POLICY HIGHLIGHTER

Volume 15, Number 1
January 11, 2005

DSHS fails $6.1 billion Medicaid audit
Will legislature finally exercise oversight?

On December 30, 2004, Washington State Auditor Brian Sonntag officially released the Fiscal Year 2004 audit of the state's $6.1 billion (50 percent federal funds) annual Medicaid program. Among the 22 audit findings issued against the Department of Social and Health Services (DSHS) for its handling of the Medicaid program, the state auditor (SAO) took the highly unusual step of "disclaiming" the entire Medicaid program.

SAO noted: "‘Disclaim' is a term used in auditing standards that means we cannot conclude, based on documentation and other evidence we were provided, whether all of these costs were allowable or whether all clients were eligible for services given to them and all providers were eligible for payments made to them."

SAO's official Medicaid audit release follows the unprecedented public release of the audit's draft findings by DSHS on the agency's website on December 14, 2004. According to SAO, some of these draft findings were altered by DSHS.

The findings the Department of Social and Health Services released on its website on December 14, 2004, were preliminary drafts and were not completed. In addition, some of the findings the Department presented were worded differently from the drafts we gave the Department at the exit conference on November 24, 2004. The following document is the State Auditor's Office official special report on our audit of the Medicaid Program for fiscal year 2004.

Among the audit's official findings, DSHS:

• paid $22 million to individuals who did not provide valid Social Security Numbers (SSN) or offered no SSN at all;

• paid more than $1 million to individuals claiming a deceased relative's SSN;

• provided $1.3 million in unallowable medical services to illegal aliens;

• cannot account for more than 1.4 million in pills worth in excess of $529,000; and

• did not cooperate with SAO's audit, leading to the disclaiming of the $6.1 billion Medicaid program.

Regarding the lack of cooperation extended by DSHS, SAO made the following statements throughout its audit:

• [DSHS] personnel attempted to thwart particular audit procedures by questioning our authority to either expand the scope of our audit or to obtain certain information.

• [DSHS] altered information related to sample transactions while we were attempting to complete our review.

• In some instances, we were unable to independently interview line staff without the presence of management or without management's selection of the employees to be interviewed.

• Staff members informed us that they had to obtain permission from management prior to speaking with auditors. During our review of the allowability of certain medical procedures and of procedures provided to undocumented aliens, we were never granted permission to speak with the medical consultants who had approval authority.

• The audit liaison system, as actually used by the Department, hindered our access to data and obstructed our contact with line staff. Additionally, the audit liaison system attempted to force us to rely on the Department's representations as to the existence or accuracy of evidence. In effect, the Department was attempting to perform the work of the auditor, instead of allowing the auditors to perform an independent audit and reach a valid conclusion.

• It is inappropriate for the Department to withhold information because it believes it is not relevant or significant. The auditor should be given the information requested and have an opportunity to examine it and discuss it with the Department before the auditor decides its importance.

• Auditors of the Medicaid Program were subjected to undue criticism of their integrity, independence, competence, objectivity, and knowledge. These charges against audit staff were made both in person and through e-mail, and we believe they were intended to deter us from completing our audit.

It is worth noting the contrasting attitude displayed by the Department of Health (DOH) in response to one audit finding issued jointly against DOH and DSHS: "We concur with the finding of the State Auditor's Office . . . Thank you for the professional work by your staff." Despite DOH's acceptance of the audit finding, DSHS did not concur with the finding.

With Washington's $6.1 billion Medicaid program at risk, legislators must finally exercise long overdue oversight and ensure audit corrective action occurs. Many of the findings issued against DSHS in SAO's 2004 audit are repeats from previous years. By making an example out of DSHS, legislators would also send a strong message to other state agencies that frustrating the efforts of the people's elected auditor will not be tolerated. Accountability and transparency for tax dollars must be the first responsibility of all state officials.

Prepared by: 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