STATE OF NORTH CAROLINA r OFFICE OF THE STATE AUDITOR BETH A. WOOD, CPA NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES OFFICE OF MEDICAID MANAGEMENT INFORMATION SYSTEMS SERVICES RALEIGH, NC INVESTIGATIVE REPORT MAY 2015 EXECUTIVE SUMMARY PURPOSE The Office of the State Auditor investigated complaints about the qualifications, hiring practices, and pay for temporary employees of the Office of Medicaid Management Information Systems Services (OMMISS) within the North Carolina Department of Health and Human Services (Department). In addition, concerns were raised about excessive compensatory time accumulated by the OMMISS Director and misrepresentations to the General Assembly regarding overtime reporting and payments. BACKGROUND OMMISS administered the computer systems that managed the claims processing for more than 70,000 enrolled providers of North Carolina’s Medicaid program and other health care plans. It directed the project to develop and implement the new NCTracks system, which went live July 1, 2013. KEY FINDINGS  At least $1.6 million wasted through excessive wages and commissions, unjustified overtime, and holiday pay to ineligible employees  OMMISS Director engaged in or allowed nepotism  OMMISS Director received unauthorized compensatory time that may result in inflated retirement benefits  Reports to General Assembly omitted at least $260,000 of overtime and compensatory time  Lack of adequate oversight of OMMISS despite findings in prior audit reports KEY RECOMMENDATIONS  The Department’s management should provide adequate oversight of personnel actions including salary administration, hiring, and overtime related to temporary employees  The Department should implement policies and procedures that prevent nepotism or even the appearance of nepotism  The Department’s CIO should more closely monitor, review, and approve in the State’s online payroll system the work time and leave of employees who directly report to him  The Department should comply with Session Law by including on the monthly reports to the General Assembly the total amount of overtime and compensatory time related to the Medicaid Management Information Systems replacement project  The Department should develop and implement procedures to ensure the proper administrative oversight of the Office of NCTracks, the successor organization to OMMISS Key findings and recommendations are not inclusive of all findings and recommendations in the report. STATE OF NORTH CAROLINA Office of the State Auditor 2 S. Salisbury Street 20601 Mail Service Center Raleigh, NC 27699-0601 Telephone: (919) 807-7500 Fax: (919) 807-7647 Internet http://www.ncauditor.net Beth A. Wood, CPA State Auditor AUDITOR’S TRANSMITTAL May 13, 2015 The Honorable Pat McCrory, Governor Members of the North Carolina General Assembly Dr. Aldona Wos, Secretary, Department of Health and Human Services Ladies and Gentlemen: Pursuant to North Carolina General Statute §147-64.6(c)(16), we have completed an investigation of allegations concerning the North Carolina Department of Health and Human Services. The results of our investigation, along with recommendations for corrective action, are contained in this report. Copies of this report have been provided to the Governor, the Attorney General and other appropriate officials in accordance with G.S. §147-64.6(c)(12). We appreciate the cooperation received from the management and employees of the Department of Health and Human Services during our investigation. Respectfully submitted, Beth A. Wood, CPA State Auditor Table of Contents PAGE BACKGROUND .................................................................................. ..1 FINDINGS AND RECOMMENDATIONS ................................................... ..3 STATE AUDITOR’S RESPONSE............................................................ 19 Beth A. Wood, CPA State Auditor RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES ................................................................................... 26 ORDERING INFORMATION .................................................................. 43 Article V, Chapter 147 of the North Carolina General Statutes, gives the Auditor broad powers to examine all books, records, files, papers, documents, and financial affairs of every state agency and any organization that receives public funding. The Auditor also has the power to summon people to produce records and to answer questions under oath. BACKGROUND BACKGROUND The Office of the State Auditor received allegations through the State Auditor’s Hotline regarding the Director of the Office of Medicaid Management Information Systems Services (OMMISS) within the North Carolina Department of Health and Human Services (Department). The following list summarizes the allegations received through the Hotline:  The OMMISS Director facilitated excessive overtime pay, holiday pay to ineligible employees, and unjustified pay rates for temporary employees.  The Department misrepresented to the General Assembly the amount of overtime worked and paid to employees.  Temporary and state employees received preferential treatment because of their personal relationships or connections to the OMMISS Director.  The OMMISS Director earned and recorded compensatory time for which she was not eligible. Our investigation of these allegations included the following procedures:  Review of applicable state and Department personnel policies and procedures, personnel records, and the North Carolina General Statutes  Interviews with employees and officials from the Department (including OMMISS temporary and full-time employees), North Carolina Office of State Human Resources, North Carolina Office of Information Technology Services, North Carolina General Assembly, and temporary staffing agencies  Examination and analysis of available documents and records related to the allegations  Forensic examination of the OMMISS Director’s computers This report presents the results of our investigation. The investigation was conducted pursuant to North Carolina General Statute § 147-64.6 (c) (16). North Carolina Department of Health and Human Services (Department)1 The Department’s mission is to improve the health, safety, and well-being of all North Carolina citizens while providing specific services to special populations including individuals who are deaf, blind, developmentally disabled, mentally ill, or economically disadvantaged. The Department is divided into divisions and offices that fall under four broad service areas: health, human services, administrative, and support functions. The Department also oversees developmental centers, mental retardation centers, psychiatric hospitals, alcohol and drug abuse treatment centers, and two residential programs for children. 1 http://www.ncdhhs.gov/aboutdhhs/index.htm 1 BACKGROUND Office of Medicaid Management Information Systems Services (OMMISS)2 OMMISS administered the computer systems which managed the claims processing for more than 70,000 enrolled providers of North Carolina’s Medicaid program and other health care plans. OMMISS directed the development and implementation of the new NCTracks system, which went live July 1, 2013, to replace the previous Medicaid Management Information System. During the replacement, the Department employed a combination of permanent, temporary, and contract employees. The Department used several private temporary staffing agencies located in Wake County to hire temporary employees for the project. 