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Hamilton County

VIEWS: 13 PAGES: 177

									                                   Special Audit




Draft County Audit Report

Hamilton County                                         Ohio Department of
                                                         Job and Family
                                                             Services
             ✓ Job and Family Services
                                                        Office of Research,
             ✓ Children Services                         Assessment and
                                                           Accountability
             ✓ Child Support Enforcement
                                                         Bureau of Audit




                                   September 14, 2006
                                           EXIT CONFERENCE DRAFT

                                                 TABLE OF CONTENTS


LIST OF ILLUSTRATIONS ................................................................................................ 1
LIST OF TABLES............................................................................................................... 1
AUDIT FINDING TERMINOLOGY ..................................................................................... 2
LIST OF ABBREVIATIONS ............................................................................................... 5
ELECTED OFFICIALS/AGENCY PERSONNEL................................................................ 7
EXECUTIVE SUMMARY ................................................................................................... 8
SUMMARY OF FINDINGS .............................................................................................. 18
BACKGROUND ............................................................................................................... 20
INTRODUCTION ............................................................................................................. 22
SCOPE AND METHODOLOGY....................................................................................... 24
A. FAILURE TO SEPARATELY ACCOUNT FOR FEDERAL, STATE AND LOCAL
MONIES........................................................................................................................... 27
B. CASH TRANSACTIONS IN VIOLATION OF STATE LAW.......................................... 31
C. MISUSE OF PROTECTOHIO WAIVER FUNDS ........................................................ 44
D. MISUSE OF COST POOLS ....................................................................................... 58
       1. Hamilton County Managed Care: Multi-County System Agency ..............................................61
       2. Hamilton County Managed Care Partnership: Magellan Behavioral Health ...............................79
       3. Unallowable Costs for Hillcrest Training School and Youth Center ...........................................85
       4. Unallowable Costs for Dependency Docket ................................................................................91
       5. Unallowable Costs for Guardian Ad Litem Services ...................................................................93
       6. Inappropriate Expenditures for Help Me Grow ...........................................................................95
E. TRANSACTIONS THAT REDUCE OR OFFSET EXPENDITURES........................... 98
       1. Mount Airy Shelter.......................................................................................................................98
       2. Southwest Ohio Regional Training Center (SWORTC) ............................................................100
F. IMPROPER ALLOCATION OF SHARED COSTS.................................................... 101
G. BUILDING AND FACILITY COSTS.......................................................................... 110
H. INAPPROPRIATE CHARGES FOR TALBERT HOUSE .......................................... 113
I. UNALLOWED ENHANCED MEDICAID TRANSPORTATION CONTRACT COSTS. 116
J. PAYMENT OF INDIRECT COSTS BY THE WRONG PROGRAM ........................... 121
K. LACK OF PROPER PROCUREMENT ..................................................................... 125
L. NONCOMPLIANCE ISSUES WITH CONTRACTS................................................... 128
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M. COST ALLOCATION ............................................................................................... 144
       1. Social Services RMS..................................................................................................................144
       2. Income Maintenance RMS.........................................................................................................149
       3. Child Support RMS....................................................................................................................152
N. INVENTORY AND EQUIPMENT.............................................................................. 155
O. CHILD SUPPORT DEPOSITORY FUND................................................................. 158
P. ISSUES WITH CHILD CARE BILLINGS .................................................................. 159
Q. ISSUES WITH FOOD STAMP INCENTIVES........................................................... 160
GENERAL COMMENTS................................................................................................ 162
APPENDIX A ................................................................................................................. 163
APPENDIX B ................................................................................................................. 164
APPENDIX C ................................................................................................................. 165
APPENDIX D ................................................................................................................. 173
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                                        LIST OF ILLUSTRATIONS

ILLUSTRATION 1: Special Revenue Fund Types & Related Financial Reports ....................27
ILLUSTRATION 2: Special Revenue Funds with PCSA and Tax Levy Monies as a
                 Subaccount...............................................................................................28
ILLUSTRATION 3: Mandated Share Obligation Payment Sources.........................................54
ILLUSTRATION 4: CDJFS Cost Pools for Allocating Indirect Costs ....................................59
ILLUSTRATION 5: Example of Program Costs after RMS Distribution for SS Cost Pool ...60
ILLUSTRATION 6: Conceptual Model for the Administration of a Managed Care System...62
ILLUSTRATION 7: Hamilton County MCSA Partners ...........................................................63
ILLUSTRATION 8: Hamilton County MCSA Fiscal Agents and Program Coordinators by
                 Year .........................................................................................................64
ILLUSTRATION 9: Actual MCSA Model versus Compliant Model.......................................72
ILLUSTRATION 10: Phase 1-The Distribution for Shared Cost from the Shared Cost Pool...101
ILLUSTRATION 11: Phase 2-Distribution for Shared Cost from the Shared Cost Pool….….102




                                                LIST OF TABLES


TABLE 1: Cash Transfers from the PCSA to the CDJFS and CSEA ......................................33
TABLE 2: Human Services State Subsidy Fund Transfers to PA Fund....................................38
TABLE 3: Hamilton County ProtectOhio Receipts and Expenditures......................................44
TABLE 4: Public Assistance Fund, Children Services Fund and Child Support Fund
          Expenditures for SFY 2002 through SFY 2004.......................................................51
TABLE 5: Partner Contribution Percentages Compared to Partner Referral Percentages ........65
TABLE 6: MCSA Partner Revenue Collected by Hamilton CDJFS by Year...........................74
TABLE 7: Hamilton County Help Me Grow Expenditures to the FCFC..................................95
TABLE 8: Hamilton County Payments to the FCFC ................................................................96
TABLE 9: Inappropriate/Unallowable Costs in Shared Cost Pool…………………………..105
TABLE 10: Inappropriate/Unallowable Costs in SS Cost Pool……………………………….106
TABLE 11: Inappropriate/Unallowable Costs in the Income Maintenance Cost Pool………..106
TABLE 12: Expenditures reported in the PA Fund cost pools………………………………..107
TABLE 13: Hamilton CDJFS Building Rental Expenditures…………………………………110




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                         AUDIT FINDING TERMINOLOGY

The following types of adverse audit findings are issued by the ODJFS Bureau of Audit in audits
of county family services agencies:

Questioned Costs - Questioned costs are identified for possible enforcement actions
under Section 5101.24 of the Ohio Revised Code. Possible actions include, but are not
limited to, monetary recoupment or corrective action plans. The ODJFS Executive Audit
Committee makes a recommendation to the Director as to whether an enforcement action
should be sought.

Questioned costs involve costs that are questioned by the auditor for one of the following
reasons:

   •   costs related to a violation or possible violation of a provision of a law, regulation,
       contract, grant, cooperative agreement, or other agreement or document governing the
       use of federal or state funds, including funds used to match federal or state funds;

   •   costs that, at the time of the audit, are not supported by adequate documentation; or

   •   costs that appear unreasonable and do not reflect the actions a prudent person would take
       in similar circumstances.

Findings for Recovery - Findings for recovery are a determination by the auditors, based
upon the circumstances of noncompliance, that money should be recovered.

Findings for recovery are issued in the following types of circumstances:

   •   fraud, theft, or other criminal misconduct;

   •   intentional activities that violate legal requirements and that have the
       effect of improperly increasing the receipt of state or federal funds by the
       agency;

   •   a repeated pattern of noncompliance that has continued in spite of
       notification by an ODJFS representative that the conduct violates a law or
       regulation;

   •   when ODJFS has been required, as a result of county action or inaction
       contrary to law or regulation, to repay monies to the federal government;

   •   when recovery is otherwise required by law.

These circumstances are not all-inclusive. As with other adverse audit findings, the
ODJFS Executive Audit Committee makes a recommendation to the Director as to
whether an enforcement action should be sought.


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Noncompliance Citations - Noncompliance Citations are issued when an auditor
concludes that the client has violated a law or regulation, but there is no associated cost
or claim that could be recovered. Thus, neither a questioned cost nor a finding for
recovery would be appropriate. The ODJFS Executive Audit Committee makes
recommendations to the Director as to whether an enforcement action should be sought.

Adjustments - Adjustments (also known as “coding adjustments”) are noncompliance
citations issued when an auditor concludes that financial or non-financial data or
transactions have been improperly reported or classified. These are generally made to
correct accounting or reporting errors in which the agency has not benefited improperly
from a misclassification. The ODJFS Executive Audit Committee makes
recommendations to the Director as to whether an enforcement action should be sought.

Management Recommendations - Management recommendations are issued when an auditor
concludes that the client could be operating with greater economy or efficiency, or when the
client’s internal control structure could be improved. Management recommendations are
nonbinding; it is left to the discretion of agency management to decide whether to comply with
them.

Overlapping Findings

It is possible for the same amount of federal funds to be the subject of multiple instances of
noncompliance. If this is the case, more than one finding may be issued for the same federal
dollar, to reflect the potential impact of the different instances of noncompliance. This is done to
clearly communicate the extent of noncompliance, and to provide for the audit resolution of all
instances of noncompliance. However, any actions to recover money will be appropriately
limited so that efforts are not made to collect the same dollar more than once.

For this reason, it is important for users of this audit report to note that the total dollar amount of
monetary findings may include such overlapping findings, and the total dollar amount at risk
may be significantly less than the total dollar amount of the findings.

Questioned Costs/Findings for Recovery – Determination of the Amount of the Finding

The dollar amount of a questioned cost or finding for recovery may not represent the dollar
amount subject to recovery. Questioned costs are particularly subject to adjustment during the
resolution process. In addition, circumstances may allow identification of only the dollar amount
expended, not the dollar amount claimed as cost or reimbursed with federal and/or state monies.
Such circumstances can be addressed during the audit resolution.

Both questioned costs and findings for recovery commonly include in their totals the amount of
federal financial participation (FFP), state funding, and local funding involved in a program or
transaction. The amount at risk is generally only the FFP and any state funding involved.
Because of the complexity of the financial management system for county family services
agencies, however, calculating the dollar amount of the FFP or state contribution during the audit



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process is generally not possible. Again, these concerns can be addressed during the audit
resolution.




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                 LIST OF ABBREVIATIONS

ADAS     Alcohol & Drug Addiction Services Board
AOS      Auditor of State
APM      Administrative Procedures Manual
BCFTA    Bureau of County Finance & Technical Assistance
BOA      Bureau of Audit
CAP      Cost Allocation Plan
CDJFS    County Department of Job and Family Services
CFR      Code of Federal Regulations
CORe     Central Office Reporting System
CPS      Cincinnati Public School
CSEA     Child Support Enforcement Agency
CY       Calendar Year – January 1 to December 31
EFT      Electronic Funds Transfer
EMT      Enhanced Medicaid Transportation (Title XIX)
FACSIS   Family and Children Services Information System
FCFC     Family and Children First Council
FCPM     Foster Care Placement & Maintenance
FFP      Federal Financial Participation
FSET     Food Stamp Employment Training
FTE      Full Time Equivalents
HCCA     Health Care Contract Audit Section of AOS
HHS      U. S. Department of Health and Human Services
IM       Income Maintenance
IT       Inter-fund Transactions
JC       Juvenile Court
MCSA     Multi-County System Agencies (MHB, CDJFS, ADAS, MRDD, JC)
MHB      Mental Health Board
MRDD     Mental Retardation & Developmental Disability Board
OAC      Ohio Administrative Code
OAG      Ohio Attorney General
ODJFS    Ohio Department of Job and Family Services
OIG      Office of Inspector General
OMB      Office of Management & Budget
ORAA     Office of Research Assessment & Accountability
ORC      Ohio Revised Code
OWF      Ohio Works First
QuIC     Quarterly Information Consolidation system
PA       Public Assistance
PCSA     Public Children Services Agency
RMS      Random Moment Sample
SAS      Special Audit Section of AOS
SCPA     State Child Protective Allocation
SETS     Support Enforcement Tracking System


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SS            Social Service
SSBG          Social Service Block Grant (Title XX)
SFY           State Fiscal Year – July 1 to June 30
TANF          Title IV-A Temporary Assistance to Needy Families
Title:        Title of Social Security Act of 1935, as amended
 Title IV-A   TANF
 Title IV-D   Title IV-D Child Support Enforcement
 Title IV-E   Title IV-E Foster Care and Adoption
 Title XX     Social Service Block Grant
WIA           Workforce Investment Act
YWCA          Young Women’s Christian Association




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                 ELECTED OFFICIALS/AGENCY PERSONNEL

       Name                  Title                             Term of Office
Tom Neyer          County Commissioner            January 1, 1998 to January 1, 2003
John Dowlin        County Commissioner            January 1, 2001 to January 1, 2005
Todd Portune       County Commissioner            January 1, 2001 to January 1, 2009
Phil Heimlich      County Commissioner            January 1, 2003 to January 1, 2007
Pat DeWine         County Commissioner            January 1, 2005 to January 1, 2009

David Krings       County Administrator           December 1999 to January 2005
Patrick Thompson   Current County Administrator   October 2005 to Present
Suzanne Burke      Interim County Administrator   January 2005 to April 2005
Dusty Rhodes       County Auditor                 1994 to Present

Don Thomas         Agency Director                1987 to August 2001
Barbara Manuel     Interim Director               July 2001 to January 2002
Suzanne Burke      Agency Director                January 2002 to January 2005
Rick Roberts       Agency Director                July 2005 to Present

Bill Knecht        CFO                            March 2003 to September 2005

Michael Pride      Fiscal Section Chief           1995 to February 2002
Mike Hiles         Fiscal Manager                 March 2002 to Present




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                                EXECUTIVE SUMMARY

BACKGROUND - The Board of County Commissioners of Hamilton County (Commissioners)
is responsible for the administration of family services programs in Hamilton County. These
programs are operated within the Hamilton CDJFS, a combined agency that joins the County
Department of Job and Family Services (CDJFS), the Public Children Services Agency (PCSA),
and the Child Support Enforcement Agency (CSEA) into a single entity. The agency director is
appointed by the Commissioners. Programs under the combined agency include the federal
Temporary Assistance to Needy Families (TANF), Food Stamps, Medicaid, Social Services,
Adoption and Foster Care Services, Child Welfare Crisis Intervention, and Child Support.
Hamilton CDJFS is also responsible for maintaining administrative and financial records for
these programs. Financial records are also maintained by the Hamilton County Auditor.

Ohio’s job and family services programs are operated under a state-supervised, county-
administered system in which the Ohio Department of Job and Family Services (ODJFS), as the
supervisory state agency, subgrants federal and state funds to county agencies to operate
programs on the local level. In addition, ODJFS provides technical assistance and guidance to
the county agencies, and is required to monitor their performance. County agencies are
responsible for administering their federal programs in accordance with applicable federal, state,
and local laws.

INTRODUCTION - In 2004, the Auditor of State (AOS), under contract with ODJFS,
performed limited audit procedures in the Hamilton County Department of Job and Family
Services (Hamilton CDJFS). After reviewing the results of the AOS audit procedures, ODJFS
auditors decided that additional audit work was necessary to address the treatment of foster care
costs by Hamilton CDJFS and the practices of Hamilton CDJFS in allocating costs to federal
programs.

ODJFS held an entrance conference with the Hamilton CDJFS director in late August 2004 and
began expanded audit fieldwork. In addition to the issues identified by the AOS, ODJFS
auditors identified unlawful commingling of monies, causing state and federal monies to lose
their identities; cash transfers between local special revenue funds, contrary to state law;
improper financial management of Title IV-E monies; the inclusion of unallowable costs in cost
pools, resulting in improper claims against federal and state funds; and a pattern of cost shifting
from the county General Fund to the county Children Services Levy Fund.

ODJFS management determined that some of these issues were beyond ODJFS audit authority.
Meetings were held with representatives of the AOS and of the Office of the Attorney General to
communicate the issues identified to date, to discuss their significance, and to determine the
appropriate course of action. The AOS decided to initiate a special audit of Hamilton County.
At the same time, ODJFS initiated a special audit of Hamilton County, including the audit work
to date, and communicated preliminary findings to the federal agencies with programs
administered by Hamilton CDJFS. ODJFS and the AOS completed joint planning sessions,
announced the concurrent special audits, and issued subpoenae to Hamilton County and many of
their providers and contractors on December 10, 2004. In addition, the United States
Department of Health and Human Services (HHS), Office of the Inspector General (OIG)


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performed an audit of the IV-D contracts in the CSEA.

This is a summary of the audit report detailing the ODJFS audit results, including the results of
the original audit procedures performed by the AOS under contract with ODJFS. The AOS is
issuing a separate report to address the results of her special audit.

FAILURE TO SEPARATELY ACCOUNT FOR FEDERAL, STATE, AND LOCAL
MONIES - As a combined agency, Hamilton CDJFS has centralized administrative functions,
including accounting. The Hamilton CDJFS fiscal employees control the financial
administration of all three agencies and their programs. CDJFS activities are handled within the
Public Assistance (PA) Fund, CSEA activities are handled within the Child Support Fund, and
PCSA activities are handled within the Children Services Fund.

Hamilton County established a Children Services Levy for the purpose of “supplementing the
General Fund of the county to provide support for Children Services and the care and placement
of children.” Revenues of the Children Services Levy were deposited by Hamilton County into
the Children Services Fund, a statutory fund established in each county pursuant to Section
5101.144 of the Ohio Revised Code. The County is also required to deposit into this fund other
revenues appropriated to the agency for Children Services, including federal Title IV-E monies
and certain state monies.

Under federal law, the County must establish accounting procedures to separately track and
account for the financial activity of each funding stream within these funds. This is necessary to
appropriately account for state and federal monies. However, the County did not do this. As a
result, they effectively commingled the federal, state, and levy monies, causing them to lose their
identity. This approach by the County led to multiple accounting issues discussed in the report.

CASH TRANSACTIONS IN VIOLATION OF STATE LAW - For SFY 2002 through SFY
2004, Hamilton CDJFS transferred approximately $127.1 million from the Children Services
Fund (PCSA). Approximately $105 million was moved to the Public Assistance (PA) Fund,
while the remaining $22.1 million was moved to the Child Support Fund. These transfers were
contrary to state law, as they were made without the court approval required by Section 5705.16
of the Ohio Revised Code. In addition, the transfers were reported to ODJFS on the monthly
financial statements as expenditures, rather than as transfers, masking their true nature. By
reporting transferred monies as local receipts in the funds to which they were transferred, county
employees rendered them unidentifiable as federal, state, and levy monies. This commingling
and loss of identity for the federal, state, and levy monies caused the Hamilton CDJFS to violate
a number of federal requirements. As a result of these actions, the amount of the transfers,
approximately $127.1 million, is being questioned.

Hamilton CDJFS also diverted cash from various federal and state funding streams which are
required to be paid into the Children Services Fund, and instead paid the cash into a Human
Service Subsidy Fund and thence directly into the PA Fund. This diverted cash was recorded as
local receipts, causing it to appear to be local monies, rather than state and federal monies.
Receipt of these monies was not reported on monthly reports to ODJFS as required, and the
monies lost their identity and were commingled within the PA Fund. For SFY 2002 through
SFY 2004, the total amount of such diversions was $69.7 million. The Agency also deposited


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approximately $1 million, legally required to be paid into the Children Services Fund, directly
into the PA Fund. These amounts are being questioned.

Hamilton CDJFS certified state and local funds to meet match and non-allocated obligations for
social services activities. However, a portion of these monies were subsequently placed in the
PA Fund (either directly or as a transfer) to the non-reimbursable receipt accounting code which
caused them to lose their identity. Therefore, auditors are questioning $60.9 million for failure to
substantiate the required match.

The Human Services Subsidy Fund was closed in December 2003. At that time, Hamilton
CDJFS began depositing IV-E Administration and Training and SCPA monies directly into the
Children Services Fund as nonreimbursable receipts, contrary to regulations. Therefore, auditors
issued a questioned cost finding for the $15 million improperly recorded in the Children Services
Fund.

MISUSE OF PROTECTOHIO WAIVER FUNDS - In October 1997, Ohio implemented
“ProtectOhio,” a Title IV-E Child Welfare Demonstration project under a waiver from the U.S.
Department of Health and Human Services. This waiver removed certain restrictions for
participating counties on the use of Title IV-E funds and expanded foster care coverage.
Hamilton CDJFS participated in the ProtectOhio waiver from its inception until October 2, 2005,
when the county declined to renew the waiver agreement.

As a waiver participant, Hamilton County was required to “match” with local monies the Title
IV-E monies awarded under ProtectOhio. Auditors were unable to verify that Hamilton CDJFS
had made this required match for ProtectOhio, due to accounting errors by Hamilton CDJFS and
the complexity of the issues surrounding their accounting practices. These errors and issues
include commingling of state and federal monies with local monies, causing them to lose their
identity, and making duplicate claims for costs prepaid by the ProtectOhio waiver. This
commingling of federal, state and local funds makes it impossible for auditors to confirm that a
proper match was made for Title IV-E monies issued under the ProtectOhio waiver. As a result,
all ProtectOhio funding issued during our audit period, approximately $52.9 million, is being
questioned.

A portion of ProtectOhio monies advanced to the county, $35.6 million, cannot be accounted for
in their records. As these monies cannot be traced in the county’s accounting system, we cannot
determine whether they were included in the transfers of monies from the Children Services
Fund to the PA Fund and the Child Support Fund. As noted earlier, these monies lost their
identity as ProtectOhio monies. As a result, we cannot verify that the Hamilton CDJFS made the
expenditures of local monies required to subsequently claim federal reimbursement.

Each agency had a significant level of expenditures to substantiate match, but without records
showing how ProtectOhio monies were used, there is no way to substantiate they were used for
their intended purpose, or were not used to claim federal reimbursement from another federal
program. If this did occur, the federal government would be charged twice for the same
expenditures.




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Hamilton CDJFS also submitted for reimbursement, through their cost pools, costs which had
been prepaid under the ProtectOhio waiver. To the extent that Hamilton CDJFS was ineligible to
receive such reimbursements, the use of those reimbursements to meet their local match
requirements for another program would be unallowable. The accounting records for the PA
Fund, Children Services Fund, or Child Support Fund do not contain information sufficient to
verify that only local monies and state advances were used to pay costs claimed for federal
reimbursement, or that Federal monies were not expended and used for claiming federal
reimbursement.

There is no way to verify that ProtectOhio funds and federal reimbursements earned through
unallowable costs in cost pools or direct charges to federal programs, which would be
overpayments, were not used as local dollars to meet match requirements for any programs
within the PA Fund or Child Support Fund. Given that matching funds cannot be verified, all
costs within the PA Fund, approximately $613 million, all costs within the Child Support Fund,
approximately $82.2 million, and all costs from the Children Services Fund, approximately
$198.9 million, from SFY 2002 through SFY 2004, a total of approximately $894 million, are
being questioned for a failure to demonstrate proper use of and an appropriate match for the
federal funds involved.

LACK OF APPROPRIATE MATCH FOR MANDATED SHARE - Mandated Share is the
required local share of costs for income maintenance programs administered by a county
department of job and family services. During this period, the county commissioners were
required to contribute approximately $15.8 million for their mandated share obligation.
However, due to the commingling of funds by the Hamilton CDJFS, auditors were unable to
confirm that this required match was made. Auditors issued a questioned cost finding in the
amount of $10.8 million.

MISUSE OF COST POOLS - The federal government has established in OMB Circular A-87,
Cost Principles for State, Local and Indian Tribal Governments, policies as to the determination
of the allowable cost to be charged to the federal program by state and local governments which
received federal awards or subawards.

In Ohio, while direct costs are charged directly to the benefiting programs, indirect costs are
allocated to benefiting programs through cost pools. Four cost pools are in general operation in
county family services agencies. These include the Income Maintenance Cost Pool, the Social
Services Cost Pool, the Child Support Cost Pool, and the Shared Cost Pool in the PA Fund.
Indirect costs must be charged only through the proper cost pool, as charging costs to the
incorrect cost pool would cause them to be charged to non-benefiting federal programs in
violation of federal law.

The Shared Cost pool is used to allocate indirect costs, such as building rent, utilities, and
insurance, incurred for common purposes within the agency. In combined agencies such as
Hamilton CDJFS, shared costs must be paid initially from the PA Fund, and the appropriate
portion of these costs must be reimbursed to the PA Fund from the Child Support Fund and the
Children Services Fund.




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Auditors identified a number of instances in which costs were improperly charged to cost pools,
causing Hamilton CDJFS to receive federal funding to which it was not entitled. These include
costs of Hamilton County’s Title IV-E managed care group, the Multi-County System Agency
(MCSA). Noncompliance in the financial administration of the MCSA by Hamilton County
included allocating costs on the basis of revenue contributed, unallowable under federal
requirements; charging foster care services, for which monies had been advanced under the
ProtectOhio program, to various cost pools, thus making excessive claims on federal funds;
submitting claims for reimbursement before services were rendered; commingling MCSA
monies in the PA Fund; collecting payments from MCSA partners for costs and then claiming
the same costs for federal reimbursement; and not offsetting claimed costs with related revenue.
On the basis of these errors, we have identified a questioned cost for unallowable allocation of
MCSA costs of $35.6 million, and a finding for recovery of the same amount ($35.6 million) for
unallowable duplicate payment of MCSA costs.

Hamilton CDJFS failed to offset approximately $11.7 million of revenues representing payments
by MCSA partners. Accordingly, a questioned cost of $11.7 million is included in this report.

Similarly, Hamilton County formed a managed care partnership for foster care services in
September 1997, including the Hamilton CDJFS, the Hamilton Mental Health Board, and the
Hamilton Alcohol and Drug Addiction Services Board. The partnership team contracted with
Magellan Public Solutions, a national, for-profit, behavioral health managed care company, to
coordinate services. For SFY 2002 through SFY 2004, Hamilton CDJFS charged to various cost
pools about $57.9 million in Magellan managed care costs for which the county had received
advanced funding under the ProtectOhio waiver, and was ineligible to receive further federal and
state reimbursement. This effectively triggered a duplicate claim for foster care services against
federal funds in the same way as the MCSA claims. On this basis, a finding for recovery is
issued against Hamilton CDJFS in the amount of approximately $57.9 million and a questioned
cost finding for inappropriate allocation of costs for Magellan costs for $57.9 million. The
agency is also being cited for failure to properly certify the JFS 02827 Monthly Financial Report
for June of 2004.

Auditors detected inappropriate charges for the Hillcrest Training School and the Youth Center,
administered by Hamilton County Juvenile Court, in Hamilton CDJFS cost pools prior to the
onset of the expanded audit work. Audit work in this area was expanded at the request of the
Hamilton CDJFS director. Auditors determined that Hamilton CDJFS included Foster Care
placement and maintenance costs under ProtectOhio, as well as Hillcrest and Youth Center costs,
in various cost pools. With regard to the Foster Care placement and maintenance costs, this was
effectively a duplicate claim on federal funds. In addition, the Hillcrest costs would not be
allowable to the federal programs administered by the Hamilton PCSA, as Hillcrest was a
detention facility, ineligible for funding from their programs. The use of cost pools in this
manner was inappropriate, as this distributed those costs to non-benefiting programs within the
cost pool.

From SFY 2000 through SFY 2004, Hamilton CDJFS recorded $43 million of Hillcrest and
Youth Center costs in various cost pools for which they received federal and state
reimbursements. Findings for recovery for unallowable duplicate payments for our original audit



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period, SFY 2002 through SFY 2004, were $28.2 million, and for the period of SFY 2001
through 2002, audited at the request of the Hamilton CDJFS director, an additional $14.8
million, for a total of $42.8 million. In addition, auditors are issuing a questioned cost finding
for unallowable costs of $42.8 million. Hamilton CDJFS also charged costs of equipment for
Hillcrest in the amount of $249,190, which is a finding for recovery.

Juvenile Court dependency docket invoices aggregate court costs relating to cases heard by the
Juvenile Court for children eligible for Title IV-E services. Although these cases relate to Title
IV-E services, the docketing of such cases is not an allowable expense to the Hamilton CDJFS.
Hamilton CDJFS recorded about $3.9 million in dependency docket costs in a manner that
generated inappropriate federal and state reimbursement, and this amount is a finding for
recovery.

Hamilton CDJFS recorded guardian ad litem costs, which are not valid costs under their
programs, into the JFS cost pools or as direct charges to Title IV-E contracts. This triggered
unallowable federal and state reimbursements. Total charges recorded were $843,113 in various
cost pools. In addition, about $2.2 million was recorded as a direct charge to Title IV-E, for a
total of approximately $3.0 million. This amount is a finding for recovery.

The Help Me Grow (HMG) program is run by the Hamilton County Family and Children First
Council (FCFC), a subgrantee of Hamilton CDJFS. Hamilton CDJFS disbursed Help Me Grow
TANF monies to the FCFC in equal installments instead of as reimbursements of cost, resulting
in a questioned cost finding for improper allocation of approximately $7 million. Also, Hamilton
CDJFS recorded transfers of TANF monies to the FCFC as a claim to their cost pools. As a
result, they received an unallowable reimbursement, causing a finding for recovery of
approximately $1.6 million.

TRANSACTIONS THAT REDUCE OR OFFSET EXPENDITURES - Hamilton CDJFS
claimed all costs for Mt. Airy, a homeless men’s shelter, through cost pools. Auditors
determined that Hamilton CDJFS received funding for the Mt. Airy shelter from the U.S.
Department of Housing and Urban Development (HUD), and did not offset this funding against
the costs claimed for reimbursement through the cost pools. This is effectively a duplicate claim
on federal funds, resulting in a finding for recovery of approximately $1.5 million.

For SFY 2002 through SFY 2004, Hamilton CDJFS recorded $932,903 in costs for the
Southwest Ohio Regional Training Center (SWORTC) in the Shared Cost pool. At the same
time, Hamilton CDJFS recorded about $892,289 in ODJFS reimbursements for SWORTC as
local deposits for non-reimbursable expenditures. The failure of Hamilton CDJFS to offset
expenditures recorded in the cost pools with revenue received from the state resulted in a
duplicate claim on federal funds spread through the cost pool allocation process, to all programs
administered by Hamilton CDJFS. Accordingly, a finding for recovery is issued in the amount
of $892,289.

IMPROPER ALLOCATION OF SHARED COSTS - Shared costs are indirect costs that
benefit two or more major program areas and are not readily assignable to Income Maintenance,
Child Support, Social Services, or ODJFS acknowledged functions and programs. This includes


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costs of the director’s immediate employees and other employees in functions that support the
general administration of the agency. Employees that meet this criterion are classified as
“shared.” The costs of these employees, along with other indirect costs, are distributed to the
remaining cost pools based upon a ratio of employees attributable to the major cost centers such
as Income Maintenance, Social Services, Child Support, etc. Shared costs must be paid from the
PA Fund, and reimbursed to the PA Fund from the Children Services, Child Support, and the TB
Control Funds, as appropriate for their portion of those costs.

Costs claimed in the Shared Cost Pool were ultimately allocated to all programs administered by
Hamilton CDJFS. Auditors, however, found inappropriate items in attempting to verify shared
costs reimbursement to the PA Fund. This includes the misclassification of income maintenance,
social services, and child support supervisory employees as shared. Hamilton CDJFS
misclassified about 242 employees in this manner each calendar quarter. Misclassifying
employees in this way distorted the FTE calculations used to distribute Shared Cost Pool costs to
the remaining cost pools, including payroll and benefit costs associated with these employees.

The shared cost obligation of Children Services to the Public Assistance Fund is challenging to
calculate as it includes the identification of non-allocated costs and local match requirements.
This includes a certification of funds process that allows a county to identify how they wish to
allocate state monies toward their local match requirements and unallocated costs. Given the
extent of commingling of funds, deposit of state child welfare monies into the PA Fund,
duplicate reimbursements, unallowable costs, and misapplication of the shared FTE calculations,
along with errors in the certification of funds process, audit staff determined they could not
reasonably calculate the shared cost obligations. These various errors were often compounded
from quarter to quarter over the audit period, SFY02 through SFY04. Due to the inability of the
county to substantiate the calculation of Shared Costs, and the resulting uncertainty which this
causes for the costs claimed in the IM Cost Pool and the SS Cost Pool, a questioned cost finding
is being issued for the total amount of the claims through these cost pools for the audit period, or
approximately $359 million.

Title IV-E federal funds received for Administration and Training activities are distributed
quarterly to counties based on a formula which includes the size of each counties SS Cost Pool.
As stated above, the SS Cost Pool was overstated, thus, a finding for recovery in the amount of
$60 million is being issued for this inflated reimbursement.

BUILDING AND FACILITY COSTS - Hamilton CDJFS charges to the Shared Cost Pool a
portion of the costs for three facilities owned by the County. The agency did not execute a lease
agreement with the Commissioners for Parkhaus spaces. They recorded the Parkhaus costs
within the Shared Cost Pool, through which they received federal and state reimbursement.
Under the present arrangement, although the agency is using less than half of the facility, they
are paying an amount sufficient to cover most of the depreciation on the building. Moreover, no
offset is made against the claimed costs for the additional revenue generated by the garage.

Hamilton CDJFS should have offset such revenues against Parkhaus costs, including
depreciation, and allocate the remaining net costs to the agency on an acceptable basis under
OMB Circular A-87. As no offset was made of revenues against the associated costs of



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operating the garage, and the basis for allocation of any valid net costs is not clear, auditors
determined the rental costs for the parking spaces, of $872,000, to be unallowable, and a finding
for recovery.

The agency also failed to maintain lease agreements for the A & D Building or the Taft Building.
Due to the lack of documentation, auditors could not determine what services were provided for
the agency’s monthly payments, and, hence, could not establish their reasonableness as a charge
against federal programs. For this reason, a questioned cost finding of approximately $12.3
million is necessary.

INAPPROPRIATE CHARGES FOR TALBERT HOUSE - Hamilton CDJFS entered into an
agreement, beginning June 22, 2001, with Talbert House, a non-profit organization, to obtain
various services. All of these activities were TANF-related, and should have been charged
directly to the TANF program. Hamilton CDJFS recorded Talbert House contract costs in their
Income Maintenance cost pool, inappropriately allocating TANF costs to the other programs
within that cost pool. The total cost pool charges, of approximately $8.2 million, are questioned.

UNALLOWED ENHANCED MEDICAID TRANSPORTATION CONTRACT COSTS -
Enhanced Medicaid transportation (EMT, now Non-Emergency Transportation) is a program to
provide transportation for Medicaid clients to non-emergency medical appointments with
Medicaid providers. Hamilton CDJFS provides such service through Southwest Ohio Regional
Transit Authority (SORTA) by issuing bus tokens or ACCESS passes, gas vouchers, or
contracted bus service through Petermann LTD. In SFY 2004, $6.129 million was paid to
Petermann for services performed for this program. Auditors concluded that due to a failure to
apply Low Cost Provider and Gasoline Surcharge provisions in their contract, miscalculations of
trips, and a lack of documentation, Hamilton CDJSF overpaid the Petermann contract by
approximately $1.5 million, reflected in the report as findings for recovery of approximately
$762 thousand, $706 thousand, $3,783, and $1,245.

PAYMENT OF INDIRECT COSTS BY THE WRONG PROGRAM - Countywide central
services costs are those costs of centralized county functions performed on behalf of all county
agencies. The federal government allows state and local agencies to allocate a portion of those
costs to their programs through a cost allocation plan. In Ohio’s counties, these plans are called
countywide Indirect Cost Plans. Any and all costs benefiting all county government branches
must be addressed in this plan.

Hamilton CDJFS paid central services cost charges allocated to the various programs and
improperly charged them to the Shared Cost Pool, allocating portions of these costs to non-
benefiting federal programs. The amounts of these improper charges, which are being
questioned, include $64,970 of TB Control costs, $91,254 of Income Maintenance costs, $17,579
of Mt. Airy costs, and $1.8 million of Child Support, Social Services, and Children Services
costs.

LACK OF PROPER PROCUREMENT/NONCOMPLIANCE ISSUES WITH
CONTRACTS - As a subgrantee of ODJFS, Hamilton County’s procurement procedures must
comply with federal, state and local law. In the event of a conflict between any of the three, the



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County must use the most restrictive. Hamilton County’s local procurement policy, which, with
limited exemptions, requires competitive sealed bids for purchases of $15,000 or more, is more
restrictive than state or federal law. Identified circumstances of noncompliance with this policy
have resulted in two questioned cost findings of $339 thousand and of $3.6 million, respectively.

NONCOMPLIANCE WITH CONTRACTS -Auditors selected a sample of vouchers paid to
determine whether proper procurement procedures were used. During this testing, auditors also
determined whether the correct financial coding was used to record the voucher in the
appropriate financial records. In the course of this testing, auditors identified circumstances in
which payments were made on the basis of estimates, payments were charged to cost pools
which should have been direct charges to a program, costs were charged to the incorrect cost
pool, payments were made for unallowable costs, payments were made in excess of contract
amounts, and allowable procurement methodologies were not used. These items are detailed in
the audit report, and are the basis for multiple findings for recovery aggregating approximately
$1.1 million in other contract issues. Auditors also noted significant management
recommendations with regard to the bus tokens and passes.

COST ALLOCATION - The Random Moment Sample (RMS) system is a statistically valid,
federally-approved system for allocating indirect costs on the basis of employee time
distribution. Hamilton CDJFS lacked necessary documentation for RMS forms in all areas,
resulting in questioned costs in the aggregate of approximately $520 thousand. In addition, the
agency had several types of errors in the completion of RMS forms which, although they are not
the basis for a monetary finding, are indicative that internal controls over the completion of RMS
forms may not be functioning as designed.

INVENTORY AND EQUIPMENT - County agencies are permitted to charge an appropriate
portion of the cost of inventory and equipment to federal programs in accordance with OMB
Circular A-87. Our review and testing of Hamilton CDJFS records identified several instances
of noncompliance in this area, including charging of leasehold improvements to Hillcrest School,
unallowable to the Hamilton CDJFS, as Shared Costs to the PA Fund, improper treatment of the
proceeds from the sale of assets purchased with federal funds, and errors in the recorded
inventory. These instances are management recommendations.

CHILD SUPPORT DEPOSITORY FUND - A Child Support depository account maintained
by the Hamilton CSEA containing unclaimed monies was used to pay bank and credit card fees,
as well as overages and shortages in the county’s pre-SETS monies. Sections 3125.28 and 9.39
of the Ohio Revised Code govern the use of such monies, and do not allow their expenditure for
this purpose. A finding for recovery in the amount of $26,005 is thereby issued.

CHILD CARE BILLINGS - County agencies receive funding for child care from ODJFS for
the administration for the needs of children. Auditors noted that none of the vouchers tested
contained designations of the time at which the children were present. As a result, it was not
possible to determine whether the number of children being cared for at any given time exceeded
the maximum allowed. Without such designation, the agency can not ensure compliance with
the license or certification issued to the provider, which states the maximum number of children
allowed at one time, based on the type of facility and the resources of the provider. ODFJS



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auditors also issued a management recommendation.

FOOD STAMP INCENTIVES – Counties may earn incentives for collection overpayments on
Food Stamp cases. The amount of the incentives are calculated by the counties and recognized
by the county posting an adjustment to the Food Stamp Collections line of the monthly financial
report and the Nonreimbursable Receipts line. During the audit period, Hamilton CDJFS
claimed approximately $1 million in excess of the allowable amount. This amount is a finding
for recovery against the agency.




