DEPARTMENT OF EDUCATION

OFFICE OF INSPECTOR GENERAL

INTERNAL AUDIT

Division of Blind Services

Contracted and Purchased Client Services

Final Report

Audit Number
07/08-01A

June 19, 2008
Executive Summary 
The Division of Blind Services (DBS) provides services to assist individuals, whose primary disability is visual, in achieving maximum levels of employment, independence, and integration into the community.  These services are provided either directly through DBS district field offices or indirectly through contracts with community rehabilitation providers.  During fiscal year (FY) 2006-07, federal and state funding totaling $11.8 million was spent to purchase products and services for clients, while $11.1 million was paid for client services provided through contract providers.  Products and services purchased for clients includes, but is not limited to, computer equipment, software, low vision aids and devices, physical and mental restoration, and training.  
Summary of Findings 
This audit focused on evaluating the system of internal controls over DBS’s procurement and management processes.  This report has findings in each principal activity related to contract administration including procurement, award agreements, performance, payments processing, and monitoring.  Other findings address the need to improve written procedures to give DBS employees better guidance when performing key activities, and issues regarding non-client purchases made using the Accessible Web-based Activity and Reporting Environment (AWARE) case management system. 
Recommendations in the report are intended to assist management in establishing a more effective control environment that will better ensure procurement and management processes are performed effectively and in accordance with controlling laws, rules, policies, and good business practices.  

Background
This audit was identified in the Office of Inspector General’s (OIG) annual risk assessment and included in the approved annual audit plan.  It was performed in support of the Department’s goal of quality efficient services with the purpose of promoting the strategic imperative of aligning financial resources with performance. 
The purpose of the Division of Blind Services (DBS) is to work jointly with individuals, whose primary disability is visual, toward achieving maximum levels of employment, independence, and integration into the community.  During FY 2006-07, DBS served over 51,000 visually impaired individuals.  The program serves individuals either directly through its district field offices or indirectly through contracts with community rehabilitation providers.  
DBS programs and services are funded primarily from Federal grants.  These funds, along with State general revenue monies, totaled $48.6 million in FY 2006-07; nearly one-half (47 percent) of this amount is spent on client services.  In FY 2006-07, $11.8 million was spent to purchase products and services for clients, while $11.1 million was paid for client services provided through contracts with community rehabilitation providers.  Products and services purchased for clients includes, but is not limited to, computer equipment, software, low vision aids and devices, physical and mental restoration, and training.  
The majority of contracts are with community based rehabilitation providers for services that include Independent Living, Vocational Rehabilitation (VR) Services, VR Transition Services, Blind Babies, and Supported Employment Services.  Contracts provide for training and counseling in various categories that include assistive technology, communication skills, orientation and mobility, adjustment to blindness, and home management skills.  
DBS has made advances in the administration of contracted and purchased client services with the October 2006 introduction of AWARE (Accessible Web-based Activity and Reporting Environment), a web-based case management system.  The system covers the life cycle of a DBS client from referral and application through eligibility, plan achievement, and case closure.  Designed to mirror the case management process, the system utilizes web technology to automate essential functions and provides the ability to produce extensive reporting that can aid in management decision-making.  

Audit Objectives and Scope
This audit focused on evaluating DBS’s procurement and management processes.  The objectives were to ensure that:  1) client services contracts and purchase authorizations are awarded and executed in accordance with controlling laws, rules, policies, and good business practices;  2) clients receive services required by contract and purchase authorization terms;  
3) payments are made in accordance with contract and purchase authorization terms; and  
4) delivery of services and purchased items is properly administered and monitored.  The scope of the audit included contracts and purchase authorizations active between July 2006 and December 2007, but included records outside that period that affected the review period’s transactions. 

Methodology
To achieve the objectives, the audit team:  1) researched and reviewed applicable statutes, rules, and procedures;  2) interviewed appropriate staff; and  3) reviewed selected contract and authorization documentation active during the audit period.  Fourteen contracts and 69 purchase authorizations were reviewed based on a judgmental selection.  Extended review of support for additional authorizations was performed based on procurement and payment processing issues noted during the field work phase.  

Standards
This audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing, published by the Institute of Internal Auditors. 

Audit Results
The findings below present the results of the audit as determined by: review of applicable statutes, procedures and processes; interviews of auditee staff; and performance of tests and other audit procedures.  Each finding is organized into five segments, as explained below:

•	Condition – The factual evidence found in the course of the examination. 
•	Criteria – The standards, measures, or expectations used in making an evaluation and/or verification.
•	Cause – The reason for the difference between the expected and actual conditions. 
•	Effect – The risk or exposure the Department may encounter because the condition is not consistent with the criteria (the impact of the finding).
•	Recommendation – Suggested course of action.
•	Management’s Response – Auditee opinion and statements regarding concurrence or non-concurrence with the finding and corrective action planned by management.

Internal Controls
Improvements are needed in DBS contract and purchasing management.  Internal controls in some areas are weak or absent.  This has allowed contracting and purchasing actions that may have resulted in the Department purchasing unneeded equipment, and paying more than fair market value for products and services.  Audit findings presented below discuss specific deficiencies noted by the audit. 

Contract Procurement
DBS contracts were procured on a non-competitive basis pursuant to specific exceptions provided in statute.  During the 2006-07 contract period, 58 contracts were active with approximately 20 different community rehabilitation providers.  Two other contracts were issued to provide services for clients at the Orientation and Adjustment Center in Daytona Beach.  Our audit noted areas where improvements can be made in DBS contract procurement processes. 

Finding 1 – Price analyses were not completed for contracts.