2 http://ncmmis.ncdhhs.gov/ 2 FINDINGS AND RECOMMENDATIONS FINDINGS AND RECOMMENDATIONS 1. AT LEAST $1.6 MILLION WASTED THROUGH EXCESSIVE WAGES AND COMMISSIONS, UNJUSTIFIED OVERTIME, AND HOLIDAY PAY TO INELIGIBLE EMPLOYEES From July 1, 2011, through June 30, 2014, the Office of Medicaid Management Information Systems Services (OMMISS) wasted at least $1,667,1643 by paying: (1) $807,741 to temporary employees at rates that exceeded their qualifications; (2) $598,673 to temporary staffing agencies for commissions that exceeded the rates charged by the state-operated temporary staffing service; (3) $234,724 to employees for unjustified overtime; and (4) $26,026 for holiday pay to ineligible employees. The OMMISS Director’s abuse of her authority through the hiring process caused these excessive costs. According to the Department’s Chief Information Officer (CIO), all hiring and signature authorization for temporary employees remained with the OMMISS Director and managers. Salaries Excessive Compared to Temporary Employees’ Qualifications For fiscal years 2012 through 2014, OMMISS paid 12 temporary employees $807,741 more than their qualifications justified (See Table 1). OMMISS management4 set temporary employees’ pay rates and wasted funds which could have been used for other project purposes. The investigation identified at least three different areas in which the temporary employees’ pay rates were unjustified: (1) the OMMISS Director overruled the pay rate set by a private temporary staffing agency, (2) OMMISS management used payroll service agreements, and (3) an Office of State Human Resources official determined that pay rates were excessive. The OMMISS Director overruled the recommended pay rate set by a private temporary staffing agency. The temporary staffing agency recommended a starting pay range of $12 to $13 per hour for the OMMISS Director’s executive assistant based on her skills and experience. The OMMISS Director initially set her pay at $20 per hour and increased her pay to $25.75 per hour after one week. The OMMISS Director said she set the pay rates for those employees who reported directly to her. For five temporary employees reviewed, the investigation revealed that OMMISS management simply used the private temporary service staffing agencies to pay the employees. Using a “payroll service agreement” method, OMMISS management would direct employees to a specific private temporary staffing agency and inform that staffing agency what pay rate to use rather than allowing the staffing agency to analyze the employees’ qualifications to set an appropriate rate. During the investigation, an Office of State Human Resources (OSHR) official analyzed the qualifications5 of the 12 temporary employees listed in Table 1 and determined their appropriate pay rates based on their qualifications, job titles, and/or job specifications. For all 12 employees, the OSHR official concluded that the pay rates OMMISS set exceeded the employees’ qualifications. The investigation included the review of three fiscal years (2012, 2013, and 2014). Investigators did not review all temporary employees within OMMISS. 4 The OMMISS Director and managers and supervisors within OMMISS comprise “OMMISS management.” 5 The OSHR official used temporary employees’ applications and/or resumes. 3 3 FINDINGS AND RECOMMENDATIONS Examples of excessive salaries paid to temporary employees include the following:  OMMISS management paid a temporary operational program manager $89.39 per hour, which is 78% more than the OSHR official determined the appropriate pay rate ($50.22) should have been. From July 1, 2011, through June 30, 2014, this employee received $244,420 more than his qualifications justified. Because this temporary employee has worked at OMMISS since October 2004, the amount of unjustified salary payments may be much higher.  An OSHR official determined the appropriate pay rate for a temporary business analyst should have been $33.57 per hour. OMMISS management paid the employee $70 per hour, 109% more than the OSHR official determined as appropriate. From July 1, 2011, through June 30, 2014, this employee received $199,183 more than her qualifications justified.  OMMISS management paid a health insurance claims consultant $74.00 per hour, which is 73% more than the OSHR official determined the appropriate pay rate ($42.83) should have been. From July 1, 2011, through June 30, 2014, this employee received $103,484 more than her qualifications justified. Because this temporary employee has worked at OMMISS since August 2008, the amount of unjustified salary payments may be much higher  An OSHR official determined the appropriate pay rate for a temporary business analyst for project support should have been $23.31 per hour. OMMISS management set the employee’s pay at $36 per hour, 54% more than the OSHR determination. From July 1, 2011, through June 30, 2014, this temporary employee received $60,404 more than his qualifications justified. TABLE 1 CALCULATION OF SALARIES EXCEEDING TEMPORARY EMPLOYEES' QUALFICATIONS Pay Rates Base Salaries for Fiscal Years 2012 through 2014 Job Title Actual Qualifieda Actual Salaries Paidb Qualified Amountsa Difference Operations Program Manager Consultant $ 89.39 $ 50.22 $ 557,793.60 $ 313,372.80 $ 244,420.80 Business Analyst 62.50 64.00 70.00 408,660.00 209,476.80 199,183.20 33.57 Health Insurance Claims Consultant 74.00 Business Analystc 36.00 42.83 245,680.00 142,195.60 103,484.40 23.31 171,360.00 110,955.60 Business & Tech. Applications Analyst 60,404.40 63.71 50.22 244,646.40 192,844.80 51,801.60 Business Systems Analyst 67.50 52.10 167,400.00 129,208.00 38,192.00 Technical Resource 15.00 22.50 23.50 138,220.00 105,830.40 32,389.60 16.96 Executive Assistant 25.75 17.60 91,670.00 62,656.00 29,014.00 Budget Analystc 25.75 35.00 192,870.00 172,221.00 20,649.00 27.60 Business & Tech. Applications Analyst 70.00 50.22 Contract Assistantc 22.75 30.90 26.15 19.00 20.00 19.34 Receptionist TOTAL a b c $ 61,600.00 44,193.60 17,406.40 172,604.00 163,176.00 9,428.00 122,040.00 120,672.00 1,368.00 2,574,544.00 $ 1,766,802.60 $ 807,741.40 Qualified pay rates and salaries were determined by an Office of State Human Resources official Actual salaries paid do not include the additional overtime paid to the temporary employees Temporary employees initially hired as the OMMISS Director's executive assistant and later moved to another position at OMMISS 4 FINDINGS AND RECOMMENDATIONS The OMMISS Director disputed that temporary employees were overpaid by noting that there were no formal job descriptions for the temporary positions. She said, “It was not about qualifying them for the position; it was about talking to see if they were qualified to fill the role.” The OMMISS Director tried to justify the higher pay rates for her administrative staff by saying, “They have to be able to do at least 75% of business analyst type work.” However, during interviews with these employees, they did not demonstrate those abilities and could not explain any duties beyond those of an administrative assistant. OMMISS management’s practice of paying temporary employees more than their qualifications justify conflicts with the State Human Resources Manual. The State’s workforce planning, recruitment and selection policy states, “Agency management is responsible for documenting the salary decisions.”6 The manual also states, “All agencies shall select from the pool of the most qualified persons to fill vacant positions. Employment shall be offered based upon the job-related qualifications of applicants for employment using fair and valid selection criteria.”7 Commission Rates Charged by Private Sector Staffing Agencies’ Exceeded Temporary Solutions Rate For fiscal years 2012 through 2014, OMMISS paid $598,673 more in commissions to private temporary staffing agencies than they would have paid Temporary Solutions, the stateoperated temporary staffing service,8 to place 13 temporary employee (See Table 2). For one temporary employee, OMMISS paid $77,763 more to the staffing agency than they would have paid to Temporary Solutions. The commission rates charged by the private sector staffing agencies ranged from an 8% to a 55% mark-up to the billing rate with an average of 35%. Temporary Solutions charged state agencies a flat mark-up rate of $2 per hour worked per employee in addition to charging for Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare programs. By paying higher commissions to temporary staffing agencies, OMMISS wasted $598,673. These funds could have been used for other project purposes. OMMISS paid excessive commissions because the OMMISS Director used various private temporary staffing agencies to avoid state policy which limits temporary employment to a maximum of 12 consecutive months. The private temporary staffing agencies do not limit temporary employment to a specified length of time. For example, a business analyst worked at OMMISS from February 2007 through October 2014 and an operational program manager worked at OMMISS from October 2004 through present. Overall, at least 14 temporary employees worked at OMMISS longer than 12 consecutive months.9 6 State Human Resources Manual, Career Banding Salary Administration, Section 4, Page 6, Revised January 1, 2015. 