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                                                    SUMMARY OF FINDINGS

                                                                       Report    Finding for     Questioned          Non         Management
                          Description                                  Section    Recovery         Costs          Compliance   Recommendations
FAILURE TO SEPARATELY ACCOUNT FOR MONIES                                 A-1                                          X
CASH TRANSFERS IN VIOLATION OF STATE LAW
                                                  To PA from PCSA        B-1                       $104,956,741
                                              To CSEA from PCSA          B-1                         22,125,465
            To PA from Human Service Subsidy (holding) Account           B-2                                          X
            To PA from Human Service Subsidy (holding) Account           B-3                         69,756,826
               Deposit of Cash into the Wrong Fund (PA vs PCSA)          B-4                          1,016,298
MATCHING ISSUES
                                     Failure to Substantiate Match       B-5                         60,939,144
IMPROPER FINANCIAL CODING
                                          IV-E Admin. and Training       B-6                         13,820,183
                                                              SCPA       B-6                          1,178,889
MISUSE OF PROTECTOHIO WAIVER FUNDS
                                        Lack of Match Requirement        C-1                         52,956,088
LACK OF PROPER MATCH OF FEDERAL FUNDS
                                                                 PA      C-2                        613,044,926
                                                              CSEA       C-2                         82,224,021
                                                              PCSA       C-2                        198,954,856
  MANDTAED SHARE
                                                    Improper Match       C-3                         10,783,878
MISUSE OF COST POOLS
  MCSA
                                  Inappropriate Allocation of Costs      D-1                         35,623,402
                                                Duplicate Payments       D-2       $35,623,402
                              Reporting Advances as Expenditures         D-3                                          X
                  Failure to Separately Account for MCSA Activity        D-4                                          X
                                        Failure to Offset Exp w/Rev      D-5        11,729,048
                        Improper Allocation of Adminstrative Costs       D-6                                          X
 MAGELLAN
                                                Duplicate Payments       D-7        57,857,071
                                  Inappropriate Allocation of Costs      D-8                         57,857,071
                                        Lack of Proper Certification     D-9                                          X
 HILLCREST & YOUTH CENTER
                                 Unallowable Duplicate Payments         D-10        42,839,509
                                  Inappropriate Allocation of Costs     D-11                         42,839,509
 HILLCREST & YOUTH CENTER-INVENTORY & EQUIPMENT
                                                  Unallowable Costs     D-12           249,190
  DEPENDENCY DOCKET
                                  Unallowable Costs in Cost Pools       D-13         1,281,908
                                          Direct Unallowable Costs      D-13         2,600,000
 GUARDIAN AD LITEM
                                  Unallowable Costs in Cost Pools       D-14           843,113
                                          Direct Unallowable Costs      D-14         2,181,523
  HELP ME GROW
                                      Improper Allocation of Funds      D-15                          6,983,378
                     Transfer of Funds Recorded as Expenditures         D-16         1,605,952
FAILURE TO OFFSET EXPENSES W/ REVENUE
                                                             Mt Airy     E-1         1,531,445
                                                          SWORTC         E-2           892,289
SHARED COSTS
                         Inappropriate Classification of Supervisors     F-1                                          X
                                        Overstated Title IV-E A & T      F-2        60,010,127
              Inappropriate Use of Cost Pools and Improper Claims
                                        for Federal Reimbursement        F-3                        359,416,074




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                                 SUMMARY OF FINDINGS (CONTINUED)

                                                                       Report    Finding for                         Non         Management
                          Description                                  Section   Recovery        Questioned Costs Compliance   Recommendations
BUILDING AND FACILITIES
                                      Parkhaus -Unallowable Costs        G-1           872,040
                                             No Lease Agreement          G-2                           12,300,656
TALBERT HOUSE
                          Inappropriate Allocation of Contract Costs     H-1                            8,217,446
EMT (NET)
                                   Noncompliance with Contract           I-1           762,635
                                                   Overpayment           I-2           706,047
                                                 Undocumented            I-3             3,783
                                                   Unreasonable          I-4             1,245
INDIRECT COSTS IN WRONG PROGRAM
                                                      TB Control         J-1                               64,970
                                            Income Maintenance           J-2                              91,254
                                                         Mt. Airy        J-3                               17,579
                                               CSEA and PCSA             J-4                            1,844,292
PROCUREMENT
                                     Lack of Competitive Bidding         K-1                              339,155
                                   Lack of Competitively Bidding         K-2                            3,666,929
NONCOMPLIANCE ISSUES WITH CONTRACTS
                                  Undocumented/Unreasonable              L-1           175,850
                               Payment over contractual amount           L-2            25,879
                 Adoption Contract Related Costs Charged to the
                                               Shared Cost Pool          L-3            45,000
                                                     Audit Costs         L-4            11,624
                                           PCSA Charges in PA            L-5            30,146
                                           CSEA Charges in PA            L-6             4,809
                                           CSEA Charges in PA            L-7             4,719
                                       Inappropriate Costs in PA         L-8            28,981
                                       Inappropriate Costs in PA         L-9             4,500
                                    Lack of Control over Assets         L-10                                                          X
                                           Undocumented costs           L-11            31,939
                                             Unreasonable costs         L-12             4,053
                    Foster Care Consulting Contract in Cost Pool        L-13           223,168
                                             Unreasonable Costs         L-14           513,766
COST ALLOCATION
                                                        SS-RMS          M-1                               349,452
                                Management Recommendations              M-2                                                           X
                                      Inadequate Completion of          M-3                                           X
                                                 SS-RMS Forms           M-4                               149,022
                                Management Recommendations              M-5                                                           X
                                                        CS-RMS          M-6                                22,265
                                Management Recommendations              M-7                                                           X
SALES OF ASSETS
                               Management Recommendations                N-1                                                          X
                               Management Recommendations                N-2                                                          X
CSEA DEPOSITORY ACCOUNT
                              Improper Use of Unclaimed Funds            O-1            26,005
ISSUES WITH CHILD CARE BILLINGS
                               Management Recommendations                P-1                                                          X
OVERPAYMENT OF FOOD STAMP INCENTIVES                                     Q-1         1,049,702
                            Total by Finding Type (in aggregate)                   223,770,467       1,761,539,769
       TOTAL ALL FINDING TYPES (in aggregate)                                                     $1,985,310,236




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                                      BACKGROUND
The Board of County Commissioners of Hamilton County is responsible for the administration
of family services programs in Hamilton County. These programs are operated within the
Hamilton CDJFS, a combined agency that includes the County Department of Job and Family
Services (CDJFS), the Public Children Services Agency (PCSA), and the Child Support
Enforcement Agency (CSEA) into a single entity. The agency director is appointed by the
commissioners.

As a family services agency in Ohio, the Hamilton CDJFS is responsible for the administration
of various federal programs, including federal Temporary Assistance to Needy Families (TANF),
the Food Stamp Program, Medicaid, and Title XX programs within the county. The PCSA
operating within the Hamilton CDJFS is responsible for the administration of adoption and foster
care services and other child welfare activities including protective services. The CSEA
operating within the Hamilton CDJFS is responsible for assisting in the determination of
paternities, obtaining support orders, collecting support payments, disbursing child support, and
obtaining medical coverage for children. The CSEA may enter into agreements with local
courts, sheriffs, and private providers to support its efforts.

The Hamilton CDJFS is also responsible for maintaining complete and accurate administrative
and financial records for these programs. Financial records are maintained by the Hamilton
CDJFS and by the Hamilton County Auditor. Monies for the administrative costs of these
agencies are held within accounting funds in the county treasury and expended under warrant of
the county auditor. These are special revenue funds, used to account for the revenues and
expenditures of federal, state, and local monies within prescribed regulations. Each agency
within the Hamilton CDJFS has a separate special revenue fund for its administrative activities.

Ohio operates under a state-supervised, county-administered system. ODJFS is the state agency
responsible for the supervising the Hamilton County family services programs. The state agency
is responsible for providing the county agency with federal and state monies to operate its
programs, and also for providing technical assistance and support to the county. Starting in
1999, each county receiving funding from ODJFS signed an agreement--initially called a
“Partnership Agreement” and subsequently known as a “Fiscal Agreement”--that outlined the
terms, conditions, and requirements governing the administration and use of financial assistance
received or used by each family services agency included in the agreement. The partnership
agreements entered into between ODJFS and the Hamilton County Commissioners were
effective beginning July 1, 1999, through June 30, 2003. The Fiscal Agreement between
ODJFS and the Hamilton County Commissioners was in effect from July 1, 2003, through June
30, 2005. By executing partnership and fiscal agreements, the county agrees to comply with
state and federal laws applicable to the programs funded through ODJFS. This includes
reporting, cash management, and other requirements related to financial accountability and
administration by the family services agencies. A fiscal agreement was not executed for the
period after June 30, 2005. In the absence of such an agreement, a county is subject to similar
requirements set forth in Section 5101.213 (A) (4) of the Ohio Revised Code.




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Each family services agency uses a financial reporting system established by ODJFS, as well as
designated ODJFS software programs, to report financial and other data. These applications
track financial transactions and produce the financial and non-financial reports required by
ODJFS to support the state’s federal reporting and claims for federal funds. The Hamilton
CDJFS and the Hamilton County Auditor are required to certify that the monthly financial
statements are true and accurate.




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                                     INTRODUCTION
In 2004, the Ohio Auditor of State’s (AOS) Health Care Contract Audit (HCCA) section
performed limited audit procedures at the Hamilton County Department of Job and Family
Services (Hamilton CDJFS), under contract with the Ohio Department of Job and Family
Services (ODJFS, formerly the Ohio Department of Human Services, or ODHS), through the
Bureau of Audit (BOA) within the ODJFS Office of Research, Assessment, and Accountability.
This was an agreed-upon-procedures engagement covering state fiscal year (SFY) 2003. The
procedures applied were enumerated and approved by ODJFS. As an agreed-upon-procedures
engagement, the audit scope was limited.

During the course of their work, AOS-HCCA auditors discovered $26,023,306 in foster care
costs for SFY 2003 that are normally be charged through the PCSA, but that had been charged to
the Public Assistance Fund of the CDJFS instead. After reviewing the AOS-HCCA audit work,
the BOA performed additional analyses of records obtained by AOS-HCCA staff. These
analyses raised concerns about potential duplicate payments for foster care placement and
maintenance services. The analyses also identified other potential issues involving other time
periods. Post-audit discussions with Hamilton CDJFS employees raised further questions about
the county’s practices in assigning costs. Discussions with ODJFS program and fiscal staff
confirmed the BOA auditors’ concerns about the Hamilton County’s administration of federal
programs. Based upon perceived risk to federal programs, ODJFS management determined that
additional audit work was necessary to address these concerns and the accounting practices of
the Hamilton CDJFS, and to ensure that ODJFS complied with federal monitoring requirements.

ODJFS held an entrance conference with the Hamilton CDJFS director and members of her
management staff in late August 2004 and began expanded audit fieldwork. At the onset of the
audit work, ODJFS staff responded to a request from the county administrator to meet and
discuss the audit.

During the September 14, 2004 meeting, the county administrator indicated that the CDJFS
employees had confirmed the improper recording of foster care placement and maintenance costs
in the CDJFS cost pools, and offered to immediately repay any overpayments generated by this
activity. He stated that county agency could provide auditors with data that fully identified the
problem, which would avoid the need for expanded audit work, and allow the county to claim
administrative costs within the allowable federal time frame. Hamilton CDJFS fiscal employees,
however, indicated that they did not have the required records and data needed to claim
administrative costs through the proper procedures.

During this meeting, Hamilton County employees indicated that they had already made an
accounting adjustment of $26,282,317 for SFY 2004 to reclassify foster care placement and
maintenance charges as local, non-reimbursable expenditures. The June 2004 CDJFS monthly
financial statement indicated that financial information was revised on Saturday, September 18,
2004, and certified by the CDJFS director’s designee. It is not clear, however, that the county
auditor’s office was notified of the adjustment, as the copy provided to the audit staff did not
bear the county auditor’s certification. ODJFS management communicated to the county
employees that audit work would still be required to validate this information, and that auditors


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had detected other issues that were a cause for concern and needed to be addressed through an
audit.

In September 2004, the Hamilton County director requested that in addition to the planned audit
of SFY 2003, ODJFS staff complete an audit of SFY 2004, including the performance of the
audit procedures used in a regular county audit. ODJFS staff agreed to expand the audit to meet
this request.

In addition to the unallowable foster care placement and maintenance charges within the
Hamilton CDJFS cost pools early ODJFS expanded audit work identified the following:

   •   inclusion of unallowable costs in cost pools resulted in improper claims against federal
       and state monies;
   •   unlawful commingling of monies caused state and federal monies to lose their identities;
   •   large cash transfers among local special revenue funds, contrary to state law;
   •   improper financial management of Title IV-E monies; and
   •   a pattern of cost shifting from the County General Fund to the County Children Services
       Fund.

ODJFS management determined that some of these issues were beyond the authority of ODJFS
to audit. Meetings were held with representatives of the AOS and the Office of the Attorney
General (OAG) to communicate the issues identified to date, to discuss the significance of the
issues, and to determine the appropriate course of action. The AOS decided to initiate a special
audit to address issues in Hamilton County.

At the same time, ODJFS determined that it was appropriate to initiate a special audit of
Hamilton County, incorporating the previous contract work by the AOS-HCCA auditors.
Preliminary findings were communicated to the federal funding agencies. ODJFS and the AOS-
Special Audit Section (SAS) held joint planning sessions to determine the appropriate scope of
audit work to be performed by each agency. They announced their concurrent special audits and
on December 10, 2004, issued subpoenas to Hamilton County employees and many of their
providers and contractors. This report details the ODJFS audit results, including the SFY 2004
findings and portions of the original AOS-HCCA contract audit findings. The AOS has issued a
separate report addressing the results of the audit by the AOS-SAS. The HHS-OIG has also
performed an audit of the county’s Title IV-D contracts.




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                           SCOPE AND METHODOLOGY
The time period covered by the audit was from July 1, 2001, through June 30, 2004. The scope
of the engagement varied within this period; however, the Hamilton County director requested a
review of Hillcrest Training School activity back to January 2000.

For state fiscal year (SFY) 2003, the engagement scope was limited to procedures prescribed by
ODJFS, with work performed by the AOS as “agreed-upon procedures.” The AOS tested the
combined agency in Hamilton County--including the Hamilton CDJFS, the CSEA, and the
PCSA--for compliance with applicable provisions of the Code of Federal Regulations (CFR),
Office of Management and Budget (OMB) Circulars, various Ohio Revised Code statutes
(ORC), Ohio Administrative Code rules (OAC), the ODJFS Administrative Procedures Manual
(APM), and other rules and regulations (such as local procurement rules where they are the most
restrictive).

In performing this engagement, the AOS performed procedures to determine whether:

   •   the CDJFS monthly financial statements were submitted to the state and balances agreed
       to county auditor records;
   •   electronic funds transfer (EFT) transactions were accounted for and deposited into the
       appropriate accounts;
   •   pre-Support Enforcement Tracking System (SETS) bank accounts for child support
       payments were closed and the ending balances accounted for;
   •   payments for child support were deposited and paid to the state;
   •   county commissioners were reimbursed for indirect costs approved in the countywide
       cost allocation plan and amounts matched the appropriate monthly financial statements;
   •   payments for the county mandated share were transferred to the PA Fund, properly
       identified on the JFS monthly financial statements, and matched the amounts stated on
       ODJFS mandated share letters;
   •   advances of funds from ODJFS to the county agency were reconciled, and appropriate
       payments were made;
   •   shared costs were paid by the PCSA and CSEA to the PA Fund and properly reported on
       the appropriate financial statements;
   •   all random moment sampling forms in each program area were completed correctly, a
       record trail was provided to confirm the work represented by codes on the form, a sample
       was selected to test for accuracy of the information reported to ODJFS and
       documentation existed to match the information reported;
   •   expenditures and contract payments for purchased services and goods complied with
       applicable rules and regulations, and a sample of expenditures was selected to test
       compliance with procurement and contract specifics;
   •   the agency established proper monitoring procedures for expenditures and contracts, and
       properly determined relationships with providers as vendor or subrecipient, with
       monitoring as required by OMB Circular A-133;
   •   the agency maintained and updated a required inventory list, with assets purchased and
       disposed of during the audit period accounted for and used for the purpose of the
       program(s) for which they were claimed; and


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   •   payments made for facilities for the audit period were properly allocated by benefit to
       program(s), in accordance with lease/rental agreements and applicable rules and
       regulations.

For SFY 2004, ODJFS expanded the scope of the audit because of material errors detected by the
audit work performed by the AOS-HCCA for SFY 2003. Additional audit procedures were
established to obtain reasonable assurance that misstatements or significant inaccuracies in data
would likely be detected. Absolute assurance is not attainable because of the nature of audit
evidence. Tests were designed to provide reasonable assurance of detecting violations of the
most restrictive federal and state statute, federal regulations and state administrative rules, and
local laws, rules, regulations and policies. Auditors applied procedures to determine whether
violations occurred or were likely to have occurred. Audit findings reflect instances in which
auditors could not obtain or identify sufficient, competent, evidential matter, as presented at the
time of the audit, to support management’s assertions. Auditors exercised professional
judgment in pursing indications of violations of laws, regulations or policies, and referred such
matters to federal agencies when appropriate.

In the course of the audit, ODJFS management determined the extent to which identified issues
extended beyond the authority of ODJFS. These matters were brought to the attention of the
AOS, which performed a separate special audit. In addition, the United States Department of
Health and Human Services, Office of the Inspector General, performed a separate audit of Title
IV-D issues in the county.

The procedures listed above as performed by the AOS for SFY 2003 were also performed by
ODJFS for SFY 2004, along with additional procedures applied to SFY 2002 through SFY 04 to
determine:
    • the amount of any duplicate foster care costs improperly recorded to the cost pools;
    • whether there were other duplicate and/or unallowable costs improperly recorded to the
       cost pools;
    • whether foster care costs were properly allocated to benefiting program(s);
    • the amount of any unallowable direct charges recorded;
    • the amount of any transactions that should have been used to reduce or offset
       expenditures;
    • whether the random moment sampling cost allocation methodology was properly applied,
       including allocation of staff;
    • the effects of any unallowable costs in the cost pool on shared costs;
    • the effects of any commingling of federal, state and local monies;
    • the amount of any transfers contrary to state statute, and their effect; and
    • whether the agency properly matched federal funds.

At the request of the CDJFS director, tests of expenditures for Hillcrest Training School were
expanded to include calendar year (CY) 2000 through SFY 01. We also expanded testing to
cover the Youth Center for this period.

The original engagement letter called for an audit of SFY 2005. Because of the extensive testing
necessary for the special audit, ODJFS decided to perform a separate audit of that period, and


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therefore, SFY 2005 is not covered by this audit.




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   A. FAILURE TO SEPARATELY ACCOUNT FOR FEDERAL, STATE
                     AND LOCAL MONIES
As a combined agency, the Hamilton CDJFS contains the job and family services agency, the
child support enforcement agency, and the children services agency, collectively referred to in
Hamilton County as “Department 12.” This department also includes other programs outside the
normal duties of a CDJFS. The administrative functions for these various agencies and programs
are centralized within the Hamilton CDJFS. This includes the accounting function; as a result,
the Hamilton CDJFS fiscal employees control all the special revenue funds for all three agencies
and their programs. Illustration 1 shows the three special revenue fund types, one for each of the
three agencies. It also shows the related reports generated for each agency and some of the
major funding streams for each. Each fund contains monies for various programs and uses a
separate monthly financial statement to report related revenue and expenditure activity. The
monthly financial statements are required to be certified as accurate, current, and complete by the
agency director and the local county auditor, or their designees.

ILLUSTRATION 1: Special Revenue Fund Types & Related Financial Reports

        Job &                             Child Support                             Public Children
    Family Services                    Enforcement Agency                          Services Agency




  Public Assistance                         Child Support                         Children Services
         Fund                                    Fund                                    Fund
         JFS 02827                             JFS 02750                                JFS 02820
   Monthly Financial Statement                 Child Support                     Monthly Financial Statement
     Job & Family Services                  Administrative Fund                      Children Services
     Public Assistance Fund             Monthly Financial Statement                         Fund

    TANF (Title IV-A)                                                             Foster Care (IV-E)
      Food Stamps                      Child Support (Title IV-D)              ProtectOhio Waiver (IV-E)
   Medicaid (Title XIX)                    TANF (Title IV-A)                      State Child Welfare
 Childcare (Title IV-A/XX)                   Local Match                         State Child Protection
  Disability Assistance                                                             SSBG (Title XX)
     SSBG (Title XX)                                                              Local Levy Monies
       Local Match
                Note: The Hamilton CDJFS refers to its Children Services Fund as the “Children Services Levy Fund”
                           and in the Hamilton County Auditor records as the “Children Services Fund”


ODJFS uses these monthly financial statements to support the reporting of expenditures to the
federal government, to identify expenditures eligible for federal and state reimbursement, to
establish charges applicable to the appropriate allocations awarded to each county agency, and to
reconcile the agency’s cash draws with their expenditures.



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Hamilton County established a Children Services levy for the purpose of “supplementing the
General Fund of the county to provide support for Children Services and the care and placement
of children.” Revenues from the Children Services levy were deposited into the Children
Services Fund, established in each county in accordance with Section 5101.144 of the Ohio
Revised Code. Section 5101.144 also requires the county to deposit other revenues appropriated
for Children Services, including federal Title IV-E monies and state allocations, into this fund.
The Hamilton County Prosecuting Attorney has issued opinions allowing broader uses of
Children Services levy revenues than are allowed for many other funding sources paid into this
fund.

Because the different funding sources have very different legal restrictions, the county is
required to establish accounting procedures to separately track and account for the financial
activity and cash balances of each funding stream. The Hamilton CDJFS did not do so. This
failure on the part of the county led to multiple issues discussed later in this report, including the
commingling of federal and state monies with local cash, making them untraceable in the
accounting records. Such accounting practices also caused local tax levy monies to become
untraceable in the accounting system. Illustration 2 demonstrates the concept of separately
accounting for tax levy funds within a fund holding monies from multiple sources in the
Children Services Fund.


ILLUSTRATION 2: Special Revenue Funds with PCSA and Tax Levy Monies as a Subaccount


     Job &                           Child Support                  Public Children
  Family Services                    Enforcement                       Services




                                                                                         Tax
                                                                                         Levy
       Public                        Child Support                Children Services
  Assistance Fund                        Fund                           Fund


       Finding A-1     OMB Circular A-133 §___ .300 states that the “auditee shall: (a)
                       Identify, in its accounts, all Federal awards received and expended
         Failure to
Separately Account
                       and the Federal programs under which they were received.”
 for Federal, State,
 and Local Monies      45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
   Noncompliance



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Citations   current, and complete disclosure of financially assisted activities.

            45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
            receiving subawards or subgrants of Federal awards must maintain
            records identifying the source and application of funds provided, and
            include information pertaining to the subawards and subgrants,
            including authorizations, obligations, unobligated balances, assets,
            outlays, and income.

            45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
            maintenance of effective control and accountability for all funds, and
            the safeguarding of assets, ensuring their use solely for authorized
            purposes.

            45 CFR 74.26 and 45 CFR 92.26 specify, respectively, that
            subrecipients and subgrantees of federal awards are subject to the
            Single Audit Act and OMB Circular A-133.

            OMB Circular A-87, Attachment A, Section C.1 states: Factors
            affecting allowability of costs. To be allowable under Federal
            awards, costs must meet the following general criteria:

             . . . d. Conform to any limitations or exclusions set forth in these
             principles, Federal laws, terms and conditions of the Federal
             award, or other governing regulations as to types or amounts of
             cost items.

            OAC Rule 5101:9-9-29 requires auditees to:

             . . . (I) maintain documentation conforming to all requirements
             prescribed by ODJFS, Federal statute or regulation and state statute
             or administrative rule. Auditees must prepare and maintain
             documentation to support all transactions and to permit the
             reconstruction of all transactions and the proper completion of all
             reports required by state and federal law and regulations, and
             which substantiates compliance with all applicable federal statutes
             or regulations, state statutes or administrative rules.

            The Hamilton CDJFS did not establish internal controls or
            accounting procedures to enable it to adequately identify and account
            for federal monies, and to differentiate financial activity with such
            monies from financial activity involving local tax levy revenues and
            other revenues. It did not maintain accounting records that would
            allow its employees to accurately track and identify cash balances
            for the various funding streams within the funds.



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In addition, it did not maintain accounting records that would allow
it to properly allocate costs or to demonstrate that costs were
necessary and reasonable for proper and efficient performance and
administration of its federal awards.

Tax levy monies and federal award monies have differing
restrictions and have some mutually exclusive purposes. Failure to
account separately for such monies resulted in the Hamilton CDJFS
commingling local levy monies with state and federal monies,
causing the state and federal monies to lose their identities and
become untraceable in the department’s accounting systems.
Therefore, it is impossible to determine whether these monies were
expended only for allowable activities.

The Hamilton CDJFS must establish appropriate accounting
procedures to separately account for revenues, expenditures, and
cash balances of legally distinct funding streams within the Children
Services Fund. It must cease commingling of funding streams. It
also must establish and maintain adequate internal controls to ensure
that each funding stream is used only for intended purposes and
allowable activities.




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        B. CASH TRANSACTIONS IN VIOLATION OF STATE LAW

For SFY 2002 through SFY 2004, the Hamilton CDJFS transferred $127,082,206 from the
Children Services Fund to the PA Fund and the Child Support Fund. Hamilton County fiscal
employees indicated that cash from the Children Services levy was moved to the PA Fund to
ensure that the department always had enough cash within a fund to cover expenditures.
Auditors found communications between the Hamilton CDJFS and the county budget office that
encouraged this behavior. According to communications auditors obtained, the county budget
office sometimes directed the Hamilton CDJFS to make such transfers. In an interview with a
former Hamilton county fiscal section chief, employed during a portion of the audit period, he
confirmed that the Hamilton CDJFS commonly moved cash in this way. He also confirmed that
ProtectOhio and Children Services levy cash was transferred to the PA Fund to meet forecasted
expenditures.

There are three lawful methods in which money may be moved between special revenue funds,
such as the PA Fund, the Children Services Fund, and the Child Support Fund. The first is a
reimbursement, which represents a lawful obligation of one fund to another fund, arising when
an expenditure properly chargeable to the first fund was initially made from the second fund,
which is subsequently reimbursed. For example, when local family services agencies are
combined, the CDJFS processes payroll for all agencies. Payroll for all agency employees is
then disbursed from the PA Fund within the CDJFS; the other funds must reimburse the PA Fund
for their shares of those payroll costs. The need for reimbursement must be properly
documented.

The second legal method for moving monies between funds is an interfund cash advance.
Essentially, this involves one fund loaning cash to another. This can occur only when the
allowable legal uses of cash for the loaning fund are consistent with those of the receiving fund
(1964 OAG No. 1209). For example, a county’s General Fund might loan cash to any number of
funds, as there are few restrictions on General Fund money. Levy funds have restrictive
language limiting their use to certain types of expenditures. Revenue from levy funds could not
be loaned to other funds where it would not be subject to the same restrictions.

The third legal method for moving monies between funds is a transfer, in which cash may be
moved between funds without an obligation for repayment under specific circumstances
described in Sections 5705.14 through 5705.16 of the Ohio Revised Code. For example, if a
county’s commissioners determined that a transfer of money from the county’s General Fund to
the Children Services Fund was necessary to supplement the Children Services Fund’s revenues,
they could authorize it by a two-thirds vote under Section 5705.14 (E) of the Ohio Revised Code.

Counties must document the nature and basis of interfund cash transactions to assure compliance
with legal requirements. Transfers other than those authorized by Section 5705.14 of the Ohio
Revised may be authorized by Sections 5705.15 and 5705.16, which require the approval of such
transfers by the court of common pleas and the state tax commissioner. For example, if the
county commissioners determined that a transfer of money from the Children Services Fund to
the PA Fund were necessary to supplement the PA Fund’s revenues, this would require approval
of a majority of the board of the state tax commissioner, and the Hamilton Court of Common


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Pleas.

The Hamilton CDJFS moved $127,082,206 out of the Children Services Fund between SFY
2002 and SFY 2004. According to county records, the PA Fund received $104,956,741, while
the remaining $22,125,465 went to the Child Support Fund to reimburse the PA Fund for child
support costs paid by the PA Fund. These are referred to as “shared costs,” and include such
things as rent, utilities, etc. CDJFS employees did not, however, record the subsequent
reimbursement from the Child Support Fund to the PA Fund as shared costs in their monthly
financial statements and other records, although they told audit staff this was why they moved
the cash. Such movement of cash was often made for cash management purposes, without
documentary evidence of any reason for reimbursement or obligation to pay. This type of
transaction requires an authorized signature from each department involved on a document
known as an Interfund Transaction (IT) to move money between the funds involved. For the
three Hamilton County family services agencies, only one signature was needed for the funds
involved, as the Finance Office within the Hamilton CDJFS exercised control over all three
special revenue funds.

Auditors did not find supporting documentation to validate the movement of cash as
expenditures or reimbursements, although the agencies recorded them as expenditures. These
were actually transfers of cash between the three special revenue funds managed by the Hamilton
CDJFS. This activity could not have been detected without a review of the physical Interfund
Transaction forms, and to anyone reviewing the JFS 02820 report; they would appear to be
simply being foster care expenditures paid with levy monies. Normally, reimbursements do not
occur in even, rounded, whole-dollar amounts, but rather they have dollars and cents. Table 1
shows some of the cash transfers of commingled monies out of the Children Services Fund and
into the other funds based upon data from the county auditor’s Interfund Transaction forms and
electronic records.




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TABLE 1: Cash Transfers from the PCSA to the CDJFS and CSEA


                Public Assistance                     Children                    Child Support

        SFY
                       Fund                         Services Fund                 Admin. Fund



                  $1.2 M (905-71)                 $2.2 M (883-50)
                     1 M (905-71)
        2002




                                                     12 M (881-50)
                   12 M (903-71)                                                   $3M (903-71)
                                                    6.3 M (899-30)                3.3 M (903-71)


                 $3.5M    (903-71)
                   2M     (903-71)                 $ 45.5M (881-50)
        2003




                  20M     (903-71)
                   5M     (903-71)
                  15M     (903-71)                    4.5 M (899-30)              $1.4 M (903-71)
                                                                                   3.1 M (903-71)



                   $5M     (903-71)
                                                   $45.3M (881-50)
                    7M     (903-71)
        2004




                    2M     (903-71)
                   6.5M    (903-71)
                                                    11.3M (899-30)                 $3.6M (903-71)
                   6.5M    (903-71)
                                                                                    7.7M (903-71)
                  18.3M    (903-71)
        Total




                    $105 M                             $127.1 M                    $22.1 M
                   Transferred In                    Transferred Out              Transferred In

                             Source: Hamilton CDJFS Interfund Transaction Forms


Table 1 also indicates which financial transaction codes were used when the transactions were
completed; Appendix A shows these account numbers with account names and definitions. All
counties use a standard set of financial codes that are prepared by ODJFS and are designed to
capture data in the state’s Central Office Reporting (CORe) system. CORe tracks money
allocated to counties, county cash draws, county expenditures, and cash balances. It also
monitors whether counties are spending within subaward amounts, known as allocations.

The Hamilton CDJFS did not appropriately identify this movement of cash between funds.
There is no evidence substantiating the transactions as expenditures or indicating that they were
to be repaid. Therefore, they cannot be classified as interfund cash advances. There is also no
sufficient and competent evidential matter that would allow them to be classified as
reimbursements. Although the PA Fund made expenditures on behalf of the Children Services
Fund, the accounting records are insufficient to demonstrate that these expenditures always
occurred prior to the movement of cash, which would show them to be reimbursements. In
addition, the former CDJFS fiscal section chief admitted that levy and ProtectOhio monies were


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moved to the PA Fund in anticipation of forecasted expenditures. Therefore, ODJFS is unable to
determine the effect of such transfers, in periods prior to our audit scope, on the cash balances at
the start of our audit scope. Essentially, the accuracy of the records is questionable and
beginning cash balances for SFY 2002 may have been tainted by prior violations of the transfer
laws.

Although the Hamilton CDJFS employees indicated that portions of the transfers were for
reimbursable costs--such as shared costs and Children Services activities paid through the PA
Fund--their accounting records were insufficient to substantiate that these cash transfers were
legitimate reimbursements to the PA Fund and Child Support Fund.

These transactions are transfers, subject to Sections 5705.14 through 5705.16 of the Ohio
Revised Code. The ODJFS Bureau of County Finance and Technical Assistance have not
created codes to capture cash transfers, as such transactions are rare, but such codes could have
been provided had they been requested. The PCSA accounting codes used made the transfers
appear to be expenditures of local levy monies, masking their true nature as cash transfers.
When this cash moved into the PA Fund, it was recorded as a receipt of local money causing it to
lose its identity as Children Services levy money. As noted in Section C of this report, “Misuse
of ProtectOhio Waiver Funds,” this commingling of monies further complicated accounting
issues as state and federal monies also lost their identity. After monies have lost their identity it
is not possible to verify whether they have been expended in accordance with applicable legal
restrictions. Auditors noted similar cash movements of lesser value in SFY 2001, prior to our
audit period. This practice may have continued into SFY 2005, and may be subject to further
audit procedures in future audits.

      Finding B-1     45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                      current, and complete disclosure of financially assisted activities.
Cash Transfers in
 Violation of State
Law and Improper      45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
   Accounting for     receiving subawards or subgrants of Federal awards must maintain
  Federal Monies      records identifying the source and application of funds provided, and
Questioned Costs:     include information pertaining to the subawards and subgrants,
     $127,082,206
                      including authorizations, obligations, unobligated balances, assets,
                      outlays, and income.

                      45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
                      maintenance of effective control and accountability of all funds, and
                      the safeguarding of assets, ensuring their use solely for authorized
                      purposes.

                      Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                      allowable costs for governmental entities are determined in
                      accordance with OMB Circular A-87, Cost Principles for State,
                      Local, and Indian Tribal Governments. Such principles govern the
                      reasonableness, allowability, and allocability of costs.



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                   45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                   accounting records be supported by source documentation.

                   ORC Sections 5705.14 through 5705.16 prescribe specific
                   requirements for transferring cash between fund types.

                   OAC Rule 5101:9-9-29 requires auditees to:

                       . . . (I) maintain documentation conforming to all requirements
                      prescribed by ODJFS, federal statute or regulation and state
                      statute or administrative rule. Auditees must prepare and
                      maintain documentation to support all transactions and to permit
                      the reconstruction of all transactions and the proper completion of
                      all reports required by state and federal law and regulations, and
                      which substantiates compliance with all applicable federal
                      statutes or regulations, state statutes or administrative rules.

                   Contrary to state law, the Hamilton CDJFS transferred $127,082,206
                   from the Children Services Fund to the PA Fund and the Child
                   Support Fund without the required court order stipulated in Sections
                   5705.14 through 5705.16 of the Ohio Revised Code. As noted
                   previously, this action moved money into funds that did not have the
                   accounting structures necessary to assure compliance with legal
                   restrictions. As a result, these transfers effectively caused federal
                   and state monies, as well as local levy monies, to lose their identity.

                   This was further complicated by a lack of internal controls over the
                   approval and processing of interfund transfers by the Hamilton
                   CDJFS.

                   Without the ability to identify federal monies within the Hamilton
                   CDJFS records, it is impossible to determine whether they were
                   expended on only costs allowable by the federal programs, therefore,
                   auditors issued questioned costs in the amount of $127,082,206.

                   The Hamilton CDJFS must review the applicable federal, state and
                   local requirements with its county prosecutor and implement
                   accounting and cash management procedures designed to comply
                   with them.


Other information also calls into question whether the cash movements were reimbursements
including:

    •   Hamilton CDJFS did not record cash moved into the PA Fund under shared cost


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         accounting codes which would have indicated reimbursements of shared costs,
    •    Hamilton CDJFS employees told ODJFS auditors they did not know how to calculate
         shared costs obligations of the PCSA to the CDJFS and imply estimated amounts due
         and moved cash to “balance the funds,”
    •    Hamilton CDJFS employees deposited $69,756,826 destined for the Children Services
         Fund and required by the Ohio Revised Code to be deposited in that fund, however,
         Hamilton CDJFS deposited this amount into the PA Fund where it did not belong. This
         is discussed later in the report,
    •    Certain costs paid from the PA Fund such as the costs for the Hillcrest Training School,
         discussed later in the report, were not a proper obligation of the PA Fund, and should
         have been paid directly from the Children Services levy, as the county prosecutor’s
         office had instructed the CDJFS to do,
    •    Shared costs were overstated, as discussed later in the report, due to unallowable costs in
         the Shared Cost Pool and improper calculations of shared obligations for the remaining
         cost pools and the CSEA. In addition the SS Cost Pool also contained unallowable costs
         which overstated the PCSA obligation to the PA Fund.

Given this collective information, it is not clear what amount, if any, the Children Services Fund
owed the PA Fund as a reimbursement. Therefore, ODJFS auditors did not assume that a
reimbursement obligation existed between these two funds. Additionally, reimbursements must
be properly documented and the CDJFS accounting records were simply insufficient.

ODJFS auditors found that the Hamilton CDJFS did not properly record the expenditures it
claimed the cash transfers covered, such as shared costs and other reimbursable costs. Although
this information was sometimes contained on Interfund Transaction forms, it was not in the
electronic accounting system or supported with adequate documentation. Total expenditures of
the Hamilton CDJFS were overstated as cash transfers were recorded in the PCSA records as
expenditures. Child welfare and foster care costs allegedly paid in the PA Fund with transferred
money were also recoded as expenditures in that fund. This activity may have also caused errors
in the county auditor’s records which were used to compile the county’s financial statements.
Additionally, recording the cash moved to the PA Fund as “local receipts” caused any levy and
ProtectOhio cash contained in those transfers to lose their identity in the PA Fund and become
untraceable.

        Finding B-2    OAC Rule 5101:9-7-50 states, in part:
         Improper
     Recording of
                        (A) Administration of the various family services programs is the joint
Financial Activities    financial responsibility of federal, state, and local governments. The
   Noncompliance        percentage of federal financial participation (FFP) varies by program and
          Citations     is subject to change each federal fiscal year. State and local funds, known
                        as the nonfederal share, must be used to supply the difference between the
                        percentage of FFP and one hundred per cent. When there is no FFP
                        requirement, the state and county must supply the total funds. When there
                        are no state funds involved, the county must supply the entire nonfederal
                        share.



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 (B) The percentage of participation at the federal and state level is
 applicable only to allowable costs, up to the maximum amount of funds
 available. Nonallowable costs or Nonreimbursable costs are not eligible
 for federal and/or state participation. These costs must be met through one
 hundred per cent county funds.

OAC Rule 5101:9-9-29 requires auditees to:

 . . . (I) maintain documentation conforming to all requirements prescribed
 by ODJFS, federal statute or regulation and state statute or administrative
 rule. Auditees must prepare and maintain documentation to support all
 transactions and to permit the reconstruction of all transactions and the
 proper completion of all reports required by state and federal law and
 regulations, and which substantiates compliance with all applicable
 federal statutes or regulations, state statutes or administrative rules.

OAC Rules 5101:9-10-29 for the CDJFS (JFS 02827) and the PCSA (JFS
02820), and Sections 5101:1-31-04 for the CSEA (JFS 02750) established
the financial codes to be used for reporting revenues and expenditures for
the three special revenue funds. All financial activity must be reported on
the monthly financial statements in accordance with these administrative
rules.

45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate, current,
and complete disclosure of financially assisted activities.

45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
receiving subawards or subgrants of Federal awards must maintain records
identifying the source and application of funds provided, and include
information pertaining to the subawards and subgrants, including
authorizations, obligations, unobligated balances, assets, outlays, and
income.

The Hamilton CDJFS failed to use accounting codes to legally and properly
record cash transfers. It also failed to legally and properly record costs,
such as shared costs, to create a clear record of its financial activities. This
improper activity overstated the PCSA expenditures and caused cash to be
commingled and unidentifiable, thus making it impossible to accurately
determine how it was ultimately expended. To the extent that cash transfers
led to federal monies losing their identity, this violates federal grants
management requirements in 45 CFR 74.21 and 45 CFR 92.20. It may also
have caused errors on the Hamilton County Financial Statements. Without
proper accounting, the monthly financial statements did not accurately
reflect activity within the three special revenue funds.



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                             The Hamilton CDJFS must adhere to Ohio Administrative Code rules for
                             financial accounting and implement internal controls designed to prevent
                             future noncompliance.



Further testing of the Hamilton CDJFS’ Interfund Transactions identified a separate fund known
as the Human Services State Subsidy Fund. This account was used as a temporary holding
account for cash receipts from the state to Hamilton County’s family services agencies. Using
the state auditor’s Detail Transaction Listing, a record of state disbursements to Hamilton
County, auditors were able to track amounts coming from the state to Hamilton County.
Auditors traced these monies, which were later recorded into the PA Fund, from this holding
account.

It is common for a county treasurer to receive an electronic funds transfer from the auditor of
state and not know exactly where that cash belongs. ODJFS mails a separate notification that
identifies the source. Normally, the county department to which the transfer was made issues a
receipt to the treasurer identifying the accounting fund to which this cash belongs. In this way,
the treasurer knows to which fund(s) to record the receipt of cash. Instead, the Hamilton CDJFS
used the Interfund Transaction process, which is intended to be used for reimbursements, to
move the cash from the holding account to its various funds. Often, these monies were recorded
into the incorrect special revenue fund, particularly the PA Fund.

The Hamilton CDJFS moved cash that was intended for the county PCSA, and which should
have been deposited into the Children Services Fund, from the holding account directly into the
PA Fund. This included State Child Protective Allocations (SCPA, formerly known as the State
Child Welfare Subsidy) and Title IV-E Administration and Training reimbursements. These
monies should have been accounted for on the JFS 02820 monthly financial statement. Instead,
the Hamilton CDJFS recorded them as local receipts. The SCPA funds were state monies, and as
a result of improper accounting procedures, they were commingled within the PA Fund and lost
their identity. Table 2 shows the amounts the agency recorded in its records as Title IV-E and
SCPA. The total of $69,756,826 was transferred from the Human Services State Subsidy Fund
to the PA Fund instead of to the Children Services Fund, as required.

