Conclusions
The Office had not established adequate procedures for processing energy assistance applications and did not always award benefits on behalf of applicants in the proper amounts. Specifically, procedures had not been established to identify sources of income not reported by applicants, and the Code of Maryland Regulations relating to MEAP and EUSP contained inconsistencies, for no
apparent reason, between the two programs in the treatment of household income.
In addition, our test of 100 energy assistance applications processed during fiscal year 2001, with assistance benefits awarded totaling $62,227, disclosed that benefits for 14 applicants were not awarded in the proper amounts, resulting in a net overpayment of assistance benefits totaling $6,148. Our test also disclosed that, for 33 applicants, there was no evidence that the local administering agencies had sighted copies of social security cards, as required, to help verify the
household size reported by the applicant.
Finding #7
The local administering agencies had not established adequate procedures to identify sources of household income not reported by applicants and Code of Maryland Regulations for MEAP and EUSP contained certain
inconsistencies in the treatment of household income.
Analysis
Local administering agencies had not established adequate procedures to identify sources of household income, such as interest on bank accounts, not reported by applicants. Energy assistance applicants are required to list income for each household member on the application. In addition, the local administering agencies generally required adult household members that reported no income to sign an affidavit certifying that they had no income during the preceding 30 days.
Our tests disclosed that salaries and wages and social security benefits were typically reported; however, other types of income, such as individual retirement account withdrawals or interest on savings accounts, were rarely noted. In this regard, the application does not prompt the applicant to report other income sources and intake workers, who take applications in person, were not required to inquire about the existence of other sources of income.
Additionally, Code of Maryland Regulations for MEAP and EUSP contained certain inconsistencies regarding to the treatment of household income between the two programs. For example:
• EUSP regulations specify that income from retirement accounts (such as Individual Retirement Accounts) is to be included in household income, but MEAP regulations are silent as to the treatment of retirement accounts.
• EUSP regulations include several sources of income (such as monetary gifts and loans) in household income that are not addressed in the MEAP
regulations.
• MEAP regulations include all child support payments in household income while EUSP regulations specify that child support payments paid pursuant to a court order are not countable in household income.
• MEAP regulations include all public assistance payments in household income. EUSP regulations include Temporary Cash Assistance payments in household income but specifically exclude income from foster care grants, foster child care payments and welfare avoidance grants.
Household income is a critical factor in establishing an applicant’s eligibility for energy assistance benefits and the same application is used for both MEAP and EUSP. Consequently, no distinction is made in countable income for purposes of determining assistance awards. Office personnel advised us that the inconsistent treatment of household income in the Regulations was not intentional.
Recommendation #7
We recommend that the Office ensure that the local administering agencies establish procedures to identify sources of household income not reported by applicants. We also recommend that the Office address inconsistencies in the Code of Maryland Regulations relating to the treatment of household income for MEAP and EUSP.
Finding #8
The local administering agencies did not always award energy assistance benefits to applicants in the proper amounts or obtain required
documentation to help verify applicant household size.
Analysis
The local administering agencies did not always award energy assistance benefits to applicants in the proper amounts or obtain required documentation to help verify applicant household size. Our test of 100 energy assistance applications processed during fiscal year 2001 with awards totaling $62,227 disclosed that benefits were not awarded in the proper amounts for 14 applicants, resulting in a net overpayment of benefits totaling $6,148. Improper benefit amounts were awarded in these 14 cases because local administering agency personnel had either recorded erroneous data in the information technology system or did not obtain documentation (such as proof of income) substantiating eligibility and thus the applicant should have been denied benefits. Our test also disclosed that, for 33 applicants, there was no evidence that the local administering agencies had sighted copies of social security cards, as required, to help substantiate the household size reported by the applicant, which is a critical factor in determining eligibility for assistance.
Code of Maryland Regulations specifies the documentation that the local administering agencies must obtain to verify information reported by energy assistance applicants. Failure to obtain required documentation could result in the local administering agency making an improper eligibility determination or awarding benefits in improper amounts.
