’ draw down of SSA funds and their reconciliation with reported expenditures;
• reviewed the Washington State auditors’ Single Audit reports and related working papers;
• conducted a physical inventory of computer equipment items SSA provided to WA-DDDS during our audit period; and
• reviewed a random sample of 400 cases of other non-personnel and medical costs for FYs 1999 through 2000. We reviewed an additional judgmental sample of 305 cases of other non-personnel costs, furnishings, rentals, equipment and software, communications, journal vouchers, and medical costs for FYs 1998 through 2000.
To meet the objectives of our review, we assessed the reliability of computer processed data produced by the WA-DDDS administrative system.
As a result of our audit work, described in the bullets above, we determined that the data was sufficiently reliable given the audit objectives and intended use and should not lead to incorrect or unintentional conclusions.
We performed field work at the WA-DSHS in Lacy, Washington, the State Auditor’s Office in Olympia, Washington, and the WA-DDDS’ in Tumwater, Renton and Spokane, Washington. We conducted our audit from July 2001 through August 2002 in accordance with generally accepted government auditing standards.
RESULTS OF REVIEW
We have concluded that the WA-DDDS generally complied with laws, regulations, policies, and procedures governing the recording and reporting of expenditures and obligations under Titles II and XVI of the Act. While we found no significant problems, we did identify four compliance issues. These issues were: 1) obligations reported in wrong FYs; 2) overstated unliquidated obligations; 3) failure to maintain required inventory records; and 4) controls lacking to ensure effective cash management.
OBLIGATIONS REPORTED IN THE WRONG FY
During our examination of administrative expenditures incurred and claimed for the period under audit, we identified $61,594 in expenditures recorded as building improvements, equipment and furniture, which were incurred in FY 1999, but recorded in FY 1998.
31 U.S.C. §1502 (a) provides that:
“The balance of an appropriation or fund limited for obligation to a definite period is available only for payment of expenses properly incurred during the period of availability…the appropriation or fund is not available for expenditure for a period beyond the period otherwise authorized by law.”
Funds provided under Titles II and XVI of the Act for DDSs are taken out of SSA’s Limitation and Administrative Expense account and are to be obligated within each FY period.
On September 30, 1998, the SSA Seattle Regional Office (RO) provided authorization for advanced funding to the WA-DDDS. The WA-DDDS in turn, used 1998 funds of $61,594 for FY 1999 incurred costs. WA-DDDS also had expended all its funding authority in FY 1999.
The accounting treatment used for the advanced funding was not consistent with 31 U.S.C. §1502, and necessary adjustments need to be made to re-establish obligation authority to properly reflect expenditures incurred in the appropriate FY. Although, we recognize that WA-DDDS closed the FY 1998 books, OMB Circular A-34, Instructions on Budget Execution section 11.6 allows funds to be provided from an unexpired appropriation that is available for the same purpose as the closed account.
OVERSTATED UNLIQUIDATED OBLIGATIONS
We reviewed documentation regarding the FY 1998 unliquidated obligations and were informed that $61,617 in non-personnel costs were based on estimates. According to POMS, unliquidated or unpaid obligations for supplies, equipment and other contractual services should be supported by a commitment or promise to pay for goods or services. Also, “…State agencies should review unliquidated obligations at least once each month to cancel those no longer valid” as required in POMS DI 39506.203A.
We informed WA-DDDS about its invalid obligations. WA-DDDS acknowledged that there were no obligations remaining for FY 1998 and took action to deobligate $61,617 in non-personnel costs reported as unliquidated obligations.
FAILURE TO MAINTAIN REQUIRED INVENTORY RECORDS
Washington State did not maintain inventory lists as required by Federal regulations. Regulations provide for the State to have title to equipment purchased for disability purposes. The State was also responsible for maintaining equipment to include identifying the equipment by labeling and by inventory.