TABLE 2: Human Services State Subsidy Fund Transfers to PA Fund1

                                   SFY 2002           SFY 2003           SFY 2004             Total
    Title IV-E                    $13,192,163        $25,649,883        $11,327,689        $50,169,735
    SCPA                            6,946,438          4,131,228          2,032,596         13,110,262
    Prior Year Receipts             6,476,829                                                6,476,829
              Total               $26,615,430        $29,781,111        $13,360,285        $69,756,826

                                        Source: Human Services State Subsidy Fund Transactions




1
    The Hamilton CDJFS uses SCWS in describing its SCWS and SCPA



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The “Prior Year Receipts” category, the electronic records auditors used--from data extracted
from the Hamilton CDJFS files--contained no descriptions to identify these funds, as the county
employees entered no notes into the electronic records other than to note that the transaction was
a transfer to the PA Fund. Because of this, auditors could not determine the final use and
disposition of such funds.

By analyzing the county auditor’s codes, the ODFJS auditors were able to determine that these
prior year receipts were state monies that were required to be deposited into the Children
Services Fund. Auditors noted that $412,783 was transferred to the PA Fund and then to the
Children Services Fund using the IT process. Thus, this amount is not included in the amount
questioned.

       Finding B-3     ORC Sections 5705.14 through 5705.16 prescribe specific requirements for
                       transferring cash between funds.
  Cash Transfers in
  Violation of State
               Law     OAC Rule 5101:9-9-29 requires auditees to:
  Questioned Costs:
       $69,756,826        . . . (I) maintain documentation conforming to all requirements
                          prescribed by ODJFS, federal statute or regulation and state statute or
                          administrative rule. Auditees must prepare and maintain documentation
                          to support all transactions and to permit the reconstruction of all
                          transactions and the proper completion of all reports required by state
                          and federal law and regulations, and which substantiates compliance
                          with all applicable federal statutes or regulations, state statutes or
                          administrative rules.

                          (J) Make available to ODJFS personnel all records necessary to
                          document all transactions.

                       Contrary to state law, the Hamilton CDJFS transferred $69,756,826 from
                       the Human Services State Subsidy Fund to the PA Fund without the
                       required court order stipulated in Sections 5705.14 through 5705.16 of the
                       Ohio Revised Code. As a result, these transfers caused state monies to lose
                       their identity.

                       This was further complicated by a lack of internal controls over the approval
                       and processing of interfund transfers by the Hamilton CDJFS. Without the
                       ability to identify state monies, it is impossible to determine whether they
                       were expended only on costs allowable by the state programs or federal
                       programs for which they were claimed to be used as matching monies.
                       Therefore, auditors issued questioned costs in the amount of $69,756,826.

                       The Hamilton CDJFS must review applicable federal, state and local
                       requirements with its county prosecutor and implement accounting and cash
                       management procedures designed to comply with them.




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In SFY 2004, the agency deposited $1,016,298 of SCPA monies, legally required to be paid into
the Children Services Fund, directly into the PA Fund.

       Finding B-4     OAC Rule 5101:9-9-29 requires auditees to:
Deposit of Cash into
the Wrong Program
                          . . . (I) maintain documentation conforming to all requirements
  Questioned Costs:       prescribed by ODJFS, federal statute or regulation and state statute or
         $1,016,298       administrative rule. Auditees must prepare and maintain documentation
                          to support all transactions and to permit the reconstruction of all
                          transactions and the proper completion of all reports required by state
                          and federal law and regulations, and which substantiates compliance
                          with all applicable federal statutes or regulations, state statutes or
                          administrative rules.

                          (J) Make available to ODJFS personnel all records necessary to
                          document all transactions.

                       In SFY 2004, Hamilton CDJFS improperly deposited SCPA (SCWS)
                       monies of $1,016,298 into the PA Fund and recorded them as local receipts,
                       contrary to state law. As a result, these state monies lost their identity and
                       are being questioned. Without the ability to identify state monies within the
                       Hamilton CDJFS records, it is impossible to determine whether they were
                       expended on costs allowable by the state programs or federal programs for
                       which they were claimed to be used as matching monies.

                       The Hamilton CDJFS must review applicable Ohio Revised Code
                       requirements with its county prosecutor and implement accounting and cash
                       management procedures designed to comply with them.

Using the Interfund Transaction process allowed the Hamilton CDJFS to circumvent controls
requiring the county commissioners to authorize and approve cash movements and expenditures.
As such, these transactions were not subject to the same level of scrutiny as regular interfund
transfers. When the holding account was discontinued in late 2003, an internal county
communication within the Hamilton County budget office noted that use of this fund had made it
unnecessary to obtain approval to move such monies. Without such a fund, the Hamilton CDJFS
would thereafter need approval to move this money from the Children Services Fund to the PA
Fund, instead of depositing it directly into the PA Fund from the Human Services State Subsidy
Fund. Additionally, any legitimate cash transfer would require a court order. The county
Commissioners are responsible for approving such transfers and for identifying where the money
is located in Hamilton County’s accounting system and how it may be expended through their
budget appropriation process. The county’s accounting system is maintained by the Hamilton
County treasurer and auditor.

All counties use a process known as SS-RMS reconciliation to determine the shared costs owed
to their PA Fund from their Children Services Fund. This process identifies costs that have not
been allocated to federal funding streams. It also identifies matching funds needed for costs


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allocated to federal programs, particularly Title IV-E and Title IV-B. ODJFS uses a certification
process to have counties identify how they intend to meet these match requirements and cover
unallocated costs. Each county receives a quarterly “Certification of Fund” worksheet, which
they use to communicate such information to ODJFS. Some of this data is entered into the
CORe system.

Like most counties, the Hamilton CDJFS certified to ODJFS that it used its SCWS and SCPA
monies to meet Title IV-E and Title IV-B match requirements identified in the SS-RMS
reconciliation process. However, in Hamilton CDJFS this match was unallowable because the
SCWS and SCPA monies cannot be identified in the PA Fund and, therefore, cannot be traced to
expenditures for activities allowable with federal IV-E and Title IV-B monies. It is impossible to
determine how these monies were expended, as they lost their identity when they were
commingled in the PA Fund.

In addition, the Hamilton CDJFS certified that it used local monies to cover unallocated costs
and portions of its required match. Its numerous legal violations of accounting processes make
the identification of truly local monies impossible. For example, the agency recorded Title IV-E
Administration and Training reimbursements as local receipts, a portion which they were not
entitled to receive, along with state monies for child welfare. Local monies also included
reimbursements for duplicate foster care placement and maintenance costs claimed under Title
IV-E.

Therefore, such certifications cannot be substantiated by the Hamilton CDJFS accounting
records. Auditors are questioning the $60,939,144 claimed as matching funds which includes the
monies improperly transferred and/or deposited into the PA Fund.

      Finding B-5     45 CFR 74.23 and 45 CFR 92.24 require that matching requirements be met
                      with costs that are allowable and verifiable. Except as authorized by federal
         Failure to
Substantiate Match
                      statute, they may not be met by costs borne by another federal grant.
 Questioned Costs:
      $60,939,144     OMB Circular A-87, Attachment A, Section C.1 states:

                      Factors affecting allowability of costs. To be allowable under Federal
                      awards, costs must meet the following general criteria:

                        . . . h. Not be included as a cost or used to meet cost sharing or matching
                        requirements of any other Federal award in either the current or a prior
                        period, except as specifically provided by Federal law or regulation.

                      OAC Rule 5101:9-7-50 (A) and (B) states that administration of the various
                      family services programs is the joint financial responsibility of federal, state
                      and local governments. The percentage of federal financial participation
                      (FFP) varies by program and is subject to change each federal fiscal year.
                      State and local funds, known as the nonfederal share, must be used to supply
                      the difference between the FFP and one hundred percent. The percentage of



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                    participation at the federal and state level is applicable only to allowable
                    costs, up to the maximum amount of funds available. Nonallowable costs or
                    nonreimbursable costs are not eligible for federal and/or state participation.
                    These costs must be met through county funds. Therefore, auditors issued
                    questioned costs in the amount of $60,939,144.

                    The Hamilton CDJFS did not deposit state allocations for the PCSA or Title
                    IV-E federal financial participation money into the Children Services Fund
                    as required. The agency improperly transferred $60,939,144 of state funds
                    and Title IV-E reimbursements to the PA Fund and recorded them as local
                    monies.

                    As these state monies and restricted Title IV-E reimbursements were
                    commingled with other funds within the PA Fund, it is impossible to
                    determine whether these funds were used in accordance with the restrictions
                    placed upon them. Further, these state allocations are frequently used by
                    counties to certify their match for federal funds. Matching funds must be
                    used for the same purposes as the federal programs they are being used to
                    match. Without the ability to identify these funds within the accounting
                    system, or to identify how they were subsequently expended, it is also
                    impossible to determine whether they met the requirements to be used as
                    matching funds. Additionally, Title IV-E Administration and Training
                    reimbursements were based on overstated cost pool expenditures, causing
                    the Hamilton CDJFS to be paid monies that they were ineligible to receive.

                    The Hamilton CDJFS must adhere to accounting regulations for state funds
                    and Title IV-E reimbursements. It also must implement internal controls to
                    ensure that such monies are properly accounted for and that receipts and
                    disbursements can be appropriately identified within the accounting system.
                    These controls must ensure that cash balances can be identified by separate
                    funding streams, and that financial activity can be traced to demonstrate that
                    federal and state monies were used for only allowable purposes.
Auditors were able to confirm through the county auditor’s office that the Human Services State
Subsidy Fund held no monies at the end of our audit period. The Hamilton County Auditor also
told the ODJFS auditors that this account was not used after December 2003. Appendix B
contains detailed information about the use of the Human Services State Subsidy Fund and the
accounting codes used.

After the county auditor closed the Human Services State Subsidy Fund, the agency placed the
Title IV-E Administration and Training monies and SCPA monies properly into the Children
Services Fund. However, auditors noted that these allocations were improperly recorded in the
Children Services Fund as nonreimbursable receipts, meaning unrestricted local money. These
receipts should be recorded as IV-E Administration and Training reimbursements or as SCPA
reimbursements, as the APM appendix denotes. The appendix lists the correct accounts to which
various receipts should be recorded on the JFS 02820 reports.


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     Finding B-6    ORC Section 5101.144 requires that a county deposit all funds received by a
                    PCSA for providing children services into the Children Services Fund and
        Improper
Financial Coding
                    that these funds be used only for meeting such costs.
Questioned Costs:
     $14,999,072    ORC Section 5101.141 requires all federal financial participation funds
                    received by a county under Title IV-E to be deposited into the Children
                    Services Fund.

                    OAC Rule 5101:9-6-19 (B) states that state child protective services funds,
                    state foster parent day care funds, and state kinship care funds received by a
                    county agency must be deposited in the county’s children services fund.

                    APM Section 6251 requires all funds in the county allocation--including
                    state child protective services funds, state foster parent day care, and state
                    kinship care funds--to be deposited into the Children Services Fund.

                    The APM Appendix denotes the correct accounts to which various receipts
                    can be recorded on the JFS 02820 report.

                    Recording these receipts as nonreimbursable receipts in the Children
                    Services Fund results in improper accounting for state allocations, causing
                    them to be commingled with local cash and lose their identity as state
                    monies.

                    The Hamilton CDJFS did not properly record state allocations for its PCSA
                    or Title IV-E federal financial participation money into its Children Services
                    Fund. Title IV-E Administration and Training monies of $13,820,183 and
                    SCPA monies of $1,178,889 were recorded as nonreimbursable receipts
                    instead of as Title IV-E or SCPA reimbursements, as required. The agency
                    improperly recorded a total of $14,999,072 in state funds and Title IV-E
                    reimbursements in its accounting records; therefore, this amount is being
                    questioned.

                    In the future, the Hamilton CDJFS must record receipts only to those
                    accounts designated by the APM appendix to avoid use of improper
                    accounts.




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                  C. MISUSE OF PROTECTOHIO WAIVER FUNDS
In October 1997, Ohio implemented “ProtectOhio,” a Title IV-E child welfare demonstration
project created under a waiver from the U.S. Department of Health and Human Services. This
waiver covered 14 counties, including Hamilton County. This project was designed to waive
certain restrictions on the use of Title IV-E monies and to expand foster care coverage to more
children. It also allowed participating counties easier access to monies and greater flexibility in
designing local programs in order to be more efficient and effective without additional federal
funding. Counties participating in ProtectOhio take on most of the financial risk for the cost of
child welfare services because Title IV-E funding is capped. These counties trade unlimited
federal financial participation in the costs of out-of-home child care for the flexibility to spend
limited resources on a wider range of child welfare services.

Non-waiver counties are required to make expenditures with local monies and subsequently
submit claims for federal and state reimbursement through ODJFS. To ensure that monies are
available for the daily crises that foster care children face, federal ProtectOhio funding is paid to
counties in advance, in monthly installments. In addition to federal money, the counties get a
small amount of revenue from the state. Ohio counties are required to fund child welfare
services with local monies, often including dedicated tax levies, which account for a majority of
the funding. In Hamilton County, levy receipts are deposited in the Children Services Fund.
Although under the ProtectOhio waiver, federal and state monies are paid in advance,
participating counties are required to contribute the portion of the program cost not borne by the
federal government in accordance with the match requirement formula.2 The Hamilton CDJFS
participated in the ProtectOhio waiver beginning with the waiver’s inception. In March 2006,
Hamilton County refused to agree to the terms of the ProtectOhio waiver agreement;3 therefore,
ODJFS did not select Hamilton CDJFS for participation in the ProtectOhio waiver demonstration
project. As a result, its participation was terminated effective October 1, 2005.

Auditors reviewed payments to the Hamilton CDJFS under the ProtectOhio waiver, as well as
ProtectOhio expenditures reported to ODJFS on required monthly financial statements. Table 3
outlines the amounts of ProtectOhio funding advanced to the Hamilton CDJFS and the
associated expenditures reported by the county.

TABLE 3: Hamilton County ProtectOhio Receipts and Expenditures

                                            SFY 2002    SFY 2003    SFY 2004       Total
       Protect Ohio Receipts                $17,449,128 $19,170,125 $16,336,835 $52,956,088
       ProtectOhio Disbursements              6,166,395   6,010,799 5,194,006 17,371,200
       Remaining                            $11,282,733 $13,159,326 $11,142,829 $35,584,888
                                               Source: Hamilton CDJFS 02820 Monthly Financial Statement

2
  The local match formula for ProtectOhio is 60% [(capitation/federal medical assistance percentage rate)-
capitation]. For more information on ProtectOhio requirements, see Appendix C.
3
  ODJFS did not select Hamilton CDJFS for participation in Ohio’s Title IV-E waiver demonstration project because
they refused to agree with a provision in the waiver agreement that specified that the PCSA and Commissioners
agree to comply with federal and state laws, rules, and regulations, and auditing standards applicable to performance
of the agreement.


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As shown in Table 3, the Hamilton CDJFS received $52,956,088 in ProtectOhio monies from
SFY 2002 through SFY 2004, the three-year period prior to the onset of the ODJFS special audit.
During the same period, the county reported $17,371,200 in ProtectOhio expenditures. As such,
one would presume that the remaining balance of ProtectOhio monies in the Hamilton County
Treasury at the end of SFY 2004 would be at least $35,584,888. These monies could not be
accounted for within the county’s Children Services Fund.

According to a former CDJFS fiscal section chief, employed during the early part of our audit
period, ProtectOhio monies were moved from the Children Services Fund to the PA Fund to
cover the residential treatment facility costs being charged through the PA Fund. This discussion
also revealed that cash was moved to the PA Fund in anticipation of forecasted expenditures,
although the accounting records are unclear as to when ProtectOhio monies were moved to the
PA Fund. An analysis of levy cash, Children Services Fund revenues and expenditures, and the
PA Fund revenues and expenditures supports this manger’s statements. It also demonstrates that
this activity continued after the manager left the Hamilton CDJFS and during the remainder of
our audit period, when the frequency and value of such cash movements were growing.

The Children Services Fund maintains funding for other programs, such as adoption assistance
and child welfare programs. Hamilton County maintains its local Children Services levy monies,
which are collected through property taxes, within the Children Services Fund. At the end of
June 2004, this fund held a balance of $10,057,602. ProtectOhio monies were not separately
accounted for in the Children Services Fund; they were commingled with other revenues and lost
their identity. As a result, auditors could not determine what portion of the ProtectOhio monies
had been moved to the PA Fund with transfers from the Children Services Fund, or what portion
of the ProtectOhio monies remained in the Children Services Fund. ODJFS referred this issue to
the AOS. ODJFS auditors did review ProtectOhio monies for compliance with the match
requirement.

As noted above, the ProtectOhio Demonstration Agreement between ODJFS and Hamilton
County required the Hamilton County PCSA to make a match for the federal Title IV-E monies
awarded under ProtectOhio. The Hamilton CDJFS was required to certify that matching funds
were made available and would be expended on allowable child welfare activities. ODJFS
auditors were unable to verify that the Hamilton CDJFS had made the required match under
ProtectOhio, as the agency’s accounting practices made this impossible. The instances of
noncompliance included the following:

   •   Commingling of state and federal monies with local monies, causing them to lose their
       identity and, in effect, blending state and federal monies with local monies.- As
       previously noted, the Hamilton CDJFS initiated multiple cash transfers out of the
       Children Services Fund into the PA and Child Support Funds totaling $127,082,206.
       According to the former fiscal section chief, a portion of these monies were ProtectOhio
       monies. Additionally, $35,584,888 of ProtectOhio cash could not be accounted for in
       Hamilton County’s Children Services Fund accounts. The OAC requires ProtectOhio
       monies to be accounted for in the Children Services Fund. However, the failure of the
       Hamilton CDJFS to properly account for the separate funding streams within that fund


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    caused ProtectOhio monies, as well as other monies, to lose their identities. As a result,
    ODJFS auditors could not determine whether ProtectOhio funds were expended only on
    child welfare activities, which was a waiver requirement. Since the “local” monies now
    presumptively included unidentified ProtectOhio monies, as well as other federal funds,
    using them to match ProtectOhio could result in ProtectOhio money being used to match
    itself. This would violate OMB Circular A-87 cost principles and federal grants
    management rules for matching federal funds.

•   Commingling of state monies by their transfer from the Human Services State Subsidy
    Fund into the PA Fund as local receipts, causing them to lose their identity.- Because
    these monies were commingled within the PA Fund and became indistinguishable from
    other monies within that fund, auditors could not determine whether such monies were
    used in a manner necessary to meet match requirements. The PA Fund covers TANF,
    Food Stamp, Medicaid and other programs and activities that are not child welfare
    activities eligible for Title IV-E funding. There is no way to determine whether these PA
    Fund state monies were expended on foster care and/or child welfare activities, even
    though a significant level of child welfare costs existed.

•   Using SCPA funds to meet federal match requirements.- ODJFS allows counties to use a
    certification process to meet federal match requirements for costs generated through the
    Social Services (SS) Cost Pool (The SS Cost Pool allocates costs related to social
    services provided by multiple programs. See Section D of this report, “Misuse of Cost
    Pools”). ODJFS performs a Social Services Random Moment Sample Reconciliation
    each quarter that identifies a county’s match requirement and costs that could not be
    allocated to a particular funding stream. This does not include the ProtectOhio match
    requirements. Auditors reviewed the “Certification of Funds” forms submitted by the
    Hamilton CDJFS to ODJFS indicating which monies the county wished to use to cover
    its match and non-allocated costs. The Hamilton CDJFS reported using its SCPA funds
    to meet match requirements for these costs. Therefore, the SCPA monies were not
    available to be used as a match for federal Title IV-E monies awarded under ProtectOhio.

•   Not identifying which funding streams were used to pay foster care and child welfare
    expenditures.- Auditors can identify foster care contracts and child welfare services
    expenditures, but without the ability to identify which funding streams were used to meet
    these expenditures, they cannot be considered valid matching expenditures. The ODJFS
    audit period did not include transactions prior to SFY 2002, but it is possible that this
    issue extends back into the pre-SFY 2002 periods.

•   Improper reimbursements - The Hamilton CDJFS received advanced funding under the
    ProtectOhio waiver and was not permitted to claim any costs covered by the waiver. It
    did claim covered foster care placement and maintenance costs, however, which is
    discussed in detail later in this report. Although these reimbursements were recorded as
    local receipts, the county was not entitled to such reimbursements. As the money from
    such reimbursements were commingled with local monies, the commingled funds could
    not be used for match purposes until the Hamilton CDJFS fully reimbursed the federal
    government for the overpayments it received as a result of this practice.


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For these reasons, auditors cannot determine whether a proper match for Title IV-E monies
issued under the ProtectOhio waiver was made. Therefore, all ProtectOhio funding issued
during our audit period, or $52,956,088, is being questioned.

      Finding C-1    45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate, current,
                     and complete disclosure of financially assisted activities.
   Lack of Proper
 Title IV-E Match
 Questioned Costs:   45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
       $52,956,088   receiving subawards or subgrants of Federal awards must maintain records
                     identifying the source and application of funds provided, and include
                     information pertaining to the subawards and subgrants, including
                     authorizations, obligations, unobligated balances, assets, outlays, and
                     income.

                     45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that accounting
                     records be supported by source documentation.

                     45 CFR 74.23 and 45 CFR 92.24 require that matching requirements be met
                     with costs that are allowable and verifiable. Except as authorized by federal
                     statute, they may not be met by costs borne by another federal grant.

                     OAC Rule 5101:9-6-19 (B) states that state child protective services funds,
                     state foster parent day care funds, and state kinship care funds received by a
                     county agency must be deposited in the county’s children services fund.

                     OAC Rule 5101:9-6-19 (F) describes county agency expenditures which
                     may be properly charged against the SCPA allocation as those that meet the
                     expenses of the children services program. This includes costs for the care
                     of children who resides caretaker relatives and other services a PCSA
                     considers necessary to protect children from abuse, neglect, or dependency.

                     OAC Rule 5101:9-6-25 (H) provides that all ProtectOhio revenues and
                     expenditures must be accounted for using the JFS 02820 monthly financial
                     statement.

                     OAC Rule 5101:9-6-50 (D) provides that, as a condition of receiving
                     financial assistance, the expenditures of each county family service agency
                     shall comply with the conditions of federal grant awards.

                     OAC Rule 5101:9-7-50 (D) (3) provides that funds used for matching
                     federal awards must not be federal funds except as allowed under federal
                     law.

                     OAC Rule 5101:9-9-29 requires auditees to:



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    . . . (I) maintain documentation conforming to all requirements
   prescribed by ODJFS, Federal statute or regulation and state statute or
   administrative rule. Auditees must prepare and maintain documentation
   to support all transactions and to permit the reconstruction of all
   transactions and the proper completion of all reports required by state
   and federal law and regulations, and which substantiates compliance
   with all applicable federal statutes or regulations, state statutes or
   administrative rules.

   (J) make available to ODJFS personnel all records necessary to
   document all transactions.

The federal waiver executed between ODJFS and the U.S. Department of
Health and Human Services outlines the need for a proper match to Title IV-
E funds awarded under the ProtectOhio demonstration project. The
demonstration agreement executed between Hamilton County and the
ODHS, now ODJFS, identified Hamilton County’s responsibilities for
making a match for Title IV–E ProtectOhio monies. This demonstration
agreement specifically stated, “The PCSA agrees to annually certify to
ODHS, in the manner prescribed by it for this purpose, an adequate level of
allowable funds necessary to provide matching funds for the federal funds
distributed to the PCSA pursuant to the operation of the Demonstration.”
This agreement also outlined the formula for determining the match
requirement.

OMB Circular A-87, Attachment A, Section C.1 states:

  Factors affecting allowability of costs. To be allowable under Federal
  awards, costs must meet the following general criteria:

    . . . h. Not be included as a cost or used to meet cost sharing or
    matching requirements of any other Federal award in either the current
    or a prior period, except as specifically provided by Federal law or
    regulation.

APM Section 1503.1(8) provides that allowable costs cannot include costs
used to meet cost sharing or matching requirements of any other federal
award in either the current period or a prior period, except as specifically
provided by federal law or regulation.

The Hamilton CDJFS did not maintain financial records allowing federal
subawards under Title IV-E to be appropriately identified and reported, and
to demonstrate that they were not used in violation of rules or restrictions.




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                    The commingling of federal and state monies with local monies caused
                    these funds to lose their identities, and calls into question whether the
                    Hamilton CDJFS provided the required match under the ProtectOhio
                    program, in accordance with federal and state requirements. The
                    commingling of improperly claimed federal funds with local monies makes
                    it impossible to verify whether the required match occurred.

                    In addition, the Hamilton CDJFS used SCPA funds to certify a match for
                    the Social Services Random Moment Sample Reconciliation, making this
                    funding stream ineligible and unavailable for matching ProtectOhio monies.
                    Some of the SCPA advance also was commingled with local monies,
                    making it untraceable in the agency’s records. The Hamilton CDJFS did not
                    account for ProtectOhio monies on the JFS 02820 report, as required. As
                    previously noted, the failure of agency to separately account for ProtectOhio
                    monies in the Children Services Fund caused a portion of that money to be
                    moved to the PA Fund, where it was commingled with PA Fund monies.

                    Given that records were not maintained in a manner that would permit
                    verification of a legal match for these federal funds, all ProtectOhio monies
                    awarded to the Hamilton CDJFS from SFY 2002 through SFY 2004, or
                    $52,956,088, are being questioned.

                    The Hamilton CDJFS must not commingle funds in this manner and must
                    maintain appropriate accounting records to allow federal funds and
                    matching funds to be traced to the level of expenditure. The Hamilton
                    CDJFS must account for all child welfare and foster care costs within the
                    Children Services Fund as required.



Each county agency--whether it is a CDJFS, a CSEA, or a PCSA--receives funding from federal,
state, and local sources. In general, counties are reimbursed for what they spend after receiving
state advance and local monies. ODJFS provides each county with a subaward of federal money,
known as an allocation, for their various funding streams, such as the TANF, Food Stamp,
Medicaid, and Child Care programs. Each county certifies and accepts its allocations. These
allocations are estimated amounts that a county will receive, and they may be incorporated into
its local budget. The county agencies use the ODJFS cash-advance draw system to obtain money
from ODJFS to pay for short-term forecasted expenditures. The county then uses this advance
state cash and local money to pay invoices, or bills, for its agencies.

As invoices are paid, they are recorded into the Quarterly Information Consolidation (QuIC)
System, which flows into the CORe system. This identifies against which allocations, and which
state or federal programs, these costs are being reported. ODJFS then uses this CORe data to
report expenditures to the federal government and to request reimbursements, known as “federal
claims.” Allowable federal funds are then awarded to the county agency and counted against any
cash draws the county has received. To earn a federal reimbursement, a county must have used


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its own local cash or cash advanced from the state to pay its invoices. The expenditure must also
have met the objectives and stipulations of the federal program against which it is claimed.
Federal money cannot be used to pay invoices that are subsequently claimed for federal
reimbursement. This would effectively charge the federal government twice for the same costs.

The Hamilton CDJFS received some portion of its funding as an advance of federal money
awarded under ProtectOhio. A portion of this advance, $35,584,888, cannot be accounted for in
the agency’s records. As noted earlier, this money was commingled and lost its identity,
although a portion was reportedly transferred to the PA Fund. As discussed later in this report,
some of the money transferred to the Child Support Fund was later sent to the PA Fund to cover
shared costs, which were overstated because of inappropriate costs being placed in the Shared
Cost Pool and improper cost allocations in the PA Fund.

This further complicates the accounting issues at the Hamilton CDJFS. Each special revenue
fund had a significant level of expenditures, but without records showing how ProtectOhio
monies were used, there is no way to substantiate whether these monies were used for their
intended purpose, or to prove that they were not used to claim federal reimbursement from
another federal program. If this did occur, the federal government would have been charged
twice for the same expenditures.

The Hamilton CDJFS also submitted for reimbursement costs for which monies had been
advanced under the ProtectOhio waiver. Because it was ineligible to receive such
reimbursements, it would not be allowed to use those reimbursed monies to meet its match
requirements for any other program until it reimbursed the federal government, and ODJFS, for
any overpayments it received. The accounting records for the PA Fund and the Child Support
Fund do not contain the information necessary to verify that only local and state monies were
used to pay costs claimed for federal reimbursement, or to prove that federal monies were not
used to claim federal reimbursement. Auditors are questioning the total reported expenditures of
$894,223,803 for these funds. Table 4 shows the total expenditures for the PA Fund, the
Children Services Fund, and the Child Support Fund for SFY 2002 through SFY 2004.




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TABLE 4: Public Assistance Fund, Children Services Fund, and Child Support Fund Expenditures
                              for SFY 2002 through SFY 2004




                 Public Assistance                 Children                 Child Support
      SFY
                        Fund                     Services Fund              Admin. Fund



                    $209,116,811
      2002




                                                     $51,551,582              $23,970,016
      2003




                    $208,800,379                     $68,862,947              $26,894,516
      2004




                   $195,127,735                      $78,540,327             $31,359,489
      T o ta l




                    $613,044,926                   $198,954,856               $82,224,021


                       Source: Hamilton CDJFS Monthly Financial Statement




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      Finding C-2    ORC Section 5101.144 requires that a county deposit all funds received by
                     the PCSA for providing children services into the Children Services Fund
 Inappropriate Use
  of Federal Funds
                     and that these funds be used only for meeting such costs.
               and
Improper Claim for   OAC Rule 5101:9-6-19 (B) states that state child protective services funds,
           Federal   state foster parent day care funds, and state kinship care funds received by
    Reimbursement    the county agency must be deposited in the county’s children services fund.
 Questioned Costs:
      $894,223,803
                     OAC Rule 5101:9-6-19 (F) describes county agency expenditures that may
                     be properly charged against the SCPA allocation as those that meet the
                     expenses of the children services program. This includes costs for the care
                     of a child who resides with a caretaker relative and other services a PCSA
                     considers necessary to protect children from abuse, neglect, or dependency.

                     OAC Rule 5101:9-9-29 require auditees to:

                      . . . (I) maintain documentation conforming to all requirements prescribed
                      by ODJFS, federal statute or regulation and state statute or administrative
                      rule. Auditees must prepare and maintain documentation to support all
                      transactions and to permit the reconstruction of all transactions and the
                      proper completion of all reports required by state and federal law and
                      regulations, and which substantiates compliance with all applicable
                      federal statutes or regulations, state statutes or administrative rules.

                     45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate, current,
                     and complete disclosure of financially assisted activities.

                     45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
                     receiving subawards or subgrants of Federal awards must maintain records
                     identifying the source and application of funds provided, and include
                     information pertaining to the subawards and subgrants, including
                     authorizations, obligations, unobligated balances, assets, outlays, and
                     income.

                     Under 45 CFR 74.27, 92.20 (b) (5), and 45 CFR 92.22, allowable costs for
                     governmental entities are determined in accordance with OMB Circular A-
                     87, Cost Principles for State, Local, and Indian Tribal Governments. Such
                     principles govern the reasonableness, allowability, and allocability of costs.

                     45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that accounting
                     records be supported by source documentation.

                     45 CFR 74.23 and 45 CFR 92.24 require that matching requirements be
                     met with costs that are allowable and verifiable. Except as authorized by
                     Federal statute, they may not be met by costs borne by another Federal


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grant.

OMB Circular A-87, Attachment A, Section C.1 states, in part: Factors
affecting allowability of costs. To be allowable under Federal awards,
costs must meet the following general criteria:

  . . . h. Not be included as a cost or used to meet cost sharing or matching
  requirements of any other Federal award in either the current or a prior
  period, except as specifically provided by Federal law or regulation.

APM Section 1503.1(8) states that allowable costs cannot include costs used
to meet cost sharing or matching requirements of any other federal award in
either the current period or a prior period, except as specifically provided by
federal law or regulation.

APM Section 6251 requires that all funds in a county allocation--including
state child protective services funds, state foster parent day care funds, and
state kinship care funds--be deposited into the Children Services Fund.

The Hamilton CDJFS did not maintain financial records allowing
accountability for federal awards under Title IV-E. Specifically, these are
ProtectOhio monies. The commingling of federal and state monies with
local monies caused the funds to lose their identity, and calls into question
whether the Hamilton CDJFS met its match requirements with monies from
appropriate sources. Therefore, there is no way to verify that ProtectOhio
funds and unallowable federal reimbursements were not used instead of
local dollars to meet match requirements for any programs within the PA
Fund, the Children Services fund, or the Child Support Fund.

Given that matching funds cannot be verified, as match records are
unauditable, all reported expenditures within the PA Fund, $613,044,926,
all reported expenditures within the Children Services Fund, $198,954,856,
and all reported expenditures within the Child Support Fund, $82,224,021,
from SFY 2002 through SFY 2004 are being questioned. Relative to total
expenditures, the unaccounted for ProtectOhio monies and improperly
reimbursed federal and state monies may be small, but they are not
immaterial or insignificant. The Hamilton CDJFS had substantial local
monies as a result of its Children Services levy and also smaller amounts
from the General Fund. The majority of monies in these special revenue
funds were state monies and federal reimbursements. Records maintained
by the Hamilton CDJFS are insufficient to show how ProtectOhio monies
were used and how ineligible reimbursements were applied, as they were
both effectively converted to local monies. Auditors cannot trace them to a
level of detail to determine whether the expenditures were allowable, and
therefore, eligible to meet match requirements. In addition, SCPA monies



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                     cannot be traced within the PA Fund, although they were claimed as
                     matching monies for social services activities.

                     The Hamilton CDJFS must not commingle funds in this manner and must
                     maintain appropriate accounting records to allow federal funds and
                     matching funds to be traced to the level of expenditure. The Hamilton
                     CDJFS must also account for federal and state monies within the
                     appropriate special revenue fund as required. This includes tracking
                     receipts, expenditures, and cash balances by funding streams.


The commingling of ProtectOhio and other federal funds with state and local funds also makes it
impossible to verify whether the Hamilton CDJFS contributed its appropriate “mandated share”
to the public assistance programs it administered. Mandated Share is the amount a board of
county commissioners is required to appropriate to match federal funds for income maintenance
programs. ODJFS sends each county an annual letter establishing the amount of its mandated
share. Commissioners must appropriate and transfer this amount to the PA Fund. ODJFS
administrative rules specify that the commissioners must transfer at least one-twelfth of the
annual amount to the PA Fund monthly until the obligation is met. The administrative rules also
require that these transfers be recorded on the JFS 02827 report in a specific mandated share
account.

The mandated share letter from ODJFS makes a distinction between the TANF portion of the
mandated share and the non-TANF portion. In November, 1999, the Hamilton County
Prosecuting Attorney opined that the language of the Children Services levy allowed for levy
money to be used to pay the TANF portion of the mandated share. Illustration 3 shows the total
mandated share obligation by year and the payments that could be verified from both the General
Fund and the Children Services Fund from the county auditor’s Interfund Transaction forms.

ILLUSTRATION 3: Mandated Share Obligation Payment Sources


                 Mandated Share Payment Obligations
                     (per HCDJFS planned payments)
                      $3.6 M                 $3.6 M
                                                                     $3.5 M




                        72%                    68%                     64%
                                                              $2 M
                                     $1.7 M
            $1.4 M
                                                               36%
                                       32%
               28%

                SFY02                  SFY03                   SFY04

                General Revenue Fund              Children Services Levy

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From SFY 2002 through SFY 2004, the Hamilton County commissioners were required to
contribute $15,984,097 for their Mandated Share obligation. ODJFS auditors were able to
identify $5,200,219 transferred from the General Fund to the PA Fund and properly recorded on
the Hamilton CDJFS monthly financial statements. The remaining $10,783,878 was included as
part of the agency’s cash transfers, in violation of state law, as noted earlier.

These improper transfers--combined with the agency’s failure to properly track the receipts,
expenditures, and cash balances of each funding stream within the Children Services Fund--
caused the monies in this fund to be commingled and to lose their identity. The auditors
identified $7,252,040 in interfund transactions from the Children Services Fund to the PA Fund
indicating an amount for mandated share. However, this identification could be made only by
reviewing the detailed information on the Interfund Transaction forms. At the auditors’ request,
the Hamilton CDJFS fiscal employees identified an additional $3,531,838 in mandated share in a
memo to ODJFS auditors indicating the Interfund Transaction form number and the amount that
applied to mandated share. These amounts were not recorded as mandated share to the PA Fund
on their monthly financial statements as required.

This situation is complicated by the unaccounted for ProtectOhio funds. Auditors were told that
ProtectOhio monies left the Children Services Fund through cash transfers, but have not been
able to identify which transfers included ProtectOhio monies or the amounts included in the
transfers. However, the $35,584,888 in ProtectOhio money cannot be identified in the Hamilton
CDJFS accounting system. These movements of cash which included ProtectOhio money
caused the federal funds to lose their identity.

      Finding C-3    45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                     current, and complete disclosure of financially assisted activities.
        Failure to
     Demonstrate
  Proper Match of    45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
   Federal Funds     receiving subawards or subgrants of Federal awards must maintain
 Questioned Costs:   records identifying the source and application of funds provided, and
      $10,783,878    include information pertaining to the subawards and subgrants,
                     including authorizations, obligations, unobligated balances, assets,
                     outlays, and income.

                     Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                     allowable costs for governmental entities are determined in
                     accordance with OMB Circular A-87, Cost Principles for State,
                     Local, and Indian Tribal Governments. Such principles govern the
                     reasonableness, allowability, and allocability of costs.

                     45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                     accounting records be supported by source documentation.

                     OMB Circular A-87, Attachment A, Section C.1 states, in part:




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Factors affecting allowability of costs. To be allowable under
Federal awards, costs must meet the following general criteria:

  . . . h. Not be included as a cost or used to meet cost sharing or
  matching requirements of any other Federal award in either the
  current or a prior period, except as specifically provided by
  Federal law or regulation.

OAC Rule 5101:9-10-29 (B) (2) states, in part: The CDJFS director
must certify the accuracy and amount of disbursements on the JFS
02827.

OAC Rule 5101:9-10-31 identify mandated share as “the amount
required in the following SFY to meet the county share of Public
Assistance expenditures.”

Article II A) 1) of the fiscal agreement between ODJFS and the
Hamilton CDJFS, effective from July 1, 2003, through June 30,
2005, states that each family services agency that performs family
services duties shall comply with all applicable federal and state
laws. Article II B) requires the board of county commissioners to
appropriate and transfer county funds in accordance with the
requirements of the Ohio Revised Code and Ohio Administrative
Code rules. Failure of the board to appropriate and transfer funds in
accordance with state laws and rules may result in the suspension or
termination of financial assistance provided by ODJFS, along with
other ODJFS actions authorized by state law.

ORC Section 5101.16 requires that the commissioners pay the
county share of public assistance expenditures.

ORC Section 5101.161 states, in part, that a county shall deposit all
funds appropriated by the commissioners and received from the
department under this section into a special fund in the county
treasury known as the PA Fund. Counties shall make payments for
public assistance expenditures from the PA Fund. The Ohio attorney
general may bring mandamus proceedings against any board of
county commissioners that fails to make the mandated share
deposits, to legally require them to make the mandated share
deposits.

ORC Sections 5705.14 through 5705.16 prescribe specific
requirements for transferring cash between special revenue fund
types.




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45 CFR 74.23 and 45 CFR 92.24 require that matching requirements
be met with costs that are allowable and verifiable. Except as
authorized by Federal statute, they may not be met by costs borne by
another federal grant.

The Hamilton CDJFS did not maintain financial records allowing
federal awards under Title IV-E--specifically, ProtectOhio monies--
to be tracked. The commingling of federal and state monies with
local monies caused these funds to lose their identity and calls into
question whether the Hamilton CDJFS met the match requirements
for its mandated share with monies from appropriate sources. A
portion of the local dollars transferred to the PA Fund, which might
be claimed as matching funds for mandated share, may have
included unaccounted for ProtectOhio monies.

There is no way to verify that ProtectOhio funds were not used as
local dollars to meet match requirements for the county’s mandated
share, as they were commingled with local monies. Auditors could
not determine that cash transfers from the Children Services Fund to
the PA Fund for the TANF portion of the mandated share did not
include ProtectOhio monies, which calls these payments into
question. The $10,783,878, which was the TANF portion of
Hamilton County’s mandated share for SFY 2002 through SFY
2004, came from the Children Services Fund through cash transfers
and is being questioned. As noted earlier, these were commingled
monies which cannot be identified. This issue likely existed in prior
years.

The Hamilton CDJFS must not commingle funds in this manner, and
must maintain appropriate accounting records to allow federal funds
and matching funds to be traced to the level of expenditure. The
Hamilton CDJFS shall also account for federal and state monies
within the appropriate special revenue funds, as required.




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                             D. MISUSE OF COST POOLS
The federal government makes awards and subawards to public and private organizations, and
has established policies to determine how costs may be charged to federal programs. For state
and local governments, these rules are set forth in OMB Circular A-87, Cost Principles for State,
Local and Indian Tribal Governments. According to this circular, costs may be classified as
“direct,” meaning that they can be identified with a particular program or “indirect,” meaning
that they could not be readily assigned to one or more specific program areas.

One manner of determining how to charge indirect costs to federal programs is the use of cost
pools. Cost pools are designed to allocate costs to multiple programs when those costs cannot be
charged to specific programs. Ohio’s county family services agencies have access to four cost
pools: the Social Services (SS) Cost Pool, the Child Support (CS) Cost Pool, the Income
Maintenance (IM) Cost Pool, and the PA Fund Shared (Shared) Cost Pool.

