THE MISSISSIPPI LEGISLATURE

PEER reviewed a “revenue maximization” contract between the Mississippi Department of Human Services and the Institutes for Health and Human Services, Inc. (IHHS) to determine the extent to which the contract protected the state’s interest. The purpose of the contract was to identify additional revenues the department could claim under Title IV-E of the Social Security Act. Title IV-E provides federal financial assistance to the state for foster care, adoption assistance payments, and some administrative costs.

PEER also reviewed the results of a federal audit of IHHS’s work on this contract and a single audit management report by the Office of the State Auditor.

On August 10, 2000, the Office of Inspector General, Office of Audit Services, recommended disallowance of $14.7 million in federal reimbursements resulting from MDHS’s revenue maximization contract with IHHS for the period October 1, 1993, to June 30, 1997. On October 20, 2000, the federal Administration for Children and Families accepted these recommendations.

MDHS has repaid $3 million of this amount and is disputing the repayment of $11.7 million the Inspector General says was based on ineligible or unallowable costs prepared for the state by IHHS. The Exhibit, page viii, details these exceptions by category, amount demanded, and status.

MDHS appealed the disallowances to the Departmental Appeals Board of the U.S. Department of Health and Human Services. The department is also seeking reconsideration by the Administration for Children and Families of the disallowances.

On February 8, 2000, the State Auditor’s Office released a Single Audit Management Report that was an audit of several state programs receiving federal financial assistance for state Fiscal Year 1999. In the audit, which included the Title IV-E program, state auditors took exception to more than $7 million in retroactive claims prepared by IHHS. State auditors also recommended that the department initiate internal controls that would ensure compliance with all state and federal laws, regulations, and grant requirements.

MDHS’s contract with IHHS did not protect the state’s interest, which would have been best served by adherence to the elements of a model contracting system. Such a system, or a set of “best practices,” involves at least seven steps, including:

• documentation of need;

• development of a formal request for proposals (RFP) or request for qualifications;

• notice of intent, or method of advertising its RFP;

• impartial evaluation of proposals received;

• development of a written contract;

• contract monitoring; and,

• contract evaluation.

Major deficiencies in MDHS’s contract with IHHS included MDHS’s failure to assess its need for the services. PEER questions the need for any state agency to contract for “revenue maximization” services, because this function should logically be performed by agency personnel who should have sufficient knowledge of the programs they administer to know what federal funds are available and how to obtain them.

MDHS also entered into the contract without issuing a request for proposals or competitively bidding for the contract. Therefore, the agency does not know whether it could have obtained the same services at a lower rate. Also, the contract did not include measurable performance standards of IHHS’s work or indemnification for the state in the event of audit exceptions.

1. The Mississippi Department of Human Services should ensure that its staff receives regular training in relevant federal laws and regulations in the programs that offer revenue maximization opportunities. Regardless of whether the department performs the task itself or uses an outside consultant, accurate and up-to-date knowledge of these programs is necessary for proper oversight of contract performance.

2. The Mississippi Department of Human Services should only consider use of outside revenue maximization consultants after careful determination of need and adherence to the remainder of the “best practices” associated with sound public contracting and procurement procedures.