EFF DSHS COMPLAINT

June 10, 2004

Stephen Henigson, Regional Administrator
U.S. Department of Health and Human Services
Administration for Children and Families
Blanchard Plaza
2201 Sixth Ave. Rm. 610-M/S RX-70
Seattle, Washington 98121

RE: Fraudulent use of federal CFDA monies

Dear Mr. Henigson:

For the past few years, the Washington State Auditor has issued findings against the state Department of Social and Health Services (DSHS) for various violations of state and federal law. For purposes of this complaint, we (the Evergreen Freedom Foundation) would like to bring to your attention several of those audit findings so your office can take the appropriate action. Despite multiple repeat violations showing up in DSHS audits, the state legislature has not initiated corrective action as of this writing. It is our opinion that corrective action will need to be initiated by the federal government.

In particular we would like to highlight Audit Report No. 6370 (attached), Special Investigation: In-Home Child Care Providers in Mattawa, Washington.

Issued on May 28, 2003, the report identified potential inappropriate expenditures of an estimated $2 million in federal funds to 50 day care providers in Mattawa, Washington. The audit found that:

• DSHS had insufficient documentation to support payments to the child care providers,

• providers did not meet documentation requirements relating to health and safety standards, and

• providers gave false information on application forms.

Though the DSHS licensor responsible for issuing these licenses refused to meet with state auditors, State Auditor Brian Sonntag was able to reach the following conclusion:

As a result of the falsified information on application and background inquiry forms, falsified and missing attendance records, and other missing provider documents, we are questioning the payment of an estimated $2 million in federal funds to these 50 providers. These provider payments were charged to federal funds in the Child Care Development Fund-Discretionary during the time period reviewed. This condition was caused by weak or non-existent internal controls over the application and monitoring processes. These control weaknesses are in addition to the payment monitoring weaknesses identified in our earlier reports.

Because of the serious nature of these issues, we sent an official letter [attached] to the Department's Director of Child Care and Early Learning to provide early notification of the significant issues identified in the investigation. We will rely on the Division of Fraud Investigations to forward evidence in this case to the Grant County Prosecuting Attorney's Office for any action deemed appropriate under the circumstances.

DSHS initially complied with the request to refer evidence to Grant County law enforcement. However, according to the Grant County Sheriff, that changed after the county successfully prosecuted an individual for illegally receiving $241,000 in state and federal money. As of this morning, June 10, the Grant County Sheriff indicated that DSHS is frustrating his efforts by not providing him with all the necessary documents he has repeatedly requested. The Grant County Prosecuting Attorney has also indicated that without this additional evidence, his office is unable to begin additional prosecutions (stories on this situation attached).

Though not as troubling as DSHS' refusal to cooperate with local law enforcement, the State Auditor's report also stated:

• ...the Department does not perform any procedures to verify that the correct SSN has been provided or that an applicant has supplied his or her real name.

• All providers billed the Department for services that they could not document they provided. We estimate that $2 million in federal Child Care Development Funds was paid to these 50 providers during the periods reviewed. In addition, most providers have not yet corrected all of the deficiencies cited in this report but continue to receive child care payments from the Department.

• Some in-home providers did not provide accurate and complete information on the Criminal History and Background Information form. One provider had a 1997 felony warrant that was not identified during the application process. This provider is still licensed and operating as child care provider.

• This condition occurred because the Department's procedures for criminal history and background inquiries are inadequate. The applicant is not required to provide a SSN on the background inquiry form and this number is not used during the review. The Department uses only the name and address of the applicant to perform a background check. When the SSN is available to the Department, it does not verify the validity of the number or conduct a nation-wide background search using this information.

• This condition creates a risk that the Department may not be aware of a person who could pose a potential danger to the children placed in the care of this provider.

In this year's Washington State Single Audit Report, the State Auditor also made the following statements concerning this problem [from Finding 03-20 (attached)]:

• The Department has identified a significant amount of overpayments. The overpayments, estimated at $3.2 million, consisted of approximately 25 percent provider overpayments and 75 percent client overpayments.

• The Department continues to allow licensed family home child care providers to use inadequate alternative records as support for payments issued.

• The Division has not made it a priority to implement policies and procedures that would provide adequate support for payments made to licensed family home providers.

In his reports, the State Auditor identified the following federal laws and regulations as being violated by DSHS:

1. Office of Management and Budget's Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, Subpart A, Section 105: (2) Where the costs, at the time of the audit, are not supported by adequate documentation . . . .

2. Office of Management and Budget's Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, Attachment A, Section C.1 in part: Factors affecting allowability of costs. To be allowable under Federal awards, costs must meet the following criteria: (j) Be adequately documented.

Because the Washington State Legislature has not held DSHS accountable; because DSHS has not corrected many of the major problems identified in the audit; since DSHS is now frustrating local law enforcement efforts to prosecute those violating these laws, we respectfully request that your office initiate investigation and corrective action into these fraudulent uses of federal monies.

Please let me know if you have any questions.

Sincerely,

Jason Mercier
Budget Research Analyst
Evergreen Freedom Foundation

cc: Mike Ambrose, Deputy Director
U.S. Department of Health and Human Services

David Walker, Comptroller General
U.S. General Accounting Office

John McKay, U.S. Attorney
Western Washington District

Contact: Jason Mercier | Budget Research Analyst | 360.956.3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org