The SS Cost Pool allocates costs related to social services provided by multiple programs. This
cost pool consists of costs relating to the administration of various social service programs,
including Title XX, IV-E Foster Care, and Adult Protective Services along with work activities
under Ohio Works First, FSET, and specific income maintenance programs, if these programs
are performed by social services employees. This cost pool pays the salaries of employees
identified through the shared costs distribution, as well as the social services administrator and
employees performing social service functions when they are performed under the direction of
the social services administrator.

The CS Cost Pool allocates child support administrative costs for all child support expenditures
with the exception of direct IV-D or non-IV-D costs, shared costs, and countywide central
service plan payments. This cost pool consists of costs relating to the administration of the Child
Support Program areas, including TANF, Title IV-D, Disability Assistance, Title IV-E Foster
Care, and TANF. Costs include salaries, related compensation, and operation costs of all
employees assigned to child support functions as well as administrative contracts related to
various child support program functions. The following child support activity costs are also
included; location of absent parents and putative fathers; paternity establishment; support order
establishment, modification, and enforcement; and distribution and disbursement of support
collections.

The IM Cost Pool allocates costs related to the administration of various income maintenance
programs, including TANF, food stamp, Medicaid, and the Work Force Investment Act. Income
maintenance indirect costs—and social services and child support indirect costs--are allocated to
appropriate programs by means of a “random moment sample.”

The random moment sample (RMS) methodology is a federally-approved statistical means of
allocating indirect costs. This process involves identifying all program employees and
determining whether they support programs in the IM Cost Pool, the SS Cost Pool, or the CS
Cost Pool. For each of these cost pools, ODJFS selects sample time periods during which
selected employees are working. Each county’s RMS coordinator then gives the selected
employee members RMS forms and asks them to record which programs they are working on


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during the selected time period. The chosen employee members indicate which participant case
they are working on, what program they are administering, and the program activity being
performed. For example a case worker might be performing an interactive interview to
determine Medicaid eligibility, and he or she would record this on the form. All forms are
gathered on a quarterly basis, and the results are used to allocate all indirect costs to the various
programs within each cost pool.

The Shared Cost Pool is used to allocate indirect costs incurred for common purposes within the
agency. For example, the cost of building rent, utilities, and insurance usually supports all
programs administered by the agency. The same is true for the salaries of the administrative
employees, such as the agency director, human resources personnel, and accounting and payroll
employees.

These shared costs are allocated to the SS, CS, and IM Cost Pools according to the ratio of full-
time equivalent employee who works in each program. For example, if a triple combined agency
had 10 employees--four in income maintenance, three in social services and three in child
support--40 percent of the Shared Cost Pool costs would be assigned to the IM Cost Pool, 30
percent would be assigned to the SS Cost Pool, and the remaining 30 percent would be assigned
to the CSEA. Counties use the JFS 04290 form, “Quarterly Report of CDJFS Full-Time
Equivalent Positions,” to calculate the ratios needed to allocate shared costs to the other cost
pools.

Illustration 4 shows the four cost pools maintained by ODJFS. This model includes the
Tuberculosis (TB) Control Fund, which is unique to Hamilton County.

ILLUSTRATION 4: CDJFS Cost Pools for Allocating Indirect Costs


                                         PA Shared
                                         PA Shared
                                          Cost Pool
                                          Cost Pool


                                                                                      TB
                            FTE Calculation per JFS 04290                            Control




           Income                          Social                     Child Support
         Maintenance                      Services                  Portion of Shared
          Cost Pool                       Cost Pool                       Costs




           IM-RMS                          SS-RMS                          CS-RMS
          Allocation                    Allocation by                   Allocation by
          by Percent                       Percent                         Percent




             TANF                          Title XX                        Title IV-D
         Food Stamps                   Adult Protective                      TANF
            Medicaid                       Services                 Title IV-E Foster Care
         Disability Asst                  Child Care
              WIA                        Child Welfare
                                       IV-E Foster Care                                             59
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In combined agencies, such as Hamilton County’s, shared costs must be paid initially from the
PA Fund. The appropriate portion of these costs must be thereafter reimbursed to the PA Fund
from the other administrative funds, the Child Support Fund and the Children Services Fund.
These reimbursements are reported on the appropriate financial statements by the other funds.
Illustration 5 shows how this might look after the costs are allocated.

ILLUSTRATION 5: Example of Program Costs after RMS Distribution for SS Cost Pool




                                                    Medicaid/SSI Case
                                                    Management
                            10%       10%           State Day Care Operating

                   10%
                                                    Title IV-E Administration
                                            20%
                                                    Medicaid/EMT Transport
                 15%                                Direct
                                                    Title XX Administration

                       5%                           Title XX Child Administration
                                      30%
                                                    Adult Protective Services




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1. Hamilton County Managed Care: Multi-County System Agency
Hamilton County operated a managed care group known as the Multi-County System Agency
(MCSA). A managed care group is a consortium of local county agencies involved in treating
and caring for the highest-need foster care children. Managed-care children are considered high
risk because they have multiple needs and often require a variety of mental health, counseling,
and medical services beyond the basic foster care needs such as food and shelter. By clustering
resources, the agencies involved can cut administrative costs while leveraging their collective
purchasing power and pooling financial resources. Such an approach essentially creates a “one-
stop shop” for high-risk foster care children to receive services from a variety of partners in a
coordinated manner. One benefit of using this type of system is the ability to negotiate better
prices with providers than any one partner might obtain independently. This approach also
provides holistic services to high-need children.

In such a setting, a child could enter the system through any partner and would then be sent to a
program coordinator. The program coordinator would assess the child’s needs and prepare a
treatment plan. This plan would be executed by accessing the various providers already
established in the system. The providers would send their bills to the managed care group’s
fiscal agency. The fiscal agent would bill the partners for services delivered and collect the
money from each partner before paying the providers. Illustration 6, below, shows how this
system might look at the intake, assessment and treatment, and billing and payment phases.




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ILLUSTRATION 6: Conceptual Model for the Administration of a Managed Care System

     Intake Phase
                                          Partner          Any partner can intake a child
                                                           and refer him to the Program
                                                           Coordinator for a treatment plan.




                                         Program
               Partner                                                  Partner
                                        Coordinator
                                            &
                                         Providers




     Assessment and Treatment Phase


                                          Provider
   The Program Coordinator
   coordinates a treatment
    plan, and sends children
   to the appropriate                    Program                       Provider invoices
   providers for treatment.             Coordinator                    are sent to the Fiscal
                                                                       Agent for processing.
   Providers report back to
   The Program Coordinator
   how treatments are                     Provider
   progressing along with
   invoices for services provided.



     Billing and Payment Phase                Partners may record a claim for federal and state
                                              reimbursement for allowable costs they paid to
                                              the Fiscal Agent for services received.


                     Provider             Coordinator                 Partners
                     invoices              invoices                   are billed

                                 Program                 Fiscal
     Providers                                                                     Partners
                                Coordinator              Agent

                     Providers            Coordinator                 Partners
                     are paid               is paid                 send money




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Illustration 7 shows the partner agencies of the MCSA.

ILLUSTRATION 7: Hamilton County MCSA Partners



                                     Hamilton County
                                        Department of
                                   Job & Family Services



       Hamilton County                                               Hamilton County
       Alcohol & Drug                    MCSA
                                         MCSA
                                                                      Hamilton County
                                                                    Mental Retardation &
      Addiction Service                                               Developmental
           Board
                                                                      Developmental
                                                                      Disability Board

                                           Fiscal
                                           Fiscal
                                            Fiscal
                                            Fiscal
                                           Agent
                                           Agent
                                            Agent
                                            Agent




              Hamilton County
              Hamilton County                              Hamilton County
             Mental Health Board                            Juvenile Court
                                                           JuvenileCourt


The Hamilton County MCSA fiscal agent handled the financial functions of the managed care group.
This fiscal agent was responsible for holding monies contributed by the partners, procuring goods and
services, paying invoices, monitoring contracts, and billing the partners for their share of the MCSA
costs. The primary contract managed by the fiscal agent was for program coordination services.

The MCSA program coordinator was responsible for screening clients, placing the children in required
services through a coordinated treatment plan, monitoring treatment plans, accepting invoices from
service providers, preparing their own invoices for program coordination, and submitting the billings to
the fiscal agent for payment. The fiscal agent would then bill the MCSA partners. Illustration 8 shows
the fiscal agents and program coordinators for the MCSA prior to and during our audit period.




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ILLUSTRATION 8: Hamilton County MCSA Fiscal Agents and Program Coordinators by Year

     MCSA           Hamilton County Family               Hamilton County Job
 Fiscal Agents      & Children First Council              & Family Services
        Period        1998 -2001          2002             2003              2004
    Program               Beech Acres/                        Hamilton
  Coordinators        Creative Connections                   Choices, LLC


The original audit work for SFY 2003 revealed that the Hamilton CDJFS recorded the costs of
direct foster care in the amount of $26,023,306 in indirect cost pools within the PA Fund. Upon
review of the AOS-HCCA contract audit work, ODJFS auditors determined that this produced a
duplicate payment of federal monies, as federal monies for these foster care placement and
maintenance costs had already been advanced under the ProtectOhio waiver. The nature and size
of this issue became the focal point for expanded audit work by ODJFS.

Further audit work revealed that in SFY 2001, prior to our audit period, the Hamilton CDJFS
was recording the administrative portion of foster care costs for managed care group services to
the SS Cost Pool within the PA Fund. Direct foster care costs, such as placement and
maintenance costs, had been recorded directly against Title XX funding within the PA Fund and
not in a cost pool. This claim would be allowable only when foster care children were receiving
medical treatment and their need for foster care placement was secondary to such treatment. In
the 2000 State Single Audit, the Hamilton CDJFS received a questioned costs finding, as the
AOS determined that some of the children claimed under Title XX were ineligible. This finding
resulted in a recovery of $1,854,354. As part of its ProtectOhio waiver agreement, the Hamilton
CDJFS agreed to properly record foster care placement and maintenance costs, as ODJFS
prescribed.

Auditors detected flaws in the payment and billing practices of the MCSA managed care group.
These flaws included the following:

    •    Allocating MCSA costs based on the ability of the MCSA partners to pay;
    •    Using indirect cost pools to claim advanced direct costs for foster care services;
    •    Recording claims for reimbursement prior to services being rendered;
    •    Commingling MCSA monies in the PA Fund when the CDJFS began acting as the fiscal
         agent;
    •    Recording partners’ shares of the MCSA costs in the PA Fund and claiming those related
         costs for reimbursement;
    •    Not offsetting partners’ claimed costs with partner revenue; and
    •    Recording Title IV-E administrative costs (direct costs) in an indirect cost pool.

When the MCSA used revenues to allocate costs, it ignored which children were being served
and which partners were responsible for those costs. In addition, certain federal programs pay
for certain activities, while others do not. For example, many federal programs do not allow
construction costs for buildings, but do allow depreciation on existing buildings. The MCSA
providers rendered a variety of services to children including foster care placement and


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maintenance, mental health services, drug and alcohol related services, and medical services. All
of the funding streams available to the Hamilton CDJFS for meeting such costs do not
necessarily allow all of the activities performed within the MCSA. Therefore, as the county did
not isolate costs to children and the individual services they received, it is impossible to
determine whether unallowable activities were charged to the federal funding streams.
Communications from late 2001 indicate that the MCSA partners chose not to track costs by the
individual child, a necessary step for properly allocating costs and identifying the programs to be
charged.

When the MCSA was originally established in 1998, costs were allocated between the partners
based upon the number of beds assigned to each MCSA partner during the creation of the MCSA
budget. ODJFS auditors reviewed cost analysis data related to Beech Acres/Creative
Connections and Hamilton Choices and other documentation and determined that allocation
based upon capacity was unreasonable under OMB A-87, as it would not allocate costs to federal
programs based on relative benefit. In addition, allocating by capacity does not allow for the
tracking of allowable activities to the federal programs. This was especially evident when
auditors examined the bundled rate paid to the MCSA coordinator. The coordinator’s payment
included foster care placement and maintenance costs that were ineligible for federal and state
reimbursement, as these costs were covered by advances under the ProtectOhio waiver. Table 5
shows the wide discrepancies between the partner contribution percentages and the percentage of
referrals by the MCSA partners.

TABLE 5: Partner Contribution Percentages Compared to Partner Referral Percentages
                                     MCSA               MCSA
              MCSA                  Partner            Partner          Variance
             Partner              Contribution         Referral
            Agencies              Percentages        Percentages
      Job & Family                      53.287           50                  3.287
      Services
      Mental Health Board                 26.448            8               18.448
      MR/DD                                15.29           15                 0.29
      Juvenile Court                       4.418           27              -23.582
      ADAS                                 0.557            1               -0.443
     Sources: MCSA/Choices 2002 Contract and May 2004 Analysis of Cost Information

For the audit period, MCSA costs were allocated based upon the MCSA partners’ ability to pay.
This was confirmed through interviews with the Hamilton CDJFS employees and through
internal county communications. In addition, the AOS issued a finding on this method of pooled
funding in its 2001 Hamilton County Managed Care Performance Audit. However, the AOS
also commended this same activity. Its performance audit stated: “The current pooled funding
agreement represents a delicate balance between what the Council [MCSA] agencies can afford,
or elect to contribute, and their actual number of referred clients in the system. The level of
coordination between the Council agencies and Beech Acres, coupled with the benefits received
by the client population, outweigh the inequities of cost distribution or risk sharing.” More
current cost data show these inequities may be unreasonable, and may also not meet cost
allocation requirements established in OMB Circular A-87.


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According to communications that ODJFS auditors obtained, “There has never been a
mathematical formula for an agency’s contribution; it has always been who was in the best
financial position to pay.” County employees raised questions about how equitable the MCSA
cost distribution was and noted that they believed the Hamilton County Mental Health Board was
underpaying by $1 million each of the prior four years. When only local monies are expended
on such services, the allocation of costs is not an issue; however, when making claims for federal
reimbursement, cost allocation methodologies must comply with OMB Circular A-87. This
circular provides guidance and sets limitations on how costs can be allocated to federal
programs. There is no discussion in the circular on allocating costs based upon revenue; instead,
it states that to claim allowable reimbursements from federal funding streams, costs must be both
reasonable and allocable. Therefore, auditors determined the MCSA’s method of allocating
costs was noncompliant with OMB Circular A-87.

Hamilton Choices, the most recent MCSA program coordinator during the ODJFS audit period,
classified children according to their primary treatment needs or disorders. These classification
categories bore no apparent relation to the MCSA partner contribution percentages, just as the
partner referral percentages bore no apparent relation to the partner contribution percentages. For
example, the May 2004 cost analysis for Hamilton Choices shows that one-half percent of the
client population was classified under the “Alcohol Other Drug” category, although the Hamilton
County Alcohol and Drug Addiction Services Board was responsible for less than one percent of
total MCSA costs. The same cost analysis report shows that 27 percent of the clients were
classified as having mental retardation and another 19 percent as having autism. Although
potentially 46 percent of the client treatment needs were attributable to mental retardation or
developmental disabilities, the MR/DD contribution percentage was only 15 percent.

A February 2004 communication from the MCSA to the MR/DD noted that MR/DD contributed
about $2 million less than payments made for children with MR/DD diagnoses. When MR/DD
contributions were compared with MR/DD referrals, the funding shortage was about $187,000.
This also calls into question the other partner’s contributions, and the reasonableness of such an
allocation methodology.

ODJFS auditors did not review the funding streams of the other MCSA partners. This was
performed by the AOS-SAS. Any requests for federal reimbursement must have a reasonable
basis for allocating costs to federal programs. The MCSA’s current methodology allocates costs
to the partner agencies, and not to federal programs. MCSA partner agencies administer
different federal programs and these programs may have differing rules on allowable activities.
The MCSA cost allocation is not designed to identify the various activities and their related costs
to ensure that partners record only allowable activities to their related federal funding streams.
The Hamilton CDJFS did record all MCSA costs for federal reimbursement, including the
MCSA partner’s shares. These costs are being questioned, as ODJFS auditors determined that
they cannot be reasonably allocated to the associated federal programs. The Hamilton CDJFS
further complicated this issue by making reimbursement claims for MCSA costs in the indirect
cost pools, which inappropriately allocated such costs to non-benefiting programs. MCSA
provider expenses included foster care placement and maintenance costs which cannot receive
federal reimbursement because of advance waiver payments issued to cover such costs. AOS-



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SAS auditors indicated that Hamilton Choices did track activity by individual child; however,
MCSA did not access and use such data to develop a federally compliant cost model for MCSA
costs.

      Finding D-1    45 CFR 74.26 and 45 CFR 92.26 specify, respectively, that
                     subrecipients and subgrantees of federal awards are subject to the
      Unallowable
       MCSA Cost
                     Single Audit Act and OMB Circular A-133.
        Allocation
 Questioned Costs:   OMB Circular A-133 §____, 300 states that the “auditee shall: (a)
      $35,623,402    Identify, in its accounts, all Federal awards received and expended
                     and the Federal programs under which they were received.”

                     OMB Circular A-87 Attachment A Section B. 9 states, in part:

                     “Cost” means an amount as determined on cash, accrual, or other
                     basis acceptable to the Federal awarding or cognizant agency. It
                     does not include transfers to a general or similar fund.

                     OMB Circular A-87, Attachment A, Section C.1 states, in part:

                     Factors affecting allowability of costs. To be allowable under
                     Federal awards, costs must meet the following general criteria:

                      a. Be necessary and reasonable for proper and efficient
                      performance and administration of Federal awards.

                      b. Be allocable to Federal awards under the provisions of this
                      Circular.

                     OMB Circular A-87, Attachment A, Section C.3.a states, in part:

                     A cost is allocable to a particular cost objective if the goods or
                     services involved are chargeable or assignable to such cost objective
                     in accordance with relative benefits received.

                     OMB Circular A-87, Attachment A, Section F.1 states, in part:

                     Indirect costs are those: (a) incurred for a common or joint purpose
                     benefiting more than one cost objective, and (b) not readily
                     assignable to the cost objectives specifically benefited, without
                     effort disproportionate to the results achieved.

                     The Hamilton County MCSA expenditures were not properly
                     allocated, as the methodology used was insufficient to ensure that
                     each partner bore its fair share of costs allowable to its funding



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                    streams. In addition, costs were not tracked at the child and activity
                    levels to ensure that only costs for allowable activities were claimed
                    for reimbursement.

                    The Hamilton CDJFS recorded $35,623,402 in payments to the
                    MCSA for SFY 2002 through SFY 2004, all of which is being
                    questioned.

                    The Hamilton CDJFS must review federal cost allocation rules and
                    regulations. The agency shall ensure that the MCSA costs claimed
                    are tracked by child and activity to ensure that only allowable costs
                    are claimed for reimbursement. The Hamilton CDJFS must review
                    the design and operation of its internal controls over contracting,
                    accounting, and financial reporting and implement changes
                    necessary to help ensure that improper allocation does not occur in
                    the future.

                    After the onset of the expanded audit work, Hamilton CDJFS
                    employees and the county administrator agreed that foster care
                    placement and maintenance costs should not have been claimed in
                    cost pools. In June 2004, the Hamilton CDJFS recorded an
                    adjustment to its records of $26,282,318 for SFY 2004, of which
                    $11,256,019 was related to the MCSA.

                    It is not clear, however, that the county auditor’s office was notified
                    of the adjustment, as the copy provided to the audit staff did not bear
                    the county auditor’s certification.

                    OAC Rule 5101:9-10-29 (B) (3) (b) require the CDJFS to notify
                    ODJFS in writing of any differences between the JFS 02827 reports
                    as submitted to the department and the later version certified by the
                    county auditor, within 15 days of the agency’s receipt of the
                    auditor’s version. The written notice must identify in detail all
                    revised, added, or deleted expenditures by amount and by program
                    and classification codes.
The Hamilton CDJFS used the SS Cost Pool to claim MCSA expenditures. This was
unallowable for two reasons. First, as a ProtectOhio waiver participant, the Hamilton CDJFS
was already advanced monies for foster care placement and maintenance costs. MCSA providers
were often paid flat fees for bundled services or direct services. These fees included foster care
placement and maintenance costs that were not reimbursable, as the agency had already been
advanced federal monies under the ProtectOhio waiver to cover such costs. Any reimbursement
of those foster care placement and maintenance costs would represent a duplicate payment of
federal monies. Auditors cannot determine which MCSA costs were for placement and
maintenance, as those costs were often included in a bundled rate for services, and MCSA’s
costs were distributed based on the percentage of projected revenue contributed by each partner.


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Hamilton CDJFS employees indicated that they could not separately identify placement and
maintenance costs. Second, the Hamilton CDJFS recorded MCSA costs in the SS Cost Pool,
which resulted in foster-care-related costs being allocated to all programs within that cost pool,
including programs such as Child Care, which received no benefit from such costs. This is
unallowable under OMB Circular A-87.

      Finding D-2    OAC Rule 5101:9-6-25 states that ProtectOhio revenues and
                     expenditures must be reported on the JFS 02820 report. Although
     Unallowable
        Duplicate
                     the APM Appendix delineates which codes a county PCSA must use
    Payments for     to classify expenditures within the JFS 02820, the “Agreement
     MCSA Costs      between the Ohio Department of Human Services (now ODJFS) and
      Finding for    the Hamilton County PCSA and Board of Commissioners” (the
       Recovery:     waiver agreement), signed August 26, 1997, and in effect until
     $35,623,402
                     December, 2005, states that the PCSA agreed to report data
                     sufficient to fulfill requirements established by ODJFS.

                     45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                     current, and complete disclosure of financially assisted activities.

                     45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
                     receiving subawards or subgrants of Federal awards must maintain
                     records identifying the source and application of funds provided, and
                     include information pertaining to the subawards and subgrants,
                     including authorizations, obligations, unobligated balances, assets,
                     outlays, and income.

                     45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
                     maintenance of effective control and accountability for all funds,
                     and the safeguarding of assets, ensuring their use solely for
                     authorized purposes.

                     Under 45 CFR 74.27, 45CFR 92.20 (b) (5), and 45 CFR 92.22,
                     allowable costs for governmental entities are determined in
                     accordance with OMB Circular A-87, Cost Principles for State,
                     Local, and Indian Tribal Governments. Such principles govern the
                     reasonableness, allowability, and allocability of costs.

                     45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                     accounting records be supported by source documentation.

                     APM Section 7902, relating to the JFS 02827 Monthly Financial
                     Statement, states that the CDJFS director must certify the accuracy
                     and amount of disbursements in Section C of the JFS 02827.

                     The Hamilton CDJFS did not record its foster care placement and



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                    maintenance costs on the JFS 02820, as required by the Ohio
                    Administrative Code. This OAC requirement also applies to
                    ProtectOhio expenditures. Hamilton County agreed to follow the
                    applicable rules and regulations when executing its ProtectOhio
                    demonstration agreement with ODJFS.

                    Because federal monies for foster care placement and maintenance
                    costs were advanced under ProtectOhio and the Hamilton CDJFS
                    recorded such costs in the SS Cost Pool within the PA Fund, the
                    agency received an unallowable reimbursement on the $35,623,402
                    in charges recorded in this manner. After the initiation of this audit,
                    Hamilton CDJFS recorded a $26,282,318 adjustment for SFY 2004,
                    against local monies. Of this adjustment, $11,256,019 related to
                    MCSA costs. This would lower the amount related to this finding
                    that needs to be recovered. However, posting such an adjustment in
                    a single month does not result in an appropriate correction of the
                    underlying noncompliance, because of the complexity of the cost
                    allocation methodology. Therefore, auditors are issuing a finding for
                    recovery against Hamilton CDJFS in the amount of $35,623,402.

                    As the Hamilton CDJFS received duplicate payments on these
                    charges during our audit period, auditors were unable to determine
                    whether the agency used any overpaid monies from these duplicate
                    payments to meet these costs. The Hamilton CDJFS certified its JFS
                    02827 report as being accurate, when in fact it contained
                    unallowable foster care placement and maintenance costs for the
                    MCSA through cost pools. ODJFS relied on this misleading
                    information for federal reporting purposes and to draw federal
                    monies to reimburse the Hamilton CDJFS for its duplicate cost
                    claims.
The Hamilton CDJFS initiated claims for federal reimbursement prior to services being rendered.
The MCSA fiscal agent billed the MCSA partners each quarter for a portion of the annual
projected revenue that each partner planned to contribute to the MCSA. When the CDJFS
released monies to the MCSA fiscal agent, it recorded them as expenditures. This is not in
compliance with OMB Circular A-87. Cash sent to the MCSA in anticipation of projected
expenditures is an advance, not a reimbursable cost. The transfer of cash is not a reimbursable
event, while the payment to providers for services rendered would be. The Hamilton CDJFS is
allowed to record expenditures only when providers are paid and only for allowable costs for
children for whom the agency is responsible. Because of the ProtectOhio waiver, any such claim
would exclude foster care placement and maintenance costs.

     Finding D-3    OMB Circular A-87, Attachment A, Section B.9 states, in part:
        Reporting
      Advances as   “Cost” means an amount as determined on cash, accrual, or other
     Expenditures   basis acceptable to the Federal awarding or cognizant agency. It does


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   Noncompliance    not include transfers to a general or similar fund.
         Citation
                    The Hamilton CDJFS recorded transfers to the MCSA fiscal agent as
                    expenditures and, thus, as reimbursable costs. Expenditure may be
                    recognized, when allowable, only at the time an invoice is presented
                    for goods and services rendered and when that invoice is paid.
                    Reporting and claiming a cost prior to those costs becoming
                    reimbursable is unallowable.

                    The Hamilton CDJFS must refrain from claiming these or similar
                    costs. The agency must work with ODJFS Office of Fiscal Services,
                    and seek guidance if necessary. The agency must also review the
                    design and operation of its internal controls over accounting and
                    financial reporting and implement any needed changes to prevent
                    this issue from occurring in the future.



The Hamilton CDJFS became the fiscal agent for the MCSA in SFY 2002. At this time the
agency became responsible for billing the other MCSA partners for their fair share of MCSA
costs. The Hamilton CDJFS billed each partner on a quarterly basis for one quarter of the
amount each partner agreed to contribute to the MCSA annually.

When Hamilton County became the MCSA’s fiscal agent, it should have established an internal
service fund, outside the Children Services Fund to account for MCSA activities. In its capacity
as fiscal agent, the Hamilton CDJFS was acting on behalf of the MCSA, not the CDJFS. The
MCSA’s accounting records should have been kept separate from those of the Hamilton CDJFS.
A separate internal service fund would have provided a way to do this. Instead, the Hamilton
CDJFS chose to account for MCSA activities within the PA Fund where the recording of all
MCSA costs in the SS Cost Pool triggered a duplicate payment of federal monies. This was
because the MCSA costs included foster care placement and maintenance costs covered under
ProtectOhio advances and/or partner’s share of MCSA costs.

Hamilton County, as MCSA fiscal agent, had two categories of costs for which it needed to
account. One category of costs was for its share of MCSA costs as an MCSA partner. This
should have been recorded in an internal service fund and reimbursed by the Children Services
Fund. These costs were eligible to be charged to the county’s ProtectOhio monies. The other
category of costs was the remaining MCSA partners’ shares of MCSA costs. This activity
should not have been recorded in the PA Fund. Instead, these costs should have been charged to
an internal service fund. For example, the Hamilton CDJFS could have billed the remaining
partners, deposited this money into the separate internal service fund, and remitted payments to
Hamilton Choices. Illustration 9 shows how the CDJFS overlapped its roles as fiscal agent and
partner and how the MCSA should actually have been operated.




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ILLUSTRATION 9: Actual MCSA Model versus Compliant Model

   Actual Model with Hamilton CDJFS As Resource Coordinator
                                                       Partners
                                                       are billed


                                                                    Partners
                                                                                      HCDJFS
                      Provider               Coordinator
                                                                     HCDJFS           claims all
                      invoices                 invoices
                                                                     Fiscal          MCSA costs
                               Program                               Agent
    Providers
                              Coordinator
                                                                                  Partners
                      Providers                    Coordinator                     send
                      are paid                       is paid                       money



 Compliant Model with Internal Service Fund
                                                 HCDJFS acting         Partners claim their own
                                                 as Fiscal Agent       share of MCSA costs.

                                                             Partners
                Provider           Coordinator                 are
                invoices             invoices    Fiscal Agent billed
                                                with Separate
                           Program                 Internal                 Partners
  Providers
                          Coordinator               Service
                                                     Fund                     HCDJFS
                 Providers           Coordinator              Partners
                 are paid               is paid                send
                                                               money
                                                                          HCDJFS acting
                                                                          as MCSA Partner
                                                                          and claiming only
                                                                          their MCSA costs.


      Finding D-4        45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                         current, and complete disclosure of financially assisted activities.
        Failure to
        Separately
Account for MCSA         45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
           Activity      receiving subawards or subgrants of Federal awards must maintain
   Noncompliance         records identifying the source and application of funds provided, and
         Citations       include information pertaining to the subawards and subgrants,
                         including authorizations, obligations, unobligated balances, assets,
                         outlays, and income.

                         45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
                         maintenance of effective control and accountability for all funds, and
                         the safeguarding of assets, ensuring their use solely for authorized
                         purposes.



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                   Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                   allowable costs for governmental entities are determined in
                   accordance with OMB Circular A-87, Cost Principles for State,
                   Local, and Indian Tribal Governments. Such principles govern the
                   reasonableness, allowability, and allocability of costs.

                   45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                   accounting records be supported by source documentation.

                   OAC Rule 5101:9-9-29 require auditees to:

                      . . . (I) maintain documentation conforming to all requirements
                      prescribed by ODJFS, federal statute or regulation and state
                      statute or administrative rule. Auditees must prepare and
                      maintain documentation to support all transactions and to permit
                      the reconstruction of all transactions and the proper completion of
                      all reports required by state and federal law and regulations, and
                      which substantiates compliance with all applicable federal statutes
                      or regulations, state statutes or administrative rules.

                   The MCSA was a separate entity from the Hamilton CDJFS;
                   however, the Hamilton CDJFS did not separate its accounting for
                   MCSA activities from its accounting for CDJFS activities when it
                   was acting as the MCSA fiscal agent. As a result, the Hamilton
                   CDJFS commingled MCSA monies and costs in the PA Fund, which
                   ultimately resulted in unallowable claiming of MCSA costs. This
                   increased the risk that a cost claimed for federal reimbursement
                   would be paid with federal funds more than once.

                   The Hamilton CDJFS must establish an internal service fund that is
                   permitted under Generally Accepted Accounting Principles to be
                   used “to report any activity that provides goods or services to other
                   funds, departments, or agencies of the primary government and their
                   component units, or to other governments, on a cost-reimbursement
                   basis.” The agency must review the design of its financial
                   accounting system, and its related controls over accounting and
                   financial reporting, and ensure that both this system and the internal
                   controls are properly designed to meet the federal requirements for
                   financial reporting and accounting, state requirements, and any
                   applicable local requirements.
The Hamilton CDJFS recorded its MCSA costs and those of the other MCSA partners in cost
pools within the PA Fund. These costs, which included foster care placement and maintenance
costs, represented a portion of the duplicate claim the agency made for costs advanced under
ProtectOhio. The Hamilton CDJFS also received revenue for some of the costs advanced under


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ProtectOhio from the other MCSA partners, the partners’ share of MCSA contributions. These
monies were not used to offset the costs the agency recorded for other partners’ shares of costs.
This reimbursement revenue should have been recorded against the remaining MCSA partner
costs already recorded in the CDJFS cost pools, which would have effectively reduced any
duplicate payment for reimbursement. However, the Hamilton CDJFS recorded monies
provided to the MCSA as local receipts in its monthly financial statements. The partner’s
revenues also lost their identity, were commingled with local monies within the PA Fund, and
became untraceable. This further complicates the auditors’ ability to determine what monies in
the Hamilton CDJFS accounting records are actually local monies. Table 6 shows the MCSA
revenues that the remaining partners paid to the Hamilton CDJFS.

Prior to SFY 2003, and before the Hamilton CDJFS became the MCSA fiscal agent, the previous
administration had been using the CDJFS cost pools to record administrative costs related to the
MCSA, which was also unallowable. Records show that when the previous CDJFS fiscal section
chief received revenue, he recorded that revenue in the cost pool to offset previously recorded
costs. Although the use of the cost pool was unallowable, the use of revenues to offset
previously recorded costs was in keeping with accounting principles and reduced any potential
for overpayment during that period.

TABLE 6: MCSA Partner Revenue Collected by Hamilton CDJFS by Year

 Hamilton County MCSA Partners                    SYF 2003                SFY 2004                Total
 ADAS Board                                           $78,000                $83,000               $161,000
 Juvenile Court                                       633,426                627,371              1,260,797
 Board of Mental Retardation                        1,714,065              1,929,187              3,643,252
 Community Mental Health Board                      2,582,942              3,507,050              6,089,992
 Beech Acres Reimbursement                                  -                574,006                574,006
              Totals                               $5,008,433             $6,720,614            $11,729,048
                                                 Source: Hamilton CDJFS 02827 Monthly Financial Statement


As noted in Table 6, the Hamilton CDJFS received $574,006 from Beech Acres/Creative
Connections in SFY 2004. This amount represents MCSA cash remaining after the close-out
reconciliation in MCSA accounts maintained by Beech Acres during its tenure as the fiscal
agent. Auditors have included this amount here, as it must be used to offset the MCSA costs
recorded by the Hamilton CDJFS in the cost pools, or deposited in a separate internal service
fund for MCSA activities. To the extent that this money represents the MCSA’s cash holdings, it
is required to be accounted for separately from the Hamilton CDJFS monies maintained in the
PA Fund. Given the county’s failure to offset revenues against expenditures for MCSA costs,
auditors reviewed other revenue received by the Hamilton CDJFS. Auditors noted similar
costing activities resulting in questioned costs that are discussed later in this report.

      Finding D-5     45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                      current, and complete disclosure of financially assisted activities.
  Failure to Offset
 Expenditures with
   MCSA Partner       45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities



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  Revenues    receiving subawards or subgrants of Federal awards must maintain
Finding for   records identifying the source and application of funds provided, and
  Recovery:
$11,729,048
              include information pertaining to the subawards and subgrants,
              including authorizations, obligations, unobligated balances, assets,
              outlays, and income.

              Under 45 CFR 74.27, 92.20 (b) (5) and 45 CFR 92.22, allowable
              costs for governmental entities are determined in accordance with
              OMB Circular A-87, Cost Principles for State, Local, and Indian
              Tribal Governments. Such principles govern the reasonableness,
              allowability, and allocability of costs.

              45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
              accounting records be supported by source documentation.

              APM Section 7902 JFS 02827 Monthly Financial Statement states,
              in part: The CDJFS director must certify the accuracy and amount of
              disbursements in Section C of the JFS 02827.

              OMB Circular A-87, Attachment A, Section C.1 states, in part:
              Factors affecting allowability of costs. To be allowable under
              Federal awards, costs must meet the following general criteria:

                i. Be the net of all applicable credits.

              OAC Rule 5101-1-15 now--OAC Rule 5101:9-1-15 (F) (9)--states
              that expenditures on federal programs must be netted with all
              applicable credits.

              OAC Rule 5101:9-9-29 require auditees to:

                 . . . (I) maintain documentation conforming to all requirements
                 prescribed by ODJFS, federal statute or regulation and state
                 statute or administrative rule. Auditees must prepare and
                 maintain documentation to support all transactions and to permit
                 the reconstruction of all transactions and the proper completion of
                 all reports required by state and federal law and regulations, and
                 which substantiates compliance with all applicable federal
                 statutes or regulations, state statutes or administrative rules.

              The Hamilton CDJFS did not maintain a separate internal service
              fund to account for MCSA activities. It instead used the PA Fund
              cost pools to obtain duplicate payments for MCSA expenditures.
              This included foster care placement and maintenance costs advanced
              under the ProtectOhio waiver. The PA Fund was not established to



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                    account for foster care placement and maintenance activities, which
                    are required to be accounted for within the Children Services Fund.
                    Likewise, MCSA funding was not appropriated to fund the activities
                    of the PA Fund, and the Hamilton CDJFS should use a separate
                    internal service fund established to account for MCSA activities.

                    The Hamilton CDJFS recorded the costs of the other MCSA partners
                    within the PA Fund, which overstated expenditures on the JFS 02827
                    monthly financial statements. It also failed to offset MCSA costs
                    recorded in the PA Fund with the revenues provided by the MCSA
                    partners, which would have reduced the foster care placement and
                    maintenance duplicate payments. The $11,729,048 in MCSA
                    revenues should have been used to offset any MCSA costs charged
                    by the Hamilton CDJFS that related to the remaining MCSA
                    partners. The MCSA costs must not be recorded in the PA Fund, as
                    they do not qualify for federal and state reimbursement. The
                    Hamilton CDJFS was not entitled to keep these reimbursements,
                    therefore, a finding for recovery against Hamilton CDJFS in the
                    amount of $11,729,048.

                    This further complicates the commingling of federal and state
                    monies with local monies, to the extent that the remaining MCSA
                    partners may have used federal and state monies for their share of
                    costs provided to the Hamilton CDJFS. The Hamilton CDJFS must
                    establish a separate internal service fund for MCSA activities, and
                    must not commingle MCSA monies with monies maintained in any
                    special revenue fund it manages. The county is required to comply
                    with federal and state rules for cost allocation and to ensure that any
                    claimed costs are offset with applicable revenues. The Hamilton
                    CDJFS must not make federal reimbursements claims for costs
                    incurred by the MCSA partners as these costs must be accounted for
                    separately. To the extent that any other MCSA partners used federal
                    monies for their share of MCSA costs, further federal overpayments
                    may have occurred.
The Hamilton CDJFS was entitled to claim, and to be reimbursed for its foster care
administrative costs. The ProtectOhio waiver agreement did not limit reimbursement for these
costs. ODJFS uses a separate system for claiming such costs, through the JFS 01925 report.
Counties may create the JFS 01925 report through an automated process. If counties do not have
the ability to do this, they may use the Family and Children Services Information System
(FACSIS), which can produce reports on administrative costs for children in foster care. The
counties may also complete the JFS 01925 reports manually.

Discussion with Hamilton CDJFS fiscal employees revealed that the automated system they used
was unable to produce accurate JFS 01925 reports as it did not order the data correctly. Rather
than using the manual process, the Hamilton CDJFS chose to charge its foster care


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administrative costs to the SS Cost Pool. By doing so, it essentially charged these costs to other
non-benefiting programs within the SS Cost Pool. This is contrary to the requirements of OMB
Circular A-87.

The use of cost pools for charging provider’s administrative costs is inappropriate in these
instances. This practice also occurred under the previous administration. After the arrival of a
new director and fiscal manager in early January 2002, the problem grew to include both foster
care administrative costs and placement and maintenance costs. This is significant, as placement
and maintenance costs are about five times greater than administrative costs. Auditors later
discovered that the Hamilton CDJFS fiscal employees mistakenly believed that all administrative
costs for contracts, regardless of program, should be charged through cost pools. The agency
also arbitrarily set the administrative costs for all contracts at 10 percent.

In August 2004, the ODJFS Deputy Director of Fiscal Services notified the Hamilton CDJFS
that this use of cost pools was inappropriate. Auditors did not test current period records, as this
was outside the scope of this audit, but this costing activity may still exist within the Hamilton
CDJFS.

      Finding D-6    OAC Rule 5101:2-47-11 establishes the appropriate methodology
                     for claiming foster care placement and maintenance costs as well as
        Improper
       Allocation
                     foster care administrative costs, through the JFS 01925 report.
 of Administrative
            Costs    OMB Circular A-87, Attachment A, Section C.3.a states, in part:
  Noncompliance
        Citations     A cost is allocable to a particular cost objective if the goods or
                      services involved are chargeable or assignable to such cost objective
                      in accordance with relative benefits received.

                     OMB Circular A-87, Attachment A, Section E.1 states, in part:

                      Direct costs are those that can be identified specifically with a
                      particular final cost objective.


                     OMB Circular A-87, Attachment A, Section F.1 states, in part:

                      Indirect costs are those: (a) incurred for a common or joint purpose
                      benefiting more than one cost objective, and (b) not readily
                      assignable to the cost objectives specifically benefited, without
                      effort disproportionate to the results achieved.

                     The federally approved ODJFS Cost Allocation Plan, Section V-B-3,
                     states that social services administrative costs may include contracts
                     related to all social services programs. This language was also
                     codified in OAC Rule 5101:1-04, now OAC Rule 5101:9-1-04.