7 State Human Resources Manual, Workforce Planning, Recruitment and Selection, Section 2, Page 35, Revised January 1, 2014. 8 Temporary Solutions is located within the Office of State Human Resources. 9 The investigation included the review of three fiscal years (2012, 2013, and 2014). Investigators did not review all temporary employees within OMMISS. 5 FINDINGS AND RECOMMENDATIONS The State Human Resources Manual states that “in no case shall the temporary employment period exceed 12 consecutive months.”10 TABLE 2 COMPARISON OF PAYMENTS FOR TEMPORARY STAFFING AGENCY SERVICES Job Title Business & Tech. Applications Analyst Business Analyst Budget Analyst Business & Tech. Applications Analyst Business Analyst Executive Assistant Contract Assistant Business Systems Analyst Receptionist Business Analyst Operations Program Manager Consultant Technical Resource Business & Tech. Applications Analyst Fiscal Years 2012 through 2014 Staffing Agencies' Temporary a b Commissions Solutions $ 106,686 $ 28,923 101,330 32,647 97,742 30,756 85,913 23,242 83,007 27,150 79,036 17,701 68,716 24,460 63,411 16,502 67,728 27,369 60,519 23,634 54,237 40,459 34,319 20,116 14,909 5,921 Total Difference Difference $ 77,763 68,683 66,986 62,671 55,857 61,335 44,256 46,909 40,359 36,885 13,778 14,203 8,988 $ a Amounts paid include all fees paid to private temporary staffing agencies b Amounts include $2 per hour flat fee plus charges for FICA 598,673 Significant and Unjustified Overtime From July 1, 2011, through June 30, 2014, OMMISS paid five temporary employees $234,724 without documented justification for 5,841 hours of overtime. These employees included two business analysts, an office receptionist, the OMMISS Director’s executive assistant, and a contract monitor. These payments included: 10  In fiscal year 2013, a business analyst worked 823 hours of overtime (averaging 15.83 hours per week) and received $44,442 in overtime. In fiscal year 2014, the business analyst worked 627 hours of overtime (averaging 12.06 hours per week) and received $33,858 in overtime.  In fiscal year 2012, the office receptionist worked 442 hours of overtime (averaging 8.50 hours per week) and received $12,597 in overtime payments. In fiscal year 2013, the office receptionist worked 721.25 hours of overtime (averaging 13.61 hours per week) and received $21,325 in overtime payments. In fiscal year 2014, the office receptionist worked 474 overtime hours (averaging 9.12 hours per week) and received $14,220 in overtime payments. State Human Resources Manual, Employment and Records, Section 3, Page 6, Revised November 1, 2014. 6 FINDINGS AND RECOMMENDATIONS  For fiscal year 2014, the OMMISS Director’s executive assistant worked 910.25 overtime hours (averaged 17.5 overtime hours per week) and received $35,158 in overtime payments. OMMISS management allowed temporary employees to work significant amounts of overtime without documented justification. As a result, OMMISS may have wasted $234,724 that could have been used for other project purposes, to reduce the amount of costs overruns, or to reduce the impact of delays as identified in the January 2012 Office of the State Auditor performance audit report. The temporary employees could not provide reasonable explanations that justified the need for them to work overtime. When questioned regarding the reason for the excessive overtime, these employees provided limited explanations. For example, the receptionist said her overtime included:  “The phones were super busy off the hook…even after hours.”  “Lots and lots of typing”  “If I need to make copies of something or, for instance, if I need to make copies of the (sign-in) sheets for the front.”  “Put nametags up for new people because it’s difficult for me to leave my desk during the day.” The executive assistant, who worked an average of 17.5 hours of overtime per week, said the extent of her overtime derived from:  Arriving to work 15 minutes early to open the office and staying 15 to 20 minutes late to close the office at the end of the day.  “I usually stayed as long as [the OMMISS Director] stayed…When we were going live (July 1, 2013) we worked a lot of overtime...from an extra eight to 10 hours every week.” However, her timesheets indicated she worked an average of 32 overtime hours per week during the five-week period of the project going live. A lack of oversight contributed to the excessive and unjustified overtime. The OMMISS Director said she knew that temporary employees worked overtime due to discussions at management meetings. However, she said she did not monitor overtime for employees that did not report directly to her. The Department’s CIO said he did not review or approve overtime worked by temporary employees and was unaware of how much overtime temporary employees worked. The State Human Resources Manual states, “It shall be the responsibility of each agency or executive head to determine that the provision of overtime pay is administrated in the best 7 FINDINGS AND RECOMMENDATIONS interest of the State. Although each agency head is responsible for the manner in which overtime is authorized, it is equally important to control unauthorized overtime.”11 Payment for Holiday Leave to Ineligible Employees For fiscal years 2012 through 2014, OMMISS paid at least $26,026 for holiday leave to nine temporary employees. The staffing agency’s contracts included six paid holidays for these temporary employees.12 OMMISS management elected to pay these temporary employees an additional six holidays to equal the 12 annual holidays received by state employees. The inclusion of paid holidays increased the costs charged by the staffing agency using funds that could have been used for other project purposes. In an e-mail from the OMMISS information technology manager to the staffing agency, the manager wrote: “The State is committed to paying the holidays until such time as [temporary employee] would have earned them through [the staffing agency]. We realize it would not be sometime when she will be eligible for paid holidays from [the staffing agency] so the State will pay them until then and will pay for any holidays that [the staffing agency] does not pay for.” This practice conflicts with the State Human Resources Manual, which states that temporary employees are not eligible for paid holidays.13 RECOMMENDATIONS  The Department’s management should provide adequate oversight of personnel actions including salary administration, hiring, and overtime related to temporary employees.  The Department should use Temporary Solutions to fill its temporary employee needs.  The Department should seek legal counsel to determine whether any unjustified payments including holiday pay can be collected from temporary employees.  The Department should revise its contracts with private temporary staffing agencies to cease paying holiday leave to temporary employees. 11 State Human Resources Manual, Salary Administration, Hours of Work and Overtime Compensation, Section 4, Page 47, Revised January 1, 2011. 12 OMMISS contracts with the private temporary staffing agencies provided that temporary employees who work more than 1,975 hours within the previous 12 months would receive six paid state holidays. 13 State Human Resources Manual, Employment and Records, Appointment Types and Career Status, Section 3, Page 7, Revised November 1, 2014. 