[Audit Report "Management of Federal Grants, Department of Mental Health and Substance Abuse, Government of Guam"]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 2002-I-0036

Title: Audit Report "Management of Federal Grants, Department of
       Mental Health and Substance Abuse, Government of Guam"
       

  
Date:  August 19, 2002

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N-IN-GUA-002-00-M

United States Department of the Interior

OFFICE OF INSPECTOR GENERAL

Pacific Field Office
415 Chalan San Antonio
Baltej Pavilion - Suite 306
Tamuning, Guam 96911

August 19, 2002

Honorable Carl T.C. Gutierrez
Governor of Guam
Office of the Governor
P.O. Box 2950
Hagatna, Guam 96932

Subject:  Audit Report "Management of Federal Grants, Department of Mental Health and Substance Abuse, Government of Guam"  (No. 2002-I-0036)

Dear Governor Gutierrez:

This report presents the results of our audit of the management of Federal grants by the Department of Mental Health and Substance Abuse of the Government of Guam.

Section 5(a) of the Inspector General Act (5 U.S.C. app.3) requires the Office of Inspector General to list this report in its semiannual report to the U.S. Congress.  In addition, the Office of Inspector General provides audit reports to the Congress.  We have also provided a copy of this report to the U.S. Department of Health and Human Services.  

Please provide a response to this report by September 13, 2002.  The response should provide the information requested in Appendix 4 and should be addressed to our Pacific Field Office, 415 Chalan San Antonio, Baltej Pavilion - Suite 306, Tamuning, Guam 96913. 

Sincerely,

/signed/
Arnold E. van Beverhoudt, Jr.
Audit Manager for Insular Areas

cc:  Ms. Aurora F. Cabanero, Acting Director, 
Department of Mental Health and Substance Abuse


EXECUTIVE SUMMARY

BACKGROUND

The Department of Mental Health and Substance Abuse, which  is part of the Executive Branch of the Government of Guam, is responsible for providing mental health, alcohol, and drug prevention and treatment programs.

The Department receives an annual budget of approximately $6 million from the Guam Legislature and receives approximately $1 million annually from three U.S. Department of Health and Human Services (DHHS) block grants: Projects for Assistance in Transition from Homelessness (PATH), Substance Abuse Prevention and Treatment (SAPT), and Community Mental Health Services (CMHS).  The Department also received a DHHS discretionary grant: Mental Health Statistics Improvement Program (MHSIP) Stage I Implementation (see Appendix 1). 

OBJECTIVE

The objective of the audit was to determine whether the Department administered its Federal grants in accordance with Federal and local laws and regulations relating to (1) the procurement of supplies and services and the administration of contracts, (2) the identification and allocation of costs for personnel and contract employees, and (3) the billing and control of grant reimbursements.

RESULTS IN BRIEF

Although the Department of Mental Health and Substance Abuse generally followed procurement requirements, it did not adequately account for costs billed or comply with certain grant requirements.  Specifically, we found that the Department:

-  Charged the SAPT block grant for $138,190 of unallowable inpatient psychiatric services.

-  Did not account for SAPT block grant expenditures on a program basis, as required by grant regulations, resulting in unsupported costs of $1.5 million.

-  Expended $300,260 in MHSIP discretionary grant funds without achieving the grant objective of developing a computerized patient information system and improperly used $60,000 of SAPT block grant funds on a second attempt to develop a patient information system.

RECOMMENDATIONS

We made six recommendations to the Governor of Guam to address the deficiencies disclosed by our audit.

AUDITEE COMMENTS AND OFFICE OF INSPECTOR GENERAL EVALUATION

The Department of Mental Health and Substance Abuse concurred with all six recommendations and provided an action plan to implement them, including identification of the officials responsible for implementing the action plan and the dates by which the tasks are to be completed.  Accordingly, we consider five recommendations to be resolved but not implemented and one recommendation to be implemented.  Because the audit related to Federal funds granted by the U.S. Department of Health and Human Services, a copy of this report will be provided to that agency.  

