A Report on On-site Audits of Residential Child Care Providers
August 2010
Report Number 10-043
Overall Conclusion
Two of the five residential child care providers (providers) audited appropriately spent federal and state funds to pay the costs they incurred for providing 24-hour residential child care services. Those providers were:
- Harmony Family Services, Inc. (see Chapter 1).
- Seton Home (see Chapter 2).
Two of the five providers audited appropriately spent federal and state funds for the majority of the expenditures that they reported on their 2009 cost reports and that auditors tested. However, those providers did not have adequate supporting documentation for a portion of the expenditures that auditors attempted to test. Those providers were:
- Behavioral Healthcare Services, Inc. (doing business as LoneStar Solutions, see Chapter 3).
- Houston Serenity Place, Inc. (see Chapter 4).
The remaining provider audited-Beacon of Hope Foster Care Agency, Inc.-had substantial weaknesses in its financial processes, and auditors were unable to determine whether it appropriately spent the federal and state funds it reported on its 2009 cost report. This provider (1) did not create or maintain documentation for the preparation of its 2009 cost report; (2) did not maintain sufficient documentation for expenditures auditors selected for testing; and (3) did not consistently, accurately, or appropriately record all revenue and expenditures in its general ledger and on its 2009 cost report (see Chapter 5).
The direct care and administrative costs that providers incur help to ensure the delivery of goods and services-such as 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) and report their revenue and expenditures on annual cost reports.
While some of the providers had weaknesses in maintaining adequate supporting documentation for their cost reports and/or financial processes, all five providers substantially complied with the Department's requirements related to background checks, training, certifications, screenings, and payments to foster parents (when applicable).
Auditors also communicated less significant issues 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 2009, the Department paid the five providers audited approximately $4,983,425 to provide services to 562 children.
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