8 FINDINGS AND RECOMMENDATIONS 2. OMMISS DIRECTOR ENGAGED IN OR ALLOWED NEPOTISM The Office of Medicaid Management Information Systems Services (OMMISS) employed at least 11 separate groups of family members including family members of the OMMISS Director. In addition, at least 15 individuals had personal connections to the OMMISS Director. At least seven of those 15 were not qualified and/or received unjustified pay rates (See Table 1). OMMISS Director Hired Family Groups The 11 groups of family members included the following:  The OMMISS Director and her daughter  The OMMISS Director and her ex-husband  The OMMISS Director and her ex-husband’s wife  The receptionist and her husband  A contract monitor and her son  An information technology manager and her daughter  A networking analyst and his daughter  A former information technology manager who currently works for Computer Sciences Corporation (the Medicaid vendor for NCTracks) and his wife  Another former information technology manager and her daughter  An office assistant and her husband (a technology support specialist)  The office assistant listed above and her brother OMMISS Director Hired Individuals with Personal Connections to Her At least six OMMISS employees regularly attended the same church as the OMMISS Director. The OMMISS Director said she directly hired four executive assistants who attended the church. These executive assistants’ starting pay rates exceeded their qualifications. (See Table 1, footnote c). The last executive assistant received $86,852 in regular and overtime pay during the 2014 fiscal year. That amount exceeded her qualifications and the annual earnings of the executive assistant to the highest official in every state agency (See Table 3). 9 FINDINGS AND RECOMMENDATIONS TABLE 3 EXECUTIVE ASSISTANTS' TOTAL EARNINGS FOR FY2014 Job Title Executive Assistant OMMISS Personal Secretary to Governor Special Assistant Executive Assistant III Special Assistant to the Attorney General Executive Assistant Administrative Officer Executive Assistant Administrative Officer II Executive Assistant Executive Assistant Administrative Officer II Executive Assistant Administrative Officer I Director of Operations Executive Assistant to Chief of Staff Executive Assistant Executive Assistant II Administrative Officer to the Secretary Executive Assistant II Executive Assistant II Administrative Support Executive Assistant II Administrative Assistanta Office of the Governor Office of State Budget and Management Administrative Office of the Courts Dept. of Justice Dept. of State Treasurer Dept. of Transportation Dept. of Commerce Dept. of Revenue Office of ITS Office of the State Auditor Dept. of Cultural Resources Dept. of Administration Dept. of Labor Lieutenant Governor Office of the Governor Office of State Controller Dept. of Public Instruction Dept. of Health & Human Services Dept. of Agriculture Dept. of Insurance Community College System Dept. of Secretary of State Dept. of Environ. and Natural Resources a b State Agency FY 2014 Earningsb $ 86,852 78,000 69,478 67,661 67,323 65,179 62,928 62,290 62,265 59,330 57,886 56,619 56,608 55,685 55,009 54,999 53,923 52,244 52,000 50,335 49,024 48,867 43,396 N/A Administrative Assistant started work at the agency during the fiscal year. 2014 Earnings include base salary, overtime payments, and longevity payments. A technology support specialist (who is a state employee) and an office assistant (his wife) employed at OMMISS also attended the church. The wife’s brother was one of the four executive assistants. He is the youth pastor at the church and has known the OMMISS Director since the 1990s when he was a student and she was the Vice President of Information Technology at Saint Augustine’s University.14 Other employees said that they learned about jobs at OMMISS through other affiliations with the OMMISS Director. 14  One employee learned about a job opportunity because her sister was the OMMISS Director’s hairdresser.  Another employee became aware of a job because her mother was the OMMISS Director’s neighbor. She received a higher pay rate than her qualifications justified. After the investigation began, the youth pastor’s photograph was removed from the church’s website even though he continues to hold that position within the church. 10 FINDINGS AND RECOMMENDATIONS  Yet another employee learned about her job because her husband was already employed at OMMISS and he had previously worked with the OMMISS Director at Saint Augustine’s University. She also received a higher pay rate than her qualifications justified. Table 4 summarizes the connections between the OMMISS Director and at least 15 individuals employed within OMMISS. TABLE 4 CONNECTIONS BETWEEN OMMISS DIRECTOR AND VARIOUS OMMISS EMPLOYEES Unqualified for Position X Pay Rate Exceeded Qualifications X Job Title Business Analyst Connection to OMMISS Director Church Contract Assistant Church X X Executive Assistant Church X X Budget Analyst Church X X Office Assistant Church Technology Support Specialist Church Business System Analyst Sister of OMMISS Director's hairdresser Technical Resource Daughter of OMMISS Director's neighbor X X Receptionist Wife of OMMISS state employee who worked with OMMISS Director at St. Augustine's University X X Technology Support Specialist Worked with OMMISS Director at St. Augustine's University Business & Tech. Applications Analyst Worked with OMMISS Director at the Department Payroll Service Ex-husband of OMMISS Director Office Assistant Daughter of OMMISS Director Project Support Specialist Wife of ex-husband of OMMISS Director Office Assistant Son of church member and Contract Assistant X Nepotism Led to Hiring of Unqualified Individuals One manager said the OMMISS Director provided a contract assistant to him without his input and this employee did not initially possess the skills needed to perform her duties. He said this employee would not have been his first choice for this position. The OMMISS Director moved some of the administrative staff from their initial positions to other positions within OMMISS. Hiring managers within OMMISS provided instances in which they requested a need to post a position through Office of State Human Resources (OSHR) but the OMMISS Director denied their requests. 11 FINDINGS AND RECOMMENDATIONS Lack of Oversight Allowed Nepotism The Department’s former Assistant Secretary for Finance and Business Operations15 did not provide proper oversight of the OMMISS Director’s hiring decisions. The OMMISS Director abused her authority by hiring individuals connected to her. When asked for her definition of “nepotism,” the OMMISS Director answered, “[I] never really thought about it.” She tried to avoid the question but then read the following definition she found on her smartphone: “The practice among those with power or influence of favoring relatives or friends, especially by giving them jobs.” Nepotism may conflict with hiring and promoting the most qualified candidate for a job. 16 In publicly-funded organizations, nepotism may create the appearance of impropriety. Hiring someone based on familial relationships rather than credentials and experience may lead to inferior service such as the project not being completed as timely or as effectively.17 Although the State’s nepotism policy18 only addresses individuals that report directly to their family members, the State’s workforce planning, recruitment and selection policy reads in part: “All agencies shall select from the pool of the most qualified persons to fill vacant positions. Employment shall be offered based upon the job-related qualifications of applicants for employment using fair and valid selection criteria.”19 RECOMMENDATIONS  The Department should implement policies and procedures that prevent nepotism or even the appearance of nepotism.  The Department should comply with state hiring policies to ensure that only the most qualified applicants are hired.  The Department’s CIO and the Department’s Human Resources division should review all hiring decisions (including temporary employees) to ensure that employees are qualified and paid at the appropriate rate. 3. OMMISS DIRECTOR RECEIVED UNAUTHORIZED COMPENSATORY TIME THAT MAY RESULT IN INFLATED RETIREMENT BENEFITS From January 1, 2013, to October 31, 2014, the Office of Medicaid Management Information Systems Services (OMMISS) Director received 2,120.5 compensatory hours despite her position reclassification that prohibited her from earning compensatory time.  As of October 31, 2014, the OMMISS Director had a balance of 1,661.5 compensatory hours. 15 The former Assistant Secretary for Finance and Business Operations retired on February 1, 2013. http://smallbusiness.chron.com/business-ethics-nepotism-72225.html. 17 http://www.scu.edu/ethics/practicing/focusareas/government_ethics/introduction/cronyism.html. 18 State Human Resources Manual, Workforce Planning, Recruitment and Selection, Section 2, Page 35, Revised January 1, 2014. 19 State Human Resources Manual, Workforce Planning, Recruitment and Selection, Section 2, Page 35, Revised January 1, 2014. 