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A Report on On-site Audits of Residential Child Care Providers

September 2009

Report Number 10-007

Overall Conclusion

Four of five residential child care providers audited appropriately spent federal and state funds to pay direct costs incurred for providing 24-hour residential child care services. These payments are intended to ensure the delivery of goods and services-such as direct care, therapy, food, shelter, and clothing-that promote the mental and physical well-being of children placed in the providers' care. Providers deliver these services through contracts with the Department of Family and Protective Services (Department). The four providers were:

- Azleway, Inc. (see Chapter 1).

- Homes4Good (see Chapter 2).

- The Hughen Center (see Chapter 3).

- Lutheran Social Services of the South (see Chapter 4).

These four providers also spent federal and state funds to pay for administrative costs that were reasonable and appropriate.

The fifth provider audited--On Call Family Services--has serious weaknesses in maintaining financial records, reporting related party transactions, preparing its cost report, and documenting information technology controls (see Chapter 5). Financial weaknesses identified include missing and/or insufficient documentation for financial transactions. Auditors made several attempts to obtain the information necessary to complete audit work associated with the provider's financial transactions and processes, but the provider did not provide all required financial information.

The State Auditor's Office requested that management for each provider submit a representation letter. The purpose of a representation letter is to provide assurances that, to the best of management's knowledge, the information provided to auditors was complete and correct. On Call Family Services did not provide a representation letter and, therefore, did not provide those assurances. (See Appendix 9, page 59, for a copy of the State Auditor's Office's request for a representation letter.)

The findings and conclusions related to On Call Family Services in this report were based on the information that On Call Family Services provided to auditors and other evidence that auditors obtained. Because On Call Family Services management did not provide assurances that the information provided to auditors was complete and correct, the findings and conclusions are subject to that limitation.

Auditors also identified less significant issues that were communicated separately in writing to each provider.

Under their unit rate contracts with the Department, providers are paid an amount per child per day for delivering services. The Department does not control how providers spend the payments, as long as the providers (1) spend these funds legally and (2) account for their expenditures accurately in cost reports they submit to the Health and Human Services Commission for rate-setting purposes. Expenditures reported as unallowable costs are not included in the cost data used to set unit rates. During calendar year 2008, the Department paid the five providers audited approximately $28.2 million to provide services to 3,357 children.

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