The $9 million question

County finds social services agency claimed revenues feds won’t pay 

HUDSON–Art Baer (R-Hillsdale) said it was last year at about this time when he looked at the figures for the county Department of Social Services and saw something odd. “I noticed there was negative revenue from the federal government,” he said.

A subsequent audit of the department determined that the “negative revenue” amounted to about $9 million, meaning the county is short that much money that it had said it was getting from Washington.

“There’s no fraud here,” said Mr. Baer in a phone interview this week. He said the federal government has a cap on how much it will reimburse the county for programs run by the social services department. In some cases the county must shoulder 20% or more of the cost. But the department was counting everything it spent as reimbursable, anticipating revenue from the federal government that the government was not obligated to pay.

Why didn’t anybody notice? County Treasurer Ken Wilber said the county is required to conduct an annual audit of the funds it receives from state and federal governments because the amounts exceed $500,000 a year. He said those reports are sent to state and federal officials. “They never said anything about it to us,” Mr. Wilber said.

In the last few years, what Mr. Baer described as “the growing market” for services from the county Department of Social Services (DSS) meant that the amount of money left unpaid because of the failure to account for the limits the federal government set on reimbursement grew rapidly. But even Mr. Baer didn’t know the full scope of the problem until recently, when the private firm of Pattison Kosky Howe & Bucci CPAs PC performed its annual audit and came up with the $9 million figure.

Mr. Baer says that the problem was initially discovered in 2008 during the budget review. “We told them to stop the practice in the fall of ’08,” said the chairman, referring to himself and the county board’s Salary and Budget Review Committee. But he acknowledges that the overestimating of federal payments continued into this year.

Mr. Mossman, the DSS commissioner, said that the $9 million amount is a total figure of unrealized payments over a five year period. That’s about 6% of the total agency budget for that same period. He said the money for the programs–things like foster care and Medicaid and emergency programs for people in need–was “what we normally would expect” to have spent on those programs over the period.

Mr. Mossman also noted the complexity of the funding cycles, with the county, state and federal governments each operating on a different fiscal year and allowing agencies like his to keep accounts open for a two-year “look-back” period. It was the county’s auditors who decided that accounting should be current rather than stretched out over the two years, he said.

To correct the problem and keep it from recurring, the Board of Supervisors is about to consider taking a number of steps, starting with requests for proposals for a new auditing firm.

Mr. Bucci’s office said this week he would have no comment on the matter at this time.

Another new policy the supervisors plan to implement next year is hiring a county controller who is a certified public accountant, a qualification that was not previously required. The county treasurer, Ken Wilber, is not a CPA either, but he is elected by county voters unlike the controller, who will be appointed. Mr. Baer said there are no CPAs working in the country treasurer’s office at this time.

As part of this new policy, the accountants working in each of the county departments will continue to be managed by the department heads but will report to the new controller.

Mr. Baer also wants the county to get out ahead of future problems by adopting standards that require private companies to use standard methods and practices to evaluate all county assets, including its pension funds.

The chairman estimates the cost of implementing all these reforms will come to about $200,000, an amount that is part of the county’s 2010 budget, which will be adopted before the end of the year.

Mr. Baer believes the county can weather the storm created by the $9 million because the fund balance is still in the black and because the county has only borrowed about 20% of the amount it is authorized to borrow. But he says the bond market, which is where the county borrows much of the cash it needs for some projects, might raise the interest rate the county pays if investors believe the county is in a weaker financial position.

Overall, though, Mr. Baer is optimistic, saying the shortfall of $9 million won’t affect the county’s financial picture. “We run a pretty tight ship here,” he said.

Mr. Wilber agreed that the county remains “in pretty good fiscal shape,” but he admits that the $9 million “made kind of a hole in things.”

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