Condition:	DBS has not performed and documented price analyses to ensure that prices paid to contractors are fair and reasonable.  This is especially important for DBS contracts because they are not competitively solicited, a process that helps ensure price reasonableness.  
We performed a unit price comparison of selected community rehabilitation provider contracts by dividing the minimum number of clients to be served per contract into the annual contract price.  There are significant variances among contractors in the computed cost per client served for three of the five contract types - Independent Living, VR Services, and Supported Employment Services contracts.  Contract cost per client ranged from: $891 to $1,626 (82 percent variance) for Independent Living contracts; $1,974 to $3,739 (89 percent variance) for VR Services contracts; and $4,500 to $30,938 (588 percent variance) for Supported Employment Services contracts.  The contracts compared involved delivery of the same types of services.  
Variances in the unit price comparison could not be explained by DBS management who commented that past contract prices were established based on demographics of the service areas, specific circumstances of the individual contract providers, and impacts of past negotiations with providers. 	
Criteria:	Section 216.3475, Florida Statutes (F.S.), requires that a person or entity awarded funding on a non-competitive basis cannot be paid more than the competitive market rate.  Price and cost analyses are used to determine whether rates paid are fair and at or below market value. 
Section 287.057(5)(f)(7), F.S., provides an exemption to normal competitive solicitation requirements, but requires agencies acquiring services to consider reasonableness of prices charged by contractors. 	
Cause:	For two contract types, Blind Babies and VR Transition Services, a price analysis by a former DBS employee was said to have been performed; however, there was no documentation to evidence this.  Analyses on other contract types also have not been completed.  The need for price and cost analyses had not been prioritized. 	
Effect:	Without price analyses, DBS has no assurance that prices paid to contractors are fair and reasonable.  	
Recommendation:	Price analyses should be prepared for all contracts procured on a non-competitive basis.  This will help ensure that prices are fair and reasonable.  Such analyses should be documented and retained in contract files.  	
Management Response:	Management is in agreement with the recommendation to develop a price analysis prior to procuring all contracts.  The Division of Blind Services will begin such an analysis using a workgroup comprised of community rehabilitation service providers and DBS personnel.  The analyses will be documented and maintained in the contract files.  Milestone: Begin workgroup during July 2008 and complete analyses by September 15, 2008.	

Finding 2 – State purchasing laws were not followed.

Condition:	A contract awarded during FY 2006-07 in the amount of $151,348 for nursing support at a DBS residential facility expired on September 30, 2007, without issuance of another contract.  Services provided by the contractor were continued after the September 30 expiration by using AWARE authorizations to pay vendor invoices.  This practice was continuing at the conclusion of our audit field work.  
The Administrator of the residential facility was instructed to select clients in residence whose individual plans for employment included physical and mental restoration services.  The amounts of periodic vendor invoices were then apportioned equally to each of these clients through AWARE authorizations.  	
Criteria:	When the purchase price of contractual services exceeds $25,000, purchases are subject to competitive procurement practices per Section 287.057, F.S.  Procurement of such services should be evidenced by a written agreement embodying all provisions and conditions of the procurement in accordance with Section 287.058(1), F.S. 	
Cause:	Planning was not adequate to ensure a new contract was awarded before the original contract expired.  The decision was made to pay for contractor costs by spreading costs over selected clients through the use of AWARE authorizations.  	
Effect:	State procurement laws have not been observed.  No contract exists to control the provision of services and the payment of fees.  Use of AWARE authorizations for payment of contractual services costs in this manner is improper. 	
Recommendation:	A contract for the nursing services should be obtained as soon as possible in accordance with the established procurement process.  DBS management should ensure future compliance with purchasing procedures and laws.  	
Management Response:	The intent of using AWARE authorizations was to capture costs at the participant level for all service costs.  There is an exemption to competitive procurement practices for health services in Section 287.057(5)(f)6, F.S.  The DBS will comply with the recommendation and is in the process of procuring a contract for nursing services effective 

July 1, 2008.  Management will ensure that future services are procured with an executed contract versus using AWARE authorizations.	

Contract Agreements

As a basis for their contract agreements, DBS utilized a standardized contracting format established by the Department of Education (DOE) to ensure contract activities are executed in accordance with Florida Statutes.  Language specific to each DBS contract type was included to adapt the agreements to their intended purpose.  Certain revisions are needed to improve DBS contracts.  

Finding 3 – Contract agreements need revisions.

