A thorough review of the accounting practices at the Department of Human Services released yesterday shows serious flaws in the many bookkeeping systems there and substantiates the observations of Maine Auditor Gail Chase, who first raised questions about them. Encouragingly, Gov. John Baldacci did not try to minimize these problems and instead immediately adopted the recommendations of the review, heading off what could have become a far worse problem.

The review, by PricewaterhouseCoopers, concludes that no funds were stolen or intentionally misappropriated (no mention made of the FY 2001 transfer of checks totaling $434,000, which Ms. Chase called “deliberate” and “improper”). Instead, federal payments for Temporary Assistance to Needy Families were recorded to exceed the amount paid out by $31 million, between 1999 and 2002, because of a “convoluted accounting system and lack of adequate record keeping.” Pricewaterhouse found three areas of accounting to account for the discrepancy, which amounts to $37 million, and concluded a further discrepancy of nearly $6 million could not be reconciled.

These are relatively small numbers compared with the billions of dollars DHS handles each year. But the outside audit was important because it showed Maine the depth of the problems at DHS – specifically that it has multiple accounting systems that do not work well together, require people to perform jobs for which they were not trained and understaff key positions that are supposed to keep track of the money. “No one with the necessary knowledge and skills appears to be directly involved in the process of determining the amount and timing of draws of federal funds and the recording of the draws in the proper accounts,” the review said. These inadequacies are much more a comment on the King administration than the current governor’s; the problems simply were found on his watch.

Gov. Baldacci signed an executive order Friday establishing the five new positions called for in the audit, which he hopes to have filled by next month. This must come as a great relief to DHS staff members who reportedly were overwhelmed by the expansion of their work in the 1990s. His administration has also planned improvements in accounting at the agency. Just as important, it is extending the audit reviews to other departments, trying to find weaknesses before Maine received more unpleasant surprises.

The Pricewaterhouse audit and sub-sequent action by the administration should reassure bond houses that Maine is serious about making improvements that generally advance the state’s accounting practices. It should help DHS as it proceeds with its merger with the Department of Behavioral and Developmental Services and serve as a guide for other agencies as they review their own accounting practices.

By acting decisively, the administration apparently stopped what could have become a much more serious issue and earned confidence that it would be able to similarly address future problems of this type. Better that DHS had the right accounting system and enough qualified people from the start, but the governor has handled the problem as well as possible.