THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review

Report # 548

A Review of the Utilization of Selected Federal Funds Disbursed by the Mississippi Department of Human Services

Executive Summary

Introduction

This review stemmed from legislative concern that Mississippi’s planning and development districts and community action agencies (PDDs and CAAs) may not be utilizing federal funds disbursed by Mississippi state agencies in a manner that maximizes the provision of services to eligible service recipients. Legislative concern was prompted by knowledge that there are eligible individuals unable to obtain needed services through PDDs and CAAs and, by speculation, that this unmet need may be due, in part, to the entities responsible for delivering the services incurring unnecessarily high administrative, other indirect, and program expenses.

Pursuant to these concerns, PEER sought to determine the amounts and purposes of federal funds disbursed to PDDs and CAAs by the Mississippi Department of Human Services (MDHS) in FFY1 2009 and to answer the following questions relative to these disbursements:

• Are safeguards over the expenditure of federal funds received by PDDs and CAAs through MDHS adequate to ensure that maximum dollars are applied to meeting service needs?
• To what extent are PDDs and CAAs meeting service needs within their service areas utilizing federal funds received from MDHS, including ensuring that the needs of those program-eligible individuals in the highest priority categories are being met? and,
• Are there opportunities for PDDs and CAAs to improve their efficiency in the provision of services federally funded through MDHS and thereby increase the number of persons served and units of service provided?

Background

Mississippi’s ten PDDs and twenty-one CAAs are non-profit corporations that were created in the 1960s to assist their local member communities with planning and economic and community development efforts, as well as to provide social services to low-income residents. In accordance with federal statutory authority, MDHS utilizes the PDDs and CAAs to administer the delivery of services through selected federally funded programs.

Eleven Mississippi state agencies disbursed $203,309,406 in federal funds to PDDs and CAAs during FFY 2009. MDHS disbursed 70% of these funds (approximately $142.5 million), primarily through three of its divisions: Early Childhood Care and Development, Community Services, and Aging and Adult Services.

Utilizing federal funds received through MDHS, PDDs administer the Child Care Development Fund Program, which financially assists eligible low-income families to obtain child care services so that family members can remain employed or enrolled in school, as well as twenty-six aging and adult services programs (e. g., congregate meals, home-delivered meals, transportation, homemaker services). CAAs administer the Low-Income Home Energy Assistance Program, the Weatherization Assistance Program, and various programs established to address poverty at the community level funded through the federal Community Services Block Grant.

The federal government allocates program funds to the states according to population and needs-based funding formulas. Matching requirements for the receipt of federal funds vary by program and funding source. Also, the timing of the federal government’s disbursement of a state’s annual federal program funding allocations varies by program. Like the federal government, MDHS’s divisions allocate program funds to the PDDs and CAAs according to population and needs-based funding formulas. The divisions disburse federal funds to the PDDs and CAAs monthly, based on monthly cash advance requests and reports of actual past month expenditures made by the PDDs and CAAs.

Conclusions

Are safeguards over the expenditure of federal funds received by PDDs and CAAs through MDHS adequate to ensure that maximum dollars are applied to meeting service needs?

While safeguards are in place over the expenditure of federal funds received by PDDs and CAAs through MDHS, these safeguards have deficiencies and therefore do not guarantee that these funds are used as efficiently as possible to maximize the delivery of services to needy populations.

PEER found no deficiencies in the following safeguards over the expenditure of federal funds received by PDDs and CAAs: independent financial audits of service providers, in-depth auditing of service providers by MDHS, and a competitively bid statewide contract for the provision of selected program services.

However, PEER found deficiencies in the following areas:

• deficiencies in administrative cost caps--Although there are administrative cost caps on most of the federal programs covered in this review, PEER found limited value in the caps because federal guidance on classifying costs as administrative versus indirect is ambiguous. Also, the types of costs defined as administrative (and therefore subject to the caps) have become more restricted over time, exceptions to the caps are regularly approved in certain programs by MDHS, and, in the case of the Child Care Development Fund, none of the designated agents’ expenses are subject to the five percent administrative cost cap. Thus, the cost caps cannot be viewed as an adequate control for minimizing costs that are not directly related to services for needy populations.
• no indirect cost caps or clear criteria for approving indirect cost rates--While the U. S. Department of Commerce and MDHS Funding Divisions annually approve the indirect cost rates of PDDs and CAAs, they do not impose caps on indirect cost rates nor do they have clear criteria for approving indirect cost rates. Thus it is difficult to know whether the wide disparity in indirect cost rates is reasonable for the administration of the programs.
• lack of consideration for efficiency when approving annual budgets--Federal regulations require MDHS to approve PDDs’ and CAAs’ annual program budgets and budget plan revisions. However, MDHS Funding Divisions do not analyze the efficiency of providing services in the process of approving annual program budgets. Thus, the budget provides no assurance that services are delivered as efficiently as possible.
• cumbersome AAA budget request process--Federal regulations require PDDs to submit separate budgets for each subgrant. Because MDHS’s Division of Aging and Adult Services makes separate subgrants for each program and funding source, its budget request process is cumbersome and potentially impedes the division’s ability to focus on the efficiency of the programs.
• inaccurate data in electronic databases of program expenditures, units of service, and unit costs maintained by MDHS--MDHS utilizes various federally mandated electronic databases to track and report program expenditures and service data; however, inaccurate data compromises the utility of MDHS databases as a tool for program accountability.
• limitations regarding MDHS monitoring reviews--While federal regulations require the Division of Program Integrity to determine whether expenses are reasonable and necessary for the administration of the subgrant, the division generally does not question the reasonableness or necessity of disbursements, as long as they coincide with the budgeted amounts approved by the Funding Divisions. Thus monitoring reviews may not give assurances regarding the efficiency of PDDs or CAAs. Also, the Division of Program Integrity lacks sampling procedures to ensure an acceptable error rate by which to judge the accuracy of findings related to disbursements.
• PDDs’ failure to provide adequate financial records--According to MDHS, during a monitoring review in April and May 2010, one PDD failed to provide the Division of Program Integrity monitors with adequate financial documentation to support financial claims. MDHS had not finalized this review as of November 2010.

To what extent are PDDs and CAAs meeting service needs within their service areas utilizing federal funds received from MDHS, including ensuring that the needs of those program-eligible individuals in the highest priority categories are being met?

In Mississippi, as well as nationally, only a small percentage of the potentially eligible and priority service group populations receive services through the various programs included in this review.

In general, service priority under the programs included in this review is given to lower-income individuals. Other priorities are built into specific programs, such as a priority in the Child Care Development Fund Program to serve children with special needs and a priority in the aging and adult services programs to serve low-income minorities, individuals living in rural areas, and the elderly at greatest risk for institutional placement.

While the prioritization of applicants for the Child Care Development Fund and Weatherization Assistance programs is in accordance with federal service priority mandates, flaws in the assignment of points on the Consumer Information Form that AAAs use to assess and prioritize applicants for programs receiving federal funds through MDHS’s Division of Aging and Adult Services could result in certain federally mandated priorities not being met.

State and national data indicate a potentially large need for child care services through the Child Care Development Fund Program. The percentage of eligible and priority populations receiving federally funded aging and adult services in Mississippi is relatively small, with only 14.5% of residents age sixty or above with incomes below the poverty level statewide receiving services. While federal funding limitations prevent the delivery of services to all of those eligible and in need, it is possible that more people could be served with current funds if AAAs maximized their efficiency in the delivery of services.

The demographic characteristics of individuals receiving services vary by program. While 96% of clients served through aging and adult services programs are age sixty or older, only 40% of clients served through these programs statewide report incomes below the poverty level. This could be reflective of the program’s primary objective of preventing the unnecessary institutional placement of the elderly, regardless of income level.

While the length of waiting lists varies by program and service provider, it is not clear that these lists are representative of true unmet demand, as some lists reportedly contain the names of individuals who have not been screened for eligibility while other lists do not contain the names of all individuals who are eligible for and requesting services.

Are there opportunities for PDDs and CAAs to improve their efficiency in the provision of services and thereby increase the number of persons served and units of service provided?

Despite concerns over the accuracy of some of the data on which PEER’s efficiency review is based, PEER identified the potential to increase the number of persons served and units of service provided across all programs included in this review.

PEER's review of program costs among service providers indicates that some are providing services more efficiently than others. By analyzing provider costs and identifying opportunities for improved efficiency in service delivery, MDHS could assist the less efficient PDDs and CAAs to increase the number of clients served and units of service provided.