16 12 FINDINGS AND RECOMMENDATIONS  From January 2013 to the start of the investigation in July 2014, the OMMISS Director worked an average of 64.84 hours per week. After the investigation began, the OMMISS Director decreased her work hours to an average of 45.19 hours per week. Maintaining a significant compensatory leave balance allowed the OMMISS Director to accumulate large vacation and sick leave balances.20 Because the OMMISS Director retired effective February 1, 2015, her retirement benefits may have increased as a result of the accumulated vacation and sick leave balances. The vacation leave balances would have been payable to the OMMISS Director when her employment ended and the sick leave balance would have added to her length of service with the State. The OMMISS Director retired effective February 1, 2015. On January 27, 2015, investigators notified Department management about her unauthorized compensatory time and its effects on her vacation leave and sick leave balances. If the Department did not adjust her vacation or sick leave balances for the unauthorized compensatory time, the OMMISS Director received retirement benefits for unauthorized leave. The Department’s Chief Information Officer (CIO), who was the OMMISS Director’s direct supervisor, did not provide proper oversight of the OMMISS Director’s working time and leave balances despite a February 2013 Office of the State Auditor financial related audit report detailing excessive overtime payments to the OMMISS Director:  The Department’s former Deputy Director of Human Resources sent an e-mail to the CIO on August 21, 2013 that stated, “As we have discussed, we have removed the Director from the list since she was reclassified and received a salary increase to offset the compensatory time” (See Finding 5).  In an e-mail dated August 29, 2013, the CIO stated that he “will work individually with (the OMMISS Director) on her comp time.”  The CIO approved the OMMISS Director’s worktime on paper which included her compensatory time. He never reviewed or approved her worktime in the State’s online payroll system. He did not know who approved the OMMISS Director’s time in the online payroll system.21  The CIO told investigators in December 2014, that he did not know the OMMISS Director’s compensatory time balance but said he was not surprised she had a large compensatory time balance. He said, “I really don’t understand comp time. I’ve never seen comp time in my life.” The OMMISS Director received a 25% salary increase, effective January 1, 2013. The Office of State Human Resources (OSHR) assumed that the OMMISS Director was not earning compensatory time based on the reclassification and salary increase. 20 The State’s online payroll system deducts vacation leave from any existing compensatory time balance prior to deducting from the vacation leave balance. 21 Our investigation revealed that the OMMISS Director’s leave was approved in the online payroll system by either a budget officer within the Department’s Division of Information Resource Management or a personnel assistant within the Department’s Division of Human Resources. 13 FINDINGS AND RECOMMENDATIONS  Correspondence from the Department and OSHR indicated the OMMISS Director was not eligible to earn compensatory time due to her 25% salary increase effective January 1, 2013.  A September 26, 2012, letter from the Department’s former acting Secretary to OSHR stated, “These salary adjustments should be made in lieu of extended duty payments or accumulation of compensatory time off.”  According to an e-mail from OSHR to DHHS dated August 21, 2013, the OMMISS Director “was reclassified and received a salary increase to offset the compensatory time.” RECOMMENDATIONS  The Department’s CIO should more closely monitor, review, and approve in the State’s online payroll system the work time and leave of employees who directly report to him.  The Department should fully investigate the OMMISS Director’s compensatory time balance and adjust her compensatory time, vacation leave, and sick leave balances and any associated retirement benefits for any leave taken after January 1, 2013. 4. REPORTS TO GENERAL ASSEMBLY OMITTED AT LEAST $260,000 OF OVERTIME AND COMPENSATORY TIME The Department of Health and Human Services (Department) submitted monthly reports to the General Assembly that misrepresented the total amount of overtime and compensatory time worked and paid on the Medicaid Management Information Systems replacement project. The reports omitted:  2,811 overtime hours ($191,630) worked by temporary employees from August 1, 2013 through July 31, 2014  1,078 compensatory hours ($69,930) earned by the Office of Medicaid Management Information Systems Services (OMMISS) Director  An undetermined number of hours earned by employees from other Department divisions that worked on the project Without accurate and complete information, the General Assembly cannot hold the Department accountable and make better informed decisions regarding the amount and cost of overtime and compensatory time charged to the project. The Department provided explanations for why the reports to the General Assembly were not complete. Specifically:  Department management said they interpreted the Session Law to only include state employees eligible to earn compensatory time. Department management said they 14 FINDINGS AND RECOMMENDATIONS did not seek clarification from the General Assembly or its Fiscal Research Division as to what data to include on the monthly reports.  The Department only included state employees who worked at OMMISS in the monthly reports. The Department excluded state employees working in other Department divisions as well as temporary employees or contract employees working at OMMISS.  The Department originally included the OMMISS Director on the August 2013 report but removed her based on the Office of State Human Resources’s (OSHR) belief that she was ineligible to earn compensatory time (See Finding 4). The Department’s former Deputy Director of Human Resources sent an e-mail to the Department’s Chief Information Officer (CIO) that stated, “As we have discussed, we have removed the Director from the list since she was reclassified and received a salary increase to offset the compensatory time.” An OSHR Division Director confirmed the recommendation to remove the OMMISS Director from the reports because she received a salary increase in lieu of accruing compensatory time. Multiple state officials involved in the creation of the Session Law and the preparation and approval of the report required by the Session Law believed all employees working on the project should have been included in the report:  A North Carolina State House Representative who served as Co-Chair on the Joint Legislative Oversight Committee on Health and Human Services who stated the General Assembly enacted the Session Law because “the committee was concerned that employees were abusing overtime to bump up their pay”  An OSHR Division Director  The Department’s former Deputy Director of Human Resources who said “We felt internally that the reason for that report was because of [the OMMISS Director]”  The Director of General Assembly’s Fiscal Research Division  A Principal Fiscal Analyst at Fiscal Research These state officials said the report should include regular state employees (including the OMMISS Director and employees from other Department divisions), temporary employees, and contractual employees. They stated that anyone working on the project who earned compensatory time and/or overtime should be included on the report. Section 12A.4.(i) of Session Law 2013-360 read in part: Beginning August 1, 2013, the Department shall submit a monthly report to the Joint Legislative Oversight Committee on Health and Human Services, the Joint Legislative Oversight Committee on Information Technology, and the Fiscal Research Division on the total amount of approved overtime and compensatory time related to the replacement MMIS for the preceding calendar month. 15 FINDINGS AND RECOMMENDATIONS RECOMMENDATIONS  The Department should comply with Session Law by including on the monthly reports to the General Assembly the total amount of overtime and compensatory time related to the Medicaid Management Information Systems replacement project.  The Department should provide to the General Assembly revised reports that correct the omissions of previous monthly reports. 