Condition:	We noted the following from our review of selected community rehabilitation provider contracts:  
•	Contracts do not reflect use of the AWARE case management system.  Introduction of this system changed important aspects of the contract administration process that impacted client progress reporting, deliverable reporting, and contract invoice processing.  
•	Sanctions were not included in contract agreements.  Where practical, contract agreements should contain monetary sanctions for non-performance by the contractor. 
•	Contract performance standards had not been incorporated into most contracts.  Only Blind Babies contracts included an attachment (Standards and Indicators) that addresses the core contractor activities of intake, evaluation, assessment, service delivery, reporting, and personnel development.  	
Criteria:	Contract provisions and requirements should accurately reflect use of the AWARE case management system including performance duties, deliverable reporting methods, and contract invoice processing.  
The Department of Financial Services’ State Expenditures Guide, requires that contractual services contract agreements contain sanctions for contract provider non-performance.  
Contracts should provide sufficient guidance to contract providers on what the Division expects of them (i.e., performance standards).  	
Cause:	DBS staff did not update language in the standard contract templates with details regarding use of the AWARE system.  Staff did not include provisions for sanctions in the contract templates.  Contract performance standards were not completed in time to include them in contracts when they were originally issued.  	
Effect:	Use of the AWARE system changed aspects of contract administration, making the unrevised contract language obsolete as it does not accurately reflect reporting and invoicing activities required of contract providers.  For example, deliverable reporting on client progress is no longer based on hardcopy reports, but on electronic storage of case notes in the AWARE system.  
The absence of penalties and sanctions in contracts reduces the Division’s options when performance is below the expected level or service quality is poor.  Without sanctions, there may be no mechanism in place to remedy the conditions noted.  
Use of the performance standards can guide contract providers and serve as criteria for Division staff in evaluating contract compliance and measuring performance.  Contract monitoring procedures can include steps to verify that services are provided in accordance with the standards.  	
Recommendation:	a)	Future contracts should require use of the AWARE case management system.  
b)	DBS management should ensure that contract agreements include specific sanctions for non-performance of tasks required of contractors.  Sanctions should include specific steps for prorating contractor payments if minimum contract measures are not met.
c)	Performance standards should be incorporated into all contract types as soon as practical to provide guidance to providers and ensure greater accountability over contractor performance.  	
Management Response:	The Blind Babies contracts (these contracts are effective July 1 through June 30) included language that mandated the use of AWARE for entering client case notes and actual services provided to clients based on their Individualized Plan.  The service providers understood that actual services and case notes were to be entered on all contracts. This contract cycle, October 1, 2008 through September 30, 2009, all other DBS contracts (Vocational Rehabilitation, Transition Services, Independent Living and Supported Employment) will be revised to require use of the AWARE Case Management System.  Performance standards have been developed for all contract types and will be incorporated into the contracts in the next contracting cycle.  These standards were developed by assigned workgroups composed of DBS and Service Provider employees using an outside facilitator.  Milestone: Include Standards and Indicators Attachment in all contracts that do not have them (Vocational Rehabilitation, VR-Transition Services and Independent Living) by October 1, 2008.  Begin a workgroup for Supported Employment contracts during July 2008 and complete a Standards and Indicators Attachment by September 15, 2008.
There is no provision in the Florida Statutes to include contract language that imposes remedies (sanctions or penalties) or rewards.  The DBS has cancelled several contracts over the last three years because of non-performance of the contractor.  However, the DBS will craft language that identifies remedies, rewards and monitoring procedures and ensure the DOE Contracting Office approves the new contract language prior to including it in the current contracts.  Milestone: Begin workgroup during July 2008 and complete new contract language by December 31, 2008.	

Finding 4 – Contract requirements for client referrals need revision.

Condition:	Community rehabilitation provider contracts (except for Supported Employment Services contracts) include a restrictive clause regarding client referrals by DBS.  The contracts contain deliverable language that, in most instances, identifies the minimum number of clients to be served.  Contracts state that deliverables are predicated on DBS referral of clients to the contract provider for various services.  Contract language further states that contract providers “will not be held accountable” if the number of service referrals made by DBS does not meet or exceed the number of eligible individuals indicated in the contract.  
We determined that for most contract types, this condition is not realistic.  For example, during the 2006-07 contract term, DBS client referrals to providers of Independent Living services averaged only 16 percent of total referrals;  this is far below the minimum number of client referrals stated in the Independent Living contract.  Most referrals for Independent Living services came from eye care providers, family members, friends, and through self-referrals.  We further determined that DBS referrals to contract providers are not being tracked for contract reporting purposes.  	
Criteria:	Contract agreements should contain reasonable terms and conditions to govern the Division’s relationship with contract providers.  	
Cause:	We were informed that the language was included in contracts when the Division first began including minimum numbers of clients to be served as it was difficult to predict the level of client referrals.  	
Effect:	Depending on the contract, the requirement represents an unreasonable expectation on the Division’s part.  The language may weaken or prohibit DBS from taking actions in response to underperforming contract providers (e.g., cancelling contracts, recovering contract funding, negotiating for lower contract prices). 	
Recommendation:	The referenced language should be revised or deleted from DBS contracts where the provision is not reasonably attainable.  Provisions should be made to begin effectively tracking client referrals in the AWARE system if DBS management determines this to be beneficial.  	
Management Response:	The referral process will be further developed in concert with the Community Rehabilitation Providers.  A likely solution will involve a measure that reflects the Community Rehabilitation Providers requirement to obtain referrals from their outreach activities and a DBS requirement to have a referral measure.  Milestone: Begin workgroup during July 2008 and complete new contract language by September 1, 2008.	

Contract Performance

Evaluating contract performance, at a minimum, involves determining whether providers have met or will meet the contract terms.  In the absence of such an evaluation by DBS staff, we compared contract performance deliverables for selected contracts to actual contract results provided to us from DBS staff members.  Our review noted findings relating to contract performance and the means used to report contract results.  

Finding 5 – Contract closeout was not performed.

Condition:	A formal contract closeout process was not employed by DBS to evaluate the performance of contractors and whether the Division obtained the services paid for.  	
Criteria:	A process should be in place to establish that specific contract performance requirements and deliverables have been met.  Since most DBS contracts require that a designated minimum number of clients be served, a comparison of actual clients served to the contracted minimum should be performed and evaluated.  	
Cause:	Closeout evaluation of contracts was given limited prioritization.  	
Effect:	Contractor performance cannot be objectively evaluated in the absence of a process established to determine whether contractors performed their duties and provided deliverables per the contract terms.  If contractors are not held accountable for their performance, there may be limited motivation for them to provide the required or higher levels of services. 	
Recommendation:	A documented closeout process should be routinely performed for all contracts to determine whether the Division received services it paid for.  Results should be:  reported to executive management; used for negotiations on future contracts; and, if applicable, used to assess liquidated damages/sanctions for non-performance/non-compliance.  	
Management Response:	The Division of Blind Services management will develop a checklist document to assist in the closeout process of the contracting cycle and include it in the DBS contract monitoring procedures manual.  Milestone: Develop a contract closeout checklist and revise the DBS contract 

monitoring procedures manual to include a contract closeout checklist during July 2008.	

Finding 6 – Many contracts resulted in fewer clients served than required.