Recommendations

• For all federal programs included in this review, the Mississippi Department of Human Services (MDHS) should seek clarification of definitions and classifications for administrative versus indirect costs from the U. S. Department of Health and Human Services. Further, MDHS should consult with the U. S. Department of Health and Human Services to develop explicit criteria for the consideration and approval of proposed indirect cost rates and guidance for setting indirect cost caps. Such clarification and guidance should provide needed uniformity in classifying and approving budgeted expenses and help ensure that maximum dollars are being applied to actual services as opposed to administrative or indirect costs.
• As recommended by the State Auditor’s Office in a March 2007 report on the Child Care Development Fund Program, MDHS should review its current contract in comparison to its 1998 contract to verify that there have been no changes to services that would be subject to the five percent administrative cost cap.
• Before approving individual subgrantee budgets, MDHS should analyze relevant unit cost data available through federally mandated databases for all entities delivering the service (once this data has been validated as accurate [see recommendations 5 and 6]) to ensure that each proposed budget is based on the most efficient and effective delivery of services.
• Based on the apparent success of its statewide contract for meals in reducing the cost per meal, MDHS should explore the feasibility of entering into other competitively bid statewide contracts (e. g., homemaker) as a means of reducing the unit costs of providing the services.
• Given the significant data inaccuracy problems observed in MDHS’s federally mandated Results Oriented Management and Accountability and National Aging Program Information Systems electronic databases, an electronic data processing audit should be conducted on the systems to determine why errors are occurring and how they could be prevented in the future.
• MDHS should increase the accuracy of the data in its National Aging Program Information Systems State Program Performance Report by:
  
  
  • validating the self-reported National Aging Program Information Systems data through available external data, such as the data maintained by the statewide contract meal service vendor, Valley Services, Inc., documenting the number of congregate and home-delivered meals purchased by each AAA;
  • supplementing federal National Aging Program Information Systems instructions with MDHS instructions designed to prevent common AAA reporting errors, such as failing to include all required data in the total expenditure and units of service columns (i. e., by specifying all types of expenditure and unit of service data to include in the “total” columns); and,
  • financially penalizing AAAs that refuse to provide federally required data, such as expenditure and units of service data for Medicaid Title XIX Waiver program meals (e. g., by withholding a portion of the AAA’s administrative funds).
• MDHS’s Division of Program Integrity should establish more detailed sampling procedures for its monitors’ reviews of PDD/CAA disbursements to ensure an acceptable error rate by which to judge the accuracy of its findings related to disbursements. Specifically, monitors should be required to determine the desired confidence level, expected occurrence rate (i. e., the percentage of disbursements with findings of noncompliance), and the upper precision (i. e., the magnitude of deviation of a sample value from the population).2
• MDHS’s Division of Program Integrity should establish written criteria in its monitoring instrument for what constitutes a “reasonable and necessary” expenditure that is sufficient to allow a third-party reviewer to draw the same conclusion independently.
• In order to ensure the timely resolution of outstanding Program Integrity Division monitoring findings, MDHS should establish time standards for each step in the resolution process and ensure that these standards are adhered to by all parties.
• MDHS should revise its system for awarding points using the Consumer Information Form in order to ensure that targeted populations are being prioritized according to federal mandates. Specifically, MDHS should award three points to applicants who have limited English proficiency and should only award the three additional points currently awarded to all minorities to those minorities who are also low-income.
• MDHS should seek to increase the percentages of eligible populations being served through federally funded programs through better oversight of budgeted and actual program expenditures.
• After verifying the validity of unit cost data through the steps contained in recommendations 5 and 6, MDHS should analyze the unit cost data available through federally mandated databases to identify the most efficient service providers. MDHS should analyze subgrant budget requests and actual program and expenditure data to determine how the most efficient service providers are able to provide the services at lower costs. By sharing this information with other providers and encouraging reductions in the costs of service delivery where warranted, MDHS could drive down unit costs to the level of the most efficient provider and thereby increase the number of clients served and units of service provided through these federally funded programs.

1  The Federal Fiscal Year (FFY) is the accounting year of the federal government. It begins on October 1 and ends on September 30 of the next calendar year.

2  Procedures for determining confidence levels, occurrence rates, and upper precision may be found in various accounting texts (e. g., Barron’s 2010 Accounting Handbook by Joel G. Siegel and Jae K. Shim.)

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