Single Audit Report Fiscal Year Ended June 30, 2012 - State ...

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State of GeorgiaFinancial Statement Findings and Questioned CostsFor the Fiscal Year Ended June 30, 2012Each budget unit subject or subjecting to the allotment process is required to limit the total of itsexpenditures and contractual obligations of State general funds to the reduced amount inappropriations it then withdraws by warrant pursuant to the reduced allotment. In the obligation andexpenditure of Federal funds, a budget unit may not expend or obligate more in federal funds than ithas available for obligation by the appropriation and grant of relevant federal funds (with the additionof excess, changed or unanticipated federal funds also available to it). In the obligation andexpenditure of other funds, a budget unit may not expend or obligate more than it has in hand for thepurpose of the expenditure or encumbrance. 1975 Op. Att'y Gen. 75-88.Cause:The Department failed to exhibit that adequate controls were in place to appropriately manage theirfiscal responsibilities relating to their statutory (budgetary) basis financial statements to ensurecompliance with the 2012 Appropriations Act, as amended, (Final Budget) and Article VII, Section IVParagraph VIII of the Constitution of the State of Georgia.The Department experienced claims in excess of projections and available funds in several programsincluding Medicaid: Aged, Blind and Disabled program, the PeachCare program and the State HealthBenefit Plan. The Department ended the fiscal year with an overall departmental deficit of$31,930,192.84 which was the result of several factors including the discovery of a prior yearaccounting error by the Department resulting in an inaccurate amount of reserves being recorded forthe prior fiscal year, higher than projected healthcare claims and an approximate 41% spike in claimsfrom the State’s largest Medicaid provider. The Department failed to act in a timely manner and totake the appropriate actions necessary to mitigate the resulting instances of noncompliance.Effect:Recommendation:For the programs as identified in the Condition paragraph and the attached organization, GeorgiaComposite Medical Board, management failed to comply with the Appropriations Act, as amended,(Final Budget) and the Constitution of the State of Georgia. The cumulative effect of these instancesof noncompliance are deemed to be material to the Department's BCR overall and supports aqualification of this information.The Department of Community Health should implement policies and procedures which address anyfuture budget reductions and closely monitor their expenditures throughout the year within all fundsources to insure that funds are available for these expenditures. If the situation arises where theDepartment feels they may be in budgetary noncompliance, all avenues of resolution such as seekingamended appropriations, fiscal affairs, etc., should be immediately explored as solutions.In addition, State government officers and the budget and accounting offices are being notified of thisdeficit fund balance for their respective consideration.Finding Control Number: FS-419-12-101ACCOUNTING CONTROLS (OVERALL)GENERAL LEDGERCASH, INVESTMENTS AND INVESTMENT RELATED ACTIVITYREVENUES AND RECEIVABLESBUDGETInadequate Year-End Close-Out and Accounting ProceduresCondition:The Department of Community Health (Department) failed to have an effective oversight process inplace relating to their year-end close-out procedures. The Department appeared to have an excessivenumber of post-closing adjusting entries after period 998, the TeamWorks Financial System year-endadjustment period. Also, final post-closing adjustments were still being made as late as November 16,2012; more than three (3) months after year-end close and three (3) business days after the Departmentagreed to submit their final Budgetary Compliance Report (BCR) for review.Based on responses by the Department to inquiries we made, the Department received and expensed 12months’ worth of CMO capitation (CAP) payments for the Medicaid: Low-Income Medicaid programin the 2012 Appropriations Act, as Amended, but only 10 months of payments were made during the34
State of GeorgiaFinancial Statement Findings and Questioned CostsFor the Fiscal Year Ended June 30, 2012year. Although, the Department's June 30, 2012 budget fund balance sheet (statutory basis) reportedover $27 million in Cash and Cash Equivalents and over $850 million in Accounts Receivable overall,the Department indicated they did not have adequate cash on hand to make the final two (2) months ofCAP payments to their CMO providers for the Medicaid: Low-Income Medicaid program.Criteria:The State Accounting Office (SAO) provides tools, guidance and calendars for all appropriated budgetunit organizations to utilize in relation to the year-end close-out process. All of this information isdesigned to assist these organizations in applying best accounting practices which suggest thattransactions be recorded properly and timely during the fiscal year to eliminate the need for excessiveadjusting journal entries after year-end close.In addition, Policy Number CM-100001, Cash Management Overview, from the State AccountingManual Policies and Procedures issued by the SAO provides the minimum requirements that stateagencies shall adhere to in regards to the collection of cash, recording deposits, disbursing funds, andestablish internal controls designed to safeguard the state's cash and maximize interest earnings onstate funds as a whole. This policy states, "Agencies are responsible for selecting the best collectionand payment mechanisms as well as adopting appropriate oversight, and review guidelines, policiesand procedures." As it relates to "cash position management" the policy states, 'This componentincludes the daily monitoring of cash inflows and outflows to determine whether internal sources ofcash are available to fund the organizations cash requirement. Daily cash position management is thenextended to weekly, monthly, quarterly, and annual cash forecasts and projections."Lastly, as it relates to internal controls this policy states, "Effective internal controls is a criticalcomponent of cash management and a foundation for the safe and sound operation of stategovernment. In view of the potential for material loss, particularly through electronic activities,agencies must establish a strong internal control environment. The extent of an agencies' internalcontrol program should be commensurate with the complexity and sophistication of the activities inwhich it engages. As with many other aspects of agency operations, the type of controls used will varybut will likely consist of policies, procedures, operating parameters, monitoring activities, separation ofduties, reporting, audit, and management information systems."Information:Cause:Effect:Our review revealed the Department submitted 74 post closing adjusting entries with a total absolutevalue of $665,309,850.47 after period 998. In addition, prior year post-closing adjustments were notrecorded to the official books of record (TeamWorks Financial System) until March 2012[approximately eight (8) months] after year-end.The deficiencies noted are a result of the Department's failure to have adequate policies, proceduresand processes in place to expedite the timely completion of the year-end close-out process for theirBCR.Excessive post-closing adjusting entries gives the appearance that transactions may have not beenrecorded properly and timely during the fiscal year and could result in a material misstatement in thefinancial statements including misstatements due to fraud.In addition, the excessive close-out process on behalf of the Department could cause the statewideBCR to be released after the targeted release date and potentially may also negatively impact thetargeted release date of the Comprehensive Annual Financial Report (CAFR).CMO CAP payments for the final two (2) months of the fiscal year were not made on a timely basisdue to the lack of an effective cash management process and the uncertainty the Department hadrelating to their cash balances.Recommendation:The Department of Community Health should develop and implement additional policies andprocedures to make their year-end close-out process more effective by improving the timeliness of theprocess and reduce the number of resulting post-closing adjusting entries. To that end, we suggest thatconsideration be given as to whether a “soft” close of the Department’s financial records takes place at35
Page 1: Single Audit ReportFiscal Year Ende
Page 11: Report on Internal Control Over Fin
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Page 19 and 20: Greg S. GriffinSTATE AUDITOR(404) 6
Page 21 and 22: In our opinion, based on our audit
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State of GeorgiaFederal Awards Find
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Expenditures of Federal Awards
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State of GeorgiaSchedule of Expendi
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Corrective Action Responses toCurre
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State of GeorgiaListing of Organiza
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