CONTENTS

EXECUTIVE SUMMARY

INTRODUCTION
Background
Objective and Scope
Prior Audit Coverage

RESULTS OF AUDIT
Overview
Inpatient Psychiatric Services
Level of Effort Requirements
Computerized Patient Information System

RECOMMENDATIONS

INTRODUCTION

BACKGROUND

The Department of Mental Health and Substance Abuse, which  is part of the Executive Branch of the Government of Guam, is responsible for providing mental health, alcohol, and drug abuse prevention and treatment programs.  Such programs include  24-hour crisis intervention services, group and family counseling, partial hospitalization and aftercare for the mentally ill, outpatient services for adults and children, and inpatient and community-based outpatient alcohol and drug treatment programs.
	
The Department had 142 employees and received annual appropriations of approximately $6 million from the Guam Legislature plus  approximately $1 million annually from three  U.S. Department of Health and Human Services (DHHS) block grants (see Appendix 2).  The three block grants were: Projects for Assistance in Transition from Homelessness (PATH), Substance Abuse Prevention and Treatment (SAPT), and Community Mental Health Services (CMHS).


During the period of September 30, 1993 to September 15, 1995, the Department also received $341,064 under the DHHS discretionary grant Mental Health Statistics Improvement Program (MHSIP) Stage I Implementation.  This grant was available to state and territorial mental health agencies to develop patient information systems to provide uniform patient/client demographic and treatment data and program data.  There were three types of MHSIP grants: Stage I grants covered the implementation of an automated patient information system, Stage II grants covered initial operation of the information system, and Stage III or Decision Application grants were  to demonstrate that the reports from the information system could be used to evaluate program performance. 

OBJECTIVE AND SCOPE

The objective and scope of the audit was to determine whether the Department of Mental Health administered its Federal grants in accordance with Federal and local laws and regulations relating to (1) the procurement of supplies and services and the administration of contracts, (2) the identification and allocation of costs for personnel and contract employees, and (3) the billing and control of grant reimbursements.  The scope of the audit included expenditures charged against the block grants awarded during fiscal years 1998, 1999, and 2000.  We also included in our review a discretionary grant initially awarded in fiscal year 1994 for an automated patient information system.  The expanded scope of audit was necessary because contractual services charged against the SAPT block grant duplicated work performed under the MHSIP discretionary grant.

Our review was made, as applicable, in accordance with the "Government Auditing Standards," issued by the Comptroller General of the United States.  Accordingly, we included such tests of records and other auditing procedures that were considered necessary under the circumstances.

As part of the audit, we evaluated the system of internal controls related to the awarding and administration of Federal grants by the Guam State Clearinghouse and the Department of Mental Health. Based on our review, we identified internal control weaknesses which are discussed in the Results of Audit section of this report.  Our recommendations, if implemented, should improve the internal controls in these areas.

PRIOR AUDIT COVERAGE

During the past 5 years, neither the General Accounting Office or the Office of Inspector General has issued any audit reports on Federal grants awarded to the Department of Mental Health and Substance Abuse, Government of Guam.  In addition,  none of the single audit reports issued during the same 5-year period included a review of Federal grants administered by the Department of Mental Health and Substance Abuse.

However, in August 1997, the Office of the Public Auditor, Government of Guam issued a report on a "Management Audit of the Department of Mental Health and Substance Abuse."  The report concluded, in part, that the Department had lost revenues of about $4.2 million during fiscal years 1994 through 1997 as a result of not charging service fees to patients.  The charging of fees was identified in the initial needs analysis for a computerized patient information system, which is discussed in this report.


RESULTS OF AUDIT

OVERVIEW

The Department of Mental Health and Substance Abuse charged the SAPT block grant for unallowable inpatient psychiatric services; did not account for SAPT block grant expenditures on a program basis, as required by grant regulations; and expended $300,260 in MHSIP discretionary grant funds without successfully developing and implementing a computerized patient information system and improperly used $60,000 of SAPT block grant funds in another attempt to develop a patient information system.  These conditions existed because the Department did not distinguish between contractual billings for inpatient and outpatient psychiatric services prior to approving payments, did not have procedures to account for grant expenditures on a program basis, and did not follow standard information system project management practices.  As a result, we identified $1.7 million of questioned costs and $300,260 of cost that could have been put to better use (see Appendix 1).