SSA funded and provided WA-DDDS with 349 computers. The State did not maintain an inventory list, and no periodic inventory of SSA distributed equipment was prepared by the State. The lack of appropriate inventory procedures occurred because there was uncertainty between the State and SSA as to value and ownership of the equipment.
Maintaining such records will facilitate the annual inventories and could help to detect any stolen or misplaced equipment.
CONTROLS LACKING FOR EFFECTIVE CASH MANAGEMENT
Our audit tests call for determining whether State agencies or other responsible
jurisdictions only draw down funds in order to meet immediate funding needs
in accordance with applicable Federal Regulations. Our review of WA-DDDS accounting
procedures disclosed that as of March 31, 2001, $23,065,345 had been reported
as disbursed for FY 1998. However, funding totaling $16,489,306 had been drawn
to fund such disbursements. We informed WA-DDDS accounting staff of the discrepancy
and the need to perform sufficient accounting reconciliations to ensure appropriate
reimbursement when required. Based on our action, WA-DSHS drew down the funds
in September 2001.
CONCLUSIONS AND RECOMMENDATIONS
We concluded that the WA-DDDS generally complied with laws, regulations, policies, and procedures governing the recording and reporting of expenditures and obligations under Titles II and XVI of the Act. However, we identified obligations reported in wrong FYs, overstated unliquidated obligations, a failure to maintain required inventory records and controls lacking to ensure effective cash management.
We recommend the Regional Commissioner:
1. Instruct WA-DDDS to amend the Form SSA-4513 report to accurately reflect FY 1999 expenditures of $61,594, which had been inappropriately reported in FY 1998.
2. Coordinate formal requests with WA-DSHS to adjust obligations currently closed for FY 1998 to allow for Recommendation 1 to be processed.
3. Require WA-DDDS to report only valid unliquidated obligations in accordance with POMS.
4. Require WA-DDDS to establish inventory controls over computer equipment distributed by SSA in accordance with Federal regulations.
5. Require WA-DDDS to establish accounting procedures which would provide appropriate reconciliation of draw downs with the Form SSA-4513 report.
SSA AND WA-DDDS COMMENTS
SSA Seattle RO and WA-DDDS agreed with our recommendations. The full texts of their comments are included at Appendices C and D, respectively.
Steven L. Schaeffer
Appendices
APPENDIX A –
Acronyms
APPENDIX B –
Washington Division of Disability Determination Services Obligations Reported/Allowed
Fiscal Years 1998 through 2000
APPENDIX C –
SSA Comments
APPENDIX D –
DDDS Comments
APPENDIX E –
OIG Contacts and Staff Acknowledgments
Appendix A
Acronyms
Act Social Security Act
CE Consultative Examination
CFR Code of Federal Regulations
CMIA Cash Management Improvement Act
DDS Disability Determination Services
DI Disability Insurance
Form SSA-4513 State Agency Report of Obligations for SSA Disability Programs
FY Fiscal Year
MER Medical Evidence of Record
OMB Office of Management and Budget
POMS Program Operations Manual System
RO Regional Office
SSA Social Security Administration
SSI Supplemental Security Income
Treasury Department of the Treasury
WA-DDDS Washington Division of Disability Determination Services
WA-DSHS Washington Department of Social and Health Services
Appendix B
WASHINGTON DIVISION OF DISABILITY DETERMINATION SERVICES
OBLIGATIONS REPORTED/ALLOWED
Fiscal Year 1998 (as of March 31, 2001)
Disbursements Unliquidated Obligations Total Obligations
Personnel Medical Indirect All Other Total Personnel Medical Indirect All Other
Total
As Reported by State Agency:
Personnel $12,454,844 $12,454,844 $ 12,454,844
Medical Evidence of Record (MER) $2,362,065 $ 2,362,065 $ 2,362,065
Consultative Examination(CE) $4,933,044 $ 4,933,044 $ 4,933,044
Indirect $ 663,417 $ 663,417 $ 663,417
All Other $ 2,651,975 $ 2,651,975 $ 61,617 $ 61,617 $ 2,713,592
Total Claimed by State Agency $12,454,844 $7,295,109 $663,417 $ 2,651,975 $23,065,345
$ - $ - $ - $ 61,617 $ 61,617 $ 23,126,962
Audit Adjustments:
1. To adjust disbursements incurred in Fiscal Year (FY) 1999 but reported in
FY 1998. $ (61,594) $ (61,594) $ (61,594)
2. To deobligate those amounts reported as unliquidated obligations determined
as invalid. $(61,617) $(61,617) $ (61,617)
Adjusted Claims per Audit $12,454,844 $7,295,109 $663,417 $ 2,590,381 $23,003,751
$ - $ - $ - $ - $ - $ 23,003,751
Note: Washington Division of Disability Determination Services eliminated the
reported unliquidated
obligations of $61,617 after we informed it that the adjustment was necessary.