5. STATE REGULATIONS FOR HIRING INFORMATION TECHNOLOGY SERVICES CONTRACTORS VIOLATED The Office of Medicaid Management Information Systems Services (OMMISS) violated Session Law by hiring at least four information technology staff and contractors without the required approval by the Office of Information Technology Services (ITS). OMMISS hired these employees directly through private temporary staffing agencies and personal service contracts. OMMISS paid at least $961,02022 to these four employees that could have been saved or reduced by using state employees or by creating state time-limited positions. State law requires ITS to determine if information technology personal services can be performed by a state employee. Due to the lack of oversight by the Department’s management, the OMMISS Director circumvented state hiring policies by failing to obtain proper approvals.  The OMMISS Director said she did not know that information technology personal services contracts required approval by ITS even though her position classification is “IT Director.”  The Department CIO stated he was not engaged in the hiring at OMMISS. According to the CIO, all hiring and signature authorization for temporary employees remained with the OMMISS Director and managers.23 Session Law 2011-145 (House Bill 200) states that “no contracts for information technology personal services, or providing personnel to perform information technology functions, may be established or renewed without express written approval from the Statewide Information Technology Procurement Office….All contract positions requiring information technology skills are subject to the provisions of this section.” 22 The $961,020 represents the total amount paid to these four employees. Some of these employees’ pay rates exceeded their qualifications as identified in Finding 1. In addition, one of these employees received overtime payments that may not have been justified as included in Finding 1. 23 Two of these four employees were hired after the CIO began employment with the Department. 16 FINDINGS AND RECOMMENDATIONS RECOMMENDATIONS  The Department should adhere to requirements outlined in Session Law 2011-145 (House Bill 200) regarding contracting for information technology personal services.  The Department should ensure all staff is aware of, understands, and follows hiring regulations. 6. LACK OF ADEQUATE OVERSIGHT OF OMMISS DESPITE FINDINGS IN PRIOR AUDIT REPORTS The Office of the State Auditor (OSA) notified the Department of Health and Human Services (Department) in prior years about the lack of effective management and oversight of the Office of Medicaid Management Information Systems Services (OMMISS):24  In January 2012, OSA issued a performance audit report that cited NCTracks (Medicaid Management Information Systems replacement) project cost overruns and delays. The hiring of unqualified employees, excessive amounts of unjustified overtime, and unwarranted pay rates contributed to the project not meeting its cost budget.  In February 2013, OSA issued a financial related audit report detailing excessive overtime payments to the OMMISS Director and other managers reporting to her related to the NCTracks project. Despite these prior notifications, the Department failed to take steps to prevent and detect abuse and waste of state resources as follows:  At least $1.6 million wasted through excessive wages and commissions, unjustified overtime, and holiday pay to ineligible employees (See Finding 1)  OMMISS Director engaged in or allowed nepotism (See Finding 2)  OMMISS Director received unauthorized compensatory time that may result in inflated retirement benefits (See Finding 3)  Reports to the General Assembly omitted at least $260,000 of overtime and compensatory time (See Finding 4)  State regulations for hiring Information Technology services contractors violated (See Finding 5) State resources could have been used for other NCTracks project purposes, to reduce the amount of cost overruns, or to reduce the impact of delays identified in prior audit reports. The Department’s management gave the OMMISS Director broad authority regarding hiring decisions and pay rates without approving those decisions. The OMMISS Director authorized all hiring including temporary employees. 24 In addition to the two performance audits cited in this finding, OSA also issued two information systems audit reports in December 2013 and July 2014 that revealed more than 3,200 defects since implementation and missed project milestones. 17 FINDINGS AND RECOMMENDATIONS In addition, the Department did not properly monitor the OMMISS Director’s working hours and leave balances even though she was the subject of a finding in the February 2013 audit report. The CIO told investigators in December 2014, that he did not know the OMMISS Director’s compensatory time balance but said he was not surprised she had a large compensatory time balance. However, he stated in an e-mail dated August 29, 2013, that he “will work individually with (the OMMISS Director) on her comp time.” Government managers are responsible for the careful use of money and resources and should spend no more than necessary according to the U.S. Government Accountability Office (GAO). Specifically, the GAO states that management is responsible for “Using its financial, physical, and informational resources legally, effectively, efficiently, economically, ethically, and equitably to achieve the purposes for which the resources were furnished or the program was established.”25 The Office of State Human Resources states that the competencies of the CIO’s position include understanding “organizational dynamics and the dynamics of state policies. Knows what information and resources are available to understand customer needs and to manage the organization appropriately….Responsible for business management of the work unit through structural set up of organization to ensure effective management of financial and human resources.”26 RECOMMENDATION  25 26 The Department should develop and implement procedures to ensure the proper administrative oversight of the Office of NCTracks, the successor organization to OMMISS. GAO, Government Auditing Standards, 2011 Revision. Office of State Human Resources, Class Specs for Information Technology Executive, NC 12217, OSP 8/1/2006. 18 STATE AUDITOR’S RESPONSE The Office of the State Auditor (OSA) ensures that the Governor, the General Assembly, and the citizens of North Carolina receive only complete and accurate information from the reports issued by this office. Therefore, we provide additional explanations when an agency’s response to our findings and recommendations could potentially obscure an issue, mislead a reader, or inappropriately minimize the importance of our findings and recommendations. To ensure the availability of complete and accurate information, OSA offers the following corrections/clarification to the Department of Health and Human Services (Department) response to this investigative report. Throughout its response, the Department refers to the “successful” launch of NCTracks and the magnitude of that project. Those points are irrelevant to the findings in this investigative report which focus on (1) the Office of Medicaid Management Information Systems Services (OMMISS) Director’s abuse of her authority in hiring decisions and (2) the Department’s lack of policies and procedures in place to prevent or detect her abuses, particularly after two prior OSA reports identified ineffective management and oversight of OMMISS. The Department’s response claims that the investigative report makes “inferences” but OSA relies on sufficient, appropriate evidence to support its findings and conclusions. The Department’s response claims that OSA tries to “apply inapplicable standards and policies” and it does so by rationalizing that the Department did not violate a specific state law, regulation, or policy in certain situations. While no state law may directly apply regarding hiring of temporary employees, the existing laws, regulations, and policies for hiring state employees provide a rational, logical, and reasonable standard to ensure that only qualified individuals are hired and paid at rates commensurate with their qualifications. Finding 1 Excessive