INPATIENT PSYCHIATRIC SERVICES

Contrary to grant regulations, the Department charged inpatient psychiatric services to the Substance Abuse Prevention and Treatment (SAPT) block grants for fiscal years 1998 and 1999.  This occurred because the Department could not distinguish between inpatient and outpatient psychiatric care services billed under contracts with psychiatrists.  As a result, we determined that billings for inpatient psychiatric services totaling $138,190 were paid during the 2-year period.

Contractor Time Sheets Were Not Used to Determine the Amount of Allowable Charges

Grant regulations contained in the Code of Federal Regulations (45 CFR ï¿½ 96.135(a)(1)) governing the use of SAPT grant funds  prohibit the expenditure of grant funds for psychiatric services provided on an inpatient basis, except in certain documented circumstances where the patient could not be safely treated in a community-based, non-hospital, residential treatment program and the treatment was expected to improve the patient's condition.  Psychiatric services at the Department were provided on a contractual basis by individual psychiatrists who submitted  monthly billings for their services.  Our review of the contracts and the monthly billings disclosed that for fiscal years 1998 and 1999, the SAPT grant funds were used to pay the entire billed amounts although time sheets submitted by the contractors clearly identified the charges for inpatient treatment.


The Administrative Officer for Financial Management, who certified the availability of funds for expenditures at the Department of Mental Health, stated that the time sheets and billing invoices from the psychiatrists were forwarded to the Department of  Administration for payment and were not used to determine the allowable charges for the grant. In addition, the Administrative Officer stated that the entire cost of the doctors' contracts were charged to the SAPT grants for fiscal years 1998 and 1999 because there were insufficient local funds to pay for any inpatient psychiatric services.  She stated that for fiscal year 2000, psychiatric services were charged to local Government of Guam appropriations.

Based on grant expenditure records, we determined that $138,190 of inpatient psychiatric services was improperly charged against the SAPT grants for fiscal years 1998 ($103,200) and 1999 ($34,990).

LEVEL OF EFFORT REQUIREMENTS

The Department did not account for SAPT grant expenditures on a program basis.  Consequently, it could not show compliance with grant regulations requiring a minimum level of effort for three prevention and treatment programs under the SAPT block grant.  As a result, we estimated that the Department had incurred $1.5 million of unsupported grant expenditures.

Federal Regulations Required Level of Effort Reporting

Although each state and territory had discretion in developing its prevention and treatment programs, there were restrictions on how much of the SAPT grant could be spent on certain programs.  Grant regulations contained in the Code of Federal Regulations (45 CFR ï¿½ 96.124) required states and territories to spend not less than 35 percent for alcohol abuse prevention and treatment programs, 35 percent for other drug abuse prevention and treatment programs, and 20 percent for primary prevention programs.  The remaining 10 percent was for administration of the grant and discretionary programs.  In this context, the SAPT grant application process required the Department to prepare reports showing, in part, how much it planned to spend on the required categories of programs (Form 11) and the actual expenditures and obligations incurred (Form 4) against the SAPT grant awarded 2 years previously for actual expenditures and 1 year previously for actual outstanding encumbrances.  For example, the fiscal year 2001 SAPT grant application (submitted  in fiscal year 2000) required the Department to report the actual expenditures incurred, by program, for the fiscal year 1998 grant and outstanding encumbrances for the fiscal year 1999 grant. From these two reports, compliance with the level of effort requirements could be determined.

Accounting Records Did Not Support Level of Effort Reporting

Despite these requirements, the Department only accounted for grant expenditures by expenditure classifications such as "labor," "travel," and "contractual services," and not by program.  For required level of effort reports (Form 4), the Department simply multiplied the total expenditure and obligation amounts by the minimum level of effort percentage for each program.  However, these amounts did not necessarily represent the actual allocation of expenditures and obligations among the three main program categories.  The amounts reported (Form 11) for subsequent year grant budgets were computed using the same process, rather than being based on budgets derived from an analysis of expected level of effort.