Appendix B
WASHINGTON DIVISION OF DISABILITY DETERMINATION SERVICES OBLIGATIONS REPORTED/ALLOWED
Fiscal Year 1999 (as of March 31, 2001)
Disbursements Unliquidated Obligations Total Obligations
Personnel Medical Indirect All Other Total Personnel Medical Indirect All Other
Total
As Reported by State Agency:
Personnel $13,540,299 $ 13,540,299 $13,540,299
MER $2,662,247 $ 2,662,247 $ 2,662,247
CE $5,597,739 $ 5,597,739 $ 5,597,739
Indirect $740,431 $ 740,431 $ 740,431
All Other $ 2,874,116 $ 2,874,116 $ 2,874,116
Total Claimed by State Agency $13,540,299 $8,259,986 $740,431 $ 2,874,116 $
25,414,832 $ - $ - $ - $ - $ - $25,414,832
Audit Adjustments:
1. To adjust disbursements incurred in FY 1999 but reported in FY 1998. $ 61,594
$ 61,594 $ 61,594
Adjusted Claims per Audit $13,540,299 $8,259,986 $740,431 $ 2,935,710 $ 25,476,426
$ - $ - $ - $ - $ - $25,476,426
Appendix B
WASHINGTON DIVISION OF DISABILITY DETERMINATION SERVICESOBLIGATIONS REPORTED/ALLOWED
Fiscal Year 2000 (as of March 31, 2001)
Disbursements Unliquidated Obligations Total Obligations
Personnel Medical Indirect All Other Total Personnel Medical Indirect All Other
Total
As Reported by State Agency:
Personnel $14,148,532 $14,148,532 $14,148,532
MER $3,183,481 $ 3,183,481 $ 71,409 $ 3,254,890
CE $4,905,335 $ 4,905,335 $171,543 $ 5,076,878
Indirect $856,230 $ 856,230 $ 856,230
All Other $ 2,676,946 $ 2,676,946 $ 15,931 $ 2,692,877
Total Claimed by State Agency $14,148,532 $8,088,816 $856,230 $ 2,676,946 $25,770,524
$ - $242,952 $ - $ 15,931 $ - $26,029,407
Audit Adjustments:
None recommended
Adjusted Claims per Audit $14,148,532 $8,088,816 $856,230 $ 2,676,946 $25,770,524
$ - $242,952 $ - $ 15,931 $ - $26,029,407
Appendix C
SSA Comments
SOCIAL SECURITY
MEMORANDUM
DATE: July 28, 2003
TO: Assistant Inspector General Audit
FROM: Regional Commissioner Seattle Region
SUBJECT: Audit of the Administrative Costs Claimed by the Washington Disability Determination Services (A-15-02-12025) --- REPLY
This responds to the draft
report of the Audit of the Administrative Costs Claimed by the Washington Disability
Determination Services (A-15-02-12025). Our response to each report recommendation
follows:
1. Instruct WA-DDDS to amend the Form SSA-4513 report to accurately reflect
FY 1999 expenditures of $61,594, which had been inappropriately reported in
FY 1998.