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                  The Hamilton CDJFS did not use the JFS 01925 report to claim
                  contract foster care administration costs, as required, as the agency’s
                  management determined that local automation inadequacies made
                  this impracticable. Instead, the CDJFS inappropriately used the SS
                  Cost Pool to claim such costs, even though they were direct costs
                  readily identifiable as Title IV-E administration costs. The agency
                  also used the SS Cost Pool to inappropriately charge contract
                  services that did not benefit all social services programs. These
                  incorrect charges occurred from SFY 2002 through SFY 2004, and
                  they are included in the $35,623,402 of the MCSA costs previously
                  questioned as they cannot be separately identified.

                  Claiming foster care contract administrative costs in the cost pool
                  caused these costs to be charged to all programs within that pool,
                  although many programs received no benefit from such costs. This
                  was contrary to OMB Circular A-87. To the extent that any part of
                  these claims cannot be adjusted because of the time lapse, the
                  Hamilton CDJFS has lost its ability to be reimbursed for such costs.
                  The agency must work with ODJFS to resolve its automation issues
                  and submit claims in compliance with the federal rules and
                  regulations, the OAC, ODJFS established methodologies, and the
                  federally approved ODJFS Cost Allocation Plan. This issue likely
                  continued into SFY 2005 and SFY 2006.

The AOS-SAS auditors have included MCSA and MCSA provider activities within the scope of
their special audit. Further findings relating to the MCSA are possible.




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2. Hamilton County Managed Care Partnership: Magellan Behavioral Health

In September 1997, Hamilton County formed a managed care partnership for foster care
services. This partnership included three Hamilton County departments: Job and Family
Services (formerly Hamilton County Department of Human Services), the Mental Health Board
(MHB), and the Alcohol and Drug Addiction Services Board (ADAS). According to the signed
agreement, these departments formed this partnership team “for the purpose of contracting for
the services of a management services organization to coordinate and administer the delivery of
child welfare, mental health and alcohol and drug addiction treatment services . . .”

The partnership team contracted with Magellan Public Solutions, a national, for-profit,
behavioral health managed care company, to develop a managed care information system and to
coordinate services. According to the contract language, managed care activities were intended
to be funded with Title IV-E monies, placing this project within the ambit of ProtectOhio. The
contract also stipulated that when Title IV-E monies were not otherwise available, the
partnership had other funds available sufficient to cover certain types of costs included in the
Magellan contract. In addition to developing the managed care system, Magellan also developed
a case management information system used by the CDJFS, ADAS, and MHB. The partners
shared in the costs of the automated system, while the costs of direct services to children were
paid by the Hamilton CDJFS.

Magellan was to contract with a network of providers to deliver services to foster care children
with mental health and drug or alcohol addiction problems. Magellan could also earn
performance incentives when cost savings exceeded 15 percent. Incentive payments were
entirely the responsibility of the Hamilton CDJFS. The managed care partners signed renewal
contracts with Magellan Public Solutions or Magellan Behavioral Health in 2002 and 2003.
With each subsequent contract, the Hamilton CDJFS’ share of administrative costs increased
until it finally reached 95.19 Percent.

Beginning in SFY 2002, the Hamilton CDJFS recorded the costs of the Magellan contracts to
cost pools within the PA Fund, just as it did with the Hamilton MCSA managed care group.
These costs had previously been charged to Title XX funding, a portion of which represented
placement and maintenance costs for foster children. For SFY 2002 through SFY 2004, the
Hamilton CDJFS recorded $57,857,071 in Magellan managed care costs to the Hamilton CDJFS
cost pools. As these costs included foster care placement and maintenance, they should have
been covered by monies already advanced under the ProtectOhio waiver. To the extent that
placement and maintenance costs could not be covered under the ProtectOhio waiver, they would
be the responsibility of the Hamilton CDJFS to cover with other lawful monies. Charging such
costs to cost pools triggered a duplicate payment for foster care placement and maintenance
services from federal monies in the same way as the MCSA claims.

      Finding D-7   The 1997 waiver agreement between the Ohio Department of Human
                    Services and the Hamilton County Public Children Services Agency
       Unallowed
        Magellan
                    and Board of Commissioners in Article VI (E) states that “The
        Duplicate   PCSA and the Commissioners agree to comply with all federal and



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  Payments    state laws, rules, regulations, and auditing standards which are
Finding for   applicable to the performance of this Agreement”.
  Recovery:
$57,857,071
              Section 474 (a) (3) (E) of the Social Security Act states, in part:
              Expanded Services: To allow the State to expend Title IV-E Funds
              to pay for services that will be provided to children and their families
              that would not normally be covered under Part E of Title IV of the
              Act.

              Section 1.7 of the waiver terms and conditions for the Ohio Child
              Welfare Waiver Demonstration Project requires that projects
              conducted under the waiver authority shall:

               Be consistent with the purposes of Titles IV-B and IV-E of the
               Social Security Act in providing child welfare services; and
               Be cost neutral to the Federal government over the life of the
               project period, that is, the cost of the demonstration project may
               not exceed the total amount of Federal funds that would have been
               expended by the State under the State plans approved . . .

              OAC Rule 5101:9-6-25 states that ProtectOhio revenues and
              expenditures must be reported on the JFS 02820 report. While the
              Administrative Procedures Manual Appendix delineates which codes
              a county PCSA must use to classify expenditures within the JFS
              02820, the “Agreement between the Ohio Department of Human
              Services (now ODJFS) and the Hamilton County PCSA and Board
              of Commissioners” (the waiver agreement), signed August 26, 1997,
              and in effect until December 2005, stated that the PCSA agreed to
              report data sufficient to fulfill requirements established by ODJFS.

              The Hamilton CDJFS did not record its Magellan managed care
              foster placement and maintenance costs on the JFS 02820, as
              required by the OAC. This OAC requirement also applies to
              ProtectOhio expenditures, and Hamilton County agreed to follow the
              applicable rules and regulations when executing the ProtectOhio
              demonstration agreement with ODJFS.

              The original cash transfers were recorded as expenditures in the
              Children Services Fund, and the payments of foster care costs in the
              PA Fund were also recorded as expenditures. ODJFS relied on this
              information for federal reporting purposes and to draw federal
              monies to reimburse the Hamilton CDJFS for these duplicate cost
              claims. It is also possible that the county auditor reported overstated
              expenditures in the county’s annual financial reports.




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                     Under the ProtectOhio waiver, the Hamilton CDJFS was advanced
                     money for foster care placement and maintenance costs. The CDJFS
                     recorded its Magellan costs, which included foster care placement
                     and maintenance, in the SS Cost Pool within the PA Fund. As a
                     result the CDJFS received a duplicate payment on the $57,857,071
                     in charges recorded in this manner. Appropriately recording these
                     costs on the JFS 02820 report would have prevented this from
                     occurring.

                     For SFY 2004, the Hamilton CDJFS recorded the $26,282,318
                     adjustment against local monies, of which $15,026,299 related to
                     Magellan managed care costs. Posting such an adjustment in a
                     single month does not result in an appropriate correction of the
                     underlying noncompliance. Therefore, auditors are issuing a finding
                     for recovery against the Hamilton CDJFS in the amount of
                     $57,857,071.

                     In addition, “local” monies included federal and state monies that
                     had lost their identity, resulting in unallowable duplicate payments
                     and Title IV-E Administration and Training reimbursements that had
                     been overpaid based on unallowable costs in the cost pool. This
                     calls into question a charge to local funds to address this issue.


The Hamilton CDJFS used the SS Cost Pool to claim Magellan expenditures. This was
unallowable for two reasons. First, as a ProtectOhio waiver county, the Hamilton CDJFS had
already been advanced monies for foster care placement and maintenance costs. Second, the
Hamilton CDJFS recorded Magellan costs in the SS Cost Pool, which resulted in foster-care-
related costs being allocated to all programs within that cost pool, including programs such as
Child Care, which received no benefit from such costs. This is unallowable under OMB Circular
A-87.

      Finding D-8    45 CFR 74.26 and 45 CFR 92.26 specify, respectively, that
                     subrecipients and subgrantees of federal awards are subject to the
      Unallowable
   Magellan Costs
                     Single Audit Act and OMB Circular A-133.
        Allocation
 Questioned Costs:   OMB Circular A-133 §____, 300 states that the “auditee shall: (a)
      $57,857,071    Identify, in its accounts, all Federal awards received and expended
                     and the Federal programs under which they were received.”

                     OMB Circular A-87 Attachment A Section B. 9 states in part:

                       “Cost” means an amount as determined on cash, accrual, or other
                       basis acceptable to the Federal awarding or cognizant agency. It
                       does not include transfers to a general or similar fund.



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OMB Circular A-87, Attachment A, Section C.1 states in part:


Factors affecting allowability of costs. To be allowable under
Federal awards, costs must meet the following general criteria:

  a. Be necessary and reasonable for proper and efficient
  performance and administration of Federal awards.

  b. Be allocable to Federal awards under the provisions of this
  Circular.

OMB Circular A-87, Attachment A, Section C.3.a states in part:

  A cost is allocable to a particular cost objective if the goods or
  services involved are chargeable or assignable to such cost
  objective in accordance with relative benefits received.

OMB Circular A-87, Attachment A, Section F.1 states in part:

  Indirect costs are those: (a) incurred for a common or joint
  purpose benefiting more than one cost objective, and (b) not
  readily assignable to the cost objectives specifically benefited,
  without effort disproportionate to the results achieved.

The Hamilton County Magellan expenditures were not properly
allocated, as the methodology used was insufficient to demonstrate
that each partner bore its fair share of costs allowable to its funding
streams. In addition, costs were not tracked at the child and activity
levels to ensure that only costs for allowable activities were claimed
for reimbursement. This would necessarily exclude foster care
placement and maintenance costs in a ProtectOhio county.

The Hamilton CDJFS recorded $57,857,071 in payments to
Magellan, for SFY 2002 through SFY 2004, all of which is being
questioned.

The Hamilton CDJFS must review federal cost allocation rules and
regulations. The agency must ensure that costs claimed are tracked
by child and activity to ensure that only allowable costs are claimed
for reimbursement. The Hamilton CDJFS must review the design
and operation its internal controls over contracting, accounting, and
financial reporting and implement changes necessary to ensure this
these violations do not occur in the future.



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                     After the onset of the expanded audit work, the Hamilton CDJFS
                     employees and the county administrator agreed that foster care
                     placement and maintenance costs should not have been claimed in
                     cost pools by the CDJFS. In June 2004, the agency recorded an
                     adjustment to its records of $26,282,318 for SFY 2004, of which
                     $15,026,299 was related to the Magellan.
In response to a request from ODJFS auditors for the agency’s monthly financial statements,
auditors obtained a copy of the revised JFS 02827 Monthly Financial Statement for June 2004.
Completion of the JFS 02827 is a cooperative effort between the county auditor and the CDJFS.
The OAC rules require the county auditor certify that the reported transactions and cash balance
of the report match with the records of his office. The OAC also requires the CDJFS director
certify the accuracy and amount of disbursements on the JFS 02827. Auditors noted that this
copy of the revised financial statement was not certified by the county auditor’s office, but only
by the CDJFS director’s designee.

      Finding D-9    OAC Rule 5101:9-10-29 (B) states that the purpose of the JFS
                     02827 Monthly Financial Statement is to report the receipt of
   Lack of Proper
     Certification
                     revenues and the disbursement of funds from the Public Assistance
   Noncompliance     Fund. Furthermore,
        Citations
                       (1) The JFS 02827 is used by ODJFS to identify expenditures
                       eligible for reimbursement. It also forms the basis for establishing
                       charges applicable to allocations, for reconciling advances with
                       expenditures, and for reporting expenditures to the federal
                       government each quarter.

                       (2) Completion of the JFS 02827 is a cooperative effort between
                       the county auditor and the CDJFS. The county auditor must
                       certify that the reported transactions and cash balance of the
                       report agree with the records of his office. The CDJFS director
                       must certify the accuracy and amount of disbursements on the JFS
                       02827.

                     OAC Rule 5101:9-10-29 (B) (3) (b) require the agency to notify the
                     department in writing of any differences between the JFS 02827 as
                     submitted to the department and the later version certified by the
                     county auditor within 15 days of the CDJFS’ receipt of the county
                     auditor’s version. The written notice must identify in detail all
                     revised, added, or deleted expenditures by amount and by program
                     and classification codes.

                     It is not clear, however, that the county auditor’s office was notified
                     of the $26,282,318 adjustment as the copy provided to the ODJFS



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audit staff did not bear the county auditor’s or his designee’s
certification.




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3. Unallowable Costs for Hillcrest Training School and Youth Center

The Hillcrest Training School is a community correctional/treatment center for youth offenders,
run by the Hamilton County Juvenile Court. It is an accredited training school, correctional and
treatment facility for adjudicated male delinquent youth placed by the Hamilton County Juvenile
Court. Hillcrest also maintains an assessment center for both girls and boys.

The Hamilton County Juvenile Court Youth Center is a county facility that provides intervention,
detention, recreation, school, food service, support services, business services, clinical services
and intake services. The youth center systems, working together with community agencies and
law enforcement, support the importance of families, the responsibility of youth and safety of the
community. The Hamilton County facility also contains two court rooms, the Juvenile Court’s
Psychological/Psychiatric Clinic, an intake complaint processing center, and a counseling center
referred to as the Intervention Unit.

Auditors detected inappropriate charges for the Hillcrest Training School and the Hamilton
County Juvenile Court Youth Center in the Hamilton CDJFS cost pools prior to the onset of the
expanded audit work. Within a few weeks of the start of the expanded audit, the Hamilton
CDJFS director communicated that, given discussions on the findings from the original audit,
she believed there were issues with the accounting for Hillcrest costs that began with the prior
administration. On September 23, 2004, she requested, through an e-mail, that ODJFS auditors
perform an additional audit review of the financial activity for the Hillcrest Training School.
The director also provided a listing of Hillcrest costs recorded in the Hamilton CDJFS cost pools,
which confirmed the number already generated by the auditors, but included payments prior to
2002 by the previous administration. Auditors also obtained a September 1, 2004,
communication from the Hamilton CDJFS director and county administrator to the county
commissioners indicating the current problems identified by the audit were caused by the former
fiscal section chief. That communication focused on Magellan managed care costs. The former
fiscal section chief subsequently stated that the shift in costs for Magellan occurred one month
after his departure from the Hamilton CDJFS and did not occur under his direction.

In 1976, the county agreed to transfer the authority of both the Hillcrest School and the Youth
Center from the Hamilton CDJFS to the Hamilton County Juvenile Court. The Hamilton CDJFS
began covering these costs with levy monies. The former Hamilton CDJFS fiscal section chief
began placing Hillcrest and Youth Center costs in the agency’s cost pools in 2000. He indicated
that the CDJFS had previously operated the Hillcrest School, but that it came under the Juvenile
Court’s control when the court received a grant for operating it. After the grant expired, the
county administrator’s budget office determined that the CDJFS would cover the school’s costs
with Children Services levy monies. The former fiscal section chief stated that the county
budget office calculated the financial shortfall for the school and directed the CDJFS to transfer
monies from the Children Services Fund to the General Fund. At the request of the county
administrator, the prosecutor’s office issued an opinion authorizing the use of Children Services
levy proceeds to pay for the cost of operating Hillcrest Training School. The prosecutor’s
opinion stated, “This appropriation and expenditure is to be made directly and should not involve
a transfer of levy money to the Juvenile Court to reimburse the County General Fund.” The
Hamilton CDJFS accounting records indicate that cash was transferred from the Children


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Services Fund to the PA Fund, and then from the PA Fund to the County General Fund, which
maintains accounts for the Juvenile Court. This was contrary to the prosecutor’s opinion.

The former CDJFS fiscal section chief indicated that discussions were held within the Hamilton
CDJFS concerning Hillcrest costs, and the question was raised as to whether a portion of the cost
could be recorded in the SS Cost Pool. Because most or all of the children in Hillcrest were in
the custody of the PCSA, and the costs of Hillcrest employees--who had worked for the CDJFS
when they operated the school--had been previously included in the cost pool, the CDJFS
continued to include such payroll costs in the SS Cost Pool. Covering the payroll for employees
working at Hillcrest would not be allowable under normal Title IV-E provisions; however, under
the terms and conditions of the ProtectOhio waiver, as a residential school, Hillcrest was eligible
for such funding. These payroll costs should have been charged to ProtectOhio monies advanced
to the Hamilton CDJFS, to the exclusion of other federal funding. Such costs could, of course,
always be charged to local monies lawfully available for such purposes. In any event, the use of
cost pools in this manner was inappropriate, as this distributed those costs to all programs within
the cost pool, even though many of them did not benefit from these costs. It also triggered a
duplicate payment from federal monies for foster care placement and maintenance costs.

    Finding D-10     OAC Rule 5101:9-6-25 states that ProtectOhio revenues and
                     expenditures must be reported on the JFS 02820. While the APM
     Unallowable
        Duplicate
                     Appendix delineates which codes a county PCSA must use to
    Payments for     classify expenditures within the JFS 02820 report, the “Agreement
     Hillcrest and   between the Ohio Department of Human Services (now ODJFS) and
    Youth Center     the Hamilton County PCSA and Board of Commissioners” (the
             Costs   waiver agreement), signed August 26, 1997, and in effect until
      Finding for
        Recovery:
                     December, 2005, stated that the PCSA agreed to report data
     $42,839,509     sufficient to fulfill requirements established by ODJFS.

                     45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                     current, and complete disclosure of financially assisted activities.

                     45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
                     receiving subawards or subgrants of Federal awards must maintain
                     records identifying the source and application of funds provided, and
                     include information pertaining to the subawards and subgrants,
                     including authorizations, obligations, unobligated balances, assets,
                     outlays, and income.

                     45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
                     maintenance of effective control and accountability for all funds, and
                     the safeguarding of assets, ensuring their use solely for authorized
                     purposes.

                     Under 45 CFR 74.27, 45CFR 92.20 (b) (5), and 45 CFR 92.22,
                     allowable costs for governmental entities are determined in



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                    accordance with OMB Circular A-87, Cost Principles for State,
                    Local, and Indian Tribal Governments. Such principles govern the
                    reasonableness, allowability, and allocability of costs.

                    45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                    accounting records be supported by source documentation.

                    APM Section 7902 relating to the JFS 02827 Monthly Financial
                    Statement states the CDJFS director must certify the accuracy and
                    amount of disbursements in Section C of the JFS 02827.

                    The Hamilton CDJFS did not record its foster care placement and
                    maintenance costs on the JFS 02820 report as required by the OAC.
                    This OAC rule requirement also applies to ProtectOhio expenditures.
                    Hamilton County agreed to follow the applicable rules and
                    regulations when executing its ProtectOhio demonstration agreement
                    with ODJFS.

                    As federal monies for foster care placement and maintenance costs
                    were advanced under ProtectOhio and the Hamilton CDJFS recorded
                    such costs in the cost pools within the PA Fund, the agency received
                    an unallowable reimbursement on the $42,839,509 in charges
                    recorded in this manner. Therefore, auditors are issuing a finding for
                    recovery against the Hamilton CDJFS in the amount of $42,839,509.

                    As the Hamilton CDJFS received duplicate payments on these
                    charges during our audit period, auditors were unable to determine
                    whether the CDJFS used any overpaid monies from these duplicate
                    payments to meet these costs. The Hamilton CDJFS certified the
                    expenditures on the JFS 02827 report as being accurate, when in fact
                    they contained unallowable foster care placement and maintenance
                    costs for Hillcrest School charged through cost pools. ODJFS relied
                    on this misleading information for federal reporting purposes and to
                    draw federal monies to reimburse the Hamilton CDJFS for these
                    duplicate cost claims.
In December 2002, the Hamilton CDJFS employees began recording Hillcrest costs in the
Shared Cost Pool within the PA Fund. This inappropriately distributed these costs to all
programs administered by the Hamilton CDJFS, including the CSEA and the PCSA. The
Hamilton CDJFS employees indicated that they made this change because the department was
offering youth job readiness and job placement programs at the Hillcrest School, and they
wished to access Workforce Investment Act monies earmarked for that purpose.

Auditors determined that the Hamilton County Juvenile Court Youth Center was a detention
facility and therefore, not eligible for Title IV-E reimbursement with or without the ProtectOhio
waiver. Although auditors are not questioning the use of Children Services levy monies to cover


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the Youth Center costs, it is inappropriate to record the costs in Hamilton CDJFS cost pools or
within the PA Fund. From 2000 through 2004, the Hamilton CDJFS recorded $42,839,509 in
Hillcrest and Youth Center costs in various cost pools for which it received federal and state
reimbursements. Findings for our original audit scope, covering the period from SFY 2002
through SFY 2004, were $28,236,419. The remaining $14,603,090 occurred prior to this time
and is being included in this report in response to the Hamilton CDJFS director’s request to
expand the audit work back to CY 2000 and 2001.

      Finding D-11     42 USC 672 (c) (2) states in part: Detention centers, training schools
                       or any other facility used for the detention of children are not eligible
      Inappropriate
       Allocation of
                       to be claimed for reimbursement under foster care maintenance.
Hillcrest and Youth
       Center Costs    45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
 Questioned Costs:     current, and complete disclosure of financially assisted activities.
        $42,839,509
                       45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
                       receiving subawards or subgrants of Federal awards must maintain
                       records identifying the source and application of funds provided, and
                       include information pertaining to the subawards and subgrants,
                       including authorizations, obligations, unobligated balances, assets,
                       outlays, and income.

                       45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
                       maintenance of effective control and accountability for all funds, and
                       the safeguarding of assets, ensuring their use solely for authorized
                       purposes.

                       Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                       allowable costs for governmental entities are determined in
                       accordance with OMB Circular A-87, Cost Principles for State,
                       Local, and Indian Tribal Governments. Such principles govern the
                       reasonableness, allowability, and allocability of costs.

                       45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                       accounting records be supported by source documentation.

                       OMB Circular A-87, Attachment A, Section C.3.a states in part: A
                       cost is allocable to a particular cost objective if the goods or services
                       involved are chargeable or assignable to such cost objective in
                       accordance with relative benefits received.

                       The Hamilton CDJFS inappropriately used cost pools to claim
                       Hillcrest Training School and the Hamilton County Juvenile Court
                       Youth Center costs. According to 42 USC 672 (c) (2), such claiming
                       is unallowable. It occurred because of a lack of understanding on the



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                     part of the Hamilton CDJFS fiscal employees, from both the current
                     and previous administrations. The use of the SS Cost Pool also
                     inappropriately spread these costs to non-benefiting social services
                     programs. The use of the Shared Cost Pool was even more
                     inappropriate as it spread costs to all Hamilton CDJFS, CSEA, and
                     PCSA programs, and shared costs for the CSEA and PCSA were
                     overstated. This activity caused ODJFS to reimburse the Hamilton
                     CDJFS with federal funds and state monies to which it was not
                     entitled. The auditors issued a questioned cost in the amount of
                     $42,839,509.

                     The Hamilton CDJFS must not claim unallowable costs for federal
                     reimbursement in the future. Any monies paid on behalf of Hillcrest
                     School and the Youth Center must be processed in a manner that
                     complies with the county prosecutor’s legal opinions concerning this
                     issue. This opinion includes advice on maintaining a separate special
                     revenue fund for the Children Services levy and directly paying
                     Hillcrest and Youth Center costs from such a fund rather than
                     transferring money between the funds or reimbursing the General
                     Fund. In addition, the agency must work with the ODJFS Office of
                     Fiscal Services on improving its staff’s knowledge and
                     understanding of cost pools.
The Hillcrest charges also included unallowable capital expenditures. The Hamilton CDJFS
recorded $249,190 in Hillcrest improvement costs in its Shared Cost Pool for which it received
federal and state reimbursements. By charging equipment purchases to this cost pool, it
essentially prevented that equipment from being assigned to a specific program or program area.
In addition, it spread the cost of this equipment to programs that did not receive any benefit from
it.

     Finding D-12    OAC Rule 5101:9-1-05 states, in part, that shared costs are indirect
                     costs incurred for a common purpose, that benefit two or more major
Unallowable Costs
   for Equipment
                     program areas, and that are not readily assignable to one of the
       Purchases     following ODFJS cost pools: the Social Services Cost Pool, the
      Finding for    Child Support Cost Pool, or the Income Maintenance Cost Pool.
        Recovery:
         $249,190    45 CFR 74.34 and 45 CFR 92.32 state that equipment shall be used
                     in the program or project for which it was acquired as long as
                     needed, whether or not the project or program continues to be
                     supported by Federal funds. When no longer needed for the original
                     program or project, the equipment may be used in other activities
                     currently or previously supported by the Federal agency.

                     OMB Circular A-87, Attachment A, Section C.3 states in part:




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  a. A cost is allocable to a particular cost objective if the goods or
  services involved are chargeable or assignable to such cost
  objective in accordance with relative benefits received.

  b. All activities which benefit from the governmental unit’s
  indirect cost, including unallowable activities and services
  donated to the governmental unit by third parties, will receive an
  appropriate allocation of indirect costs.

The Hamilton CDJFS included improvement costs for the Hillcrest
School in the amount of $249,190 in its accounting records and also
claimed reimbursement for them. These expenditures were
unallowable as they were the responsibility of the Juvenile Court, as
stated earlier. These costs were inappropriately distributed to all
programs administered by the Hamilton CDJFS, including the CSEA
and the PCSA. This activity also caused ODJFS to reimburse the
Hamilton CDJFS with federal funds and state monies to which it was
not entitled.

These $249,190 in claimed costs are a finding for recovery, as these
cost are unallowable.




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4. Unallowable Costs for Dependency Docket
The Juvenile Court dependency docket invoices are aggregations of court costs relating to cases
heard by the Juvenile Court for children who are eligible for Title IV-E foster care and adoption
services. Although these cases relate to Title IV-E services, their court costs are not eligible for
federal reimbursement under Title IV-E or any state or federal program administered by the
Hamilton CDJFS.

The Hamilton CDJFS recorded $3,881,908 in dependency docket costs during the audit period.
A portion of these unallowable costs, $1,281,908, was charged to cost pools and were the basis
for unallowable state and federal reimbursements. The Interfund Transfer forms that the
Juvenile Court sent to the Hamilton CDJFS requested the agency to enter estimated costs, which
would later be adjusted to actual costs. However, auditors detected no adjustments to these
estimated costs, in any of the years they audited. Charging these costs to the SS Cost Pool also
inappropriately spread them to non-benefiting social services programs. Charging them to the
Shared Costs Pool was even more inappropriate as it spread costs to all Hamilton CDJFS, CSEA,
and PCSA programs. This activity caused ODJFS to reimburse the Hamilton CDJFS with
federal funds and state funds to which it was not entitled. Many programs within the cost pools
received no benefit from these expenditures.

The remaining portion of these unallowable dependency docket costs, $2,600,000, was recorded
directly as Title IV-E prosecutor/private counsel contracts. These costs were not contract costs,
however, as auditors found no contracts executed between the Public Children Services Agency
and the Juvenile Court, so they were not reimbursable under Title IV-E. Recording these costs
as direct charges, rather than using the cost pools, resulted in a higher level of unallowable
reimbursement.

     Finding D-13    OMB Circular A-87, Attachment A, Section C.1 states, in part:
      Unallowable
Dependency Docket
                      Factors affecting allowability of costs. To be allowable under Federal
             Costs    awards, costs must meet the following general criteria:
       Finding for
        Recovery:       . . . d. Conform to any limitations or exclusions set forth in these
       $3,881,908       principles, Federal laws, terms and conditions of the Federal award, or
                        other governing regulations as to types or amounts of cost items.

                     According to the U.S. Department of Health and Human Services’ Child
                     Welfare Policy Manual, the above referenced section of the Social Security
                     Act can be used to exclude administrative costs of other agencies that are
                     requirements of running those agencies. For example, because docketing
                     cases is a requirement of the court system, even if some cases are Title IV-E
                     related, those costs associated with this activity are not eligible for federal
                     reimbursement under Title IV-E. Accordingly, a state agency may not
                     claim reimbursement for administrative costs under Title IV-E for activities
                     being performed by the court.



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OMB Circular A-87, Attachment B, Section 23, prior to May 10, 2004, and
Section 19 afterward, states:

   a. The general costs of government are unallowable . . .

      (3) Costs of the judiciary branch of a government. . .

Contrary to legal stipulations, the Hamilton CDJFS used its cost pools to
claim such reimbursement. A total of $1,100,000 was claimed in the SS
Cost Pool and another $181,908 in the Shared Cost Pool. The agency also
claimed $2,600,000 as a direct charge to Title IV-E. Auditors found no
evidence that estimated costs were ever adjusted. Recording these
unallowable costs to cost pools caused them to be allocated to multiple
programs, which received no benefit from them. None of these costs were
allowable whether charged directly or to a cost pool. The finding for
recovery is $3,881,908.

The Hamilton CDJFS must not claim dependency docket costs for federal
reimbursement, either through cost pools or directly, to any federal or state
programs they administer, as the state has provides funding to juvenile
courts for such costs. Such costs may not be paid through state and federal
funds administered by the Hamilton CDJFS.

The Hamilton CDJFS must not record costs that are ineligible for
reimbursement in a manner that will generate such reimbursements. It must
also adhere to federal cost allocation rules and state rules governing the use
of cost pools.




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5. Unallowable Costs for Guardian Ad Litem Services
A guardian ad litem is a court-appointed volunteer who is responsible for researching an
assigned child abuse, neglect, or unruly and delinquent dependency case and who represents that
child’s interest in court proceedings. The guardian ad litem must monitor the child during the
life of the case and advocate for a safe and permanent home for the child. These court-appointed
guardians may receive compensation for their services, determined by the court in which the case
is being heard. These costs are to be paid for by the county’s treasury.

A November 2002 e-mail from the county budget office to the Hamilton CDJFS indicated its
intent to charge such costs to the Children Services levy. This e-mail also indicated that the costs
it was sending to the Hamilton CDJFS were those remaining after the state had already
reimbursed the Juvenile Court for them. This should have been an indication to the Hamilton
CDJFS employees that these guardian ad litem costs were not eligible for further state or federal
reimbursement. Instead, the agency recorded a portion of these guardian ad litem costs in its
cost pools and the remainder as direct charges to Title IV-E. This triggered unallowable federal
and state reimbursements. The Hamilton CDJFS recorded $843,113 into the SS Cost Pool and
$2,181,523 as a direct charge to Title IV-E, for a total of $3,024,636. The use of cost pools also
allocated these costs to programs that received no benefit from them.

     Finding D-14    OMB Circular A-87, Attachment A, Section C.1 states:
     Unallowable
     Guardian Ad     Factors affecting allowability of costs. To be allowable under
      Litem Costs    Federal awards, costs must meet the following general criteria:
      Finding for
        Recovery:      . . . d. Conform to any limitations or exclusions set forth in these
       $3,024,636      principles, Federal laws, terms and conditions of the Federal
                       award, or other governing regulations as to types or amounts of
                       cost items.

                     ORC Section 2151.281 (D) states, in part, that fees for guardian ad
                     litem are to be paid by the “treasury of the county.”

                     According to the U.S. Department of Health and Human Services’
                     Child Welfare Policy Manual, the above referenced section of the
                     Social Security Act excludes administrative costs of other agencies
                     that are requirements of running those agencies. Because guardian
                     ad litem services are a requirement of the court system, even if some
                     cases are Title IV-E related, their costs are not eligible for federal
                     reimbursement under Title IV-E. Accordingly, a state agency may
                     not claim reimbursement for administrative costs under Title IV-E
                     for activities being performed by the court.

                     OMB Circular A-87, Attachment B, Section 23, prior to May 10,
                     2004 and Section 19 afterward. states:



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   a. The general costs of government are unallowable . . .

    (3) Costs of the judiciary branch of a government. . .

The Hamilton CDJFS used the cost pools to claim reimbursement,
and also charged a portion of these costs directly to Title IV-E. It
recorded a total of $3,024,636, which is a finding for recovery.

The Hamilton CDJFS must not claim guardian ad litem costs for
reimbursement, either through cost pools or directly, to any federal
or state programs it administers as the state has provided other
mechanisms for supporting such activities. These costs are
unallowable under Title IV-E. Any use of local monies to cover
such expenses should be recorded and paid through a separate local
fund, and not by state and federal funds administered by the CDJFS.
To this extent, if Hamilton County chooses to use Children Services
levy monies, it would need to establish the proper accounting
procedures to separately account for the Children Services levy
monies in the Children Services Fund.

The Hamilton CDJFS must not record costs that are ineligible for
reimbursement in a manner that will generate such reimbursements.
It must also adhere to federal cost allocation rules and state rules
governing the use of cost pools.




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6. Inappropriate Expenditures for Help Me Grow

The Help Me Grow program is run by the Hamilton County Family and Children First Council
(FCFC), a subrecipient of the Hamilton CDJFS. The fiscal arrangement between the FCFC and
the CDJFS should have been documented in a subrecipient agreement. The Hamilton County
FCFC is required to invoice the Hamilton CDJFS for program expenditures, and the Hamilton
CDJFS is required to pay up to the maximum allocation from the state for the year. As this was
a subrecipient relationship, the Hamilton CDJFS was tasked with monitoring the FCFC, as it was
for all of its subrecipients.

The Hamilton CDJFS divided the Help Me Grow allocation into three or four parts (depending
on the year) and transferred the monies to the FCFC, recording them as expenditures. There was
no evidence that these payments were reconciled with actual FCFC expenditures. As this
movement of cash was not a reimbursable event, the auditors are questioning the entire amount
of $6,983,378. Table 7 shows the amount transferred for each state fiscal year.

TABLE 7: Hamilton County Help Me Grow Expenditures to the FCFC

                        SFY 2002         SFY 2003         SFY 2004             Total
Help Me Grow            $2,400,540       $2,291,419       $2,291,419        $6,983,378

               Source: Hamilton County JFS 02827 Monthly Financial Statements



     Finding D-15      OMB Circular A-87, Attachment A, Section C.1 states:
   Undocumented
             Costs
                        Factors affecting allowability of costs. To be allowable under
 Questioned Costs:      Federal awards, costs must meet the following general criteria:
        $6,983,378
                          a. Be necessary and reasonable for proper and efficient
                          performance and administration of Federal awards.

                          b. Be allocable to Federal awards under the provisions of this
                          Circular.

                       OMB Circular A-87, Attachment A, Section C.3.a states:

                        A cost is allocable to a particular cost objective if the goods or
                        services involved are chargeable or assignable to such cost objective
                        in accordance with relative benefits received.

                       Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                       allowable costs for governmental entities are determined in
                       accordance with OMB Circular A-87, Cost Principles for State,
                       Local, and Indian Tribal Governments. Such principles govern the
                       reasonableness, allowability, and allocability of costs.




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                      45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                      accounting records be supported by source documentation.

                     The Hamilton CDJFS inappropriately recorded movements of cash as
                     expenditures for the Help Me Grow program. As this movement of
                     cash is not a reimbursable event, the auditors are questioning the
                     entire amount of $6,983,378.

                     The Hamilton CDJFS must not record this type of movement as
                     reimbursable costs, but reconcile all payments to actual expenditures
                     and report them as such on its monthly financial statements.
In addition, auditors noted that expenditures for Friends of Children, Every Child Succeeds, and
other Help Me Grow programs were improperly recorded in the Public Assistance IM Cost Pool.
Audit staff discovered transfers to the Hamilton County FCFC in this cost pool that were labeled
“Help Me Grow” or “HMG.” Furthermore, some descriptions described these payments as
expansion funds and named two entities that presumably were receiving the money: Friends of
Children and Every Child Succeeds. Examining this information in conjunction with the county
auditor’s Interfund Transaction form, auditors were able to identify $1,605,952 in expenditures
inappropriately reported in the IM Cost Pool. Auditors were not able to locate a subgrant
agreement or find evidence that the Hamilton CDJFS properly monitored the FCFC. Table 8
shows payments to the FCFC for SFY 2003 through SFY 2004.

TABLE 8: Hamilton County Payments to the FCFC

                                             SFY 2003        SFY 2004             Total
               Friends of Children             $85,952        $770,000          $855,952
               Every Child Succeeds            277,000          300,000           577,000
               Other Help Me Grow                               173,000           173,000
                       Total                   $362,952      $1,243,000        $1,605,952

                     Source: Hamilton County JFS 02827 Monthly Financial Statements



     Finding D-16     45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
                      receiving subawards or subgrants of Federal awards must maintain
         Incorrect
  Recording on the
                      records identifying the source and application of funds provided, and
        JFS 02827     include information pertaining to the subawards and subgrants,
       Finding for    including authorizations, obligations, unobligated balances, assets,
         Recovery:    outlays, and income.
       $1,605,952
                      Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                      allowable costs for governmental entities are determined in
                      accordance with OMB Circular A-87, Cost Principles for State,
                      Local, and Indian Tribal Governments. Such principles govern the
                      reasonableness, allowability, and allocability of costs.




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45 CFR 92.36 (b) (2) states, in part: . . . they will maintain a contract
administration system which ensures that contractors perform in
accordance with the terms, conditions, and specification of their
contracts.

45 CFR 74.51 and 45 CFR 92.40 require that activities and
operations be monitored to assure compliance with applicable
Federal requirements, covering all functions, programs, or activities
covered by an award.

OMB Circular A-87, Attachment A, Section C.3.a states:

A cost is allocable to a particular cost objective if the goods or
services involved are chargeable or assignable to such cost objective
in accordance with relative benefits received.

The Hamilton CDJFS used cost pools to claim movements of cash as
reimbursable expenditures. It recorded a total of $1,605,952 into the
IM Cost Pool. These costs should have been recorded with the Help
Me Grow expenditures in the appropriate account code. Therefore,
this amount is subject to a finding for recovery.

The Hamilton CDJFS must not record ineligible costs in the cost
pools, as this will improperly generate federal and/or state
reimbursements. It must also adhere to federal cost allocation rules
and state rules governing the use of cost pools.




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   E. TRANSACTIONS THAT REDUCE OR OFFSET EXPENDITURES

1. Mount Airy Shelter
In light of the pattern identified with the MCSA partner receipts in which the county failed to
offset claimed expenditures with revenues, auditors conducted a search of the local monies
revenue account in the PA Fund to determine whether this issue existed in other areas. The
auditors found two other instances in which the Hamilton CDJFS did not offset claimed
expenditures with related revenues.

The Hamilton CDJFS operates a homeless men’s shelter known as the Mount Airy Shelter. The
shelter’s purpose is to provide homeless men with food, shelter, and job training, which are
allowable costs to certain programs that the Hamilton CDJFS administers. The Hamilton CDJFS
claimed all costs for the Mount Airy shelter through cost pools. Auditors did not review the
Mount Airy costs at the transaction level because of the time and effort that other portions of this
audit required. Without regard to other possible cost allocation issues related to Mount Airy,
auditors determined that the Hamilton CDJFS received funding for the Mount Airy shelter from
the U.S. Department of Housing and Urban Development (HUD). It did not use this funding to
offset the costs it claimed for reimbursement with other federal and state funds. This was
effectively a duplicate payment of federal funds.

For SFY 2002 through SFY 2004, HUD paid the Hamilton CDJFS $1,531,445, which the agency
recorded in its accounting records as local monies--specifically, as local deposits for
nonreimbursable expenditures. At the same time, the agency claimed costs for the Mount Airy
shelter in the amount of $2,080,562 by recording them in its SS, IM and Shared Cost Pools
within the PA Fund, contrary to OMB Circular A-87.


      Finding E-1     OMB Circular A-87, Attachment A, Section C.1 states:
  Failure to Offset
 Revenues Against
                      Factors affecting allowability of costs. To be allowable under
     Expenditures     Federal awards, costs must meet the following general criteria:
          Mt. Airy
       Finding for      . . . i. Be the net of all applicable credits.
        Recovery:
       $1,531,445
                      OMB Circular A-87, Attachment A, Section C.3.a states:

                      A cost is allocable to a particular cost objective if the goods or
                      services involved are chargeable or assignable to such cost objective
                      in accordance with relative benefits received.

                      OAC Rule 5101-1-15 now OAC Rule 5101:9-1-15 (F) (9) states, in
                      part, that expenditures on federal programs must be netted with all
                      applicable credits.




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The Hamilton CDJFS did not net expenditures with the
reimbursement it received from HUD for the operation of the Mount
Airy Shelter. The total amount of this finding is $1,531,445, which
is the amount by which the expenditures reported for reimbursement
are required to be offset. This overstatement of expenditures will
affect all quarters of the audit period, as well as multiple accounts on
the JFS 02827 report. The Hamilton CDJFS must immediately begin
offsetting expenditures with related revenues as required by OMB
Circular A-87. The Hamilton CDJFS must work with the ODJFS
Office of Fiscal Services to record Mount Airy activities accurately
in the appropriate monthly financial statements.




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2. Southwest Ohio Regional Training Center (SWORTC)
ODJFS earmarks funds to cover the costs certain counties incur in operating regional job training
centers. The centers submit their allowable costs to ODJFS monthly; in return, ODJFS fully
reimburses them for the claimed costs, up to their allotted budgets. ODJFS then submits claims
for the federal share of these costs to the federal government. Training center costs are allowable
in a cost pool, as long as those costs relate solely to the training center. Once ODJFS reimburses
a county for its allowable costs, the county must offset any claimed costs by recording that
reimbursement in the same cost pool in which it previously recorded those costs. If this is not
done, a duplicate payment will occur at the local level for costs already claimed by ODJFS as the
state level.