Condition:	We evaluated the actual results of selected 2006-07 community rehabilitation provider contracts and found that most did not serve the minimum number of clients required by the contracts.  Based on our review of four to six contracts per contract type and contract results provided by DBS staff, we determined that contract providers in three of the five contract types under performed significantly:  
Blind Babies – Three of the four contracts served more clients than planned.  Overall (combined) performance was 20 percent above the minimum number of clients to be served. 
Independent Living contracts – Each of the five contracts served fewer clients than planned.  Overall performance was 28 percent under the minimum number of clients to be served. 
Vocational Rehabilitation Services – Four of the six contracts served fewer new clients than planned.  Overall performance was 34 percent under the minimum number of new clients to be served. 
Supported Employment Services – Two of the five contracts resulted in fewer job placements than planned.  Overall performance was 3 percent under the minimum number of job placements planned. 
VR Transition Services – Each of the five contracts served fewer new students than planned.  Overall performance was 57 percent under the minimum number of new students to be served. 	
Criteria:	Contract providers should serve at least the minimum number of clients projected in the contracts.  If fewer clients are served, DBS should determine and document the cause(s) for the inadequate performance and take corrective action.  	
Cause:	Causes for contract under performance were not determined because a proper closeout analysis was not performed (see Finding 5).  Contract performance could be impacted by inaccurate reporting of results.  Certain results were self reported 

by contract providers.  Other results were based on data queries of the AWARE case management system, performed by DBS technical staff. 	
Effect:	Though most contract providers under performed, fixed contract prices were paid to providers as required in the contracts.  Assuming the results reported are accurate, the Division is not receiving the services paid for.  	
Recommendation:	DBS management should further analyze contractor performance for the 2006-07 contract period to determine why some contractor performance was unsatisfactory.  Management should direct that more timely and effective contract oversight be exercised to help ensure contract providers serve clients in accordance with the contracts.  Future contracts should provide monetary sanctions for non-performance by contractors.  A consideration for use of a contract type other than fixed price may be prudent.  	
Management Response:	The AWARE Case Management System was implemented on October 6, 2006.  There were response time problems and issues involving the data entry of Actual Services by service providers.  This resulted in inaccurate and incomplete reporting of results.  The design and response issues were resolved during June 2008 when a new data entry module was implemented.  DBS management will ensure that an analysis of the 2006-2007 contract period is conducted to determine the trends in performance for all contracts.  New reports have been designed to identify contract measures and results to assist in the contract analysis.  Milestone: New reports and analyses will be completed during July 2008. 	

Finding 7 – Reporting of actual contract results is not accurate.

Condition:	Contract results obtained based on a query of data recorded in the AWARE system were reviewed and found to be inaccurate.  We compared AWARE generated results for three of the five contract types to results that were self reported by contract providers and found significant variances among the contracts reviewed.  On an aggregate basis, AWARE generated results for the selected contracts fell under the self reported results in each case (28 percent under for Blind Babies contracts, 23 percent under for Independent Living contracts, and 19 percent under for Supported Employment Services contracts).  	
Criteria:	The AWARE case management system is established, in part, as a repository of information on services provided to clients and progress observed.  The system should be adequately maintained to reflect this information and report aggregate results in accordance with deliverables established in contract agreements.  	
Cause:	In reviewing the data with DBS staff, we noted instances where contract providers failed to input actual services to the AWARE system, thus making reported results inaccurate.  Additionally, we found flaws in the reporting methodology used to report actual contract results in the AWARE system.  We were informed by DBS staff that efforts to automate AWARE reporting of contract results were still in a testing phase and that information reported was only as accurate as the information input by contractor staff. 	
Effect:	Evaluation of contract performance is hindered without accurate information on actual results achieved by contract providers.  DBS plans to eventually begin using AWARE generated information for all contract performance reporting (including federal reporting).  This heightens the need for accurate reporting by the system.  	
Recommendation:	DBS management should provide guidance in the form of written procedures and training to contract provider staff to ensure that contract results are accurately input to the AWARE system.  DBS review and validation of reported results may be needed.  Corrections should be made to the AWARE reporting methodologies to ensure accurate reporting of contract results.  	
Management Response:	DBS will continue to provide training and follow-up technical assistance to ensure that provider staff has the tools and knowledge to accurately input data into the AWARE system.  Procedures for entering Actual Services were developed by the AWARE vendor, Alliance Enterprises, Inc., and were provided during training prior to implementation of the AWARE system.  New reports have been designed to identify contract measures and results to assist in contract analyses.  Milestone: New reports will be 

completed during July 2008 and service providers that require additional training will be identified and scheduled for training during July 2008. 	

Contract Payment Processing 

The AWARE system is used to process payments for community rehabilitation provider contracts.  An electronic invoice is prepared based on services entered to the system by contract providers.  Our review noted findings regarding support for contract payments, expenditures to contractors for non-client costs, and overpayments for client services. 

Finding 8 – Contract payment processing can be improved.