Response: We agree with this recommendation and will instruct the WA DDS to
amend Form SSA-4513 report to accurately reflect FY 1999 expenditures of $61,594,
which had been inappropriately reported in FY 1998.
2. Coordinate formal requests with WA-DSHS to adjust obligations currently closed
for FY 1998 to allow for Recommendation 1 to be processed.
Response: We agree with this recommendation and will coordinate formal requests
with the Washington Department of Social and Health Services (DSHS) and the
SSA Office of Finance to adjust obligations currently closed for FY 1998 to
allow for Recommendation 1 to be processed.
3. Require WA-DDDS to create valid unliquidated obligations in accordance with
POMS.
Response: We agree with this recommendation and will continue to require that
the WA DDS create valid unliquidated obligations in accordance with POMS instructions.
4. Require WA-DDDS to establish inventory control over computer equipment distributed
by SSA in accordance with Federal regulations.
Response: We agree with the proposed recommendation and the proposed action.
The WA DDS is currently in the process of establishing inventory controls over
computer equipment distributed by SSA in accordance with Federal regulations.
5. Require WA-DDDS to establish accounting procedures which would provide appropriate
reconciliation of draw downs with the Form SSA-4513 report.
Response: We agree with this recommendation and will ask the WA DDS to work
with DSHS to establish accounting procedures that will provide appropriate reconciliation
of draw downs with the Form SSA-4513 report.
If you or your staff has any questions regarding our comments, please contact
Shelly Beach, Program Specialist, Center for Disability Operation via email
at SF-Exchange or by phone at 206-615-2137.
Appendix D
WA-DDDS Comments
STATE OF WASHINGTON
DEPARTMENT OF SOCIAL
AND HEALTH SERVICES
Division of Disability Determination Services
P.O. Box 9303, Olympia, Washington 98507-9303
MEMORANDUM
DATE: July 28, 2003
TO: Assistant Inspector General Audit
FROM: Director Disability Determination Services
SUBJECT: Audit of the Administrative Costs Claimed by the Washington Disability Determination Services
1. Instruct WA-DDDS to amend
the Form SSA-4513 report to accurately reflect FY 1999 expenditures of $61,594,
which had been inappropriately reported in FY 1998.
Response: We have no objections to the first or second recommendations. WA State
is currently working with SSA Regional Office X to commence with the paper work
that will reallocate $61,594 from FY 1998 to FY 1999.
2. Coordinate formal requests
with WA-DSHS to adjust obligations currently closed for FY 1998 to allow for
Recommendation 1 to be processed.
Response: Same as response to #1.
3. Require WA-DDDS to create
valid unliquidated obligations in accordance with POMS.
Response: Recommendation #3 is stating WA State should be required to create
valid unliquidated obligations in accordance with POMS. The Washington State
accounting manager and staff, along with Regional Office staff, are knowledgeable
regarding the criteria needed for valid unliquidated obligations during, and
at the end of, a current fiscal year. Both offices are aware of what is required
to create obligations and adhere to the POMS policies.
4. Require WA-DDDS to establish
inventory control over computer equipment distributed by SSA in accordance with
Federal regulations.
Response: WA State has begun the process of placing all computer equipment into
the WA State inventory system. The computer equipment will have WA State inventory
tags, along with SSA inventory tags. Accounting regulations state inventory
should be
recorded at lower of cost or market value. In this case, the value would be
$0.00 since DDS funds did not purchase the equipment. However, State regulations
require us to record inventory at purchase price or fair market value. By fulfilling
this OIG request, the DDS computer equipment will be valued twice; once in SSA’s
inventory system, and a second time in WA State’s inventory system.
The draft report states on page 5, “The State did not maintain an inventory list, and no periodic inventory of SSA distributed equipment was prepared by the State.” It is true that a periodic inventory of the equipment was not performed, nor was the equipment tagged as WA State property. However, each office does have on file an inventory list, received by SSA, of PC equipment and the serial numbers associated to each piece of equipment.