The administrative officer for financial management, who provided the expenditure and encumbrance data for the SAPT grant applications, stated that she was aware of the required level of effort percentages for the grant, but that it would be difficult to allocate costs on a program basis because the payroll system used by the Government of Guam was not set up to record employee time on a program basis,  particularly for counselors who might work on several programs during a pay period.  However, the management analyst who oversaw the grant application process stated that the key to complying with the grant requirement was to establish a budget for the grant award on a program basis.  Additionally, an internal timesheet could have been implemented to record and account for employees' time on a program basis. The management analyst added that the fiscal year 2001 CMHS grant award had been budgeted in this way.  Although we verified the existence of the budget, internal spreadsheets used to account for grant expenditures had not yet been set up to record expenditures and encumbrances against the budget categories for this grant. 

Grant Managers Were Not Required to Acknowledge Their Familiarity with Grant Requirements 

Contributing to the noncompliance with level of effort requirements was the grant clearinghouse review and approval process that was required for all Government of Guam Federal grant applications.  The review and approval process required that grant applications submitted by the originating department or agency be reviewed by the Bureau of Planning and the Bureau of Budget and Management Resources.  Once these reviews were completed, the Governor signed the application as the Chief Executive Officer.  For the SAPT grant application, the Governor was also required to sign a "Funding Agreements/Certifications" form (OMB No. 0930-0080) that specifically spelled out the compliance requirements of the grant, including the level of effort percentage requirements. The PATH and CMHS grants had similar certification requirements.

We noted that although the Governor signed the certification form, the clearinghouse review process did not require the respective department officials who would actually be administering the grants to sign the same certification forms.  We believe that requiring the cognizant department or agency  officials, such as the director and certifying officer, to acknowledge their awareness and understanding of the grant requirements would formally place responsibility for compliance directly on the shoulders of the responsible officials at the department or agency level.

We estimated that the Department's inability to show compliance with the level of effort requirements resulted in unsupported costs of $1,504,141 for the SAPT grants fiscal years 1998 ($430,236), 1999 ($424,251), and 2000 ($649,654).

COMPUTERIZED PATIENT INFORMATION SYSTEM

The Department did not successfully develop and implement an automated patient information system after spending $300,260 of MHSIP discretionary grant funds on the project.  In addition, the Department had committed $60,000 of SAPT block grant funds to the project in fiscal year 2000 in another poorly-planned attempt to develop a patient information system.  The Department's inability to develop and implement a patient information system was the result of inadequate management oversight.


Mental Health Statistics Improvement Program Grant of $300,260 Did Not Result in a Usable Information System

In July 1993, the Department applied for an MHSIP Stage I grant, stating that the Department needed a fully functional computerized patient information system in order to implement a fee schedule for services and to provide patient demographic and program performance data for short and long-term planning.  In addition, the grant application stated that the need for a computerized patient information system had existed since 1983.

During the first year of the grant, the Department contracted with a computer specialist in mental health data standards to conduct an assessment of its data needs and provide recommendations for implementation of a computerized patient information system.  After a review of available products, a medical records management system patterned after the one used by the State of Kansas was selected.  Unfortunately, the contracted specialist died before the work could be completed.  Subsequently, the system was abandoned and a committee composed of Department administrators and supervisors and chaired by the Deputy Director selected an "off-the-shelf" commercial software package designed for tracking patient treatment.

Based on our review of available records, we determined that the Department had preselected this software without (1) identifying what the Department actually needed and (2) evaluating other software packages used in the mental health field.  On February 4, 1997, after preselecting but not yet purchasing the software, the Department retained a computer consultant, at a cost of $89,200, to perform a systems analysis of the Department's needs and to purchase and customize the preselected software for the Department's use.

However, the process of selecting the software and then conducting a needs analysis was opposite of the normal system development process.  The consultant's systems analysis report implied this problem by stating, "This analysis differs from most computer analysis in that [the] software system has already been pre-chosen and that the analysis was scheduled to be done without the benefit of a working copy of the software."

Nevertheless, work progressed with the customization process until the current Department Director, who assumed that position in November 1997, stated that after a few months at the Department he realized that the customization of the software would not work.  Subsequently, on February 26, 1998 the Department entered into a memorandum of understanding with the University of Guam, with funding of $78,004 being financed from the MHSIP grant, to have a professor from the University's Computer Science Program assess the current status of the software customization process and identify additional work needed to complete the patient information system.


