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An Audit Report on Capital Budgets at Health and Human Services Agencies

August 2015

Report Number 15-044

Overall Conclusion

Overall, the State's health and human services agencies have processes and related controls to help ensure that they spend capital budget funds as intended and in compliance with requirements for the expenditure of those funds.

The agencies audited included the Health and Human Services Commission (HHSC), the Department of Aging and Disability Services (DADS), the Department of Assistive and Rehabilitative Services (DARS), the Department of Family and Protective Services (DFPS), and the Department of State Health Services (DSHS). Those agencies were appropriated a total of $1,270,776,791 for 236 capital projects for the 2012-2013 and 2014-2015 biennia. Their budgets for individual capital projects during those biennia ranged from $35,690 to $69,153,846.

Compliance with Requirements for Capital Budgets, Transfers, and Interim Capital Projects

For all agencies audited, auditors reviewed the establishment of capital budgets, transfers related to capital budgets, and interim capital projects. None of the agencies audited transferred capital project budgets to non-capital project budgets, and none of them created an interim capital project after the Legislature had not appropriated funds for the same capital project during the previous legislative session.

While the audited agencies have processes and related controls for capital budgets, auditors identified certain opportunities for improvement. Specifically:

- Establishment of capital budgets. The audited agencies correctly established 231 (98 percent) of the 236 capital project budgets in the State's Uniform Statewide Accounting System (USAS). However, DSHS and DADS did not establish four capital budgets correctly in USAS. The original budgets established in USAS did not match the appropriated amounts in the General Appropriations Act, and the agencies did not make necessary corrections. The differences between the four budgets in USAS and the appropriated amounts in the General Appropriations Act totaled $883,607 (in absolute value) for those projects. DFPS corrected one capital budget established incorrectly in USAS after auditors brought that error to its attention.

- Transfers related to capital budgets. During the 2012-2013 biennium and the 2014-2015 biennium through January 31, 2015, the audited agencies made capital budget transfers exceeding 25 percent that were related to 14 capital projects. Because those transfers exceeded 25 percent, the agencies were required to submit a request for an exception to the transfer requirements in the General Appropriations Act to the Legislative Budget Board and the Office of the Governor to make those transfers. Auditors determined the following:

-- DSHS submitted the required request for an exception to the transfer requirements for one capital project; that request contained the required information and the Legislative Budget Board and the Office of the Governor approved the transfer.

-- DFPS did not submit the required request for an exception to the transfer requirements for one capital project; however, it subsequently made adjustments to bring the associated transfer below the 25 percent threshold.

-- DARS did not submit required requests for exceptions to the transfer requirements for three capital projects. As a result, DARS released the associated funds in USAS without receiving the proper approvals. After auditors brought that to its attention, DARS made corrections for two of those capital projects, but the third capital project was already closed and DARS was unable to make a correction. DARS submitted the required request for an exception to the transfer requirements for a fourth capital project; that request contained the required information and the Legislative Budget Board and the Office of the Governor approved the transfer.

-- HHSC did not submit the required request for an exception to the transfer requirements for one capital project. As a result, HHSC released the associated funds in USAS without receiving the proper approvals. It submitted the required request for an exception to the transfer requirements for another capital project, and that request contained the required information and the Legislative Budget Board and the Office of the Governor approved the transfer.

-- DADS did not submit the required request for an exception to the transfer requirements for one capital project. It submitted the required requests for exceptions to the transfer requirements for five other capital projects; however, it made transfers for two of those capital projects prior to obtaining the approval of the Legislature Budget Board and the Office of the Governor. Those five requests contained the required information, and the Legislative Budget Board and the Office of the Governor approved the transfers.

- Interim capital projects. During the 2012-2013 biennium and the 2014-2015 biennium through January 31, 2015, HHSC, DADS, DARS, and DFPS created 16 interim capital projects. Auditors determined the following:

-- The agencies funded 6 of the 16 interim capital projects through existing capital budget projects and, therefore, they were not required to obtain approvals from the Legislative Budget Board and the Office of the Governor.

-- DADS, DARS, and DFPS received approval from both the Legislative Budget Board and the Office of the Governor to fund 9 of the 16 interim capital projects. For two of those nine interim capital projects, DADS expended non-capital project funds while awaiting approval from the Legislative Budget Board and the Office of the Governor.

-- DARS initially set up an interim capital project through direct transfers from non-capital projects without obtaining required approvals from the Legislative Budget Board and the Office of the Governor. DARS corrected that transfer after auditors brought that error to its attention.

Compliance with General Appropriations Act Riders

At DADS and HHSC, auditors also tested compliance with General Appropriations Act riders related to capital budgets for the 2012-2013 biennium and the 2014-2015 biennium through January 31, 2015, and determined the following:

-- DADS complied with all three riders related to capital projects. Those riders were in the areas of monthly financial reports, general obligation bond proceeds, and unexpended balance authority.

-- HHSC complied with three riders related to capital projects. Those riders were in the areas of unexpended balances, funding of debt, and the development of a data warehouse. Overall, HHSC complied with a fourth rider requiring it to submit a monthly financial report to the Legislative Budget Board and the Office of the Governor, but it did not include managed care information in that report as the rider required. However, the Legislative Budget Board communicated to HHSC that HHSC had provided all required information in that report.

Compliance with Requirements for Expenditures

At DADS and HHSC, auditors also tested 60 capital expenditures totaling $27,093,355 (1) for evidence of proper approvals and (2) to verify that the expenditures were for capital projects. DADS and HHSC had proper approval for those expenditures, and they did not spend funds appropriated for capital purposes on non-capital projects.

At DADS and HHSC, auditors also tested 60 expenditures classified as non-capital expenditures totaling $20,755,111 (1) for evidence of proper approvals and (2) to verify that the expenditures were not for capital projects. DADS and HHSC had proper approval for those expenditures. In general, they did not spend funds appropriated for non-capital purposes on capital projects. Specifically:

- Although they were classified as non-capital expenditures, 3 (10 percent) of the 30 expenditures tested at HHSC totaling $4,113,919 should have been classified as capital projects and paid for with capital projects funds. HHSC corrected two of those expenditures and ultimately paid for them with capital project funds.

- Although they were classified as non-capital expenditures, 2 (7 percent) of the 30 expenditures tested at DADS totaling $634,792 should have been classified as capital projects and paid for with capital project funds.

Auditors communicated other, less significant issues to agency management separately in writing.

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