Salaries In its response, the Department claims the “$1.6 million wasted through excessive wages and commissions, unjustified overtime, and holiday pay to ineligible employees” was “overstated”. Additionally, the Department takes issue with OSA’s determination that salaries were excessive compared to the qualifications of the 12 temporary employees analyzed. However, the amount OSA calculated as wasted could have been much higher if the analysis had not been limited to three fiscal years (many of these employees worked much longer periods) or to the limited number of employees analyzed as there were dozens of other temporary employees used by OMMISS over the past decade. Also, the OSA analysis, which calculated the $1.6 million wasted, was based on an Office of State Human Resources (OSHR) expert who compared the qualifications (based on applications and résumés provided by the Department), job titles, and job specifications for the 12 temporary employees in question to the salaries paid by the private temporary staffing agencies. It should also be noted that the investigation revealed that OMMISS management often set those salaries independent of any analysis of appropriate pay rates by the private temporary staffing agencies. While the Department attempts to justify temporary workers’ salaries by comparing them to market rates as well as what other DHHS temporary employees received, that analysis did not consider those temporary employees’ actual qualifications. 19 STATE AUDITOR’S RESPONSE In its response, the Department takes issue with a reference to the state’s hiring policy and believes that OSA “inaccurately applies requirements.” Instead, OSA referenced the existing state policy for hiring state employees as a logical, rational, and reasonable standard because the policy states that only qualified employees should be hired and their pay should be commensurate with their qualifications. The Department’s argument that it may pay temporary employees whatever the Department chooses because no state policy exists does not provide sufficient rationale. Although the State may not have specific policies that address the hiring of temporary employees, that does not prevent any agency’s management from making sound decisions that would prevent the misuse of state resources. The Department’s response attempts to confuse the issue regarding the pay rates for the temporary employees by mentioning the commissions billed to the Department. OSA’s analysis of appropriate pay rates in Table 1 excluded any commission paid to private temporary staffing agencies and only compared appropriate salaries determined by the OSHR expert to salaries paid by the private temporary staffing agencies. The Department’s response contends that the private temporary staffing agencies set the pay rates for the employees in question. However, the OMMISS Director did not hire employees from a pool of qualified applicants from the private temporary staffing agencies. The investigation revealed that the OMMISS Director hand-picked employees, directed employees to specific private temporary staffing agencies, and set their pay rates. The State’s intent for using private temporary staffing agencies is to take advantage of their existing pool of qualified applicants but the OMMISS Director circumvented that process. Commission Rates The Department’s response claims that the comparison between the Temporary Solutions billing rates and the commissions charged by private temporary staffing agencies is not “fair” and that the sum is “overstated” because it does not include charges for unemployment insurance, workers’ compensation, health insurance, or leave benefits. However, the Temporary Solutions Program Director told investigators that the unemployment insurance charge is included in the $2 bill rate and that workers’ compensation charges only apply when a specific claim is filed. The Program Director also told investigators that qualified temporary employees may elect to receive health benefits but less than 100 of the 3,000 (3%) Temporary Solutions employees have elected to receive that coverage. Payment of vacation leave is not permissible for Temporary Solutions so the Department’s argument only bolsters OSA’s point that using private temporary staffing agencies is more expensive. In its response, the Department notes that the private temporary staffing agencies used by OMMISS management were on an approved list of vendors. OSA never questioned that fact. The relevant point of the finding is that the commissions paid to those private temporary staffing agencies far exceeded the amounts that would have been paid if the Department had used Temporary Solutions (See Table 2). Again, the amount OSA calculated as wasted could have been much higher if the analysis had not been limited to three fiscal years (many of these employees worked much longer periods) or to the limited number of employees analyzed as there were dozens of other temporary employees used by OMMISS over the past decade. Overtime In its response, the Department questions why OSA relied on the actual comments of the five employees who received excessive overtime payments when questioned about the tasks they 20 STATE AUDITOR’S RESPONSE performed during the overtime period. OSA obtained stronger, more direct evidence from the employees who had first-hand knowledge of what they did and when rather than secondary/indirect sources. These five employees were unable to provide reasonable explanations as to what activities they actually performed while working overtime. Also, these five employees had direct connections to the OMMISS Director and the Department terminated their employment after our investigation began. The Department’s justification for the amount of overtime paid to these five individuals was attributable to the size of the NCTracks project. However, the Department’s response fails to acknowledge that these employees performed administrative tasks rather than actual programming or call center responsibilities. The Department’s response indicates overtime payments, made to the five employees whose overtime was excessive, were limited to eight months around the July 1, 2013 “go live” date for the NCTracks project and that the overtime was “several years” ago. In reality, these employees earned large amounts of overtime prior to and well after the “go live” period (overtime during the “go live” period accounted for only 11.3%, 17.3%, 31.9%, 44.4%, and 44.4% of total overtime questioned for each employee). Further, each of these five employees received overtime pay in the month immediately preceding interviews with OSA investigators in July 2014. In its response, the Department characterizes OSA’s expectation that the CIO provide proper oversight for the review of temporary workers’ overtime as “perplexing” and “unreasonable”. However, the CIO told investigators that, after our investigation began, he started reviewing the overtime of temporary workers within OMMISS. Additionally, the CIO directly supervised the OMMISS Director who repeatedly abused her position in the hiring of temporary workers and compensation paid to those workers. Given two prior OSA audit reports that focused on the OMMISS Director, the CIO had a greater responsibility to oversee the OMMISS Director’s decisions. The most recent performance evaluation for the OMMISS Director indicated that the CIO rated the OMMISS Director as “exceptional” for “using the most cost-effective procurement method” for staffing the project. The OMMISS Director’s annual performance evaluation included only three key responsibilities; staffing the project was one of those three key responsibilities. Further, using “the State’s temporary hiring organization” (i.e. Temporary Solutions) was a “measurable expectation” on her performance evaluation. Based on this information, it is a reasonable expectation that the Department’s CIO would have a good working knowledge of the temporary employees’ overtime to evaluate that performance measure and support the rating of “exceptional.” In its response, the Department focuses on the lack of a statewide policy regarding the selection and compensation of temporary workers as justification for their actions. However, the lack of adequate state policies does not alleviate management’s obligation to act responsibly as stewards of state resources. Finding 2 In its response the Department dismisses the behavior of the OMMISS Director’s hiring of her ex-husband, her ex-husband’s wife, and her daughter as not “technically’ violating state policy. The Department takes the same stance regarding the OMMISS Director’s hiring employees who had a personal connection to her as well as allowing the hiring of family members of other OMMISS employees. 