Condition:	Our review of 28 contract payments noted the following exceptions related to invoice approvals, invoice documentation, and recording of client case notes:
•	Invoices for 7 of 28 (25 percent) payments were not approved by designated contract managers. 
•	Summary invoices for 8 of 21 (38 percent) AWARE generated payments did not agree with the detailed support. 
•	Invoices for 5 of 17 (29 percent) AWARE generated payments showed prior month’s service dates indicating that actual services were not being input to AWARE on a timely basis by contract provider staff members. 
•	Invoices for 4 of 21 (19 percent) AWARE generated payments did not have invoice support as provider staff members failed to input any detail of actual services provided. 
•	In 5 of 9 invoices (56 percent) where AWARE was reviewed for the preparation of client case notes, insufficient case note entries were found. 	
Criteria:	Contract managers designated in each contract should approve payments to contract providers.  Invoice documentation should be sufficient to support all payments.  Community rehabilitation providers are required to input services they provide to clients into the AWARE system in an adequate and timely manner.  DBS management informed us that contracts require case notes for clients receiving services be input a minimum of one time per month. 	
Cause:	DBS staff at the Division Office approved invoices in place of designated contract managers.  Contract provider staff members did not input detail for actual services provided to clients in an accurate and timely manner.  Provider staff members also did not sufficiently record AWARE case notes describing client progress as required. 	
Effect:	Invoices not reviewed and approved by assigned contract managers may be inaccurate.  Services provided to clients will be inaccurately reported unless properly input to the AWARE system by contract provider staff members.  DBS staff cannot effectively monitor client progress unless case notes are input to the AWARE system in an accurate and timely manner.  	
Recommendation:	DBS management should ensure that contract payments are processed properly.  Efforts should be made to determine why AWARE generated payments did not agree with the detailed support.  Contract managers should not approve contract provider invoices for payment unless they have timely and complete support.  Operating procedures should be prepared to direct both DBS and contract provider staff on how contract payment processing should occur.  Additionally, written procedures should be prepared to provide guidance in the preparation of AWARE case notes.  	
Management Response:	DBS management will ensure that contract payments are processed properly.  Additionally, DBS will provide guidance to assist DBS contract manager staff as well as contract provider staff in processing payments and invoices timely and accurately.  DBS will also provide written guidance on preparing AWARE case notes and develop an invoice activity report that will identify the number of days that have elapsed between the DRAFT and SUBMIT cycle, between the SUBMIT and APPROVE cycle and between the APPROVE and RELEASE for PAYMENT cycle.  This report will assist all involved parties to track invoice cycle time and adjust as needed.  Milestone: Training, new reports and written procedures will be completed by September 15, 2008. 	

Finding 9 – Supplemental payments were made to contract providers.

Condition:	AWARE authorizations were used to make supplemental payments to 12 contract providers when a contract amendment should have been used.  Amounts disbursed in these cases totaled $149,513 as of November 2007.  Payments were processed to look as though rehabilitation technology services were being provided to clients, when they were actually payments to contracted providers. 	
Criteria:	Payments to providers should be made in accordance with contract payment terms.  Use of a contract amendment would be needed to alter provisions of the contract.  	
Cause:	The payments at issue were processed to compensate providers for extra time and costs they were said to have incurred based on problems encountered with the AWARE case management system.  The decision was made to use authorizations to facilitate the payments in place of amendments to the contracts. 	
Effect:	Payments were for costs directly related to the provision of contracted services, but were not authorized by the contract agreement and caused the contract award amount to be exceeded.  The established contracting process was circumvented, thereby bypassing the controls over the process.  The method used to process payments to contact providers was inappropriate as additional services were not received by clients.  	
Recommendation:	When necessary, contract amendments should be used to authorize expenditure of contract funds in excess of the established contract amount.  AWARE authorizations should only be used when payments benefit specific clients.  	
Management Response:	DBS has prepared contract amendments on current contracts to include all contracted services.  Milestone: Contract amendments will be effective during June 2008. 	

Finding 10 – Overpayments for client services occurred.

Condition:	Training services provided to clients by a community rehabilitation provider were billed based on an hourly fee rather than the established contract rate.  The services, however, should have been fully provided for under an existing contract established with another provider.  As a result, the Division unnecessarily made payments totaling $26,909 for services that should have been provided at no additional cost by the provider under contract. 
This condition was not identified from planned audit tests of purchase authorizations, but was noted when performing audit procedures in other areas. While this could have been an isolated occurrence, overpayments on other client services may have occurred and gone undetected by our audit testing.  	
Criteria:	Client services contracts identify counties in which specific services are to be provided.  Contract providers should provide services in accordance with contract requirements.   	
Cause:	The DBS rehabilitation supervisor who approved payments for services said she was unaware that a contract was in place and should have been used.  	
Effect:	The payments charged to DBS on a fee for service basis represent overpayments as the costs should have been included under the existing contract.  	
Recommendation:	DBS should ensure that contractors provide services in accordance with agreement terms.  Because this practice may be occurring in other districts, management should communicate these requirements to all DBS staff responsible for approving such payments. 	
Management Response:	DBS will be reviewing the alignment of our current boundaries and determine the most practical solution that will ensure that contractors are adequately serving their designated districts.  Milestone: A review of current contract boundaries will be completed during July 2008.  	

Contract Monitoring

Contract monitoring should be adequate to ensure required levels of services were received for contract awards.  As no formal monitoring was performed for DBS contracts, we focused our emphasis on evaluating contract monitoring policies and procedures that were being implemented.  Our audit noted issues regarding the sufficiency of the monitoring process. 

Finding 11 – Contract monitoring needs improvement.

Condition:	The Division has developed contract monitoring policies and procedures and monitoring instruments to use in contract monitoring reviews, and District Administrators (DA) have received training on contract monitoring activities.  Although DBS policy directs DAs to monitor contracts in accordance with established procedures, DAs had not begun formal monitoring activities.  We were informed that they routinely performed informal monitoring tasks such as maintaining regular contact and holding meetings with providers when necessary, documenting communications relating to contracts, and approving monthly invoices.  They had not, however, performed on-site visits to contract provider facilities involving use of established monitoring checklists, interview questionnaires, and other monitoring tools.  
A two-person team in the Division Office’s Bureau of Operations and Compliance comprise a unit called the Compliance Review Section.  This unit had recently performed several compliance reviews of contract providers.  Selected DAs were participating in these reviews to obtain on-the-job instruction on how to perform formal monitoring activities. 	
Criteria:	District administrators are designated as contract managers for community rehabilitation provider contracts.  DBS’s policy entitled “Contract Monitoring and Compliance Procedures” directs DAs to monitor provider contracts in accordance with the DBS Contract Monitoring and Compliance Procedures Manual.  
Section 287.057(15), F.S., makes contract managers responsible for enforcing performance of the contract terms and conditions and ensuring that contractual services have been rendered in accordance with the contract terms prior to processing of invoices for payment. 	
Cause:	The Bureau Chief for Client Services and Support felt that DA relations with contract providers could be negatively impacted if they are required to perform duties as recorded in the procedures guide.  He prefers that Division Office staff in the Compliance Review Section perform formal monitoring. 	
Effect:	Timely and effective monitoring of contract performance cannot be attained without the participation of DAs.  The Compliance Review Section was essentially established to oversee monitoring of contract providers by the DAs, as well as conduct its own independent compliance reviews of contracted services.  
The need for timely and effective monitoring of contracts is considered critical given the nature of the contracts, the fact that services were being self-reported by contract providers, and the basic deficiencies reported by recent DBS compliance reviews (e.g., low service provision and closure rates, insufficient client progress reporting, inadequate file documentation, and issues regarding staff certification).	
Recommendation:	DBS management should ensure that contracts are monitored in accordance with established procedures.  	
Management Response:	DBS management will ensure that contracts are monitored in accordance with established procedures by the district administrators that are designated as contract managers.  Milestone: The district administrators that are designated as contract managers will comply with the DBS “Contract Monitoring and Compliance Procedures” effective immediately.	

