New $37 million DHS shortfall found

AUGUSTA – A little more than a month after resolving a $31 million accounting error at the Department of Human Services, the Baldacci administration was rocked Tuesday by a second report of bungled bookkeeping at DHS – this time for $37 million.

In a news conference attended by acting DHS Commissioner Peter Walsh, Gov. John Baldacci told reporters that federal officials, administration analysts and accountants with PricewaterhouseCoopers had identified a series of Medicaid accounting errors dating back to 1996.

“I wish that there was better news, but I think that over an eight-year period within this account which manages $1 billion a year, I think we’ve finally gotten to the bottom of it and we’re going to get it on the right track,” Baldacci said. “We’ll build a structure for the future that will be accountable.”

The governor broke down the accounting deficits uncovered by the latest audit as follows:

. $17.5 million from periodically missed payments covering the state’s share of the Medicaid program over the last seven years.

. $7.8 million in overpayments to the state’s two psychiatric hospitals between 2000 and 2002 that exceeded the federal cap.

. $3.2 million in the loss of a federal grant award after the state failed to identify costs within two years of an expenditure.

. $8.5 million in miscellaneous costs resulting from the state’s failure to meet the federal timetable for filing Medicaid claims.

The governor has responded to the unfolding financial difficulties by appointing Trish Riley, his senior health care policy adviser, to assume oversight of DHS financial operations through the governor’s Office of Health Policy and Finance. Relying on funding from existing, but currently vacant, positions, the governor plans to appoint a chief financial officer for the state’s Medicaid account and create two new supervisory level jobs focusing on health finance and health planning at DHS.

“I’m elevating Trish Riley’s office to have health planning and health finances work collaboratively with Commissioner Walsh,” Baldacci said. “This is too important of an area for me not to be directly engaged. It’s something that I take very seriously. We’re taking control of this directly to make sure that we are on the right track.”

Baldacci said he still has faith in current management at DHS.

“I will continue to be personally working with these people on a weekly basis,” the governor said. “We found [the problem], and good, bad or indifferent the figures and facts are going to come out to the citizens of this state, and that’s the way we run this administration.”

Walsh sat silently throughout most of the news conference, including during an awkward moment when the governor asked him if he had anything to add. About 20 minutes later, at the conclusion of the session, however, Walsh said he “very much appreciated the support” of the governor and his staff.

“The Medicaid program has grown very fast over the last seven or eight years and that’s not an excuse,” Walsh said. “To me, the most important thing is that the governor is willing to look at the unvarnished truth and to say, ‘We want to know what the issues are so that we can solve them.’ If we don’t know what the issues are, we can’t solve them.”

The governor said the funding discrepancies avoided detection for many years because the state was enjoying strong revenues and more adequate funding for the Medicaid program. As both the department’s and the state’s cash position tightened and fiscal policies were strictly adhered to, the shortage became more evident, causing DHS to draw down most of its federal Medicaid funds at the start of the last two quarters, April 1 and July 1. In July, PricewaterhouseCoopers began working with DHS to ascertain any potential gap in the Medicaid program. The ensuing review revealed many of the accounting errors.

Rebecca Wyke, the governor’s chief financial officer, was at Baldacci’s side during the news conference and likened the situation to a bank customer who had erroneously recorded a $100 check as a $50 check.

“But you carry a thousand dollar balance in your checkbook,” she said. “You may never realize, if you never reconcile your statement, that you’re $50 off. But if you don’t carry a $1,000 balance and you’re living paycheck to paycheck, that $50 is going to show up. And unless you go through the process of reconciling, you won’t find its location. This problem is very similar to that in nature.”

Baldacci said his anticipated merger of DHS and the Department of Behavioral and Developmental Services will help eliminate the kind of culture that has contributed to the series of accounting errors that were uncovered this spring. At that time, the state auditor’s office identified $31 million in misappropriated federal funds in the Aid to Needy Families program. Baldacci said that, as in that investigation, the current discrepancy is not a case of malfeasance requiring a criminal investigation.

Baldacci plans to submit a supplemental budget request in January to replace the missing funds, which he said should be less than $37 million by then due to corrective actions he will be instituting in the months ahead.