Recommendation #8
We recommend that the Office ensure that the local administering agencies award energy assistance benefits to applicants in the proper amounts. We also recommend that the local administering agencies document that they sighted the required social security cards.
Bruce A. Myers, Legislative Auditor Page 2
As indicated in the audit report, tests of original transactions confirmed that expenditures were properly approved and supported. However, the Department recognized during the fiscal year that there were some expenditure coding errors of original transactions. The Department subsequently corrected miscoded transactions in the accounting records by journal entry.
The audit did not test those related transactions. Based on a Department review of all recorded fiscal year 2001 expenditure transactions, the Department’s record of MEAP and EUSP expenditures, were as follows:
MEAP Fiscal Year 2001
State Fiscal Year Program Funding $36,448,106.85
10% Administrative Allowance $3,644,810.00
Recorded Administrative Expenditures – Cash (1) $3,056,058.48 Recorded Administrative Expenditures as a Percentage of Program
Funding
8.38%
Reported Program Expenditures – Cash (1) $33,887,449.73
Total Reported Expenditures – Cash (1) $36,943,508.21
Year End Administrative Expenditure Accrual $315,829.00
Year End Program Expenditure Accrual $1,042,009.00
Total Reported Expenditures – Cash and Accrued (2) (3) $38,301,346.21
EUSP Fiscal Year 2001
State Fiscal Year Program Funding $34,000,000.00
10% Administrative Allowance $3,400,000.00
Recorded Administrative Expenditures – Cash and Accrued $2,757,971.17 Recorded Administrative Expenditures as a Percentage of Program
Funding
8.11%
Reported Program Expenditures – Cash and Accrued $29,568,881.80 Total Reported Expenditures – Cash and Accrued (2) $32,326,852.97 (1) Cash Basis for Federal Grant Reporting
(2) Financial Management Information System (FMIS) DAFR6000 Report - June 30, 2001, Appropriation # C0112
(3) Accounts receivable of $1,853,239.36 recorded for FFY 4th quarter funding and benefit refunds in SFY 02. FFY o1 projected MEAP carry-forward $76,770.73.
Expenditures have been identified in the Department’s reviews that were recorded to incorrect project codes in fiscal year 2001. The effect of the errors decreased MEAP
administrative expenditures as a percentage of funding to 7.82% and increased EUSP
administrative expenditures as a percentage of funding to 9.60%. The Department was confident that it had not over expended the administrative allowance maximums for EUSP or MEAP even though the accounting records had to be corrected. Once recognized, the Department initiated procedures as stated above to prevent discrepancies in the future.
Bruce A. Myers, Legislative Auditor Page 3
The Department does not concur with all of the conclusions reached in Finding 2 and the related Recommendation concerning on-site monitoring reviews and obtaining audited financial statements from 13 out of 20 of the local administering agencies. Onsite monitoring visits were scheduled for the period of April 2001 through June 2001. Of the 21 local administering agencies, 17 on site monitoring visits were performed. Four were postponed, as the staff conducting the monitoring visits was needed in the Central Office to answer questions for internal auditors. In addition to the Legislative Auditors visiting OHEP, Federal Monitors also visited OHEP from the Department of Health and Human Services for the MEAP program.
Monthly desk monitoring is performed for all agencies as they submit their monthly budget reports. We plan to schedule onsite reviews of the remaining four local administering agencies and will ensure that all future monitoring include more stringent review of local agency records and supporting documentation for administrative expenses.
* With respect to obtaining audited financial statements, eight of the administering
agencies are operated by local Departments of Social Services (LDSS), which are audited by the Office of Inspector General (OIG). These are the LDSSs for Baltimore, Caroline, Cecil,
Dorchester, Frederick, Kent, Montgomery and Prince George’s Counties. The schedule of recent and planned audits by the OIG is enclosed.