Operating Procedures

Effectively written operating procedures have many benefits that include clearly delineated processes, greater consistency in operations, and establishment of internal controls over business activities.  Existing procedures are not adequately detailed to provide employees clear and detailed guidance concerning core activities performed.  This lack of procedural controls is a cause for many of the findings in this report.  

Finding 12 – Procedures should be improved.

Condition:	Procedure manuals for Vocational Rehabilitation Services and Blind Babies primarily are comprised of policy statements rather than operational procedures with sufficient detail to guide employees.  Additionally, the Blind Babies manual made reference to a previously used case management system.  Written standardized operating procedures had not been prepared for core activities performed by DBS employees.  Examples include: 
•	Provision of client products and services via the AWARE system (e.g., procedures on determining, authorizing, and documenting maintenance, training, rehabilitation technology services, physical and mental restoration, and other products and services).  
•	Provisions for obtaining and documenting quotes for the purchase of client products and services.  
•	The administration and provision of services by contracted service providers. 	
Criteria:	Written procedures are an essential component of the Department’s internal control structure that helps ensure management directives are carried out.  They should be prepared to address all essential functions and regularly updated. 	
Cause:	Procedure manuals had not been updated to reflect use of the AWARE case management system, and had not been written with sufficient detail to serve as operating procedures to guide and direct DBS staff members in the districts.  	
Effect:	Adequately detailed written procedures will: help ensure office activities are performed in accordance with statutes, rules, and management’s directives; provide a basis for evaluating staff performance; and serve as a training tool for new staff.  Absent written operating procedures, management lacks assurance that its directives will be performed. 	
Recommendation:	Management should analyze all core activities performed by DBS staff members in district offices and prepare detailed standardized operating procedures that will guide employees on all activities important to the Division’s mission.  	
Management Response:	DBS management will work to develop standardized operating procedures manuals to supplement the policies and procedures currently developed and adopted.  Milestone: Standardized operating procedure manuals will be prepared and promulgated by December 31, 2008.	

Finding 13 – Access rights to approve purchase authorizations need to be addressed.

Condition:	AWARE purchase authorizations were approved by DBS employees who were not authorized to do so.  Additionally, individual approval limits for authorizations were 

too high to provide reasonable management control of the process.  Our review of AWARE authorizations noted the following: 
•	DBS employees in positions not authorized to approve authorizations were doing so.  For example, 387 authorizations had been approved by administrative secretaries in two districts.  Other positions approving authorizations included rehabilitation technicians, rehabilitation specialists, and a word processing systems operator.  
•	Division Office staff members providing technical support for the AWARE system were given authorization to approve authorizations.
•	Approval limits were set at $50,000 per authorization for district employees and $1,000,000 per authorization for selected employees at the Division Office, including the technical support positions noted above.  	
Criteria:	AWARE authorizations should be approved by employees in specified positions, principally the District Administrator and Rehabilitation Supervisor positions.  Other employees at the Division Office are authorized to approve authorizations in a backup capacity.  The AWARE system is programmed to allow approval of individual authorizations up to a limit designated in the system.  We noted that the average authorization amount approved was under $500 and only one authorization exceeded $50,000 during the 2006-07 fiscal year.  Limiting approval authority for expenditures is an important control that strengthens management’s oversight of purchases. 	
Cause:	DBS staff indicated that individuals who should not have had system rights to approve authorizations had apparently been “overlooked” when system security was tightened in January 2007.  Several staff members at the Division Office, including three technical support staff, were given system rights to approve authorizations in a backup capacity.  The approval limits were set high to streamline the authorization process.  	
Effect:	Management controls are weakened or eliminated when approval authority is set too high or not limited to the appropriate employees.  This can result in increased risk that inappropriate transactions occur.  Technical support staff members who 

have programming access to the AWARE system architecture should not have the capability to approve authorizations.  	
Recommendation:	a)	DBS management should adopt written procedures to ensure only authorized staff are given AWARE system access to approve authorizations.  
b)	Approval access should be limited to employees who have a working knowledge of the specific transactions being approved.  Approval of authorizations by the Division Office in a backup capacity should be limited.  AWARE technical support employees should not be given the ability to approve authorizations. 
c)	Transaction approval limits should be re-evaluated and set to lower levels. 	
Management Response:	DBS management re-evaluated transaction approval limits and lower levels have been established for all approvers.  Approval rights have been delineated to designated personnel in the AWARE system. Also management has identified a primary person to serve as backup in the event of a necessary emergency approval.  Milestone:  Completed during May 2008.	