The University's report, received by the Department on March 5, 1999 (or 9 months overdue), confirmed the Director's doubts about the viability of the efforts to customize the off-the-shelf software. The report stated that additional effort should not be spent customizing the purchased software package because the work, at that point, was not finished and there were no assurances from the software vendor that it was willing to support a customized version of its software.  The report further stated that the Department had three courses of action: (1) find another commercial software package that met the Department's requirements, (2) find a vendor that could supply a basic patient information system and the personnel to modify it, or (3) create a fully customized system. As a result, the customization project was stopped.

The MHSIP grant close-out report dated June 12, 1998 summarized the Department's activities under the grant by stating, in part, that  the Department "tried to implement a system without any formal analysis or master plan." Despite this comment and the Director's initial realization that the software customization project probably would not work, the close-out report concluded that the Department anticipated a fully functioning computerized patient information system by October 1998.   When we asked the Director about the closeout report conclusion, in view of his own doubts about the customization project, he stated that he was unsure why this was stated in the final report.

Another Attempt Was Made to Develop a  Patient Information System

With the MHSIP grant closed, on September 22, 2000, the Department made another attempt to develop a computerized patient information system by entering into a $60,000 memorandum of understanding with the University of Guam covering the 1-year period ending September 30, 2001.  We concluded that this second attempt may not be successful because of weaknesses in the agreement with the University and inadequate testing of the program.

Weaknesses in the Memorandum of Understanding

Specifically, the memorandum of understanding did not (1) specify how the system components would be tested and approved by the Department, (2) identify who would have ownership of the software, and (3) specify which programming language would be used to write the software or what the requirement would be for program documentation, including user manuals. We discussed these weaknesses with the current project manager, who stated that when she took over the project on February 20, 2001, she recognized the deficiencies, but the project was too far along to implement the necessary corrective actions.  Furthermore, the project manager expressed reservations about whether the project could be completed with an operational information system in place by the September 30, 2001 deadline.

Inadequate Testing

In December 2000, the principal programmer demonstrated the patient intake portion of the program in a meeting with the Department's managers and supervisors, and provided individual demonstration programs that were subsequently loaded onto  personal computers for officials to test and provide constructive feedback.  Although the intake portion of the program was demonstrated to managers and supervisors, the actual testing process was incomplete and not adequately monitored to ensure that problems with the program were addressed timely.


We contacted four supervisors and one employee in the Department who were directly involved with the patient intake process to determine if they had used the demonstration program and provided feedback to the programmers.  Of the five individuals we interviewed, only one had actually used the demonstration program.  The other four individuals had the program on their computers but had not tried to use it prior to our interviews.  When the intake program was tried by the four  individuals during our interviews, the program  did not work.  In addition, all five individuals were unclear as to whom they would have asked for help with the program. The five individuals were also unclear as to whom they should provide comments on the intake program. 

In our opinion, adequate testing and monitoring would ensure that the end users would be provided a product that would meet the expectations of the Department.

SAPT Block Grant Funds of $60,000 Were Used to Fund the Second Attempt to Develop a Patient Information System

Although the need for a computerized patient information system had been well documented, we question the use of $60,000 of fiscal year 2000 SAPT block grant funds to finance this second system development attempt.  First, the Department had already received a separate grant, which if managed properly should have resulted in a functioning system.   And second, it is questionable whether the SAPT grant funds should have been used to fund another attempt since grant regulations for the SAPT grant  stipulated that no less than 90 percent of grant expenditures be specifically related to substance abuse prevention and treatment programs.  In this context, the Department did not specifically receive any approval from DHHS to use SAPT grant funds for a systems development project.

Finally, the Guam Public Auditor's 1997 audit report (see "Prior Audit Coverage") estimated that the Department had lost more than $4 million over a 4-year period by not charging service fees.  Since one of the original reasons for developing a computerized patient information system was to facilitate the billing of fees for services provided to patients with medical insurance, the Department should seek local appropriations to bear the cost for  developing a computerized patient information system.