The Department concurs with Finding 3 and Recommendation 3 concerning the review and awarding of technological contracts. This matter was also addressed in the Department’s March 26, 2001 response to an audit of procedures in the Community Services Administration.
All technology contracts are now being procured through the DHR Office of Technology for Human Services (OTHS). The OTHS Systems Development Office (SDO) is responsible for technology/systems acquisitions. The procedures established require that the Department of Budget and Management review all acquisition documents and authorize the release of the acquisition package. Proposal and Vendor Selection evaluation documentation, including justification of source selections is required and maintained as part of the project file by OTHS.
The DHR Contract Processing Unit and Attorney General’s Offices will review source selection documentation prior to finalizing vendor selection and release of vendor announcement. As recommended, resumes of key personnel shall be required within the proposals. Further, each contractor will be required to demonstrate an understanding of the operational objectives and business processes as well as providing a corporate resume of similar developments and technology applications.
The Department concurs with Finding 4 and Recommendation 4 concerning sufficient monitoring of contract progress to enhance the information technology system and any
extensions for project deliverables to determine whether amounts paid were commensurate with the vendor’s progress. As a part of the procedures initiated by DHR (see Finding 3), the SDO Chief has immediate responsibility for process management and satisfaction of requirements. At the outset of each program, a Requirements Review shall be held with all concerned parties and the vendor to ensure the clarity and joint understanding of all requirements prior to authorizing
Bruce A. Myers, Legislative Auditor Page 4
development process and demonstrate their satisfaction as part of system acceptance testing.
The final programmatic stage shall be an independent “Validation and Verification” to ensure the satisfaction of requirements and deliverables including quality and functionality of all end items. Vendor progress throughout the program lifecycle shall be monitored by the Program Manager and the SDO Senior Planner using established best practice procedures including Cost and Schedule Status Reporting techniques, Earned Value Analysis and weekly and monthly progress reports along with development tests and evaluation. As a redundant test to invoices, contractor invoices shall itemize any and all deliverables presented with the invoice cycle. The Vendor shall be required to provide employee work and time records to validate the labor costs.
Invoice documentation shall be reviewed by the SDO and the OTHS Budget and Management Group.
We concur with Finding 5 and Recommendation 5 concerning verification of labor hours and rates for vendor payments. As noted above in Finding 4, the SDO will require employee work and time records to validate labor costs.
We concur with Finding 6 and Recommendation 6 concerning incorporation of deadlines into the seven-phase plan developed to redesign the MEAP/EUSP information technology system. It should be noted, however, that the seven-phase plan was a guide used by a
Department of Budget and Management provided resource, since withdrawn, and not a formal project management plan. As a part of the development processes established and mentioned in Findings 3 through 5 above, project deliverables shall include at a minimum, program gateways/
milestones, incorporating requirements review, preliminary and critical design review, test and evaluation.
We concur with Finding 7 and Recommendation 7 concerning the inconsistencies between the regulations for MEAP and EUSP as it relates to identifying sources of household income. The MEAP regulations were adopted over ten years ago from the federal requirements governing the MEAP funds. The EUSP regulations were more recently adopted. As a result, OHEP will undertake a review of both sets of regulations in order to update the MEAP
regulations to be more consistent with EUSP. OHEP will further issue a set of instructions to the Local Administering Agencies reinforcing procedures to identify sources of household income that may not be prompted by the application. OHEP will also review the application instructions to ensure that the reporting of all household income includes Individual Retirement Accounts, monetary gifts and loans, child support and temporary cash assistance payments provided such inclusions are not contrary to federal regulations governing MEAP.
* We do not concur with Finding 8. Further discussions with the large local agency (Baltimore City) personnel and a visit to the site reveal that there appears to have been a
misunderstanding regarding how the batch process works, or the agency did not fully explain the process. The intake worker at the various intake sites performs the first review with the
applicant and initials the application form. This is considered the preliminary review before the application is referred to the supervisor for certification. The applications are forwarded to the site supervisor who also reviews and signs the application as certifiable. Applications approved