Hearing details massive state waste

March 25, 2010


Sometimes the most informative legislative hearings are the informational hearings. No vote is taken, there is an abundance of tough talk by legislators, mea maxima culps uttered by egregious state agency heads, and everyone goes home until the next hearing.

Yesterday there was just such a hearing. However, the information provided was mind-boggling as California struggles with staggering debt.

Assemblywoman Alyson Huber, D-El Dorado Hills, chairwoman of the Joint Legislative Audit Committee, put several state agency representatives on the hot seat for explanations about why they had not implemented all of the state auditor’s recommendations for agency savings totaling $1.4 billion.

Demonstrating just how important Capitol employees find informational budget hearings, just before the meeting started, staffers joked that most of the members wouldn’t even show for the meeting. They were right. Only five of the 14 committee members attended the hearing, and two departed before the hearing concluded.

Assemblywoman Huber explained that the hearing was based on the Implementation of the State Auditor’s Recommendations report and would highlight several departments that could be managed better and save the state $1.4 billion if the auditor’s recommendations were implemented. Huber said the purpose of the hearing was to find out why the recommendations had not been acted upon.

State Auditor Elaine Howle told the committee that of the 281 recommendations made by the state auditor for savings, only 132 had been implemented by state agencies, 88 were still in the process of implementation and 61 were essentially ignored. Howle said that of the 61 outstanding recommendations, agencies “have taken no action, did not provide a response, or corrective action is pending.”

Sen. Roy Ashburn, R-Bakersfield, asked Howle if the agencies have systems in place to meet the recommendations. “Some don’t have the resources however, in many cases, better management practices and policies, such as in the Department of Corrections,” would result in tremendous savings.

Howle cited the Department of Social Services as having made $42.1 million in food stamp overpayment collections, but has been delayed in collections because of federal USDA reconciliation issues, as well as similar state and county delays.

Char Lee Metsker, deputy director with the Department of Social Services said they did not dispute the auditor’s report. Metsker explained that the reimbursements must go through the IRS and Franchise Tax Board intercepting tax refund procedure for payment, and that it is a long process, which occurs only once each year. Metsker said that her department has lost “institutional knowledge” causing the process to take longer through employee attrition.

The Department of Social Services is currently attempting to collect on 16 quarters (four years) of overpayments, which should have been done quarterly in retrospect, according to Metsker.

Sen. Ashburn asked Metsker how the department could make such large overpayments, and why it took so much time to collect repayments, suggesting that something else is not working in their system.

Sen. Dave Cogdill, R-Modesto, followed the same line of questioning, asking why only now the department taking steps to collect on 16 quarters and $42 million in food stamp overpayments. Cogdill also asked Metsker for the cause of the overpayments.

Metsker said that overpayments occur less because of administrative errors, and mostly because they are “client caused, inadvertently or intentionally.”

The big surprise during Metsker’s testimony was the discovery that there are no penalties for intentionally committing food stamp fraud. The other interesting procedural snafu is that the state already provides incentives to the counties to collect overpayments by paying counties a cut of the repayments, practically encouraging overpayments in order to collect financial incentives when they are repaid.

The Department of Health Care Services pays too much for wheelchair reimbursements and is not collecting on co-payments from Pharmacists totaling more than $33 million in potential savings to the state.

Wheelchairs are billed to the state at $3,000 when most cost only $200 each. Assemblywoman Huber asked department representatives, “Are you guys paying the best prices for durable equipment?” The department’s chief of medical review said that they discovered the overbilling of wheelchairs by suppliers, by more than 80 percent and are working to change the behavior. Huber appeared frustrated and suggested that in the future, the department doesn’t just perform random audits, but put more resources on the looking more closely at all wheel chair claims to prevent the overcharges and overpayments.

The department admitted to the committee that it does not require invoices to be submitted with the claim, allowing the wheelchair providers to charge whatever they want on a claim.

Department representative Jan English admitted it had not been aggressive in collecting but are now aggressively working on the overbillings in order to “send a message” to providers. Huber said she did not subscribe to “sending messages as a deterrent effect,” but when a few providers caught overbilling, will be more effective. “Overbilling is the worst fraud on the people of California,” concluded Huber.

The final agency to appear was The Department of Corrections and Rehabilitation  (CDCR).

The State Auditor first explained that the department has not addressed the large overtime costs corrections still pays as well as an unusual classification of “differential pay,” paid to corrections employees who supervise two or more inmates at medical facilities. The audit revealed that in visiting six different correctional facilities, two physicians had not actually worked overtime, and differential pay was not warranted. Howle said that simple management controls should and could be in place to prevent the $58 million paid out for overtime and differential pay.

Since 2002, the State Auditor also found several instances where the CDCR leased office space, left it unoccupied, eventually turning it over to the Department of General Services (DGS), which did nothing with it. The CDCR did not follow up and the office space sat vacant.

Scott Kernan, undersecretary of operations for the Department of Corrections and Rehabilitation defended the overtime, insisting that he does not know of a formula to apply to changing staffing needs. Assemblywoman Huber refused Kernan’s explanation saying, “Inmate populations have not changed much in the last decade.” Huber said that our universities have experts who can assist the CDCR develop a staffing model in order to limit overtime expenses.

Kernan said he was not aware of the specific findings in the audit.

Huber ended the session by telling the CDCR’s Kernan that to read the audit and plan on meeting the committee again with proposed CDCR staffing changes and explanations.

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