5. Require WA-DDDS to establish
accounting procedures which would provide appropriate reconciliation of draw
downs with the Form SSA-4513 report.
Response: WA State DDS does not have access to ASAP, the cash draw down system.
However, this information can be provided by our parent agency, DSHS. It is
our intent to incorporate the cash draw down data into our reconciliation practices
when completing and filing Form SSA-4513 reports.
The draft audit report acknowledges and identifies the OIG auditors involved. I commend them for their professional behavior, reasonableness, and patience. They were enjoyable to work with. However, I also feel that the WA State accounting staff are worthy of acknowledgement. Although OIG auditors stated they intended to be as least disruptive as possible to the work process, they consumed virtually all of my staff’s time. In conjunction with the large amount of time dedicated to the audit, the WA State accounting staff had to perform their usual duties. Payments still had to be made to medical facilities, and reports still had to be prepared for SSA. The audit was extremely taxing to accounting’s work schedule. This audit was conducted by both sides; Office of Inspector General and WA State. Our efforts were equally as important to the outcome of the audit and this report. Therefore I feel it is necessary to also acknowledge the WA State Staff. Those to be acknowledged are as follows:
Janis Hughes, Financial Analyst 3
Jennie McCloud, Medical Assistant Specialist 5
Appendix E
OIG Contacts and Staff Acknowledgments
OIG Contacts
Frederick C. Nordhoff,
Director, Financial Audits, (410) 966-6676
Carl Markowitz, Deputy
Director, (410) 965-9742
Acknowledgments
In addition to those
named above:
Steven Sachs, Auditor
Suzanne Valett, Auditor
Sigmund Wisowaty,
Auditor
Richard Wilson, Auditor
Joe Borowy, Auditor
Sandra Westfall, Program
Analyst
Annette DeRito, Writer/Editor
Overview of the Office of the Inspector General
Office of Audit
The Office of Audit (OA) conducts comprehensive financial and performance audits
of the Social Security Administration’s (SSA) programs and makes recommendations
to ensure that program objectives are achieved effectively and efficiently.
Financial audits, required by the Chief Financial Officers' Act of 1990, assess
whether SSA’s financial statements fairly present the Agency’s
financial position, results of operations and cash flow. Performance audits
review the economy, efficiency and effectiveness of SSA’s programs. OA
also conducts short-term management and program evaluations focused on issues
of concern to SSA, Congress and the general public. Evaluations often focus
on identifying and recommending ways to prevent and minimize program fraud
and inefficiency, rather than detecting problems after they occur.
Office of Executive Operations
OEO supports the OIG by providing information resource management; systems
security; and the coordination of budget, procurement, telecommunications,
facilities and equipment, and human resources. In addition, this office is
the focal point for the OIG’s strategic planning function and the development
and implementation of performance measures required by the Government Performance
and Results Act. OEO is also responsible for performing internal reviews to
ensure that OIG offices nationwide hold themselves to the same rigorous standards
that we expect from SSA, as well as conducting investigations of OIG employees,
when necessary. Finally, OEO administers OIG’s public affairs, media,
and interagency activities, coordinates responses to Congressional requests
for information, and also communicates OIG’s planned and current activities
and their results to the Commissioner and Congress.
Office of Investigations
The Office of Investigations (OI) conducts and coordinates investigative activity
related to fraud, waste, abuse, and mismanagement of SSA programs and operations.
This includes wrongdoing by applicants, beneficiaries, contractors, physicians,
interpreters, representative payees, third parties, and by SSA employees in
the performance of their duties. OI also conducts joint investigations with
other Federal, State, and local law enforcement agencies.
Counsel to the Inspector General
The Counsel to the Inspector General provides legal advice and counsel to the
Inspector General on various matters, including: 1) statutes, regulations,
legislation, and policy directives governing the administration of SSA’s
programs; 2) investigative procedures and techniques; and 3) legal implications
and conclusions to be drawn from audit and investigative material produced
by the OIG. The Counsel’s office also administers the civil monetary
penalty program.