For SFY 2002 through SFY 2004, the Hamilton CDJFS recorded $923,903 to its Shared Cost
Pool and submitted these SWORTC billings to ODJFS for reimbursement. At the same time, the
agency recorded $892,289 in ODJFS reimbursements for SWORTC as local deposits for
nonreimbursable expenditures. The difference was likely caused by a timing lapse between
when the costs were recorded and when the subsequent revenue was received. The Hamilton
CDJFS did not offset expenditures recorded in the cost pools with revenue received from the
state, resulting in a duplicate payment of federal funds. Through the cost pool allocation process,
the duplicate local claim was shared by all programs administered by the agency.


      Finding E-2       OMB Circular A-87, Attachment A, Section C.1 states: Factors
                        affecting allowability of costs. To be allowable under Federal
  Failure to Offset
 Revenues Against
                        awards, costs must meet the following general criteria:
     Expenditures
       Finding for        . . . i. Be the net of all applicable credits.
        Recovery:
         $892,289       OAC Rule 5101-1-15 now OAC Rule 5101:9-1-15(F) (9) states that
                        expenditures on federal programs must be netted with all applicable
                        credits.

                      The Hamilton CDJFS did not offset claimed costs with subsequent
                      reimbursements which triggered a duplicate payment of federal funds.
                      Auditors are questioning the $892,289 in reimbursements that were
                      not applied to reduce the Shared Cost Pool costs. The Hamilton
                      CDJFS received federal and state reimbursements that it was not
                      entitled to receive.

                      To avoid future findings for recovery, the Hamilton CDJFS must
                      offset reimbursements against claimed costs for the SWORTC. As
                      similar problems existed for other programs, the Hamilton CDJFS
                      must also review its policies and procedures for the receipt of state
                      and federal reimbursements, and its related internal controls, to ensure
                      that this does not occur in other areas.



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               F. IMPROPER ALLOCATION OF SHARED COSTS
Shared costs are indirect costs incurred for a common purpose, that benefit two or more major
program areas, and that are not readily assignable to the Income Maintenance, Child Support,
Social Services, or ODJFS-acknowledged functions and programs, such as Hamilton County’s
Tuberculosis (TB) Control Program. This includes costs of the director’s immediate staff, as
well s administrative costs, fiscal costs, security costs, and other common expenses. Employees
who meet this criterion are classified as “shared” and must be reported on the JFS 04290
Quarterly Report on CJDFS Full Time Equivalent Positions. This report is used to allocate
shared costs to the other cost pools and agencies.

ODJFS requires that shared costs be paid from the PA Fund. These costs must then be
reimbursed to the PA Fund from the Children Services Fund, the Child Support Fund, and the
TB Control Fund for each fund’s appropriate portion of shared costs. The reimbursements
between funds must be the amounts identified through the expenditure reporting process.
Therefore, shared costs are driven, in part, by the amount of costs placed in the Shared Cost Pool
before those costs are allocated each quarter. ODJFS performs a Random Moment Sample
Reconciliation each quarter to determine what portion of the shared costs the various programs
owe the PA.

Illustration 10 provides an example of some common shared costs and shows how those costs are
allocated to the other cost pools.

ILLUSTRATION 10: Phase 1 - The Distribution for Shared Cost from the Shared Cost Pool

                             Director’s StaffDirector’s Salary
                 Personnel                         $800        Indirect Costs
                                 $1,000
                  $1,000                                           $1,000
    Centralized Purchasing                PA Shared
                                          PA Shared                      Administration
            $1,000                         Cost Pool
                                           Cost Pool                          $1,420
            Security Costs                      $7,000
                                                $7,000                 Fiscal
                $500                                                   $1,000
                                                                                   TB
                             FTE Calculation per JFS 04290                       Control
                                                                                 12 Staff
                                                                                4% of costs
                                                                                   $280

                Income                        Social              Child Support
              Maintenance                   Services             Portion of Shared
               Cost Pool                    Cost Pool                  Costs
                 85 Staff                    160 Staff                65 Staff

              27% of costs                 49% of costs               20% of costs
                $1,890                       $3,430                     $1,400




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Illustration 11 provides an example of how shared costs previously distributed to the Income
Maintenance Cost Pool, the Social Services Cost Pool, and Child Support Cost Pools are
allocated to the programs within each cost pool through the random moment sample process.

 ILLUSTRATION 11: The Phase 2 - Distribution for Shared Cost from the Shared Cost Pool


        Income                        Social                  Child Support
      Maintenance                    Services                Portion of Shared
       Cost Pool                     Cost Pool                     Costs
         $1,890                       $3,430                       $1,400




        IM-RMS                        SS-RMS                        CS-RMS
     Allocation by                 Allocation by                 Allocation by
        Percent                       Percent                       Percent
        Results                       Results                       Results



     TANF for $1,000               Title XX for $400           Title IV-D for $1,100
  Food Stamps for $300       Adult Protective Services for       TANF – for $300
    Medicaid for $200                     $300
  Disability Asst for $190       Child Care for $500
        WIA $200                Child Welfare for $230
                             IV-E Foster Care for $2,000


As demonstrated in the above illustrations, any unallowable costs claimed in the Shared Cost
Pool were ultimately allocated to all programs administered by the Hamilton CDJFS. As noted
throughout this report, auditors detected multiple instances in which the agency claimed
unallowable costs. In the Shared Cost Pool alone, auditors identified $26,843,821 in
unallowable costs as shown in Table 9. These costs were allocated to all Hamilton CDJFS-
administered programs. Auditors also identified $74,244,066 in unallowable costs claimed in the
SS Cost Pool as shown in Table 10.

In attempting to calculate the shared cost obligations of the Child Support Fund and Children
Services Fund to the PA Fund for the audit period, auditors identified other irregularities. These
included, but were not limited to, the following: the inability of the Hamilton CDJFS to
calculate shared costs, the lack of documentation of alleged shared-cost reimbursements, the
depositing of PCSA money into the PA Fund, and misclassification of employees as shared.
Calculating shared costs over a three-year period with multimillion dollar adjustments would
significantly alter the financial landscape for that period. As unallowable costs are extracted
from the recorded expenditures, they would by necessity become local obligations. For example,
any costs charged to the Title IV-E program that violated program rules would be removed from
Title IV-E expenditures and become local obligations. This is part of the audit resolution
process.




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Therefore, auditors could not anticipate what types of recoveries might occur and how this would
affect the related funding streams. Auditors also could not anticipate how the Hamilton CDJFS
might reclassify costs or expend monies once unallowable costs became local obligations. Thus,
it is impossible to calculate the shared-costs obligation without significant involvement from
Hamilton County employees, which can occur only as these audit findings are resolved. The
commingling of federal, state, and local monies further complicates these issues. At this time,
any reimbursements due to the PA Fund cannot be determined although it is also not clear that
any reimbursement is due the PA Fund.

The Hamilton CDJFS employees indicated to auditors that they did not understand how to
calculate shared costs. As a result, they simply moved cash between their three special revenue
funds to ensure that cash was available. Thus, there was no county-generated shared-cost
calculation to audit, or to support the county claims that a portion of the cash transfers were
actually reimbursements. Although the Child Support and Children Services funds did have an
obligation to reimburse the PA Fund for shared costs, the appropriate amounts of these
reimbursements cannot be determined during the audit process. In addition, although the
Hamilton CDJFS employees claimed that a portion of the $127,082,206 transferred from the
Children Services Fund to the PA Fund was reimbursement for shared costs, the accounting staff
did not record any portion of these transactions in the PA Fund as being related to shared costs.

Determining the shared costs obligation to the PA Fund requires determining whether employees
were properly classified. Auditors found that the Hamilton CDJFS had potentially misclassified
as many as 254 employees each quarter as shared employees. These employees were supervisors
for Income Maintenance, Social Services, Child Support, and TB Control employees, according
to the Hamilton CDJFS Table of Organization. Therefore, they should have been assigned to
those cost pools along with their employees. This includes the payroll, benefits, and travel costs
associated with these supervisors. Auditors determined that it was impossible, within the
constraints of an audit, to determine the total cost related to these employees. Therefore, we
could not determine the amount by which shared costs were overstated. This also indicates that
other cost pools were understated. Such misclassifications have a significant effect on the proper
allocation of costs and the full-time-equivalent (FTE) calculations performed for the JFS 04290
report.

       Finding F-1     APM Section 7955, now included in Appendix A-JFS 4290, which
                       contains the instructions for completing the JFS 04290 Quarterly
     Inappropriate
   Classification of
                       Report of Full-Time Equivalent Positions, defines shared employees
       Supervisors     as “positions which support two or more major programs and are not
   Noncompliance       readily assignable to Income Maintenance, Social Services, or Child
            Citation   Support.”

                       The Hamilton CDJFS classified supervisors working in Income
                       Maintenance, Social Services, and Child Support as shared
                       employees. These employees were clearly assignable to the cost
                       pools for their work areas, and are required to be classified in those
                       cost pools along with their salaries, benefit costs, and travel costs.



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                       Because employees were inappropriately classified as shared, the
                       Shared Cost Pool charges were inappropriately inflated, allocated,
                       and distributed to the remaining cost pools. This ultimately resulted
                       in all programs administered by the Hamilton CDJFS being charged
                       inappropriate amounts. The Hamilton CDJFS must review the JFS
                       04290 instructions and work with the ODJFS Office of Fiscal
                       Services to ensure that this form is correctly completed in the future.
                       It must avoid classifying of employees to inappropriate cost pools
                       and ensure that its allocation of indirect costs is accurate.

As noted previously, the Hamilton CDJFS transferred $69,756,826 related to child welfare and
foster care costs to the PA Fund from its Human Services State Subsidy Fund. These monies
should have been deposited in the Children Services Fund. Part of the process for determining
the shared cost obligation for the PCSA is the SS-RMS Reconciliation, which identifies
unallocated social services costs from the SS Cost Pool and any local match requirements for
federal funds expended within that cost pool. Counties use a “Certification of Funds” process to
identify which programs unallocated costs should be charged to and also which funds will be
used to cover any federal matching requirements. Counties often use their state-funded child
welfare allocations to meet the local match requirements. However, because the Hamilton
CDJFS receipted these state funds into the PA Fund as local monies, it is impossible to
determine how they were expended or whether they were eligible to be used to match federal
child welfare and foster care monies.
_____________________________________________________________________________
The SS-RMS reconciliation also identifies another set of reimbursable costs, Title IV-E
Administration and Training reimbursements. This funding is determined by a formula that
includes the SS Cost Pool costs, Title IV-E eligibility rates, and other items. As noted earlier,
the Hamilton CDJFS recorded about $74,244,066 of unallowable costs in the SS Cost Pool. This
inflated its Title IV-E Administration and Training reimbursements. Without the ability to fully
determine the shared-cost obligations and the impact of the SS-RMS reconciliation on the
various questioned costs and findings for recovery, auditors could not identify the amount of
Title IV-E Administration and Training that the Hamilton CDJFS was eligible to receive.

       Finding F-2     OAC Rule 5101:9-6-28 (C) states: Title IV-E federal funds received
                       for administrative and training activities are distributed quarterly to
 Inflated Title IV-E
       Training and
                       counties based on a formula which considers the following factors:
     Administration
    Reimbursement          (1) The size of each county’s social services cost pool;
        Finding for
          Recovery:        (2) A percent of Title IV-E eligible activities; and
        $60,010,127

                           (3) The number of Title IV-E children (FCM and AA) served in
                           each county relative to the number of children in substitute care
                           and paid adoptive placement in the county.




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                      Because the Hamilton CDJFS recorded $74,244,066 of unallowable
                      costs in its SS Cost Pool, this inflated its Title IV-E Administration
                      and Training reimbursements. Without the ability to fully determine
                      the shared-cost obligations and the impact of the SS-RMS
                      reconciliation on the various questioned costs and findings for
                      recovery, auditors could not identify the amount of Title IV-E
                      Administration and Training funds that the Hamilton CDJFS was
                      eligible to receive.

                      Therefore, the entire amount paid to the Hamilton CDJFS, in Title
                      IV-E Administrative and Training reimbursements, $60,010,127, is a
                      finding for recovery.
As already noted, the Hamilton CDJFS reported inappropriate and unallowable expenditures in
its Shared Cost Pool, which overstated the pool’s value and the amounts distributed to the other
cost pools and agencies. Table 9 provides summarizes unallowable shared costs identified
elsewhere in this report.

TABLE 9: Inappropriate/Unallowable Costs in the Shared Cost Pool

 Costs to be Removed from the Shared Cost Pool
                                   SFY02              SFY03                SFY04              Total
 MCSA                                      $0                $960              $3,240            $4,200
 Hillcrest/Youth Center           4,253,825           9,660,000            8,900,563         22,814,388
 Dependency Docket                  181,908                                                    181,908
 Mt. Airy Revenue                     1,646               42,035               17,219            60,900
 A&D Parkhaus                       289,800              289,800              292,440          872,040
 Mt. Airy - CAP                                             6,851              10,728            17,579
 Income Maintenance - CAP                                                      91,254            91,254
 Social Services - CAP                                                        588,475          588,475
 PCSA - CAP                         210,720               98,547              324,389          633,656
 TB Control - CAP                    25,760               13,170               26,040            64,970
 CSEA - CAP                         455,116               50,973              116,073          622,162
 SWORTC Revenue                     291,191             277,651               323,447          892,289
        Total Unallowed Costs    $5,709,966        $10,439,987          $10,693,868         $26,843,821
                                                Source: Audit Findings within this Report


As already noted, the Hamilton CDJFS reported inappropriate and unallowable expenditures in
its SS Cost Pool, which overstated the pool’s value and the amounts distributed to the other
programs within the that pool. Auditors added costs that were improperly reported in the Shared
Cost Pool to their SS Cost Pool summary. Table 10 summarizes various unallowable social
services costs identified elsewhere in this report.




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TABLE 10: Inappropriate/Unallowable Costs in the Social Service Cost Pool

 Net Costs Removed from the Social Services Cost Pool
                                    SFY02               SFY03                SFY04               Total
 MCSA                               $9,199,702       $13,024,911            $2,138,570         $24,363,183
 Magellan                           16,228,612         24,678,264             1,923,897         42,830,773
 Hillcrest & Youth Center            5,267,250             154,781                       0       5,422,031
 Dependency Docket                   1,100,000                      0                    0       1,100,000
 Guardian Ad Litem                    843,113                       0                    0         843,113
 Mt. Airy Revenue                     424,769              453,367                35,812           913,948
 Mt. Airy CAP charges                         0              -6,851                      0           -6,851
 SS Cap Charges                                                                -588,475           -588,475
 PCSA CAP Charges                     -210,720              -98,547            -324,389           -633,656

         Net Unallowed Costs     $32,852,726         $38,205,925            $3,185,415         $74,244,066
                                                   Source: Audit Findings within this Report


As noted earlier, auditors could not, for multiple reasons, calculate the shared-costs obligations
of the Children Services Fund to the PA Fund for this period. Multiple factors will have to be
taken into consideration before the appropriate amount of shared costs can be calculated. Once
shared costs are calculated, an adjustment will have to be made for the over payment of shared
costs by both the Child Support Fund and the Children Services Fund.

Hamilton CDJFS also reported expenditures in the IM Cost Pool which were inappropriate and
unallowable expenditures of $10,278,013 in its IM Cost Pool, which overstated the pool’s value
and the amounts distributed to the other programs within the that pool.

TABLE 11: Inappropriate/Unallowable Costs in the Income Maintenance Cost Pool

 Net Costs to be Removed from the Income Maintenance Cost Pool
                                      SFY02            SFY03                SFY04                Total
 Mt. Airy Revenue                       $704                     $0           $555,893           $556,597
 Talbert House                                         3,934,343             4,283,103           8,217,446
 Mt. Airy - CAP                                                                 -10,728            -10,728
 Income Maintenance - CAP                                                       -91,254            -91,254
 Help Me Grow                                             362,952            1,243,000           1,605,952
            Total Unallowed Costs       $704         $4,297,295            $5,980,014          $10,278,013
                                                  Source: Audit Findings within this Report


Due to the unallowable costs in the Shared Cost Pool and the misapplication of the FTE
calculations, the allocations to the IM Cost and the SS Cost Pool are also incorrect. Therefore,
auditors are making questioned costs in the amount of these three cost pools.




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TABLE 12: Expenditures reported in the PA Fund cost pools
                               SFY 2002        SFY 2003             SFY 2004             Total
 Shared Co Pool               $49,899,591     $46,819,184          $42,284,238        $139,003,013
 SS Cost Pool                  51,221,304      62,473,341           60,859,599         174,554,244
 IM Cost Pool                  18,051,076      15,699,507           12,108,234          45,858,817
  Total Cost Pools by Year   $119,171,971 $124,992,032            $115,252,071        $359,416,074

                                      Source: Hamilton CDJFS Monthly Financial Statements


Table 12 highlights the total expenditures reported by SFY and identified by cost pool in the PA
Fund.
      Finding F-3    OMB Circular A-133 §____, 300 states that the “auditee shall: (a)
                     Identify, in its accounts, all Federal awards received and expended
 Inappropriate Use
     of Cost Pools
                     and the Federal programs under which they were received.”
      Resulting in
  Improper Claims    OMB Circular A-87 Attachment A Section B.9 states, in part:
       for Federal
   Reimbursement      “Cost” means an amount as determined on cash, accrual, or other
  Questioned Cost:
     $359,416,074
                      basis acceptable to the Federal awarding or cognizant agency. It
                      does not include transfers to a general or similar fund.

                     OMB Circular A-87, Attachment A, Section C.1 states, in part:

                      Factors affecting allowability of costs. To be allowable under
                      Federal awards, costs must meet the following general criteria:

                       a. Be necessary and reasonable for proper and efficient
                       performance and administration of Federal awards.

                       b. Be allocable to Federal awards under the provisions of this
                       Circular.

                     OMB Circular A-87, Attachment A, Section C.3.a states, in part:

                      A cost is allocable to a particular cost objective if the goods or
                      services involved are chargeable or assignable to such cost
                      objective in accordance with relative benefits received.

                     OMB Circular A-87, Attachment A, Section F.1 states, in part:

                      Indirect costs are those: (a) incurred for a common or joint purpose
                      benefiting more than one cost objective, and (b) not readily
                      assignable to the cost objectives specifically benefited, without
                      effort disproportionate to the results achieved.

                     The Hamilton CDJFS classified supervisors working for Income



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Maintenance, Social Services, and Child Support as shared
employees. These employees were clearly assignable to the cost
pools for their work areas, and are required to be classified in those
cost pools along with their salaries, benefit costs, and travel costs.
Because employees were inappropriately classified as shared, the
Shared Cost Pool charges were inappropriately inflated, allocated,
and distributed to the remaining cost pools. This ultimately resulted
in all programs administered by the Hamilton CDJFS being charged
inappropriate amounts. The Hamilton CDJFS must review the JFS
04290 instructions and work with the ODJFS Office of Fiscal
Services to ensure that this form is correctly completed in the future.
It must avoid classifying of employees to inappropriate cost pools
and ensure that its allocation of indirect costs is accurate.

Because the Hamilton CDJFS recorded $26,843,821 of inappropriate
and unallowable expenditures in its Shared Cost Pool and the
misclassification of supervisors as shared employees, the Shared
Cost Pool was inflated which resulted in amounts allocated to the IM
Cost Pool, SS Cost Pool and the Child Support Fund also being
inflated. Causing the amount distributed to other programs within
each pool to be overstated. Without the ability to fully determine the
shared-cost obligations and the impact of the SS-RMS reconciliation
on the various questioned costs and findings for recovery, auditors
could not identify the appropriate allowable amount of expenditures
for each cost pool; therefore, the reimbursements which were based
on these costs within each cost pool are inflated. Auditors are unable
to determine what types of federal and state reimbursements that the
Hamilton CDJFS was eligible to receive or how much the PCSA and
the CSEA were to reimbursement the PA Fund for shared costs.

The Hamilton CDJFS also reported inappropriate and unallowable
expenditures of $74,244,066 in its SS Cost Pool, which overstated
the pool’s value and the amounts distributed to the other programs
within the that pool.

Hamilton CDJFS, in multiple instances, inappropriately inflated,
allocated, and distributed costs to the remaining cost pools. This
ultimately resulted in all programs administered by the Hamilton
CDJFS being charged inappropriate amounts. Therefore, the entire
amount recorded by Hamilton CDJFS in each cost pool,
$359,416,074, is a questioned cost.

The Hamilton CDJFS must review the JFS 04290 instructions and
work with the ODJFS Office of Fiscal Services to ensure that this
form is correctly completed in the future. It must avoid classifying



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of employees to inappropriate cost pools and ensure that its
allocation of indirect costs is accurate.




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                       G. BUILDING AND FACILITY COSTS

The Hamilton CDJFS charged the Shared Cost Pool a portion of the costs for three facilities
owned by the county: the Alms and Doepke Building (A & D), 237 William Howard Taft
Building (Taft), and the A & D Parkhaus, a parking garage. The agency pays approximately
$3.8 million annually for the use of the two office facilities, and approximately $300,000 for
parking spaces in the Parkhaus.

The Hamilton CDJFS did not execute a lease agreement with the county commissioners for the
Parkhaus spaces. Instead, it recorded the Parkhaus costs within its Shared Cost Pool, for which it
received federal and state reimbursement. County auditor’s records indicate that historical cost
of the Parkhaus was $8,956,000, which--over an estimated useful life of 30 years--would
produce an annual depreciation cost of approximately $309,000. Adding about $400,000 in
interest on the debt and approximately $200,000 for a management contract brings the
approximate annual cost of these parking spaces to $909,000.

Under the present arrangement, although the agency is using less than half of the parking facility,
it is paying an amount sufficient to cover most of the depreciation on the building. Moreover, no
offset has been made against the claimed costs for the revenue generated by the garage.

The Hamilton CDJFS is required to offset revenue against Parkhaus costs, including
depreciation, and to allocate the net costs to the agency on an acceptable basis under OMB
Circular A-87. Auditors did not audit the agency’s County Wide Cost Allocation Plan, and did
not determine whether the agency had been allocating other funds for the Parkhaus, such as for
maintenance, during the audit period.

Because no revenues generated by the garage were offset against the costs of operating the
garage--and because it is not clear how the net costs should be allocated--auditors determined the
recorded rental costs for the parking spaces to be unallowable. Table 13 shows the building
expenditures, as recorded on the monthly financial statements.

TABLE 13: Hamilton CDJFS Building Rental Expenditures

               A&D       237 William  Subtotal of                    A&D       Annual Rent
              Building   Howard Taft Building Rent                  Parkhaus      Total
SFY 2002      $2,578,195   $1,237,511  $3,815,706                     $289,800   $4,105,506
SFY 2003       2,489,032    1,296,359    3,785,391                     289,800    4,075,191
SFY 2004       2,533,776    1,293,743    3,827,519                     292,440    4,119,959
              $7,601,003   $3,827,613 $11,428,616                     $872,040 $12,300,656

                     Source: Hamilton CDJFS Monthly Financial Statements




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      Finding G-1    OMB Circular A-87, Attachment B, Section 37.c provides that
                     “rental costs” under “less than arms length” leases are allowable only
 Unallowable Costs
for A&D Parkhaus
                     up to the amount (as explained in OMB Circular A-87, Attachment
       Finding for   B, Section 37.b), that would be allowed had title to the property
        Recovery:    vested in governmental unit. For this purpose, a less-than-arms
         $872,040    length lease is one under which one party to the lease agreement is
                     able to control or substantially influence the actions of the other.
                     Such leases include divisions of a governmental unit.

                     OMB Circular A-87, Attachment B, Section 37.b limits allowable
                     cost to “expenses for depreciation or use allowance, maintenance,
                     taxes, and insurance.”

                     OMB Circular A-87, Attachment A, Section C.3.a states:

                       A cost is allocable to a particular cost objective if the goods or
                       services involved are chargeable or assignable to such cost
                       objective in accordance with relative benefits received.

                     OMB Circular A-87, Attachment A Section D.1 states, in part:

                       . . . that the total cost of federal awards is comprised of the
                       allowable direct cost of the program, plus its allocable portion of
                       allowable indirect costs, less applicable credits.

                     Hamilton County has a less-than-arm’s length relationship with the
                     Hamilton CDJFS. The allowable claim for rental cost may not
                     exceed the cost that would be allowed if the buildings were owned by
                     the agency. In addition, the allowable cost must be reduced by the
                     revenue generated by the facility. Not only did the Hamilton CDJFS
                     not offset revenues against costs, but it allocated the costs of the
                     facility incorrectly. The agency used only about 42 percent of the
                     parking spaces, but paid for 100 percent of the annual depreciation
                     cost. Therefore, the $872,040 recorded for the cost of the Parkhaus
                     spaces for SFY 2002 through SFY 2004 is a finding for recovery.
                     This claim overstated allowable expenditures in the Shared Cost
                     Pool, and these expenditures were then allocated to all programs
                     managed by the Hamilton CDJFS. The agency must adhere to
                     federal cost allocation rules and avoid claiming unallowable
                     expenditures in the future.


 Auditors requested copies of agreements for the two other buildings the Hamilton CDJFS rents
from the county. They discovered no leases were executed that could be used to support
reported costs claimed for federal and state reimbursement. In addition, costs the Hamilton


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CDJFS claimed as covered in rental payments, such as maintenance costs, were also listed in the
agency’s County Wide Indirect Cost Allocation Plan. Therefore, costs were potentially
duplicated, but this cannot be clearly determined without proper documentation of reported costs.

       Finding G-2    OMB Circular A-87, Attachment A, Section C.1 states:
            Lack of
 Documentation for
                      Factors affecting allowability of costs. To be allowable under
    Costs of A & D    Federal awards, costs must meet the following general criteria:
          Building,
  the Taft Building    . . . j. Be adequately documented
      or the A & D
          Parkhaus
  Questioned Costs:
                      Auditors discovered that the Hamilton CDJFS did not have a contract
       $12,300,656    for the lease of the A & D Building, the Taft Building, or the
                      Parkhaus. For the A & D Building, the agency did provide a signed
                      ODHS 2095 form, a document ODJFS formerly used to approve
                      major leases by county agencies prior to the signing of a lease. The
                      document delineates a proposed lease repayment schedule, but is not
                      a lease, and does not contain any reference to any other negotiable
                      issue that would normally be included in a lease agreement, such as
                      terms for building maintenance, repair and upkeep of major building
                      systems, etc. No such documentation was provided for the Taft
                      Building or the Parkhaus.

                      In addition, the agency employees indicated that the Hamilton CDJFS
                      was responsible for maintenance of the A & D and Taft buildings.
                      They recorded maintenance costs in their records as costs incurred.
                      At the same time, the Hamilton County Countywide Cost Allocation
                      Plan, prepared for the county administrator by a private company,
                      also allocated maintenance costs for these buildings to the Hamilton
                      CDJFS.

                      Because auditors could not verify what services were provided in
                      return for the agency’s monthly payments, the amount of the building
                      payments for the period covered by the audit, or $12,300,656, is
                      being questioned. The Hamilton CDJFS should negotiate a lease
                      agreement with the county commissioners as expeditiously as
                      possible to avoid additional questioned costs. The agency must also
                      ensure that leasing costs, such as maintenance costs, are not also
                      included in the countywide cost allocation plan.




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          H. INAPPROPRIATE CHARGES FOR TALBERT HOUSE
Talbert House is a non-profit organization that operates multiple programs using various sources
of funding. The Hamilton CDJFS entered into an agreement, beginning June 22, 2001, with
Talbert House, to obtain various services including Community Link, monitoring of Ohio Works
First (OWF) cash recipients, and self-sufficiency activity coordination and services for most
OWF clients. Self-sufficiency activities excluded teen parents under the Learning, Earning, and
Parenting (LEAP) program and child-only OWF cases. Community Link was administered by
Talbert House to provide service coordination to multiple programs. The Hamilton CDJFS used
this service to operate a work participation program for the Ohio Works First recipients under the
TANF program. Talbert House also provided work participation services designed to determine
in which work activities OWF recipients would participate, and monitored recipient participation
for compliance. Talbert House also coordinated and tracked other self-sufficiency requirements
for Ohio Works First recipients.

There was no basis for allocating these costs to other, non-benefiting, programs. However, the
Hamilton CDJFS recorded Talbert House contract costs in the IM Cost Pool. This
inappropriately allocated TANF costs to the other programs within that cost pool. From
February 2003, through June 2004, the Hamilton CDJFS recorded $6,281,528 for payments to
Talbert House in the IM Cost Pool. The Hamilton CDJFS had recorded another $1,935,918 in
SFY 2002 as the Talbert House contract costs directly to OWF support services for employed
OWF participants. In September 2002, they adjusted their accounting entries to claim the
$1,935,918 in the IM Cost Pool. The total charges of TANF costs through indirect costs pools
were $8,217,446.

      Finding H-1    OMB Circular A-87, Attachment A, Section C.3.a:
    Inappropriate
     Allocation of   A cost is allocable to a particular cost objective if the goods or
    Talbert House    services involved are chargeable or assignable to such cost objective
         Contracts   in accordance with relative benefits received.
 Questioned Costs:
        $8,217,446   The Hamilton CDJFS charged Talbert House TANF-related costs to
                     the IM Cost Pool. As these costs did not benefit the other programs
                     within the cost pool, this was inappropriate. If Talbert House
                     provided any services under these contracts to other clients, they
                     should have tracked the number of clients served under each
                     program and reported those to the Hamilton CDJFS to use in
                     allocating costs. The activities of the Hamilton CDJFS employees,
                     measured by the random moment sample process, were not a
                     reasonable basis for allocating Talbert House contract costs. In
                     addition, the services provided by Talbert House did not benefit all
                     the IM Cost Pool programs, a prerequisite for recording contracts
                     within a cost pool. The Hamilton CDJFS originally coded about
                     $1,935,918 directly to the TANF program which was the correct
                     treatment, but the agency subsequently adjusted their records to



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                     record these costs in the IM Cost Pool. The $8,217,446 recorded by
                     the Hamilton CDJFS to the IM Cost Pool must be adjusted directly
                     to TANF-related funding streams; therefore, this amount is being
                     questioned. The Hamilton CDJFS must work with ODJFS Fiscal
                     Services to determine the best method for doing this to ensure TANF
                     costs are not inappropriately allocated to other programs that
                     received no benefit therefrom.

In addition, during the original ODJFS contract work, AOS-HCCA auditors determined that
although the Hamilton CDJFS classified Talbert House as a vendor under OMB Circular A-133,
Talbert House actually was a subrecipient of the Hamilton CDJFS. Under OMB Circular A-133,
monitoring responsibilities differ when funds are passed to a subrecipient rather than when the
provider is acting as a vendor. The AOS-HCCA auditors determined the scope of services
provided by Talbert House were indicative of the attributes of a subrecipient under OMB
Circular A-133 and noted that Talbert House made decisions about the continuing eligibility of
OWF recipients, a fundamental indicator of subrecipient status. ODJFS auditors also noted that
Talbert House determined the type of services provided to each recipient and the level of funding
spent on each participant. While Talbert House did not have primary administrative control over
the TANF program, they did maintain significant control over the work participation portion of
OWF services and eligibility. Therefore, ODJFS auditors concur that Talbert House was a
subrecipient of the Hamilton CDJFS. The Hamilton CDJFS told the AOS-HCCA auditors that
they did not believe that Talbert House met three of the five criteria indicative of a subrecipient.
The AOS-HCCA auditors noted that this is not a requirement under OMB Circular A-133.

The AOS-HCCA auditors noted that the Hamilton CDJFS did not monitor Talbert House
activities to ensure only OWF-eligible clients received such services. The Hamilton CDJFS
entered into a fixed price contract with Talbert House requiring that a minimum number of
clients receive services, and the Hamilton CDJFS told the AOS-HCCA auditors that the number
served exceeded the negotiated minimum. The Hamilton CDJFS assumed all Talbert House
clients were TANF eligible, although Talbert House was only required to add new clients and did
not list all individual clients served in monthly billings. In addition, the Hamilton CDJFS did not
monitor the clients’ TANF eligibility under Ohio Works First to confirm eligibility. The fixed
price contract was established on the basis that Talbert House agreed to serve all clients the
Hamilton CDJFS referred to them. Costs were established for a fixed range of clients, and the
contract assumed all costs incurred for participants beyond the maximum of the range would fall
to Talbert House to cover. This type of structure would also indicate a subrecipient relationship,
because TANF cash assistance, or Ohio Works First, is a federal entitlement program and must
be provided to eligible individuals regardless of the availability of federal funds. Work
participation is a component of cash assistance. In this fixed price contract, Talbert House
assumed the risk for providing mandatory work participation services without further funding,
which created an entitlement from the agency.

In addition, historical data on costs and clients served make it appear unlikely that Talbert House
was ever at risk of exceeding the maximum costs allowed under the contract. Although Talbert
House exceeded the threshold for clients served, they did not exceed the maximum contract cost.



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Financial data provided by Talbert House to the Hamilton CDJFS for the periods prior to the
fixed contract, when the contract was established on a unit rate, indicate actual costs were always
below the established unit rate. Audits performed by the Hamilton CDJFS on those contracts
revealed this, and indicated the Hamilton CDJFS must recover monies from Talbert House as the
amounts paid exceeded actual cost to deliver the services. The Hamilton CDJFS did not recover
such monies, but did remove the Talbert House contract from the contract management area and
placed it under the control of another Deputy Director. ODJFS referred this matter to the ASO-
SAS. The AOS-SAS auditors are including a more detailed review of Talbert House in their
special audit.




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      I. UNALLOWED ENHANCED MEDICAID TRANSPORTATION
                      CONTRACT COSTS
Enhanced Medicaid Transportation (EMT) is a program that provides transportation for
Medicaid clients to non-emergency medical appointments with Medicaid providers. Currently,
this program is called Non-Emergency Transportation (NET). In Hamilton County, clients must
make advance arrangements with the Hamilton CDJFS, to take advantage of this program. Once
a client is approved for a trip, the CDJFS chooses the most cost-efficient method to get the client
to his appointment. The methods the Hamilton CDJFS uses include the following: issuing bus
tokens or ACCESS passes (for handicapped individuals) for Southwest Ohio Regional Transit
Authority (SORTA) buses, issuing gas vouchers for personal vehicles or arranging contracted
bus service through Petermann LTD. In SFY 2004, the agency paid $6,129,780 of $6,149,004 in
transportation expenditures to Petermann for services performed for this program.

The Petermann contract includes two types of transportation: 1) Medicaid recipient
transportation to and from medical appointments, and 2) transportation of children to and from
mental and physical therapy sessions. The Medicaid program is billed based upon a fee for each
one-way leg of a client’s trip.

Petermann received a set fee for four hours’ use of a minivan to pick up and drop off children for
their therapeutic appointments. Petermann was required to transport these children to and from
their appointments in a manner similar to a school bus, picking up as many children as possible
on one run, with all children going to the same destination.

The Petermann contract also had “low-cost provider” and gasoline surcharge clauses. The low-
cost provider clause was inserted to ensure that the Hamilton CDJFS received Petermann’s
lowest price for similar services. The gasoline surcharge clause was inserted to give Petermann
relief if gasoline prices rose.

Auditors found that Petermann LTD charged the Cincinnati Public Schools, a government entity,
a price of $242.13 per half day of transportation and $262.88 per full day of minibus
transportation. A minibus is a school bus with fewer than 11 rows and a double-wheel rear axle.
A minibus is more expensive to operate than a minivan. Petermann LTD charged the Hamilton
CDJFS $340 per half day of minivan transportation, which is unreasonable.


       Finding I-1   45 CFR 74.26 and 45 CFR 92.26 specify, respectively, that
                     subrecipients and subgrantees of Federal awards are subject to the
   Noncompliance
    with Contract
                     Single Audit Act and OMB Circular A-133.
       Provisions
      Finding for    45 CFR 92.36 (b) (2) states in part: subgrantees will maintain a
        Recovery:    contract administration system which ensures that contractors
         $762,635    perform in accordance with the terms, conditions and specifications
                     of their contracts.




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                      45 CFR 74.51 and 45 CFR 92.40 require that activities and
                      operations be monitored to assure compliance with applicable
                      Federal requirements, covering all functions, programs or activities
                      covered by an award.

                      OMB Circular A-87, Attachment A, Section C.3.a states:

                      A cost is allocable to a particular cost objective if the goods or
                      services involved are chargeable or assignable to such cost objective
                      in accordance with relative benefits received.

                      Section 4 of the contract between Petermann LTD and the Hamilton
                      CDJFS--dated December 31, 2002 for calendar year (CY) 2003 and
                      subsequently renewed to encompass CY 2004--states, in part, that if
                      another government contract for the same or comparable service is
                      signed by Petermann for a lower price, then Petermann will extend
                      the lower price to the Hamilton CDJFS. Auditors consider the
                      Cincinnati Public Schools contract to be for comparable services. As
                      a result, auditors issued a finding for recovery for the $762,635,
                      which represents the difference between the rate the Hamilton
                      CDJFS paid for service, and the rate to which it was entitled by
                      contract. The Hamilton CDJFS was overcharged for services in
                      violation of its contract with Petermann LTD. The Hamilton CDJFS
                      must monitor its contracts appropriately to ensure that all contract
                      language is adhered to as required.

Auditors found other billing issues with the Petermann LTD contracts. This included billing for
individual routes run by the same minivan rather than billing for half- or full-day service as
required by the contracts.

       Finding I-2    45 CFR 74.51 and 45 CFR 92.40 require that activities and
                      operations be monitored to assure compliance with applicable
   Overpayment of
Contracted Services
                      Federal requirements, covering all functions, programs or activities
       Finding for    covered by an award.
         Recovery:
          $706,047    OMB Circular A-87, Attachment A, Section C.1 states:

                      Factors affecting allowability of costs. To be allowable under
                      Federal awards, costs must meet the following general criteria:

                        a. Be necessary and reasonable for proper and efficient
                        performance and administration of Federal awards.

                        b. Be allocable to Federal awards under the provisions of this



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                       Circular.

                     Section 3 of the contract between Petermann LTD and the Hamilton
                     CDJFS--dated December 31, 2002, for CY 2003 and subsequently
                     renewed to encompass CY 2004--states, in part, that compensation
                     from the Hamilton CDJFS to Petermann is based upon a four-hour
                     bus day, with a payment of $320 per four-hour period. Audit testing
                     concluded that Petermann was invoicing based upon route schedules.
                     If a route ran, it was invoiced as a bus day, and Petermann LTD was
                     paid $320. Audit tests showed multiple instances in which one
                     driver ran more than one route in a single day, with Petermann LTD
                     billing Hamilton County for each route. Costs for these additional
                     routes are being questioned, as it was inappropriate to charge the
                     Hamilton CDJFS for the same driver twice on any given day.

                     Instead, Petermann should have been reimbursed $242.13 if the
                     driver completed all of the routes within four hours, or $262.88 if the
                     driver took more than four hours. Therefore, auditors issued a
                     finding for recovery for $706,047. The Hamilton CDJFS must
                     monitor its Petermann invoices and charges more closely to detect
                     and prevent future overpayments.


Auditors also found that Petermann LTD invoices provided no details about the clients served.
Therefore, it was impossible to determine whether all individuals transported were Medicaid-
eligible.

       Finding I-3   45 CFR 92.36 (b) (2) states, in part, that subgrantees will maintain a
                     contract administration system which ensures that contractors
    Undocumented
            Costs
                     perform in accordance with the terms, conditions and specifications
      Finding for    of their contracts.
        Recovery:
           $3,783    45 CFR 74.51 and 45 CFR 92.40 require that activities and
                     operations be monitored to assure compliance with applicable
                     Federal requirements, covering all functions, programs or activities
                     covered by an award.

                     45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
                     receiving subawards or subgrants of Federal awards must maintain
                     records identifying the source and application of funds provided, and
                     include information pertaining to the subawards and subgrants,
                     including authorizations, obligations, unobligated balances, assets,
                     outlays, and income.

                     OMB Circular Attachment A, Section C.1 states:



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                     Factors affecting allowability of costs. To be allowable under
                     Federal awards, costs must meet the following general criteria:

                       . . . j. Be adequately documented.

                     During their review of Petermann invoices, auditors noted that the
                     invoices included no details about the clients served. Auditors
                     reviewed the invoices as presented, though inaccurate, and noted that
                     some client folders were missing, and at least one client was not
                     Medicaid-eligible. Because the Hamilton CDJFS paid the total
                     invoice, auditors are issuing a finding for recovery for the costs as
                     the costs are unsubstantiated by client information. Without proper
                     supporting documentation, auditors could not determine whether
                     services were delivered or whether recipients were eligible for such
                     services, resulting in a finding for recovery for the $3,783. The
                     Hamilton CDJFS must monitor vendor invoices to ensure that they
                     do not pay for undocumented services in the future.
ODJFS auditors also discovered that Petermann LTD overcharged the Hamilton CDJFS for
gasoline costs.