Non-Client Purchases Using AWARE Authorizations

The AWARE authorization system was designed to provide products and services for individual clients either through direct payments to the clients or through payments to vendors who provide products and services to clients.  However, AWARE also was used to facilitate payments for products and services not directly identifiable to specific clients.  The following finding includes examples of such payments and demonstrates the lack of operating procedures to guide and direct DBS staff on the types of purchases to be made using the AWARE system.  

Finding 14 – Purchasing practices need to be improved.

Condition:	AWARE authorizations were used as an expedient way to purchase products and services, some of which should have been procured using direct orders or formal contracts.  We noted the following questionable uses of AWARE authorizations:
•	Fixed monthly payments (totaling $90,667 from December 2006 through December 2007) were made to a community rehabilitation provider for follow up services to clients whose DBS cases had been closed.  Payments had previously been funded using the DBS Grants and Donations fund.  Procurement of services was not awarded using a formal contract.  
•	Fixed monthly payments (totaling $80,000 from January through August 2007) were made to two vendors for delivery of peer support services.  Cooperative agreement formats were used in place of contracts.  The cooperative agreements did not incorporate the provisions of formal contracts (e.g., designation of a contract manager, sufficient descriptions of performance duties, deliverable reporting, payment terms, requirements for staff qualifications, incorporation of standard terms and conditions, etc.)  One of the vendors received a $20,000 payment described as “seed” money, which was not in accordance with the cooperative agreement provisions.  
•	One vendor was paid for presenters who provided DBS staff training at several events from December 2006 through June 2007.  None of the seven individual payments was greater than $25,000, the threshold for competitive bidding requirements, but the seven payments totaled $95,069, well above the threshold for competitive bidding.  Price quotations were not obtained for these services.
•	Advance payments of $70,000 were made to a state university for hosting a sports camp for Vocational Rehabilitation clients.  DBS staff reportedly chose the provider after reviewing several other potential providers, however, no written documentation of this or of any quotes obtained was prepared.  A non-standard contract was used, which was signed by a DBS program consultant who did not have signatory authority.  Services by the university were begun before the contract was executed. 
•	Equipment described as demonstration units for community rehabilitation centers around the state was purchased using authorizations.  The cost of most of the individual equipment items was greater than $1,000, but these items were not accounted for as tangible personal property (i.e., tagged, assigned to a property custodian, and tracked as a part of the official property inventory). 
•	AWARE authorizations were issued after receipt of product or service invoices, and not as pre-authorizations of purchases.  	
Criteria:	•	When the purchase price of commodities or contractual services exceeds $25,000, purchases are subject to competitive procurement practices.  
•	Purchases considered exceptional (e.g., single source) or exempt (e.g., services to persons with disabilities) must have those conditions documented and be made in accordance with provisions of Section 287.057, F.S.  Procurement of contractual services greater than $25,000 is to be evidenced by a written agreement embodying all provisions and conditions of the procurement of such services (Section 287.058(1), F.S.). 
•	Use of cooperative agreements for the procurement of contractual services is not addressed in DBS policies. 
•	Florida Statutes prohibit advance payments to vendors except in certain circumstances, none of which apply in the instances noted. 
•	Section 287.057(10), F.S., provides that an agency shall not divide the procurement of commodities or contractual services so as to avoid requirements for competitive sealed bidding.  
•	Contracts that bind the Division can only be signed by the Commissioner of Education. 
•	Section 287.058(2), F.S., provides that contractual agreements over $25,000 in value must be executed before services are rendered. 
•	The Division is required to identify, manage, and control state-owned tangible personal property in accordance with applicable laws (Section 273.02, F.S.), and rules (Chapter 69I-72, Florida Administrative Code). 	
Cause:	AWARE authorizations were used to expedite payments for various products and services.  DBS policies and procedures are not in place to provide guidance to staff on the types of purchases that are allowed using the AWARE system.  
DBS does not have a policy to direct staff on the use of cooperative agreements.  They appear to have been used in the instances noted to facilitate payments to vendors in place of issuing formal, more restrictive contracts.  
Regarding the expenditures for staff training, we were informed that a former division director instructed that specific persons be used as training consultants.  
No attempts were made to determine whether other vendors were available or whether fair prices were being charged.  
The non-standard contract for hosting of the sports camp for Vocational Rehabilitation clients was signed by a DBS program consultant who was not aware that he was not authorized to do so.  Activities related to the camp were begun before a contract was prepared and signed. 
DBS staff members were unaware that equipment purchased for demonstration (not for individual client use) should have been accounted for as tangible personal property. 	
Effect:	Contractual services may not be acquired based on a system of full and fair open competition, which helps ensure the Division pays a fair and reasonable price for services obtained.  The appearance and opportunity for favoritism is increased, and public confidence that contracts are awarded equitably and economically is compromised.  
Without a contract containing appropriate provisions and conditions as required by law, the Division may not be able to maintain adequate control over the services provided, the payment process, the monitoring process, etc.  
Unauthorized advances to providers may result in the Division paying for services not received. 
The contract for hosting of the sports camp for Vocational Rehabilitation clients included an assertion that the person who signed on behalf of DBS had full signatory authority; the employee, however, did not have this authority.  Allowing a contractor to provide services before a written agreement is executed creates risks to the Division.  
Control of tangible personal property is weakened when it is not recorded in the State property system.  Equipment can be lost or stolen without detection. 
Use of AWARE authorizations as noted above circumvents the usual procurement methods and the controls designed in these methods. 	
Recommendation:	a)	AWARE authorizations should only be used for case management when there is a specific individual who will be served or benefited.  The DOE Purchasing Administrator should be contacted for advice on procurement of client products and services.  
b)	Policies and procedures should be prepared to guide DBS staff on the types of purchases to be made using the AWARE system.  To maintain an effective level of internal control, AWARE authorizations should be used only in a case management capacity when there is a specific client that will be served or benefited.  
c)	DOE guidelines should be followed regarding appropriate procurement methods to use.  Direct orders or contracts should be used when appropriate.  
d)	DBS should develop policy regarding use of cooperative agreements in procuring client services.  
e)	Advance payments to vendors should not be made unless authorized and in accordance with Florida Statutes. 
f)	Contracts should only be signed by the Commissioner of Education or a person who has been formally delegated to sign for the Commissioner. 
g)	State-owned tangible personal property should be accounted for in accordance with applicable laws and rules.  	
Management Response:	DBS management concurs with all recommendations for improving purchasing practices.  DBS is in the process of preparing policies and procedures that will address the following: AWARE authorizations utilization, appropriate purchases using the AWARE system, how and when to use cooperative agreements, and authorizations for advance payments.  Milestone:  DBS policies and procedures on purchasing will be prepared and promulgated by June 2008.	

