Earlier today (sorry for the delay – Frankfort is a HOT MESS) State Auditor Crit Luallen released the second part of her annual statewide audit of the Commonwealth of Kentucky. The first half of the audit, released on February 15, contained some 70 findings and recommendations related to deficiencies in financial reporting.

Let’s just say it’s not pretty, as you’d likely expect. Luallen’s report is questioning roughly $30,000 in federal chemical stockpile emergency funds reimbursed to Laurel County (overseen by Division of Emergency Management) and it calls for stronger oversight by the Transportation Cabinet re: the monitoring of who receives federal funds through the cabinet.

“The audit recommends the state strengthen its oversight of grant recipients across Kentucky to ensure these federal dollars are utilized correctly,” Luallen said. “With the increase in the amount of federal funding coming to the state through stimulus grants, it’s more important than ever that strong controls are in place by state government to properly monitor these funds.”

This latest report contains 19 findings that include three instances of material non-compliance. One in the Kentucky Department of Military Affairs: involving how its agency failed to properly oversee those federal Chemical Stockpile Emergency Preparedness Program funds, leading to a reimbursement of $29,241 in questionable expenses. And two in the Transportation Cabinet: two reimbursement requests by the Laurel County CSEPP Director to county government for program equipment insurance for $11,502 in August 2008 and $14,527 in February 2009. The report also questions $3,212 for generator maintenance submitted by the Laurel County Fiscal Court.

Other noted requests for reimbursement from Laurel County to KyDEM outside the 2009 fiscal review:

• $9,996 for a radio repeater purchased through PREP
• $10,987 reimbursement that included a receipt for home furnishings including a couch, recliners, beds, chest of drawers and night stands
• $2,709 reimbursement that included a $546 receipt for a CD player and satellite radio receiver and a $345 receipt for window tinting on three vehicles
• Notice of those expenditures is being sent to the federal government for review and a criminal investigation is ongoing.

The audit also uncovered weaknesses in the Transportation Cabinet that could allow federal contracts to be awarded to individuals who are suspended or debarred.

Let’s dig in to the findings…

You’ll likely want to read the rest after the jump…

The Department of Military Affairs Failed To Apply Appropriate Controls Over And Require Proper Supporting Documentation From Subrecipients

The previously mentioned $3,212 expenditure for a generator maintenance is questioned. Primarily because the Laurel County Fiscal Court had already paid for maintenance on 11 generators that included oil & filter changes, starting battery and testing/certification of electrical output.

• August 22, 2008 for $11,502 and February 5, 2009 for $14,527.
• April 15, 2008 for $9,996. Radio repeater purchase.
• March 6, 2007 for $10,987. That included $5,679 for home furnishings.
• October 3, 2005 for $2,709. CD player, XM receiver, window tinting.

The Kentucky Transportation Cabinet Should Ensure Vendors Are Not Reported As A Subrecipient On The SEFA Subrecipient List

In Fiscal Year 2009, the SEFA subrecipient list for five reviewed awards totaled $3,048,333. $85,666 of that amount was for state vendors. 1 of the 5 reviewed for the Division of Planning was strictly a state vendor. 2 of them had no vendor relations where the expenditure was included in the subrecipient total.

The Kentucky Transportation Cabinet Should Implement And Follow Formal Policies And Procedures For Subrecipient Monitoring

The Transportation Cabinet is responsible for monitoring all subrecipients for the Highway Planning and Construction Program. 16 subrecipients in the Office of Local Programs were tested. Highlights of the discrepancies found:

• 3 subrecipient reports didn’t indicate a received date, so there’s no way to verify they were reviewed in a timely manner
• 12 subrecipient files didn’t have desk review information documented, which means no evidence could be seen that the review was performed
• 2 subrecipient files were reviews were performed didn’t have a letter documented notifying the subrecipient of the results within the 6-month compliance timeframe
• 4 subrecipient files didn’t include a certification letter asking for the total amount of federal awards received
• 1 subrecipient didn’t have an A-133 audit in the file, but a certification letter was included stating that they’d received more than $500,000 in federal awards. A note indicated that an audit would be late. Though, no follow-up or documentation was ever found.
• 1 subrecipient’s audit was sent for review but no further information about any results were discovered

The Cabinet For Health And Family Services Should Maintain Documentation To Support Provider Eligibility In Accordance With The State Plan

The Department for Medicaid Services has a problem or two on its hands. During testing for Medicaid Provider Eligibility, 60 provider files for compliance with the state plan noted some exceptions:

• 1 provider’s documentation couldn’t be located in the EDS On-Base System
• 13 providers with old provider agreements not re-credentialed every 3 years
• 48 disclosures of ownership not annually updated
• 5 providers with expired licenses that weren’t updated
• 2 hospitals that didn’t have a current Joint Commission on Accreditation Healthcare Organization letter on file
• 2 providers missing current speciality licenses
• 1 provider missing required a Medicaid letter

Auditors were unable to determine if the providers were eligible to participate in the Medical Assistance Program.

The Cabinet For Health And Family Services Should Ensure Regulations Regarding Foster Parent Eligibility Requirements Are Followed

71 foster parent cases were reviewed in Campbell, Christian, Fayette, Jefferson, Johnson, Laurel, Montgomery, Shelby and Warren Counties. 4 of those cases were missing current criminal record checks. And a local office didn’t adhere to Title IV-E regulations and procedures for Foster Family Licensing.

The Cabinet For Health And Family Services Should Cross Train Other Employees In Preparing The Foster Care Title IV-E Report

Get this– there’s only one employee trained to submit quarterly reports to the federal government re: payments made on behalf of certain eligible children under the foster care and adoption assistance program. During FY09, $89,751,746 was spent by the Cabinet on Foster Care and Adoption Assistance expenditures. Absurd. No wonder there are so many nightmare stories floating about.

The Kentucky Department of Education Is Not Able To Reconcile Nutrition Program Meal Counts To Reported Expenditures

Let’s just put it this way: In FY2008, the total reimbursement amount on the Meal Count Report had a discrepancy of 124,296!

The rest of the report is alarming and goes on for days. If you’re interested in finding out – yet again – just how screwed up state government is? Read on at your own peril.

Click here (Warning: PDF Link) to download the entire 97-page audit.