       Finding I-4   45 CFR 92.36 (b) (2) states in part: that subgrantees will maintain a
                     contract administration system which ensures that contractors
Unreasonable Costs
       Finding for
                     perform in accordance with the terms, conditions and specification
        Recovery:    of their contracts.
           $1,245
                     45 CFR 74.51 and 45 CFR 92.40 require that activities and
                     operations be monitored to assure compliance with applicable
                     Federal requirements, covering all functions, programs or activities
                     covered by an award.

                     OMB Circular A-87 Attachment A, Section C states:

                      . . . 2. Reasonable costs. A cost is reasonable if, in its nature and
                      amount, it does not exceed that which would be incurred by a
                      prudent person under the circumstances prevailing at the time the
                      decision was made to incur the cost. The question of
                      reasonableness is particularly important when governmental units
                      or components are predominately federally-funded. In determining
                      reasonableness of a given cost, consideration shall be given to. . .

                        c. Market prices for comparable goods or services.

                     The Hamilton CDJFS agreed to pay Petermann LTD a gasoline



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surcharge based on an average Midwestern gasoline price. Upon
review of the gasoline surcharge clause in the contract, however, and
its subsequent use in billing the CDJFS, auditors concluded that the
clause was unclear as to which formulation of the three Midwest
gasoline price should be used to calculate this charge.

Of the three price formulations that were available, according to the
contract, the least costly formulation should have been used because
it most closely represented the price of gasoline in Ohio at the time.
Auditors are questioning the difference between the amount actually
paid based on the formulation that Petermann used, and the amount
that would have been appropriate to be paid based upon the correct
formulation. This difference was $1,245, a finding for recovery.
The Hamilton CDJFS paid unreasonable compensation to a vendor.
It must reevaluate all charges it pays to this vendor for reasonable-
ness.




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    J. PAYMENT OF INDIRECT COSTS BY THE WRONG PROGRAM
Countywide indirect costs are costs that benefit all of a county’s agencies, such as data
processing, mail center, and car pool costs, as well as certain functions performed by the county
treasurer, the county auditor, and the county budget office. The federal government allows state
and local agencies to allocate a portion of these costs to their programs through cost allocation
plan (CAPs). In Ohio, these plans are called countywide indirect cost plans. All costs benefiting
all county government branches must be addressed in these plans.

Hamilton County sends information to DMG Maximus, a private contractor, to compile its CAP.
The Hamilton CDJFS uses the plan that DMG Maximus creates to justify reimbursing the
General Fund for each of its agencies’ shares of the county’s indirect costs. The CAP report
from Maximus does not represent an audit of the county indirect charges, but rather a
compilation of audited information from prior years. ODJFS auditors did not examine Hamilton
County’s cost allocation plans during this audit; therefore, auditors cannot verify the accuracy of
the expenditures made based upon the plan’s allocations.

Auditors noted that the Hamilton CDJFS paid CAP charges allocated to the TB Control Program
and recorded these costs in the Shared Cost Pool. These costs should have been charged directly
to the TB Control account, which was funded by a local health levy. If this had been done, these
costs could have been distinctly identified and would have required no further cost allocation.
ODJFS auditors did not directly audit TB Control, which is a local program. Auditors did
determine that the payrolls for TB Control employees were paid directly from a local levy. The
CAP costs allocated for TB Control were intended to pay the cost of buildings and utilities or
about $21,600 each year. The Hamilton CDJFS charged about $451,000 each year to TB
Control, which would have included the CAP costs. ODJFS auditors could find no documentary
evidence to identify which costs the $451,000 represented. Auditors are questioning the
charging of TB Control CAP costs to the Shared Cost Pool.

       Finding J-1    OMB Circular A-87, Attachment A, Section C.1 states:
Inappropriate Costs
     Allocation for
                      Factors affecting allowability of costs. To be allowable under
        TB Control    Federal awards, costs must meet the following general criteria:
         CAP Costs
  Questioned Costs:    a. Be necessary and reasonable for proper and efficient
           $64,970     performance and administration of Federal awards.

                       b. Be allocable to Federal awards under the provisions of this
                       Circular.

                      OMB Circular A-87, Attachment A, Section C.3.a:

                      A cost is allocable to a particular cost objective if the goods or
                      services involved are chargeable or assignable to such cost objective
                      in accordance with relative benefits received.



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                      OAC Rule 5101-1-10 (c) now OAC Rule 5101:9-1-10 (D) states,
                      “CAP expenditures must be reported on the appropriate monthly
                      financial statement according to the county’s cost allocation plan . . .
                      as applicable to the county agency.”

                      The Hamilton CDJFS recorded countywide indirect costs for the TB
                      Control Program in the Shared Cost Pool of the PA Fund. Public
                      assistance programs administered by the Hamilton CDJFS received
                      no benefit from TB Control activities. These costs were clearly
                      identifiable to the TB Control Program and should have been
                      charged directly to the local Indigent Health Care Levy Fund, which
                      supports such costs in accordance with OAC Rule 5101:9-1-10 (D).
                      Auditors questioned the $64,970 of TB Control CAP costs recorded
                      in the Shared Cost Pool between SFY 2002 through SFY 2004.


The Hamilton CDJFS recorded other indirect costs inappropriately. For example, it recorded
Income Maintenance CAP costs in the Shared Cost Pool. These costs were clearly identifiable to
income maintenance programs and should have been charged directly to the IM Cost Pool.

       Finding J-2    OMB Circular A-87, Attachment A, Section C.3.a:
Inappropriate Costs
     Allocation for
                      A cost is allocable to a particular cost objective if the goods or
           Income     services involved are chargeable or assignable to such cost objective
      Maintenance     in accordance with relative benefits received.
         CAP Costs
  Questioned Costs:   OAC Rule 5101-1-10 (c) now OAC Rule 5101:9-1-10 (D) rule
           $91,254
                      states: CAP expenditures must be reported on the appropriate
                      monthly financial statement according to the county’s cost allocation
                      plan . . . as applicable to the county agency.

                      The Hamilton CDJFS recorded countywide indirect costs for income
                      maintenance programs in the Shared Cost Pool. Public assistance
                      programs outside the IM Cost Pool received no benefit from these
                      costs, even though this activity distributed these costs to those
                      programs. These CAP costs were clearly identifiable to the income
                      maintenance programs and should have been charged directly to the
                      local fund supporting them in accordance with OAC Rule 5101:9-1-
                      10 (D). Therefore, auditors are questioning the $91,254 recorded in
                      the Shared Cost Pool. The Hamilton CDJFS must avoid claiming
                      costs in this way, and must use the framework established by the
                      ODJFS Office of Fiscal Services to record such costs properly if
                      state or federal reimbursement is expected.
The Hamilton CDJFS also recorded Mount Airy Shelter CAP costs in the Shared Cost Pool. It


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moved other Mount Airy costs between the Social Services Cost Pool and the IM Cost Pool as it
added and deleted programs at that site. Whether or not this was appropriate, the CAP costs
should have been claimed in the same manner as the other Mount Airy costs. For consistency,
these costs must be accounted for in the same manner, not in two different cost pools during the
same accounting period.

       Finding J-3     OMB Circular A-87, Attachment A, Section C.3 states:
Inappropriate Costs
     Allocation for
                        a. A cost is allocable to a particular cost objective if the goods or
           MT Airy      services involved are chargeable or assignable to such cost
         CAP Costs      objective in accordance with relative benefits received.
  Questioned Costs:
           $17,579     OAC Rule 5101-1-10 (c) now OAC Rule 5101:9-1-10 (D) states:
                       CAP expenditures must be reported on the appropriate monthly
                       financial statement according to the county’s cost allocation plan . . .
                       as applicable to the county agency.

                       The Hamilton CDJFS recorded countywide indirect costs for the
                       Mount Airy Shelter in the Shared Cost Pool. Public assistance
                       programs administered by the Hamilton CDJFS received no benefit
                       from Mount Airy activities, even though they contributed to their
                       payment. These costs were clearly identifiable to the Mount Airy
                       Shelter and were required to be charged directly to the local levy,
                       which supports such costs in accordance with OAC Rule 5101:9-1-
                       10 (D). Therefore, auditors are questioning the $17,579 recorded in
                       the Shared Cost Pool. The Hamilton CDJFS must avoid claiming
                       costs in this way, and must use the framework established by the
                       ODJFS Office of Fiscal Services to record such costs properly if
                       state and/or federal reimbursement is expected.


The Hamilton CDJFS inappropriately recorded Child Support and Children Services CAP costs
in the Shared Cost Pool. These costs were clearly identifiable to those agencies and should have
been charged directly to them, not to the Shared Cost Pool. The Hamilton CDJFS recorded
$622,162 of CSEA CAP costs as shared costs. It recorded $1,222,131 of PCSA CAP costs as
shared costs. The CSEA charges should have been charged to the Child Support Fund. The
PCSA charges should have been charged to the Children Services Fund. Both of these funds
have account codes for that purpose.

       Finding J-4     OMB Circular A-87, Attachment A, Section C.3 states:
Inappropriate Costs
     Allocation for
                        . . . a. A cost is allocable to a particular cost objective if the goods
    Social Services,    or services involved are chargeable or assignable to such cost
  CSEA and PCSA         objective in accordance with relative benefits received.
        CAP Costs




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Questioned Costs:   OAC Rule 5101-1-10 (c) now OAC Rule 5101:9-1-10 (D) rule
       $1,844,293   states: CAP expenditures must be reported on the appropriate
                    monthly financial statement according to the county’s cost allocation
                    plan . . . as applicable to the county agency.

                    The Hamilton CDJFS recorded countywide indirect costs for its
                    CSEA and PCSA in the Shared Cost Pool of the PA Fund. Public
                    assistance programs administered by the Hamilton CDJFS received
                    no benefit from these costs even though they contributed to their
                    payment. These costs were clearly identifiable to the CSEA and
                    PCSA and should have been charged directly to the funds supporting
                    them in accordance with OAC Rule 5101:9-1-10 (D). By recording
                    them in the Shared Cost Pool, the CDJFS overstated its shared costs
                    by $1,844,293 which is the amount being questioned. Costs to the
                    CSEA and PCSA were collectively understated by the same amount.
                    The Hamilton CDJFS must avoid claiming costs in this way, and
                    must use the framework established by the ODJFS Office of Fiscal
                    Services to record such costs properly in order to properly receive
                    state or federal reimbursement.




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                     K. LACK OF PROPER PROCUREMENT
As a subgrantee of ODJFS, the Hamilton CDJFS is subject to the requirements of the Federal
Grants Management Common Rule. As codified by the U. S. Department of Health and Human
Services, this rule includes procurement requirements set forth in 45 CFR 74.40 through 45 CFR
74.48, now 45 CFR 92.36. Hamilton County’s procurement procedures must be consistent with
the requirements of this regulation; the county’s procurement procedures must also comply with
federal, state and local law. In the event of a conflict, the county is required to use the most
restrictive of these three. Procurement procedures must be conducted in a way that ensures full
and open competition, and they must involve some type of cost or price analysis. Records must
be retained to document compliance with these requirements.

Federal rules authorize four methods of procurement: small purchase procedures, sealed bids,
competitive proposals, and noncompetitive proposals. The federal monetary threshold for small
purchase procurement is $100,000 for combined family service agencies, unless the county has a
more restrictive threshold. In part, the threshold determines what steps must be taken in
procuring goods and services with federal monies. When the dollar value of a purchase increases
to certain amounts, so do the requirements and restrictions. Ohio law requires each county to
establish a procurement policy, which Hamilton County did. Hamilton County’s policy requires
sealed competitive bids for purchases of $15,000 or more, subject to specific exemptions. These
exemptions do not include purchases by the family service agency. For this reason, auditors
applied the most restrictive limit, of $15,000, in the course of our audit testing.

Auditors selected a sample of vouchers paid to determine whether proper procurement
procedures were used. During this testing, auditors also evaluated whether the correct financial
codes were used to record the voucher in the appropriate financial records.




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     Finding K-1    Hamilton County’s policy requires sealed competitive bids for
                    purchases of $15,000 or more.
    Contract Not
    Properly Bid
Questioned Costs:   OMB Circular A-87 Attachment A, Section C states:
        $339,155
                     . . . 2. Reasonable costs. A cost is reasonable if, in its nature and
                     amount, it does not exceed that which would be incurred by a
                     prudent person under the circumstances prevailing at the time the
                     decision was made to incur the cost. The question of
                     reasonableness is particularly important when governmental units
                     or components are predominately federally funded. In determining
                     reasonableness of a given cost, consideration shall be given to. . .

                       . . . c. Market prices for comparable goods or services.

                    45 CFR 92.36 (b) (1) states, in part, that subgrantees will use their
                    own procurement procedures which reflect applicable state and local
                    laws and regulations, provided that the procurements conform to
                    applicable Federal law and the standards identified in this section.

                    The Hamilton CDJFS used a noncompetitive process to procure a
                    contract for Adult Literacy/Child Reading from the YWCA of
                    Greater Cincinnati. Agency employees relied on a rescinded rule,
                    OAC Rule 5101-5-02, which they contend released them from the
                    competitive-bid requirement. This rule applied to procurements
                    funded entirely by the federal government, which was not the case in
                    this instance. The payments on this contract, paid in SFY 2003,
                    were recorded to the Ohio Reads program, which is partially funded
                    with TANF monies. This purchase was not exempted from
                    competitive bidding under Hamilton County’s policy, which has a
                    small-purchase threshold of $15,000.

                    Without competitive procurement, the Hamilton CDJFS cannot
                    ensure that it obtained the lowest and best possible price for this
                    service. Because of the noncompliance with federal and local
                    requirements, auditors are questioning the entire contract, a total of
                    $339,155, for SFY 2003.

                    The Hamilton CDJFS must ensure that its procurement of goods and
                    services complies with federal rules, and with local rules when they
                    are more restrictive that the federal rules. The agency must review
                    its internal controls over the procurement process to prevent
                    noncompliance in the future.

     Finding K-2    Hamilton County’s policy requires sealed competitive bids for



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   Contracts Not    purchases of $15,000 or more.
    Properly Bid
Questioned Costs:
       $3,666,929
                    OMB Circular A-87 Attachment A, Section C states:

                     . . . 2. Reasonable costs. A cost is reasonable if, in its nature and
                     amount, it does not exceed that which would be incurred by a
                     prudent person under the circumstances prevailing at the time the
                     decision was made to incur the cost. The question of
                     reasonableness is particularly important when governmental units
                     or components are predominately federally funded. In determining
                     reasonableness of a given cost, consideration shall be given to. . .

                       . . .c. Market prices for comparable goods or services.

                    45 CFR 92.36 (b) (1) states in part: subgrantees will use their own
                    procurement procedures which reflect applicable state and local laws
                    and regulations provided that the procurements conform to
                    applicable Federal law and the standards identified in this section.

                    Hamilton County’s procurement policy requires sealed competitive
                    bids for purchases of $15,000 or more, subject to specific
                    exemptions. The county’s exemptions did not include purchases by
                    the CDJFS. Therefore, the most restrictive limit, $15,000, was used
                    by the ODJFS auditors as the small purchase threshold amount for
                    competitive bidding requirements.

                    Bids for amounts greater than the small-purchases threshold must be
                    formally submitted in sealed competitive proposals unless they meet
                    the requirements for exemption. ODJFS auditors tested 14 Hamilton
                    CDJFS contracts, each of which was valued at more than $15,000.
                    Collectively, they were valued at $3,666,929. None of these
                    contracts were competitively procured. For this reason, the costs for
                    all of these contracts are being questioned.

                    In the absence of an approved procurement methodology, the
                    Hamilton CDJFS cannot demonstrate that these costs are reasonable.
                    In the future, the Hamilton CDJFS must use approved procurement
                    methodology for all contracts greater than the federal, state or local
                    small-purchase threshold, whichever is the most restrictive.




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             L. NONCOMPLIANCE ISSUES WITH CONTRACTS
Auditors reviewed Hamilton CDJFS’ payments to the local county prosecutor for contract review
services. These payments were for the salary of a single assistant prosecutor, but auditors found
no documentation showing that any significant services were provided, or that these costs were
allowable activities.

      Finding L-1   45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
                    receiving subawards or subgrants of Federal awards maintain records
   Undocumented,
    Unreasonable
                    identifying the source and application of funds provided, and include
        Payments    information pertaining to the subawards and subgrants, including
      Finding for   authorizations, obligations, unobligated balances, assets, outlays, and
       Recovery:    income.
        $175,850
                    OMB Circular A-87, Attachment A, Section C.1 states:

                     Factors affecting allowability of costs. To be allowable under
                     Federal awards, costs must meet the following general criteria:

                       . . . j. Be adequately documented.

                    OAC Rule 5101:9-9-29 require auditees to . . .

                       . . . (I) maintain documentation conforming to all requirements
                       prescribed by ODJFS, federal statute or regulation and state
                       statute or administrative rule. Auditees must prepare and
                       maintain documentation to support all transactions and to permit
                       the reconstruction of all transactions and the proper completion
                       of all reports required by state and federal law and regulations,
                       and which substantiates compliance with all applicable federal
                       statutes or regulations, state statutes or administrative rules.

                       (J) make available to ODJFS personnel all records necessary to
                       document all transactions.

                    Prior to SFY 2002, the Hamilton CDJFS began paying the Hamilton
                    County prosecutor’s office for the salary of one assistant prosecutor.
                    Auditors requested but have not received the written contract for
                    these services. A letter from the prosecutor refers to an agreement
                    dated sometime in 2000, but CDJFS employees could locate one.
                    According to the Hamilton CDJFS fiscal employees, the assistant
                    prosecutor agreed to review contracts on behalf of the Hamilton
                    CDJFS.

                    Auditors are questioning the costs for this service for two reasons.



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                    First, there is no documentation formalizing the relationship with the
                    assistant prosecutor, as required by federal regulations. Second,
                    auditors reviewed a majority of the agency’s contracts and
                    supporting documentation and could identify only one contract
                    reviewed by this assistant prosecutor. This calls into question
                    whether the prosecutor’s office was using this assistant prosecutor in
                    a manner outside the agreement. The payments to the prosecutor,
                    which represented 100 percent of this attorney’s salary, were not
                    recorded in timesheets or any other documentation that this assistant
                    prosecutor allegedly reviewed. The Hamilton CDJFS paid for
                    services that might not have been rendered or formally agreed to,
                    and that were undocumented. Thus, these payments are
                    unreasonable. The finding for recovery in the amount of $175,850 is
                    for SFY 2002 through SFY 2004.

                    The Hamilton CDJFS must monitor all payments to ensure their
                    compliance with applicable rules, regulations and contract terms.
                    Invoices must include supporting documentation showing that
                    required service was delivered and properly reported and allowed by
                    federal rules.
ODJFS auditors found that the Hamilton CDJFS was over billed for audit services and overpaid
a vendor. This indicated a lack of internal control over the contract administration process.

      Finding L-2   45 CFR 74.51 and 45 CFR 92.40 require that activities and
                    operations be monitored to assure compliance with applicable
         Contract
     Overpayment
                    Federal requirements, covering all functions, programs or activities
      Finding for   covered by an award.
       Recovery:
          $25,879   OMB Circular A-87, Attachment A, Section C.2:

                    A cost is reasonable if, in its nature and amount, it does not exceed
                    that which would be incurred by a prudent person under the
                    circumstances prevailing at the time the decision was made to incur
                    the cost.

                    A Hamilton CDJFS contract with Grant Thornton LLP established
                    rates for audit services based on the job classifications of individuals
                    working on the project. The CDJFS reimbursed Grant Thornton
                    more for the positions than the contract provided. Auditors are
                    questioning the difference of $400 which the Hamilton CDJFS
                    overpaid Grant Thornton on an invoice dated July 29, 2003.

                    The Hamilton CDJFS contract with the Young Women’s Christian
                    Association (YWCA) of Greater Cincinnati for an adult literacy and



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                     child reading program and allowed the YWCA to earn additional
                     money by achieving performance objectives. The contract stipulated
                     that the YWCA was to invoice the Hamilton CDJFS. YWCA tallied
                     how many performance objectives the program clients reached.
                     Under this arrangement the total contract was worth $356,502. This
                     means that the YWCA may earn $303,027 for expenditures on the
                     program, leaving $53,475 to be earned by achieving performance
                     goals. The performance payment made to the YWCA was only
                     $10,649. Thus, the maximum the YWCA could possibly recoup
                     under this contract is $313,676. The Hamilton CDJFS paid the
                     YWCA a total of $339,155. Auditors are also issuing a finding for
                     recovery for the difference between the actual payments and the
                     maximum earned of $25,479 as unreasonable as it exceeds the
                     contract terms.

                     The total finding for recovery for the overpayment of these contracts
                     is $25,879.

                     Prior to payment, the Hamilton CDJFS must ensure that all rates
                     paid on invoices comply with contract terms and conditions in the
                     contract, as part of the monitoring requirements established in
                     federal law. The Hamilton CDJFS must review the design and
                     operation of its internal controls over contract monitoring to detect
                     and prevent future errors.


The Hamilton CDJFS hired Portune Design to develop a website for its foster care and adoption
programs. A subsequent lawsuit settlement paid by the agency to this vendor was recorded in
the Shared Cost Pool. Auditors determined that this was not an acceptable treatment of these
costs.

      Finding L-3    OMB Circular A-87, Attachment A, Section C.3.a states:
 Adoption Contract
     Related Costs
                     A cost is allocable to a particular cost objective if the goods or
    Charged to the   services involved are chargeable or assignable to such cost objective
  Shared Cost Pool   in accordance with relative benefits received.
       Finding for
         Recovery:   OMB Circular A-87, Attachment A, Section E.1 states:
           $45,000

                     Direct costs are those that can be identified specifically with a
                     particular final cost objective.

                     OMB Circular A-87, Attachment A, Section F.1 states:

                     Indirect costs are those: (a) incurred for a common or joint purpose



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                     benefiting more than one cost objective, and (b) not readily
                     assignable to the cost objectives specifically benefited, without
                     effort disproportionate to the results achieved.

                     The APM Appendix denotes the correct accounts to which various
                     expenditures should be recorded on both the JFS 02827 report and
                     the JFS 02820 report. Auditors detected Shared Cost Pool charges
                     of $45,000 for Portune Design on an invoice dated March 3, 2004.
                     The Hamilton CDJFS contracted with the vendor to establish and
                     operate a website for the county’s adoption program. After
                     terminating the contract, the agency continued to use the website.
                     The vendor brought a copyright infringement lawsuit against the
                     Hamilton CDJFS, which resulted in a $45,000 payment to the
                     vendor. These costs should have been recorded to the county’s
                     adoption program, but were instead recorded to the Shared Cost
                     Pool. This resulted in the cost being distributed to all Hamilton
                     CDJFS-administered programs. Auditors issued a finding for
                     recovery in the amount of $45,000 on the grounds that the cost was
                     not allowable to the Shared Cost Pool.
Auditors found other audit service charges in the Shared Cost Pool. The costs were related to the
PCSA and should have been recorded in the SS Cost Pool, not the Shared Cost Pool.

      Finding L-4    OMB Circular A-87, Attachment A, Section C.3.a states:
   PCSA Contract
  Costs Charged to
                     A cost is allocable to a particular cost objective if the goods or
  Shared Cost Pool   services involved are chargeable or assignable to such cost objective
       Finding for   in accordance with relative benefits received.
         Recovery:
          $11,624    OMB Circular A-87, Attachment A, Section E.1 states:

                     Direct costs are those that can be identified specifically with a
                     particular final cost objective.

                     OMB Circular A-87, Attachment A, Section F.1states:

                     Indirect costs are those: (a) incurred for a common or joint purpose
                     benefiting more than one cost objective, and (b) not readily
                     assignable to the cost objectives specifically benefited, without
                     effort disproportionate to the results achieved.

                     The APM Appendix denotes the correct accounts to which various
                     expenditures should be recorded on both the JFS 02827 report and
                     the JFS 02820 report. Auditors noted $11,624 on an invoice dated
                     October 21, 2003, for the PCSA portion of Price Waterhouse



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                    Coopers auditing services performed in conjunction with the State
                    Single Audit. This amount was recorded to the Shared Cost Pool.
                    Because it related to the PCSA portion of the audit, however, the SS
                    Cost Pool would have been the correct place to record it; therefore,
                    auditors issued a finding for recovery for the $11,624.

                    In the future, the Hamilton CDJFS must charge costs only to those
                    programs that benefit from those costs or to the applicable cost pool
                    when multiple programs receive a benefit. The Hamilton CDJFS
                    must establish internal controls for accounting and financial
                    reporting to help avoid such actions in the future.
Auditors found unemployment costs for social service employees were recorded in the Shared
Cost Pool. These costs should have been recorded in the SS Cost Pool.



      Finding L-5   OMB Circular A-87, Attachment A, Section C.3.a states:
     PCSA Costs
Charged to Shared
                    A cost is allocable to a particular cost objective if the goods or
        Cost Pool   services involved are chargeable or assignable to such cost objective
      Finding for   in accordance with relative benefits received.
       Recovery:
          $30,146   OMB Circular A-87, Attachment A, Section E.1 states:

                    Direct costs are those that can be identified specifically with a
                    particular final cost objective.

                    OMB Circular A-87, Attachment A, Section F.1 states:

                    Indirect costs are those: (a) incurred for a common or joint purpose
                    benefiting more than one cost objective, and (b) not readily
                    assignable to the cost objectives specifically benefited, without
                    effort disproportionate to the results achieved.

                    The APM Appendix denotes the correct accounts to which various
                    expenditures should be recorded on both the JFS 02827 report and
                    the JFS 02820 report. Auditors identified $8,699 in expenditures for
                    employee unemployment reimbursement for social services
                    employees recorded in the Shared Cost Pool and $21,447 in
                    expenditures for PCSAO 2004 annual dues coded to Share Cost
                    Pool. These expenditures must be recorded in the SS Cost Pool.
                    Recording these costs in the Shared Cost Pool resulted in the costs
                    being distributed to all programs administered by the Hamilton
                    CDJFS. Therefore, auditors issued a finding for recovery in the
                    amount of $30,146.



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                     In the future, The Hamilton CDJFS must charge costs only to those
                     programs that benefit from those costs or to the applicable cost pool
                     when multiple programs receive a benefit. The Hamilton CDJFS
                     must establish internal controls for accounting and financial
                     reporting to avoid such actions in the future.
Auditors found unemployment costs for CSEA employees were in the Shared Cost Pool. These
costs should have been recorded in the Child Support Fund.

      Finding L-6    OMB Circular A-87, Attachment A, Section C.3.a states:
      CSEA Costs
    Charged to the
                     A cost is allocable to a particular cost objective if the goods or
  Shared Cost Pool   services involved are chargeable or assignable to such cost objective
       Finding for   in accordance with relative benefits received.
        Recovery:
           $4,809    OMB Circular A-87, Attachment A, Section E.1 states:

                     Direct costs are those that can be identified specifically with a
                     particular final cost objective.

                     OMB Circular A-87, Attachment A, Section F.1 states:

                     Indirect costs are those: (a) incurred for a common or joint purpose
                     benefiting more than one cost objective, and (b) not readily
                     assignable to the cost objectives specifically benefited, without
                     effort disproportionate to the results achieved.

                     The APM Appendix denotes the correct accounts to which various
                     expenditures should be recorded on the JFS 02827 report and the
                     Child Support Enforcement Manual (CSEM) “Forms” section
                     denotes the correct accounts for recording JFS 02750 expenditures.
                     During SFY 2004 procurement testing, auditors noted $4,809 in
                     expenditures for unemployment reimbursement for CSEA
                     employees recorded in the Shared Cost Pool within the PA Fund.
                     This expenditure should have been recorded in the Child Support
                     Fund within the Child Support Administrative Cost Pool as these
                     were child support-related costs. Recording these costs in the
                     Shared Cost Pool resulted in their being distributed to all programs
                     administered by the CDJFS. Therefore, auditors issued a finding for
                     recovery in the amount of $4,809.

                     In the future, the Hamilton CDJFS must charge costs only to those
                     programs that benefit from those costs or to the applicable cost pool
                     when multiple programs receive a benefit. The Hamilton CDJFS



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                     must establish internal controls for accounting and financial
                     reporting to avoid such actions in the future.
Hamilton CDJSF employees recorded costs for CSEA-related audit services in the Shared Cost
Pool. These costs should have been recorded in the Child Support Fund.

      Finding L-7    OMB Circular A-87, Attachment A, Section C.3.a states:
      CSEA Costs
    Charged to the
                     A cost is allocable to a particular cost objective if the goods or
  Shared Cost Pool   services involved are chargeable or assignable to such cost objective
       Finding for   in accordance with relative benefits received.
        Recovery:
           $4,719    OMB Circular A-87, Attachment A, Section E.1 states:

                     Direct costs are those that can be identified specifically with a
                     particular final cost objective.

                     OMB Circular A-87, Attachment A, Section F.1 states:

                     Indirect costs are those: (a) incurred for a common or joint purpose
                     benefiting more than one cost objective, and (b) not readily
                     assignable to the cost objectives specifically benefited, without
                     effort disproportionate to the results achieved.

                     During SFY 2004 procurement testing, auditors noted $4,719 for the
                     CSEA portion of Price Waterhouse Coopers auditing services, done
                     in conjunction with the State Single Audit recorded in the Shared
                     Cost Pool within the PA Fund. These costs should have been
                     recorded in the Child Support Fund. Therefore, auditors issued a
                     finding for recovery in the amount of $4,719. Recording these costs
                     in the Shared Cost Pool resulted in their being distributed to all
                     programs administered by the Hamilton CDJFS.

                     In the future, the Hamilton CDJFS must charge costs only to those
                     programs that benefit from those costs or to the applicable cost pool
                     When multiple programs receive a benefit. The Hamilton CDJFS
                     must establish internal controls for accounting and financial
                     reporting to avoid such actions in the future.
Auditors found unemployment costs for Income Maintenance employees recorded in the Shared
Cost Pool. These costs should have been recorded in the IM Cost Pool.

      Finding L-8    OMB Circular A-87, Attachment A, Section C.3.a states:
          Income
Maintenance Costs
                     A cost is allocable to a particular cost objective if the goods or



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    Charged in the   services involved are chargeable or assignable to such cost objective
  Shared Cost Pool   in accordance with relative benefits received.
       Finding for
        Recovery:
          $28,981    OMB Circular A-87, Attachment A, Section E.1 states:

                     Direct costs are those that can be identified specifically with a
                     particular final cost objective.

                     OMB Circular A-87, Attachment A, Section F.1 states:

                     Indirect costs are those: (a) incurred for a common or joint purpose
                     benefiting more than one cost objective, and (b) not readily
                     assignable to the cost objectives specifically benefited, without
                     effort disproportionate to the results achieved.

                     The APM Appendix denotes the correct accounts to which various
                     expenditures should be recorded on the JFS 02827 report.

                     During SFY 2004 procurement testing, auditors noted $27,076 in
                     unemployment reimbursement for income maintenance employees
                     recorded in the Shared Cost Pool. They also noted $1,905 in
                     expenditures for the Mount Airy Shelter recorded in the Shared Cost
                     Pool. During the time these expenditures were incurred, they should
                     have been recorded in the IM Cost Pool. Recording these costs in
                     Shared Cost Pool resulted in their being distributed to all programs
                     administered by the Hamilton CDJFS. Therefore, auditors issued a
                     finding for recovery in the amount of $28,981.

                     In the future, the Hamilton CDJFS must charge costs only to those
                     programs that benefit from those costs or to the applicable cost pool
                     when multiple programs receive a benefit. The Hamilton CDJFS
                     must establish internal controls for accounting and financial
                     reporting to avoid such actions in the future.


Auditors found Family and Children First Council (FCFC) Executive Board dues recorded in the
Shared Cost Pool. Such costs are unallowable and should have been an obligation of the FCFC.

      Finding L-9    OMB Circular A-87, Attachment A, Section C.3 states:
 Unallowable Costs
    Charged to the
                     A cost is allocable to a particular cost objective if the goods or
  Shared Cost Pool   services involved are chargeable or assignable to such cost objective
       Finding for   in accordance with relative benefits received.
        Recovery:
           $4,500    OMB Circular A-87, Attachment A, Section C.1 states:



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                      Factors affecting allowability of costs. To be allowable under
                      Federal awards, costs must meet the following general criteria:

                        . . . h. Not be included as a cost or used to meet cost sharing or
                        matching requirements of any other Federal award in either the
                        current or a prior period, except as specifically provided by
                        Federal law or regulation.

                      Auditors noted an expenditure of $4,500 for FCFC Executive Board
                      dues recorded in the Shared Cost Pool. Because of this, the cost was
                      allocated to all programs administered by the Hamilton CDJFS.
                      Therefore, auditors issued a finding for recovery in the amount of
                      $4,500.

                      In the future, the Hamilton CDJFS must not claim unallowable costs
                      for reimbursement with state and federal funds. In addition, the
                      agency must establish internal controls to ensure that accounting and
                      reporting processes are accurate and reflect only allowable costs.


Auditors noted a lack of controls over the purchase and issuance of transportation tokens from
the Southwest Ohio Regional Transit Authority (SORTA).

      Finding L-10    The Hamilton CDJFS purchases large quantities of bus tokens and
                      passes from SORTA. We will refer to these collectively as tokens;
   Lack of Control
 Over Liquid Assets
                      all passes that auditors found were converted to dollars based upon
      Management      the purchase price. One of the items auditors examined during their
 Recommendations      procurement testing was an invoice for SORTA bus tokens. The
                      invoice reflected payment for 7,890 tokens, of which only 2,000
                      were received. Notes upon the invoice did not state whether the
                      remaining tokens were ever received.

                      When questioned about this, the Hamilton CDJFS employees
                      provided documentation showing that the tokens were received prior
                      to payment being issued. During the search for information, it
                      became clear that the Hamilton CDJFS employees did not know who
                      had custody of the tokens, or how many tokens were in the inventory
                      on hand.

                      In September 2005, auditors performed a 100 percent verification of
                      the tokens to ensure that adequate controls were in place to safeguard
                      these assets. This review showed the following:

                         •   The Hamilton CDJFS management did not know who had



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       custody of the SORTA tokens.
   •   There was no listing of people who dispense tokens.
   •   Almost all the Hamilton CDJFS employees who had tokens
       did not reconcile their lot of tokens to ensure that all were
       accounted for.
   •   All issuers kept lists of the clients to which they gave tokens
       and tried to perform reconciliations, but most CDJFS
       employees claimed they were given a starting fund that did
       not match the beginning balance on the reconciliation.
   •   Employees claimed supervisors told them balancing was not
       necessary, as a master reconciliation was being performed
       elsewhere by management.
   •   Auditors found no evidence of any “master reconciliation” at
       any level of the Hamilton CDJFS. Their count confirmed
       that at least 22 people had physical custody of SORTA
       tokens. Collectively, they had $26,719.35 in tokens on site at
       the time of the count.
   •   Only one person, who worked in TB Control, reconciled her
       tokens correctly. Because of the lack of records, it was
       impossible to determine whether her tokens were purchased
       using TB Control monies or the Hamilton CDJFS monies.
   •   Many of the people responsible for the tokens had obsolete
       copper tokens worth only $.65, while the fare for a ride
       increased in February 2005 to $1.00, requiring silver tokens.

SORTA allowed people who had obsolete tokens to exchange them
on a pro rata basis for new tokens. Yet, Hamilton CDJFS employees
were still disbursing the old tokens to clients, who were using two of
the $.65 tokens to take one ride. This resulted in an overcharge to
the county.

Hamilton CDJFS employees have insufficient control over these
assets, and it is conceivable that tokens could be lost or stolen and
not be detected. Employees also admitted to overpaying for
services. Given the condition of the records, it is not possible to
quantify this overpayment.

Without proper controls in place, the Hamilton CDJFS cannot ensure
that tokens are not lost or stolen or that they are being used properly.
The use of older tokens resulted in the agency overpaying for bus
trips. Without adequate controls, loss, theft or misuse of tokens will
not be detected in a timely manner.

The Hamilton CDJFS management must implement internal controls
to secure, account for and ensure proper use of bus tokens paid for



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                    with federal and state funds. These controls must include periodic
                    inventories and reconciliations. The Hamilton CDJFS must also
                    collect old tokens and convert them to new tokens directly with
                    SORTA to avoid overpayments. Each program requiring tokens
                    must purchase its own tokens. The Hamilton CDJFS must not
                    account for this activity through cost pools.


The auditors reviewed contracts/purchased service costs to determine compliance with applicable
state and federal regulations, including OMB Circular A-87, and to determine if documentation
was maintained to support payments made and actions taken. Auditors also reviewed contract
monitoring. Auditors scanned the detail expenditures and prepared a schedule of contracts which
were paid from a cost pool and of contracts greater than $75,000 with payments occurring in
2004.

Auditors found that the Hamilton CDJFS was paying Hamilton County Alcohol and Drug
Addiction Services (ADAS) based on estimated invoices without reconciliation and thereafter an
adjustment to actual costs.

     Finding L-11   OMB Circular A-87, Attachment A, Section C.1 states:
   Undocumented
           Costs
                    Factors affecting allowability of costs. To be allowable under
     Finding for    Federal awards, costs must meet the following general criteria:
       Recovery:
         $31,939      . . . j. Be adequately documented.

                    45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                    accounting records be supported by source documentation.

                    OAC Rule 5101:9-9-29 require auditees to:

                       . . . (I) maintain documentation conforming to all requirements
                       prescribed by ODJFS, federal statute or regulation and state
                       statute or administrative rule. Auditees must prepare and
                       maintain documentation to support all transactions and to permit
                       the reconstruction of all transactions and the proper completion
                       of all reports required by state and federal law and regulations,
                       and which substantiates compliance with all applicable federal
                       statutes or regulations, state statutes or administrative rules.

                       (J) make available to ODJFS personnel all records necessary to
                       document all transactions.

                    In December of 2003, the Hamilton CDJFS paid a “final estimate” of
                    $33,607 to the Hamilton County Alcohol and Drug Addiction



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                    Services (ADAS) Board for reimbursement of services the Board
                    provided. Auditors noted some instances where the ADAS Board
                    was underpaid $1,668 as a result of erroneous information on
                    invoices. The Hamilton CDJFS was unable to produce actual
                    information to reconcile the estimate, but they did produce the
                    information to substantiate the underpayments. Auditors issued a
                    finding for recovery for the net amount of these two numbers, or
                    $31,939.

                    The Hamilton CDJFS must discontinue the practice of paying on the
                    basis of estimated invoices, or must reconcile the estimate to actual,
                    so that only actual costs are reported in total on the appropriate
                    monthly financial statements. They must also maintain information
                    required to substantiate that claimed costs were reasonable and
                    allowable.
Auditors found that the Hamilton CDJFS had overpaid Cincinnati Public Schools, resulting in
unreasonable costs.

     Finding L-12   45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                    accounting records be supported by source documentation.
   Overpayment of
            Costs
      Finding for   OMB Circular A-87, Attachment A, Section C.1 states:
        Recovery:
           $4,053   Factors affecting allowability of costs. To be allowable under
                    Federal awards, costs must meet the following general criteria:

                      . . . j. Be adequately documented.

                    OMB Circular A-87, Attachment A, Section C.2 states:

                     A cost is reasonable if, in its nature and amount, it does not exceed
                     that which would be incurred by a prudent person under the
                     circumstances prevailing at the time the decision was made to
                     incur the cost.

                    OMB Circular A-87, Attachment A, Section C.3 states:

                     a. A cost is allocable to a particular cost objective if the goods or
                     services involved are chargeable or assignable to such cost
                     objective in accordance with relative benefits received.

                    During SFY 2004, the Hamilton CDJFS overpaid Cincinnati Public
                    Schools (CPS) by paying a rate in excess of contract requirements.
                    The contract called for a ten percent (10%) holdback per unit, but



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                     CPS could earn the holdback on the basis of performance.

                     Rather than charging the Hamilton CDJFS the full rate, less the
                     holdback, CPS charged the full rate, thus the overpayment of $1,012
                     is a finding for recovery issue. Auditors also found no evidence that
                     the incentives were earned. The amount of this issue is $2,687. The
                     total of $3,699 was charged to Protective Services for Children.

                     The remainder of the finding for recovery is for the amount of $354,
                     charged for services rendered by the Children’s Hospital Medical
                     Center for In-Home Parent Education and pediatric health
                     examinations/assessments were amended at a higher rate prior to its
                     implementation date.

                     The Hamilton CDJFS has paid more than was required for services
                     provided by Cincinnati Public Schools and Children’s Hospital
                     Medical Center. As a result, auditors are issuing a $4,053 finding for
                     recovery.

                     The Hamilton CDJFS is required to monitor their contract payments
                     as they are paid to ensure that they are in compliance with contract
                     specifics. Performance incentives must not be paid until earned, and
                     documentation must be maintained as required to support claimed
                     costs.
Auditors found a contract for consulting services related to foster care inappropriately charged to
the Shared Cost Pool.