Purchase Authorization Payments

The AWARE authorization process provides the means for purchasing and requesting payments for client products and services.  The system was designed to process purchases for individual clients in a case management setting.  In a review of selected payments, we noted findings regarding the timing and support for authorizations issued.  We noted two other findings related to payments for client services. 

Finding 15 – Payment processing for purchase authorizations should be improved.

Condition:	We reviewed 69 selected purchases made using AWARE authorizations.  These payments were for such products and services as equipment, cash assistance (maintenance), school tuition, low vision aids, and medical procedures.  We noted the following irregularities: 
•	Authorizations for 23 purchases were issued after products or services had been received. 
•	Nine of 10 purchases involving payment of maintenance assistance to clients did not have adequate support for amounts paid or sufficiently documented justification by DBS staff. 	
Criteria:	Authorizations are essentially purchase orders issued for the acquisition of products or services and if accepted, serve as a legal commitment to which both parties must adhere.  As such, these instruments should be issued and accepted before they are authorized to provide products or services. 
Maintenance payments to clients should have adequate support for amounts paid.  Justification for payments should be sufficiently documented. 	
Cause:	Written operating procedures have not been prepared to ensure activities are performed in accordance with statutes, rules, and management’s directives.  DBS staff did not always issue authorizations in advance of products or services.  Support documents or AWARE case notes were not always prepared to support and justify amounts paid to clients as direct maintenance.  	
Effect:	Authorizations issued before products or services are provided bind the vendor or contractor to the terms established and approved by DBS staff, and circumvent the controls inherent in the approval process.  Payments to clients that are not adequately supported and justified may represent improper payments, payments for an incorrect amount, or payments for an unauthorized purpose.  	
Recommendation:	DBS management should ensure (preferably via written operating procedures) that purchasing tasks are performed properly.  Authorizations should be issued before products or services are initiated.  All purchases should be documented with adequate support and justification for amounts paid.  	
Management Response:	DBS management will develop standardized operating procedures that will address the recommendations listed. Milestone: Standardized operating procedure manuals will be prepared and submitted to the OIG for review by June 30, 2008.	

Finding 16 – Payments of cash advances to clients by contract providers occurred.

Condition:	Contract providers made cash advances (maintenance) directly to clients, and then billed DBS for reimbursement.  We identified approximately $56,000 in such payments for the twelve months ended September 30, 2007, to reimburse three contract providers.  Additional amounts may have been paid by other contract providers.  We were informed by DBS management that this practice has been halted. 	
Criteria:	The established process for issuing maintenance payments involves DBS disbursements based on an approved authorization which results in the issuance of a state warrant payable to the client.  The client is to sign a receipt evidencing acceptance of the warrant when received.  Allowing contract providers to make such payments circumvents the controls inherent in the established process.	
Cause:	Written operating procedures are not in place that direct how such payments are to be performed.  District administrators contacted explained that this practice was being allowed as state warrants took longer to process.  	
Effect:	This practice has inherent risks involving the handling and transfer of cash that could result in misappropriation of funds.  Maintenance request forms were not being prepared by clients as they would have been if processed by DBS staff. 	
Recommendation:	Written procedures should be prepared to direct DBS staff on how maintenance is to be processed.	
Management Response:	DBS will develop standardized operational procedures to guide staff on how maintenance is to be processed.  Milestone:  Standardized operating procedure manuals will be prepared and submitted to the OIG for review by June 30, 2008.	

Finding 17 – Equipment purchases were made in advance of needs.

Condition:	Computer equipment purchases were made without an identified need.  One district purchased four laptop computers using names of clients that were never intended to receive the equipment.  This was done in order to have a backup supply of computers.  The equipment was eventually distributed, though six months passed before one laptop was documented to have been assigned to a client.  	
Criteria:	The Vocational Rehabilitation Program Procedures Manual states that tools, equipment, initial stocks, and supplies may be purchased for an eligible individual when they are necessary to achieve an employment outcome.  
The Bureau Chief for Client Services and Support indicated that such items are not to be purchased in advance for a future use, but for a particular client at the time of need. 	
Cause:	The district administrator responsible for purchase of the equipment did so based on issues regarding compatibility of adaptive software with a newly released computer operating system.  	
Effect:	When equipment is purchased using a different client’s name, client files do not accurately reflect products and services provided to them.  Using client’s names as such equates to falsifying Division records.  Stockpiling of equipment for future use puts the equipment at risk for being lost or stolen, and spends State funds before necessary. 	
Recommendation:	DBS management should adopt policies and procedures that ensure purchases of equipment are made only for eligible clients whose case files support the need for such equipment.  	
Management Response:	DBS management will adopt policies and procedures that ensure purchase of equipment are made for eligible cases only. Milestone: Standardized operating procedure manuals will be prepared and submitted to the OIG for review by June 30, 2008.	

Closing Comments

The Office of Inspector General would like to recognize and acknowledge Division staff for their assistance during the course of this audit.  The assistance provided by staff of both the DBS and DOE is appreciated.  Audit field work was facilitated by the cooperation of all personnel involved.