Michigan Audit Proves Government Is Behind The Times With Technology

As soon as the report is published, I will provide it.

This is more than a story of people jumping on the bandwagon to make a fast buck off the poor. This is a story of how Informational Technology has not kept up with the times. It is a national epidemic.

Audits only work with samples and identify areas of deficiencies with internal controls on how money is managed. This audit shows the issues with gift cards and how gift cards can circumvent transparency. More than that, gift cards are wasteful as some have fees and do not allow one to use the full amount issued on the card. That alone is a situation of waste but more than that, it is abuse.

A prime example. St. Vincent Sarah Fisher Residential Center, before I shut it down, utilized gift cards fraudulently. People would donate gift cards to the kids for Christmas or just in general. Gift cards were also purchased under the guise that they would be given to children in foster care. Instead, those gift cards were used to purchase supplies for the facility such as toilet paper, cleaning supplies and other bills.

Even better than that, upstairs of the facility, there was a huge room where the administrators would store toys and clothing for the kids. The kids never got anything because the administrators, Nancy Swaine, would take the toys back to the store and get cash.

In child welfare, there is no transparency and many, many schemes to allow these child placing agencies can get away fraud because technology is so far behind the times, it will never detect a thing.

State audit finds millions in questionable purchases in Human Services

Paul Egan/ Detroit News Lansing Bureau

Lansing — A state audit released Tuesday identifies a lack of financial controls and millions of dollars in questionable purchases in the state welfare department.

The audit found state employees used taxpayer money to sell welfare clients cars the employees bought and the bulk purchase of gift cards in large denominations.

Due to a failure to separate accounting duties for purchases in the Department of Human Services, the same state employees in many cases created invoices, processed invoices and then approved the checks to pay the invoices, said the report by Michigan Auditor General Thomas McTavish.

Also, the department reimbursed state welfare employees for the purchase of personal computers and other electronic items without documenting the items were ever provided to state welfare clients, or in some cases, ever bought in the first place, the audit said.

The audit examined the use of an automated accounting system typically used to reimburse county treasurers for purchases made from county social welfare funds and child care funds intended to benefit welfare clients.

Between May 1, 2009, and April 30, 2010, the state processed $52 million in such payments — $28 million to county social welfare funds and $24 million to child care funds, the report said. The audit mainly looked at records from 2004-06 and from 2008-10.

In 2006, 227, or 73 percent, of the computer system's active users had incompatible responsibilities, "such as the ability to both create and process an invoice for payment," the report said.

When auditors looked at payments processed in 2005-06, they found that in 74 percent of the cases, "the same user created the invoice, processed the invoice for payment, and then approved the check to make the payment."

In a written response, the department said it agrees with all eight of the auditor's recommendations and either has taken or is taking steps to implement them.

"We will not tolerate practices that make taxpayers question how we spend their money and have already introduced stronger controls," Margo Yaklin, who was named director of the department's accounting division less than three months ago, told The Detroit News on Tuesday.

"We're looking into correcting everything," including greater centralization of purchases, she said.

Car sales questioned

One of the findings was a lack of financial controls over vehicles bought for welfare clients.

The audit found six cases in which a state employee sold a vehicle to a welfare client. All six cases lacked documentation showing there was no conflict of interest in the sale, and in two of the cases, "a family relationship existed between the DHS employee seller and the client," the audit said. In four of the six cases, the sale documentation lacked a required vehicle inspection report

In one case examined from July 2005, a state welfare employee sold "an apparent family member" a 1990 vehicle with 180,000 miles on it for $1,200, with the cost picked up by the state agency, the report said.

"We determined that the DHS employee/seller purchased the vehicle on May 13, 2005, for $200 from the same mechanic who prepared the vehicle inspection report used to support the sale to the client," the audit said.

In a second case from 2005, a DHS employee paid $100 in February for a vehicle with 242,000 miles on it, then apparently put another 10,000 miles on the vehicle before selling it to a welfare client that September, the report found. The sale price was initially listed as $1,200, though the employee later amended the price to $700 and returned $500 to the state, the audit said.

Officials said other investigations were conducted but would not immediately say whether discipline or other actions were taken against the employees involved.

Gas, gift cards studied

The audit also found that between May 1, 2009, and April 30, 2010, local DHS offices used the automated system to buy $240,412 in gas cards and gift cards.

About $130,000 worth of those cards were bought in September, immediately prior to the annual close of the state's accounting records on Sept. 30, the audit found.

Just one local DHS office, which was not identified, accounted for 43 percent of the gas and gift card purchases, including the purchase of 55 Wal-Mart gift cards for $500 each in one day, the report said.

One DHS office bought four gift cards in $1,000 denominations for Target and Wal-Mart for bulk supplies, the report said.

"The use of gas and gift cards, especially in large denominations, reduces the control over valuable state assets and increases the risk of loss or inappropriate use by both DHS clients and DHS local office staff," the report said.

Concerns about gift card purchases also arose recently in connection with the City of Detroit's Department of Human Services.

Yaklin said $10 or $25 gas or gift cards are sometimes given to welfare clients, but state employees use the large-denomination gift cards for bulk purchases of items such as alarm clocks for welfare clients. She said the state is examining whether official use of gift cards — which have fewer accounting controls than the state credit cards many employees carry — should be discontinued.

Employees reimbursed

The state audit also raised questions about reimbursements paid to state employees for purchases the employees made.

For example, a local office reimbursed an employee $2,303, including sales tax of $102, which the state is normally not required to pay, for purchases the employee made with a personal credit card.

The purchases "included a $1,300 notebook computer and a $500 shopping card," the audit said. "The documentation submitted to support the expenditure did not indicate the disposition of any of the purchased items," the report said.

In another case, a local office reimbursed an employee $855 for the purchase of a notebook computer and printer for a youth welfare program.

"Only the employee receiving the payment signed the payment authorization form," and "the transaction lacked support to document that the employee actually ordered, received and paid for the computer or the final disposition of the computer," the audit said.

Yaklin said "purchases on employee credit cards will no longer be accepted," and a memo to that effect went out last week.

The report found the department didn't make sure only authorized employees had access to the computerized payment system.

For example, in May 2006, 13 of the 325 authorized users were either no longer employed by the department or were on indefinite leaves of absence. Six of those employees had accessed the system after leaving the department, the report found.

The department "had no assurance that either departed employees or unauthorized employees had not accessed (the system) to process transactions," the report said.