     Finding L-13    OMB Circular A-87, Attachment A, Section C.1states:
       Foster Care
  Costs Charged to
                     Factors affecting allowability of costs. To be allowable under
   the Shared Cost   Federal awards, costs must meet the following general criteria:
              Pool
       Finding for     . . . h. Not be included as a cost or used to meet cost sharing or
         Recovery:     matching requirements of any other Federal award in either the
          $223,168
                       current or a prior period, except as specifically provided by
                       Federal law or regulation.

                     OMB Circular A-87, Attachment A, Section C.3 states:

                      a. A cost is allocable to a particular cost objective if the goods or
                      services involved are chargeable or assignable to such cost
                      objective in accordance with relative benefits received.

                     The APM Appendix denotes the correct accounts to which various



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                     expenditures can be recorded on the JFS 02827 and the JFS 02820.

                     The Hamilton CDJFS entered into a contract with Ronald Kirkendall
                     to provide consulting services related to Children Services activities
                     with the managed care system. The Hamilton CDJFS recorded these
                     costs in the Shared Cost Pool, but they should have been recorded in
                     either the SS Cost Pool or directly to the Foster Care program. This
                     depends upon which program(s) benefited from these services.
                     Based upon the contract language, auditors could not determine
                     which program Mr. Kirkendall was working for, but Foster Care was
                     the only program mentioned in the contract. As the contract costs
                     were charged to non-benefiting programs, auditors identified
                     contract payments of $178,333 paid to Mr. Kirkendall for consulting
                     services. Services totaling $32,980 pertained to SFY 2005, which is
                     outside the scope of this audit; therefore, the difference, $145,353, is
                     a finding for recovery for SFY 2004 services.

                     The Hamilton CDJFS also contracted with Pareto Solutions to
                     conduct an analysis of their Title IV-E and Child Welfare services.
                     They were specifically charged with compiling indicators of
                     potential future needs under their managed care contract as well as
                     the MCSA contract. As the services being studied related to Child
                     Welfare activities, any monitoring of these contracts should be
                     recorded in a Children Services Fund. The Hamilton CDJFS
                     recorded expenditures for these costs in either the Shared or SS Cost
                     Pool in the PA Fund. As expenditures are being charged to non-
                     benefiting funding streams, auditors are also issuing a finding for
                     recovery for the $77,815 paid for these services. This brings the
                     total of the finding for recovery to $223,168, for both of these
                     contracts.

                     The Hamilton CDJFS shall charge costs only to benefiting programs,
                     or an appropriate cost pool where applicable. The agency must
                     review internal controls over accounting and reporting to help ensure
                     costs are charged to programs in compliance with federal and state
                     laws, rules, and regulations.
Auditors found The Hamilton CDJFS recorded direct costs of contracts to the indirect cost pools
in the PA Fund. Direct costs should be charged to the benefiting program.

     Finding L-14    OMB Circular A-87, Attachment A, Section C.1 states:
    Unreasonable
     Allocation of
                     Factors affecting allowability of costs. To be allowable under
         Contract    Federal awards, costs must meet the following general criteria:
    Administrative




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      Costs     . . . h. Not be included as a cost or used to meet cost sharing or
Finding for     matching requirements of any other Federal award in either the
 Recovery:
  $513,766
                current or a prior period, except as specifically provided by
                Federal law or regulation.

              OMB Circular A-87, Attachment A, Section C.2 states:

              A cost is reasonable if, in its nature and amount, it does not exceed
              that which would be incurred by a prudent person under the
              circumstances prevailing at the time the decision was made to incur
              the cost.

              OMB Circular A-87, Attachment A, Section C.3 states:

               . . . a. A cost is allocable to a particular cost objective if the goods
               or services involved are chargeable or assignable to such cost
               objective in accordance with relative benefits received.

              The APM Appendix denotes the correct accounts to which various
              expenditures can be recorded on the JFS 02827 report.

              During contract testing, auditors noted numerous instances in which
              the Hamilton CDJFS employees recorded certain contract payments,
              which they referred to as “administrative costs,” to one of the three
              PA Fund cost pools. In discussions with the Hamilton CDJFS fiscal
              employees, auditors learned that the Hamilton CDJFS management
              mistakenly believed that any portion of any contract or payment that
              can be labeled “administration” should be recorded in a cost pool.

              Auditors found numerous contracts that had a portion of their
              expenditures, identified as administrative costs, which were
              payments for achieving performance standards. These contract costs
              were charged to a cost pool for contracted services paid during SFY
              2004:

              1. Two TANF contracts with the Cincinnati Public Schools with
              recorded costs in the SS Cost Pool totaling $45,674.

              2. One Title XX contract and three TANF contracts with Cincinnati
              Children’s Hospital recorded costs in the SS Cost Pool and the IM
              Cost Pool totaling $151,747 (split).

              3. Two Childcare contracts with Comprehensive Community
              Childcare, Inc. with recorded costs in the IM Cost Pool totaling
              $67,016.



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4. One TANF contract with Family Services of Cincinnati Area for
the Friends of Children Program with recorded costs in the IM Cost
Pool for $249,329.

In aggregate, the Hamilton CDJFS recorded $513,766 of
administrative costs for contracts, which should have been charged
directly to the benefiting programs. These costs were allocated to all
programs within those cost pools. Auditors are issuing a finding for
recovery for this amount as unreasonable given that the allocation of
costs violates OMB Circular A-87. Hamilton County was notified in
August 2004 to refrain from using cost pools to claim contract costs
that could be attributed to specific programs. Auditors did not
review SFY2005 records to determine if Hamilton County complied
with this notification.

The Hamilton CDJFS shall not record administrative costs for
contracts that are charged directly to program(s). The agency must
review their accounting policies and internal controls to ensure they
are properly designed and operating to avoid noncompliance in the
future.




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                                M. COST ALLOCATION
County family services agencies allocate their indirect costs through the use of cost pools. As
indicated previously, cost pools allocate costs to multiple programs when these costs cannot be
charged to specific programs. Ohio’s county family services agencies have access to four cost
pools’ Social Services (SS) Cost Pool, the Child Support (CS) Cost Pool, the Income
Maintenance (IM) Cost Pool and the PA Fund Shared (Shared) Cost Pool.

The agencies determine how much of each indirect cost to allocate to each cost pool by using
random moment sampling (RMS). With this federally-approved cost allocation methodology,
each county’s RMS coordinator gives selected employee members RMS forms to fill out during
each quarter. The employee members record which programs they are working on during the
selected time period. This gives an approximate representation of the percentage of time they
spend working on each program. RMS forms are used to allocate the total quarterly value of cost
pool charges. RMS forms are completed by agency employees who are not shared employees or
administrative employees. Generally, these employees are directly involved with one or more
programs, such as case managers.

1. Social Services RMS
Auditors conducted a detailed review of 40 randomly-selected SS-RMS forms completed by
Hamilton CDJFS employees for SFY 2004. Auditors evaluated whether the forms were
completed properly, whether they were filled out by appropriate employee members, and
whether there was documentation to support the claimed program and activity. Auditors also
completed a scan of all SS-RMS forms for SFY 2004 to determine whether all forms were
accounted for, whether they were completed properly, and whether they were completed by
appropriate employees. In SFY 2004, agency employees completed 10,604 SS-RMS forms, and
all of them were present and accounted for at the time of audit testing. In SFY 2003, the agency
employees completed 10,793 SS-RMS forms and only two forms were missing.

Of the 40 SS-RMS forms reviewed during the detailed testing, auditors detected no deficiencies.
They also found that the forms were properly completed by appropriate employees.
Documentation was available to substantiate the claimed program and activities for all forms
reviewed.

During the scan of the 10,604 SS-RMS for SFY 2004, auditors found that 27 forms, or 0.25
percent, did not contain a case identifier, although a program and activity were claimed. During
the scan of the 10,793 SS-RMS for SFY 2003, auditors found five forms without proper
documentation to support activity, five that did not have a case identifier, and as mentioned
above, two missing forms. Therefore, these forms were unauditable as there was not sufficient
evidence to support their claims. Auditors are questioning $307,259 and $42,193, respectively,
for SFY 2004 and SFY 2003.

In addition, auditors selected 30 employee members who had completed the SS-RMS forms.
They reviewed their job descriptions and classifications and interviewed them about their job
responsibilities. This review revealed that three of these employees, or 10 percent, were clerical


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employees who were not permitted to participate in the SS-RMS process.



      Finding M-1     45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                      current, and complete disclosure of financially assisted activities.
Lack of Support for
   SS-RMS Forms
 Questioned Costs:    45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
          $349,452    receiving subawards or subgrants of Federal awards must maintain
                      records identifying the source and application of funds provided, and
                      include information pertaining to the subawards and subgrants,
                      including authorizations, obligations, unobligated balances, assets,
                      outlays, and income.

                      45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
                      maintenance of effective control and accountability for all funds, and
                      the safeguarding of assets, ensuring their use solely for authorized
                      purposes.

                      Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                      allowable costs for governmental entities are determined in
                      accordance with OMB Circular A-87, Cost Principles for State,
                      Local, and Indian Tribal Governments. Such principles govern the
                      reasonableness, allowability, and allocability of costs.

                      45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
                      accounting records be supported by source documentation.

                      OMB Circular A-87, Attachment A, Section C.1 states:

                      Factors affecting allowability of costs. To be allowable under
                      Federal awards, costs must meet the following general criteria:

                        . . . j. Be adequately documented.

                      Furthermore, OAC Rule 5101:9-7-20 states, in part:

                        . . . (M) The observation form is distributed to selected workers at
                        or very near to the moments specified in the sample. The workers
                        must complete the observation form by selecting the program
                        category and the type of activity being performed at the times
                        designated. Case numbers or other numbers establishing
                        case/client identity must also be provided when applicable to form
                        an audit trail. If the case number is not available, documentation
                        of the activity being performed should be included in the
                        comments section of the form.



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                                 Only one item may be selected in each
                                 section of the observation form. Only the
                                 individual completing the observation form
                                 may revise and initial corrections if mistakes
                                 are identified.

                    OAC Rule 5101:9-9-29 require auditees to:

                       . . . (I) maintain documentation conforming to all requirements
                       prescribed by ODJFS, federal statute or regulation and state
                       statute or administrative rule. Auditees must prepare and
                       maintain documentation to support all transactions and to permit
                       the reconstruction of all transactions and the proper completion
                       of all reports required by state and federal law and regulations,
                       and which substantiates compliance with all applicable federal
                       statutes or regulations, state statutes or administrative rules.

                       (J) make available to ODJFS personnel all records necessary to
                       document all transactions.

                    The Hamilton CDJFS did not fully document 12 of the SS-RMS
                    forms completed for SFY 2003 and 27 of the SS-RMS forms
                    completed for SFY 2004, resulting in questioned costs of $349,452.
                    Without proper documentation, the Hamilton CDJFS cannot support
                    its claim for federal and state reimbursement of costs whose
                    allocation is determined by these forms. The agency must consider
                    the forms in question, and their related internal controls, and make
                    any needed adjustment to ensure that all SS-RMS forms with
                    claimed costs are documented in compliance with state and federal
                    laws and regulations.

                    The $349,452 in question was derived through a calculation created
                    by the ODJFS Office of Fiscal Services, and is based upon actual SS
                    Cost Pool claimed costs. Auditors did not offset the value of the cost
                    pool by the dollar value of findings for recovery or questioned costs
                    found elsewhere in this report as the Hamilton CDJFS was
                    reimbursed based upon the original claimed costs.


Auditors noted the following incorrect practices related to the completion of SS-RMS form:

   •   For SFY 2004, 245 forms--or 2.31 percent--had programs or activities crossed out and
       not initialed by the individual completing the form. For SFY 2003, 36 forms--.333
       percent--had programs or activities crossed out and not initialed by the individual
       completing the form.


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  •     For SFY 2004 101 forms--or .95 percent--were completed in pencil.

  •     For SFY 2004, 119 forms--or 1.12 percent--were not initialed by the employee. For SFY
        2003, 90 forms--or .83 percent--were not initialed by the employee.

  •     For SFY 2004, one form--or .01 percent--had multiple programs or activities marked.

  •     For SFY 2004, 220 forms--or 2.07 percent--were fully or partially completed by someone
        other than the employee indicated on the form.

       Finding M-2   Internal controls must be maintained over major processes and
                     functions to ensure that they operate correctly and proper results are
      Inadequate
   Completion of
                     obtained.
  SS-RMS Forms
    Management       The Hamilton CDJFS had several inadequacies in the completion of
Recommendations      the SS-RMS forms. Although not all instances of noncompliance
                     result in monetary findings, they are a sign that internal controls may
                     not be functioning as designed. Small issues, such as those noted,
                     could eventually evolve into larger issues, resulting in monetary
                     findings. The Hamilton CDJFS must review the types of
                     inadequacies noted above and make any needed adjustments to its
                     internal controls so that it can minimize or eliminate these problems
                     in the future.


       Finding M-3  OAC Rule 5101:9-7-20 (L) require that the SS-RMS include all job
                    positions that perform directly related program functions, with the
        Inadequate
      Completion of
                    following exceptions:
  SS-RMS Forms
  Noncompliance        (1) Administrative;
        Citation
                       (2) Supervisory (unless carrying a caseload and performing an
                       activity directly related to program function); or

                       (3) Administrative support.

                     Of the 30 Hamilton CDJFS employees tested, auditors identified
                     three clerical employee members who completed the SS-RMS forms,
                     even though clerical employees are not permitted to do so. Incorrect
                     application of the RMS methodology creates an improper allocation
                     of cost pool expenditures and may invalidate the results of the
                     sample. The Hamilton CDJFS must review the RMS rules, review
                     which employees are completing the RMS, and ensure that only
                     appropriate employees complete the RMS forms in the future. The



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agency must also review its internal controls over the completion of
the RMS and make any adjustments to avoid such mistakes in the
future.




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2. Income Maintenance RMS
Auditors conducted a detailed review of 40 randomly-selected IM-RMS forms completed by
Hamilton CDJFS employees for SFY 2004. Auditors evaluated whether the forms were
completed properly, whether they were completed by appropriate employees, and whether there
was documentation to support the claimed programs and activities. Auditors also completed a
scan of all IM-RMS forms for SFY 2004 to determine whether all forms were accounted for,
whether the forms were completed properly and whether they were completed by appropriate
employees. In SFY 2004, agency employees completed 9,200 IM-RMS forms, all of which were
present and accounted for at the time of the audit testing.

Of the 40 IM-RMS forms reviewed during the detailed testing, auditors found one instance of
noncompliance. In this case, a valid case number was not provided on the form, resulting in a
questioned amount of $7,779. Auditors found that the appropriate employees properly
completed all the forms. They also found documentation to substantiate the claimed programs
and activities for all but one of the forms.

During the scan of the 9,200 IM-RMS, auditors found 17 forms--or 0.18 percent--that did not
contain a case identifier even though a program and activity were claimed. This is being
questioned in the amount of $141,243.

Therefore, these forms were unauditable, as there was not sufficient evidence to support the
claim. Auditors questioned costs of $149,022, for the 17 forms lacking a case identifier and one
form without support documentation.

      Finding M-4     45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                      current, and complete disclosure of financially assisted activities.
Lack of Support for
   IM-RMS Forms
 Questioned Costs:    45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
          $149,022    receiving subawards or subgrants of Federal awards must maintain
                      records identifying the source and application of funds provided, and
                      include information pertaining to the subawards and subgrants,
                      including authorizations, obligations, unobligated balances, assets,
                      outlays, and income.

                      45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
                      maintenance of effective control and accountability for all funds, and
                      the safeguarding of assets, ensuring their use solely for authorized
                      purposes.

                      Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                      allowable costs for governmental entities are determined in
                      accordance with OMB Circular A-87, Cost Principles for State,
                      Local, and Indian Tribal Governments. Such principles govern the
                      reasonableness, allowability, and allocability of costs.



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45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that
accounting records be supported by source documentation.

OMB Circular A-87, Attachment A, Section C.1 states:

Factors affecting allowability of costs. To be allowable under
Federal awards, costs must meet the following general criteria:

  . . . j. Be adequately documented.


OMB Circular A-87, Attachment A, Section C.3 states:

 a. A cost is allocable to a particular cost objective if the goods or
 services involved are chargeable or assignable to such cost
 objective in accordance with relative benefits received.

Furthermore, OAC Rule 5101:9-7-20 states, in part:

     . . . (M) The observation form is distributed to selected workers
     at or very near to the moments specified in the sample. The
     workers must complete the observation form by selecting the
     program category and the type of activity being performed at
     the times designated. Case numbers or other numbers
     establishing case/client identity must also be provided when
     applicable to form an audit trail. If the case number is not
     available, documentation of the activity being performed
     should be included in the comments section of the form.

             Only one item may be selected in each
             section of the observation form. Only the
             individual completing the observation form
             may revise and initial corrections if mistakes
             are identified.

The Hamilton CDJFS did not fully document 18 of the IM-RMS
forms for SFY 2004, resulting in questioned costs of $149,022.
Without proper documentation, the agency cannot support its claim
for federal and state reimbursement of costs related to these forms.
The Hamilton County CDJFS must consider the forms in question
and their related internal controls and make any needed adjustments
to ensure that all IM-RMS forms with claimed costs are documented
in compliance with state and federal laws and regulations.




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                     The $149,022 in question was derived through a calculation created
                     by the ODJFS Office of Fiscal Services, and is based upon actual IM
                     Cost Pool claimed costs. Auditors did not offset the value of the cost
                     pool by the dollar value of findings for recovery or questioned costs
                     found elsewhere in this report as the Hamilton CDJFS was
                     reimbursed based upon the original claimed costs.


During the audit of IM-RMS forms, auditors noted the following discrepancies related to the
completion of the form:

   •    For SFY 2004, three forms--or .03 percent--had programs or activities crossed out and
        not initialed by the individual completing the form. For SFY 2003, 45 forms--or .49
        percent--had programs or activities crossed out and not initialed by the individual
        completing the form.

   •    For SFY 2004, one form--or .01 percent--was completed in pencil.

   •    For SFY 2004, six forms--or .07 percent--were not initialed by the worker. For SFY
        2003, two forms--or .02 percent--we not initialed by the worker.

   •    For SFY 2004, one form--or .01 percent--had multiple programs or activities marked.

   •    For SFY 2004, five forms--or .05 percent--were fully or partially completed by someone
        other than the employee indicated on the form. For SFY 2003, two forms--or .02
        percent—were fully or partially completed by someone other than the employee indicated
        on the form.



       Finding M-5   Internal controls must be maintained over major processes and
                     functions to ensure they operate correctly and proper results are
       Inadequate
    Completion of
                     obtained.
   IM-RMS Forms
     Management      Auditors discovered several types of deficiencies in the IM-RMS
 Recommendations     forms examined at the Hamilton CDJFS. Although not all instances
                     of noncompliance result in monetary findings, they do indicate that
                     internal controls may not be functioning as designed. Small issues,
                     such as those noted, could eventually evolve into larger issues which
                     would result in monetary findings. The Hamilton CDJFS must
                     review its internal controls over the completion of IM-RMS forms
                     and make any necessary changes to avoid such inadequacies in the
                     future.




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3. Child Support RMS
Auditors conducted detailed reviews of 40 randomly-selected CS-RMS forms completed by
Hamilton CDJFS employees for SFY 2004. Auditors evaluated whether the forms were
completed properly, whether they were completed by appropriate employees, and whether there
was documentation to support the claimed programs and activities. Auditors also completed a
scan of all CS-RMS forms for SFY 2004 to determine whether all forms were accounted for,
whether they were completed properly, and whether they were completed by appropriate
employees. In SFY 2004, agency employees completed 1,416 CS-RMS forms, all of which were
present and accounted for at the time of the audit testing.

Of the 40 CS-RMS forms reviewed during the detailed testing, auditors detected no instances of
noncompliance. Auditors found that the forms were properly completed by appropriate
employees. They also found documentation to substantiate the claimed programs and activities
for all forms reviewed.

Of the 1,416 CS-RMS forms scanned, auditors found that one form--or 0.07 percent--did not
contain a case identifier, even though a program and activity were claimed. Therefore, this form
was unauditable as there was insufficient evidence to support the claim. Auditors are issuing
questioned costs of $22,265. This questioned cost is based upon a calculation developed by the
ODJFS Office of Fiscal Services.



      Finding M-6     45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                      current, and complete disclosure of financially assisted activities.
Lack of Support for
   CS-RMS Forms
 Questioned Costs:    45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities
           $22,265    receiving subawards or subgrants of Federal awards must maintain
                      records identifying the source and application of funds provided, and
                      include information pertaining to the subawards and subgrants,
                      including authorizations, obligations, unobligated balances, assets,
                      outlays, and income.

                      45 CFR 74.21 (b) (3) and 45 CFR 92.20 (b) (3) require the
                      maintenance of effective control and accountability for all funds, and
                      the safeguarding of assets, ensuring their use solely for authorized
                      purposes.

                      Under 45 CFR 74.27, 45 CFR 92.20 (b) (5), and 45 CFR 92.22,
                      allowable costs for governmental entities are determined in
                      accordance with OMB Circular A-87, Cost Principles for State,
                      Local, and Indian Tribal Governments. Such principles govern the
                      reasonableness, allowability, and allocability of costs.

                      45 CFR 74.21 (b) (7) and 45 CFR 92.20 (b) (6) require that



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accounting records be supported by source documentation.

OMB Circular A-87, Attachment A, Section C.1 states:

Factors affecting allowability of costs. To be allowable under
Federal awards, costs must meet the following general criteria:

  . . . j. Be adequately documented.

OMB Circular A-87, Attachment A, Section C.3 states:

 . . . a. A cost is allocable to a particular cost objective if the goods
 or services involved are chargeable or assignable to such cost
 objective in accordance with relative benefits received.

Furthermore, OAC Rule 5101:9-7-20 states, in part:

  . . . (M) The observation form is distributed to selected workers at
  or very near to the moments specified in the sample. The workers
  must complete the observation form by selecting the program
  category and the type of activity being performed at the times
  designated. Case numbers or other numbers establishing
  case/client identity must also be provided when applicable to form
  an audit trail. If the case number is not available, documentation
  of the activity being performed should be included in the
  comments section of the form.

             Only one item may be selected in each
             section of the observation form. Only the
             individual completing the observation form
             may revise and initial corrections if mistakes
             are identified.

The Hamilton CDJFS did not fully document one of the CS-RMS
forms for SFY 2004, resulting in questioned costs of $22,265.
Without proper documentation, the Hamilton CDJFS cannot support
its claim for federal and state reimbursement of costs related to this
CS-RMS form. The Hamilton CDJFS must consider the form in
question and the related internal controls it has in place and make
any needed adjustments to ensure that all CS-RMS forms with
claimed costs are documented in compliance with state and federal
laws and regulations.

The $22,265 in question was derived through a calculation created
by the ODJFS Office of Fiscal Services, and is based upon actual



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                     Child Support Cost Pool claimed costs. Auditors did not offset the
                     value of the Cost Pool by the dollar value of findings for recovery or
                     questioned costs found elsewhere in this report as the Hamilton
                     CDJFS was reimbursed based upon the original claimed costs.


During the audit of CS-RMS forms for SFY 2004, auditors noted the following instances of
noncompliance:

   •    For SFY 2004, one form--or .07 percent--had programs or an activity crossed out and was
        not initialed by the individual completing the form.

   •    For SFY 2004, one form--or .07 percent--was completed in pencil.

   •    For SFY 2004, three forms--or .21 percent--were not initialed by the worker.

   •    For SFY 2004, one form--or .01 percent--had multiple programs or activities marked.

   •    For SFY 2004, two forms--or .14 percent--were fully or partially completed by someone
        other than the employee indicated on the form.

       Finding M-7   Internal controls must be maintained over major processes and
                     functions to ensure that they operate correctly and that proper results
       Inadequate
 Completion of CS-
                     are obtained.
      RMS Forms
     Management      Auditors discovered several types of deficiencies in the CS-RMS
  Recommendation     forms they examined at the Hamilton CDJFS. Although not all
                     instances of noncompliance result in monetary findings, they are a
                     sign that internal controls may not be functioning as designed. Small
                     issues, such as those noted, could eventually evolve into larger issues
                     which would result in monetary findings. The agency must review
                     its internal controls and make any necessary changes to avoid such
                     inadequacies in the future.




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                          N. INVENTORY AND EQUIPMENT
Grantees and subgrantees of federal awards may acquire equipment and inventory items to
support the administration of federal programs. These items may either be expensed or
depreciated, according to federal rule. Federal grant management regulations require
maintenance of an asset management system to account for, track, and maintain control over
such assets. These rules are applicable to county family services agencies. The Ohio Revised
Code also requires these agencies to perform annual physical inventories.

Auditors conducted a review of inventory and equipment at Hamilton CDJFS as part of their
SFY 2004 audit procedures. They performed steps to ensure the following:

    •     the existence of equipment purchased,
    •     the use of equipment and other assets in the programs for which they were purchased and
          charged, and
    •     the proper disposition of assets no longer needed for the program.

The threshold Hamilton County maintains for asset inventory is an individual purchase price of
$250 or more. According to agency employees, these purchases are charged to the Shared Cost
Pool.

A review of the Hamilton CDJFS inventory and equipment records indicated the following
noncompliance issues:

         •   All assets purchased were charged to the Shared Cost Pool.
         •   Two leasehold improvement expenditures for Hillcrest Training School were
             recorded as shared costs in the PA Fund.
         •   Proceeds from the online sale of unused assets were recorded as local receipts, rather
             than to the Shared Cost Pool, where the assets were originally purchased.
         •   Two assets were entered in the inventory with an incorrect purchase price.
         •   One asset purchased in SFY 2004 did not have a county tag affixed to it.

The Shared Cost Pool is meant to be used to allocate indirect costs that cannot be identified to
specific programs or cost pools. It is unlikely that all assets the Hamilton CDJFS purchased
were, in fact, indirect costs, making it likely that the agency overstated it shared costs. In
addition, agency employees did not offset expenditures recorded in the Shared Costs Pool with
revenues received from the sale of unused assets, resulting in a definite overstatement of shared
costs. During 2005, the Hamilton CDJFS corrected this misclassification by recoding all receipts
for the disposal of assets from SFY 2003 through May 2004, to the Shared Cost Pool.


        Finding N-1   45 CFR 74.21 (b) (1) and 45 CFR 92.20 (b) (1) require accurate,
                      current, and complete disclosure of financially assisted activities.
       Failure to
Accurately Record
      Equipment       45 CFR 74.21 (b) (2) and 45 CFR 92.20 (b) (2) require that entities



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  Purchase Price   receiving subawards or subgrants of Federal awards must maintain
    Management     records identifying the source and application of funds provided, and
Recommendations
                   include information pertaining to the subawards and subgrants,
                   including authorizations, obligations, unobligated balances, assets,
                   outlays, and income.

                   The Hamilton CDJFS recorded incorrect purchase amounts on
                   insurance and property reports. For example, the purchase price of a
                   digital recorder was entered into the inventory as $51,282, when the
                   actual costs were $5,282. When an incorrect original cost is
                   recorded on the inventory report, the incorrect amount is carried over
                   to the insurance and property reports.

                   Auditors also found expenditures of $458,574 for assets purchased in
                   SFY 2004 that were not recorded on the inventory list, but were
                   reported on the monthly financial statements of the PA Fund, within
                   the Shared Cost Pool.

                   The Hamilton CDJFS employees must use due diligence in recording
                   the purchase price of assets in inventory records. Assets entered into
                   the inventory system with incorrect purchase prices will skew
                   inventory and insurance records. The agency must take a physical
                   inventory annually and reconcile the results with the equipment
                   records. Discrepancies noted during the physical inventory must be
                   corrected to ensure an adequate and complete inventory report.
                   During the physical inventory, employees must verify the existence,
                   current use of, and continued need for the equipment.

                   If the agency is using this inventory report for insurance purposes,
                   then it also is increasing the risk of liability losses related to
                   uninsured items.




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       Finding N-2     Auditors found only one item purchased in SFY 2004 that did not
                       have an inventory tag affixed as required by the agency.
Failure to Properly
            Identify
        Equipment      Without proper identifying tags, the agency cannot properly track
         Purchased     assets, which increases the risk of theft or loss.
      Management
 Recommendation        The Hamilton CDJFS must establish an inventory control system to
                       ensure adequate safeguards to prevent loss, damage, or theft of
                       equipment. Agency employees must use due diligence in tagging
                       purchased equipment and in recording asset location on the
                       inventory.




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                     O. CHILD SUPPORT DEPOSITORY FUND
The Hamilton Child Support Enforcement Agency (CSEA), which is part of the Hamilton
CDJFS, is responsible for collecting and disbursing all amounts due under child support orders.
This payment processing occurred locally until the development and implementation of the
Support Enforcement Tracking System (SETS), the online computer system that tracks case
information to collect and distribute the state’s child support funds. With the implementation of
SETS, counties had to close out their local depository bank accounts and establish a new SETS
depository account. Any unclaimed or unidentifiable monies discovered during the conversion
process were to be paid into the county treasuries and recorded as unclaimed funds. Auditors
discovered that the Hamilton CSEA did not follow those procedures. Instead, it held unclaimed
funds and used them to cover bank fees and internal accounting deficiencies.

      Finding O-1    ORC Section 9.39 states that all money received or collected by a
                     public official under color of office and not otherwise paid out
       Payment of
   Another Fund’s
                     according to law shall be paid into the treasury of the public office
       Obligation    with which he is connected to the credit of a trust fund and shall be
                     retained there until claimed by its lawful owner. If not claimed
       Finding for   within a period of five years, the money shall revert to the general
        Recovery:    fund of the public office.
          $26,005

                     OAC Rule 5101:1-31-031 (B) states that within seven months of the
                     CSEA’s full conversion to SETS, the CSEA shall reconcile and close
                     its pre-SETS depository account.

                     Credit card and other bank charges, as well as surpluses and
                     shortages are to be paid out of the county’s support enforcement
                     administrative fund. When auditors tested the Hamilton County
                     CSEA’s depository account, they discovered that the CSEA was
                     paying bank and credit card fees, as well as surpluses and shortages,
                     with the county’s pre-SETS money. This was in violation of the
                     above citation. As a result, auditors issued a finding for recovery for
                     the total amount of these bank charges, or $26,005.

                     The Hamilton CSEA expended unclaimed funds that did not belong
                     to it and which it had no authority to spend.

                     In the future, the Hamilton CDJFS must follow the OAC Rules and
                     properly document and approve all fees paid, as well as surpluses
                     and shortages. Unclaimed funds must be deposited in the county
                     treasury, in compliance with Section 9.39 of the Ohio Revised Code.




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                      P. ISSUES WITH CHILD CARE BILLINGS
Each county family services agency contracts for child care services for its clients. State rules
require child care providers to complete vouchers indicating when services were performed for
each child. These vouchers are also signed by the child’s parents or guardian to confirm that
services were provided. The voucher should also show when a child received care.

Auditors found 87 vouchers representing 80 children that did not specify the times children
received care. As a result, they were unable determine whether the number of children served
exceeded the maximum number allowed for each provider.


       Finding P-1    45 CFR 74.51 and 45 CFR 92.40 require that activities and
                      operations be monitored to assure compliance with applicable federal
      Lack of Time
    Designation on
                      requirements, covering all functions, programs or activities cover by
Child Care Billings   an award.
      Management
 Recommendation       The Hamilton CDJFS issues vouchers that note the maximum days
                      per week allowed and the daily co-payments required for child care,
                      as determined by caseworkers based on clients’ eligibility.
                      However, these vouchers do not provide an area in which time
                      designations could be entered. Without such a designation, the
                      agency cannot ensure compliance with Ohio law or with each
                      provider’s license or certification. The license or certification states
                      the maximum number of children allowed at any given time, based
                      on the type of facility and resources of the provider.

                      In addition, auditors identified 27 vouchers that were approved by
                      consumers at the beginning of the two-week service period instead
                      of at the end of the two-week service period. This could have
                      resulted in services being paid for an inaccurate number of hours.
                      The agency should establish procedures so that approval happens at
                      the end of the two-week service period.




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                      Q. ISSUES WITH FOOD STAMP INCENTIVES
Counties may earn incentives for collecting overpayments on food stamp cases. The incentive
varies based upon the type of overpayment. Inadvertent household errors (IHE), which are errors
that food stamp recipient did not intentionally cause, carry a 20 percent incentive. Intentional
program violators (IPV), which are errors made by those actively seeking to defraud the Food
Stamp Program, carry a 35 percent incentive. Administrative errors (AE) do not earn incentives.
This means that for every $100 in IHE overpayments collected, the county gets to keep $20; for
every $100 in IPV overpayments collected, the county gets to keep $35.

The state’s CRIS-E system tabulates all food stamp collections for any given month. It also
generates the GVB030RB and the GVB030RE reports, which detail IHE and IPV collections
from all sources, including the state, the local county, and other counties. CRIS-E can then
calculate each county’s incentive amount, based upon the collections for each type of
overpayment. The total of the IPV and IHE incentive amounts represent the total incentives
earned for the month. The county recognizes this incentive by moving the incentive amount
from the food stamp collections line to the nonreimbursable receipts line on the JFS 02827
report. If the county fails to make this adjustment in any given month, it has a two year window
in which to do so.

      Finding Q-1      OAC Rule 5101:4-8-23 (B) states, in part, that the county agency
                       shall retain twenty percent of the value of cash monies, coupons
Failure to Transfer
      Correct Food
                       collected, lost benefits offset, or allotment reductions on an IHE
  Stamp Incentives     claim. The county agency shall retain twenty percent of the amounts
       Finding for     recovered on a claim being handled as an IHE claim pending a
         Recovery:     determination by an administrative disqualification hearing officer or
        $1,049,702     a court of appropriate jurisdiction that IPV was committed, or receipt
                       of either a signed waiver or consent agreement. Once the
                       determination or signed document is obtained, the county agency
                       may recover from the state an additional fifteen per cent incentive on
                       collections made before the change in claim status.

                       APM Section 7355.2 states, in part, the CDJFS has a one to two year
                       window to make coding adjustments for federal claims purposes
                       contingent upon the assigned code. The reconciliation review is
                       intended to correct instances where ODJFS or the CDJFS used
                       incorrect splits of shared or wrong allocations, incorrect time study
                       codes, and/or JFS 02827 codes and expenditures.

                       The Hamilton CDJFS had numerous problems making its incentive
                       adjustments. In January 2002, the agency moved $1,505,522 from
                       food stamp collections line to the nonreimbursable receipts line on
                       the JFS 02827 report. Agency employees had not made an
                       adjustment during the proceeding two years, so they were eligible to
                       make an adjustment. According to the GVB030RB report, however,



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the adjustment should have been for $612,073 a difference of
$893,449.

In 2002 through 2004, the agency moved $752,002 from food stamp
collections line to the nonreimbursable receipts line on the JFS
02827 report. According to the GVB030RB report, however, the
adjustment should have been for $595,749, a difference of $156,253.

Subsequent to that large transfer, the Hamilton CDJFS employees
began adjusting their incentives each month on the JFS 02827 report.
They still were unable to adjust the correct amounts, however.
Auditors noted two instances in which agency employees adjusted a
quarterly total, after they had already adjusted two monthly amounts
from the same quarter. They also made numerous mathematical
errors in their recorded adjustments. All math errors identified
benefited the Hamilton CDJFS.

In total, the Hamilton CDJFS over adjusted $1,049,702 because of
the errors listed above. This $1,049,702 is a finding for recovery.

This excessive adjustment amount, $1,049,702, is a finding for
recovery.

In the future, the Hamilton CDJFS must adjust only the amount on
reported on the GVB030RB to avoid audit findings in the future.




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GENERAL COMMENTS

ODJFS auditors would like to thank Suzanne Burke, former director of the Hamilton CDJFS;
Richard Roberts, current director of the Hamilton CDJFS; Dusty Rhodes, county auditor; and
David Krings, former county administrator; and their employees for their courtesy and
cooperation during the performance of this audit.




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                                                      APPENDIX A
Transfers from the Children Services Fund to the PA Fund and the Child Support Fund

     Public Assistance                           Children                               Child Support
           Fund                                Services Fund                          Administration Fund

                     Recorded                                Recorded                                 Recorded
     Amount          Account                 Amount          Account                    Amount        Account

    $1,288,578.95 905-71                   ($1,288,578.95)    883-50
        900,000.00 905-71                     (900,000.00)    883-50
     12,000,000.00 903-71                  (12,000,000.00)    881-50
                                            (3,000,000.00)    899-30                  $3,000,000.00 903-71
                                            (3,280,465.00)    899-30                   3,280,465.00 903-71
      3,500,000.00 903-71                   (3,500,000.00)    881-50
      2,000,000.00 903-71                   (2,000,000.00)    881-50

         20,000.00 903-71                      (20,000.00) 881-50
     19,980,000.00 903-71                  (19,980,000.00) 881-50
     20,000,000.00                         (20,000,000.00)

      5,000,000.00 903-71                   (5,000,000.00)    881-50
     15,000,000.00 903-71                  (15,000,000.00)    881-50
                                            (1,374,000.00)    899-30                    1,374,000.00 903-71
                                            (3,116,000.00)    899-30                    3,116,000.00 903-71
      5,000,000.00    903-71                (5,000,000.00)    881-50
      7,000,000.00    903-71                (7,000,000.00)    881-50
      2,000,000.00    903-71                (2,000,000.00)    881-50
      6,500,000.00    903-71                (6,500,000.00)    881-50
      6,468,162.00    903-71                (6,468,162.00)    881-50
     18,300,000.00    903-71               (18,300,000.00)    881-50
                                              (310,000.00)    899-30                      310,000.00 903-71
                                            (3,280,000.00)    899-30                    3,280,000.00 903-71
                                            (7,765,000.00)    899-30                    7,765,000.00 903-71

 $104,956,740.95                         ($127,082,205.95)                          $22,125,465.00

                     Account          Account                                      ODJFS
       Fund          Number             Name                                      Definition
Public Assistance     903-71 Nonreimbursable Receipts        Receipts to offset nonreimbursable expenses

Children Services     881-50 Disbursements from Levies       Foster care maintenance payments, contracts, and purchased services
                                                             disbursed from levies.
Children Services     883-50 Disbursements from Local        Foster care maintenance payments, contracts, and purchased services
                             Funds                           disbursed from local funds.
Children Services     899-30 Nonreimbursable Expenses        Expenditures not reimbursed through the Children Services Fund.

Child Support         903-71 Nonreimbursable Receipts        Receipts to offset nonreimbursable expenditures.




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                                                                     APPENDIX B
       Transfers from the Human Service State Subsidy Fund (960-11) to the PA Fund and the Children
       Services Fund
       PCSA Revenue from                          Special Revenue Fund                         Public Assistance                  Children Services
          State Auditor                                   960-11                                      Fund                               Fund
 HCDJFS Description     Amount                 Description            Amount              Description        Amount            Description       Amount
Prior State Auditor
Receipts              6,476,829.00    Beginning Balance                 6,476,829.00

SFY2002
Title IV-E            13,192,163.00
SCWS                   7,763,329.70
Other                             -
                                      Total State receipts for SFY
                      20,955,492.70   2002                             20,955,492.70
                                                                                       903-71
                                      Transfers to PA for SFY 2002 (27,028,213.15)     Nonreimbursable    27,028,213.15

                                                                                       903-71                              965-70 Other State
                                                                                       Nonreimbursable      (412,783.15)   Reimbursements       412,783.15

                                                                                                                           965-70 Other State
                                      Transfers to CS for SFY 2002      (404,108.55)                                       Reimbursements       404,108.55
SFY2003
Title IV-E            25,649,883.00
SCWS                   4,131,228.00
Other                             -
                                      Total State receipts for SFY
                      29,781,111.00   2003                             29,781,111.00
                                                                                       903-71
                                      Transfers to PA for SFY 2003 (29,781,111.00)     Nonreimbursable    29,781,111.00
SFY2004
Title IV-E            11,327,689.00
SCWS                   2,032,596.00
Other                             -
                                      Total State receipts for SFY
                      13,360,285.00   2004                             13,360,285.00

                                                                                       903-71
                                      Transfers to PA for SFY 2004 (13,360,285.00)     Nonreimbursable    13,360,285.00


Grand Total           70,573,717.70                                            0.00                       69,756,826.00                         816,891.70




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                                    APPENDIX C
Copy of agreement between ODJFS and HC PCSA for participation in the Demonstration
Project




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Appendix C (Continued)




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Appendix C (Continued)




Appendix C (Continued)


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                        168
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Appendix C (Continued)




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Appendix C (Continued)




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Appendix C (Continued)




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Appendix C (Continued)




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                                       APPENDIX D
The list of Hillcrest Training School Interfund Transfers (ITs) given to ODJFS Auditors by
Suzanne Burke




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                        174

								
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