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Feds demand Nebraska repay $22 million for botched child welfare reform

By   /   January 22, 2014  /   No Comments

By Deena Winter | Nebraska Watchdog

Updated 3 p.m. Wednesday

LINCOLN, Neb. – State Auditor Mike Foley said Wednesday the feds have given the state of Nebraska 30 days to repay nearly $22 million in misspent federal funds related to the state’s botched attempt to privatize the child welfare system.

Brianna Soukup for Nebraska Watchdog

State Auditor Mike Foley

The state auditor received two letters today indicating the feds agree with the state auditor’s findings regarding how the state Department of Health and Human Services documented its use of federal foster care funds while privatizing the child welfare system, which includes foster care and other services to abused and neglected children.

The feds are demanding repayment of nearly $8 million in disallowed expenditures in 2012 and $14 million in 2011.

A Jan. 15 letter from the Administration for Children & Families questioned costs and found all foster care maintenance payments since 2010 were disallowed. While the state has flexibility in implementing child welfare programs, it must adhere to federal requirements and regulations, the letter said.

The letter said Nebraska improperly included non-allowable maintenance costs, such as contractors’ administrative costs, in foster care maintenance assistance payment claims.

“Despite several requests from the ACF, Nebraska was unable to provide any source documentation of actual payments made to foster parents for Title IV-E allowable maintenance expenditures,” the letter said, noting the state’s failure to properly document such claims continues today.

Gov. Dave Heineman’s initiative to privatize the child welfare system began in 2009, when the state began contracting with five private companies to provide child welfare services. All but one eventually dropped out or lost their contracts as their costs spiraled. Nebraska consistently led the nation in the number of children removed from their homes and placed in state custody. The state also got low marks from the feds for the quality of care of those kids.

But within the first seven months of implementing the Family Matters child welfare reform plan, three of the five contractors pulled out. Foley’s 2011 audit showed child welfare costs increased 27 percent after the system was privatized and the state failed to seek bids on multi-million dollar contracts, overpaid contractors millions, continued to pay contractors who failed to meet benchmarks and failed to document how money was spent.

A separate 2011 legislative audit concluded the reform wasn’t working, that the state failed set goals or do cost-benefit analysis before diving in and didn’t make much progress in reducing the number of children taken from their homes. That audit also recommended the 2007 restructuring of DHHS be examined to determine whether changes were needed to improve oversight and accountability. In 2006, Heineman began reforming the way the state manages foster children and other state ward cases and in 2007 restructured the administration of state child services after merging three Health and Human Services agencies into one.

Every year, the federal government requires the state to file an audit report of federal funds, which is then reviewed and occasionally there are “financial consequences.” Foley said the latest development confirms his view that although DHHS has many “fine, dedicated employees, the agency is in turmoil and in desperate need of an overhaul.”

“Time and time again, the Nebraska Department of Health and Human Services has squandered millions in state and federal dollars,” Foley said in a press release. “The agency’s refusal to adhere to sound business practices for the proper expenditure of funds will now result in Nebraska taxpayers having to pick up considerably more of the cost for its foster care program.”

The demand for $22 million in repayments comes on the heels of a similar $3.2 million repayment demanded from the state in August 2012. Nebraska initially appealed that cost disallowance but, ultimately withdrew its appeal.

HHS CEO Kerry Winterer said in a press statement that the notification from the feds was expected and related to inadequate documentation for expenses by private contractors.

He said the department began resolving those issues in 2012 and a disallowance should not occur again, as Children and Family Services Director Thomas Pristow has been working closely with federal officials for the past 12 to 18 months to fix this issue. Winterer said the department will decide soon how to respond to the feds’ demand.

“We believe we can provide information that will change the amount owed and we believe it will be considerably less,” he said.

Foley said if the state doesn’t repay the money within a month, it will be subject to annual interest expenses of over 10 percent. The auditor’s office is finishing the 2013 audit, which Foley said could lead to more questioned expenditures.

“Nebraska taxpayers deserve better than this,” Foley continued.

This is a developing story. Please check back for updates.

Contact Deena Winter at deena@nebraskawatchdog.org.

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Deena Winter has been a journalist for over 20 years, writing stories for the Northwood Gleaner, Bismarck Tribune, Associated Press, Denver Post and Lincoln Journal Star before joining Watchdog.