RECOMMENDATIONS

TO THE GOVERNOR OF GUAM

We recommend that the Governor of Guam require the Director of the Department of Mental Health and Substance Abuse to:

1.  Develop and implement procedures to review contractor billings for psychiatric services and stop charging the SAPT grant for inpatient psychiatric services unless they meet the specific exceptions contained in the Code of Federal Regulations.

2.  Develop and implement program-based budgets for each Federal grant in accordance with grant regulations and record grant costs against the budgets based on program categories and level of effort criteria contained in the Code of Federal Regulations.


3.  Reconstruct SAPT grant expenditures for fiscal years 1998 through 2000 on a program basis and submit the results to the U.S. Department of Health and Human Services for review.

4.  Develop and implement procedures requiring the Director and other cognizant Department officials to acknowledge their awareness of and responsibility for complying with applicable grant regulations for each Federal grant application submitted to the grant clearinghouse for review and approval.

5.  Seek clarification from the U.S. Department of Health and Human Services as to whether the SAPT grant can be used to develop and implement a computerized patient information system.  If the costs are unallowable, request a local appropriation from the Guam Legislature to complete development and implementation of a computerized patient information system.

6.  Amend the memorandum of understanding between the Department of Mental Health and Substance Abuse and the University of Guam to ensure that there is a clear statement of deliverables under the agreement, including testing and documentation of the patient information system.

AUDITEE RESPONSE AND OFFICE OF INSPECTOR GENERAL REPLY

The April 29, 2002 response (Appendix 2) to the draft report from the Department of Mental Health and Substance Abuse indicated concurrence to the recommendations and provided a corrective action plan  that included the titles of the officials responsible and the target dates for implementing the recommendations.  Based on the response, we consider Recommendations No. 1, 3, 4, 5, and 6 to be resolved but not implemented and Recommendation No. 2 to be implemented (see Appendix 3).

The response also provided general comments on specific aspects of the audit findings, as follows:

-  Regarding inpatient psychiatric services, the response stated that the use of the SAPT grant funds for inpatient psychiatric services was allowable for inpatient care because it was the only community-based facility on Guam for drug and alcohol clients.  Our review of the grant regulations governing inpatient and outpatient psychiatric services showed no waiver for  exclusive providers of such services.  If  Department officials now feel that they qualify for an exemption to the regulations, they should request such an exemption directly from U.S. Department of Health and Human Services.


-  Regarding level of effort requirements, the response noted that the Governor had delegated grant assurance certification to the Director of the Department of Mental Health and Substance Abuse, who had subsequently delegated specific compliance tasks to his staff.  Based on our review, we found that there was a defacto delegation of duties for administering the SAPT grant.  However, this delegation did not ensure that costs were kept on a program basis. Accordingly, we recommended that the delegation be formalized with each of the applicable staff formally acknowledging their awareness of the grant regulations. This attestation will make it easier to hold appropriate staff members accountable for noncompliance with grant regulations and should help prevent future instances of noncompliance.

-  Regarding patient information services, the response stated that while $20,000 of the $60,000 expenditure of funds for the memorandum of understanding with the University of Guam may be questionable, the remaining $40,000 was not questionable because it had been budgeted for in the Department's fiscal year 2000 SAPT grant application under the category  "Information Systems," which the grantor agency  approved.  In addition, the response stated the work by the University was not a duplication of effort, because the contractor performed other duties related to the Department's computer network.  Our decision to question the entire $60,000 and defer the final decision on allowability to the U.S. Department of Health and Human Services was based on the following three factors:

  - Contrary to what the Director stated in the May 7, 2002  MHSIP grant close-out report, the Department did not have a "fully functioning" patient information system by October 1998.  We found no correspondence from the Department to grantor officials clearly explaining this fact before or after the October 1998 deadline.  Neither did the fiscal year 2000 SAPT grant application disclose that a "fully functioning" patient information system had not been implemented.

  - During the audit, we were aware that the contractor, the University of Guam, had performed other work on a computer network.  However, the cost of that additional work was not specified in the agreement and our review of available records clearly indicated that the University was developing a patient information system for the Department.

  -  Our review of records as well as interviews with Department officials indicated that the Department had lost control of the project, with the principle programmer providing sketchy progress reports of the work completed as well as what remained to be completed. In addition. Department officials were unsure of the status of the project or whether it would ever be completed.