21 STATE AUDITOR’S RESPONSE The report explicitly states that the relationships within OMMISS did not violate the existing state policy but clearly includes at least three other definitions of “nepotism” that apply to the connections cited in the report. Again, no agency is prohibited from implementing more stringent policies when current state policies may fall short in the prudent management of the State’s resources. The Department also focuses on the fact that OSA would not permit the Department’s management or internal audit staff to be present during employee interviews. Allowing the presence of Department management or internal audit staff when conducting investigative interviews is not an accepted investigative practice. Allowing the presence of Department management would discourage open and honest responses from interviewees and may even introduce an element of intimidation to interviewees. It is important to note that the Department’s internal auditors interviewed Department employees immediately after OSA to obtain the questions and answers from the OSA interviews. In its response (footnote 6), the Department incorrectly claims that OSA withheld information about the specific relationships questioned. To the contrary, OSA provided the names and relationships of all individuals identified in Finding 2 to the Department’s internal audit staff on March 24, 2015. The Department’s response claims that the OMMISS Director did not hire “individuals she may have known from the community or her prior work experience.” However, during interviews with investigators, the OMMISS Director and multiple temporary employees admitted the connections through church, prior business connections, and family members between the OMMISS Director and employees she hired. In its response, the Department states that comparing total earnings of the OMMISS Director’s executive assistant to total earnings of other executive assistants is not an “apples to apples” comparison. The Department bases its argument on the fact that the OMMISS Director’s executive assistant was paid time-and-a-half for overtime while some executive assistants do not receive paid overtime. However, OSA included all earnings (including overtime and longevity pay) for all executive assistants. For executive assistants ineligible to receive overtime, their salaries are set at a higher rate to compensate for not receiving paid overtime. Comparing total earnings for all executive assistants revealed that the OMMISS Director’s executive assistant was the highest paid executive assistant in state government. It should also be noted that the Department terminated the OMMISS Director’s executive assistant after this investigation began when it discovered she was not “being compensated appropriately.” Lack of Oversight The Department claims the former Assistant Secretary of Finance should not have been expected to review the hiring decisions of the OMMISS Director. However, until January 2013, the OMMISS Director directly reported to and was evaluated annually by the Assistant Secretary of Finance. The OMMISS Director’s annual performance evaluation included only three key responsibilities; staffing the NCTracks project was one of those three key responsibilities. On the 2012 performance evaluation, the former Assistant Secretary for Finance rated the OMMISS Director as “exceptional” for “using the most cost-effective procurement method” for staffing the project. To deliver that performance assessment on that “key” responsibility suggests the Assistant Secretary was aware of the hiring decisions made by the OMMISS Director. Additionally, the use of “the State’s temporary hiring organization” (i.e. Temporary Solutions) was a “measurable expectation” on the OMMISS Director’s performance evaluation. 22 STATE AUDITOR’S RESPONSE The Department claims it is an “unrealistic expectation” for “upper management” to know about “every decision of every employee.” The OSA investigative report does not make this claim; however, the report does state that Department management should implement controls to prevent the appearance of nepotism or favoritism in hiring decisions. The Department’s response misrepresents that private temporary staffing agencies may not have had “multiple qualified applicants to offer” positions. Their argument fails to recognize that the OMMISS Director often hand-picked the employees and directed them to specific private temporary staffing agencies without giving the private temporary staffing agencies an opportunity to determine if they had multiple qualified applicants for positions. Table 4 In its response, the Department claims “the purpose of this table is unclear.” However, the table clearly shows the multiple connections between the OMMISS Director and friends and family members employed by OMMISS. As the Department recognized in its response, those connections could “create significant issues for an organization.” In its response, the Department states that its CIO should not be expected to review “all hiring decisions within the offices he oversees.” The OSA investigative report does not state that he should. However, the Department’s CIO is responsible for ensuring adequate policies and procedures are in place to ensure the most qualified individuals are hired. In addition, since February 2013, the OMMISS Director directly reported to the CIO who completed her annual performance evaluation in 2014. The performance evaluation included a key responsibility for “using the most cost-effective procurement method” for staffing the project including using Temporary Solutions as a “measureable expectation.” To evaluate that responsibility, the CIO should have been aware of the hiring decisions made by the OMMISS Director. Finding 3 In its response, the Department states that the OMMISS Director’s retirement benefits were not inflated by her accumulation of compensatory time. The Department’s response steers the reader away from the real focus of the finding (how the Director’s retirement benefits were inflated) and instead focuses only on payouts for vacation leave. The facts regarding the inflation of the Director’s retirement benefits are as follows:  Because the OMMISS Director was allowed to earn compensatory time for the overtime she recorded, the compensatory time accumulation allowed the OMMISS Director to use compensatory time instead of vacation leave or sick leave.  Upon retirement, all vacation leave accumulated over 240 hours converts to sick leave. Vacation leave exceeding 240 hours also converts to sick leave at each calendar year end.  Upon retirement, all accumulated sick leave is credited to service time and becomes part of the calculation of retirement benefits. If the OMMISS Director had not been allowed to earn compensatory time, she would have had to use vacation leave or sick leave. Therefore, she would have retired with less service time which would have resulted in a reduced retirement benefit. In its response, the Department disputes that the OMMISS Director was ineligible to earn compensatory time. However, sufficient, appropriate evidence obtained during the investigation indicates that OSHR specifically instructed the Department to remove the OMMISS Director from their overtime report to the General Assembly because she “received a salary increase to 23 STATE AUDITOR’S RESPONSE offset her compensatory time.” In its response to Finding 4, the Department admits that OSHR believed the OMMISS Director “was ineligible to earn compensatory time.” As the State’s oversight and expert in human resources, OSHR would have the final word as the interpreter and rule-maker. Finding 4 In its response, the Department states that it and OSHR “differ from OSA as to the interpretation” of Session Law 2013-360. OSA’s interpretation of the specific language in the Session Law was based on interviews with the following individuals:  Co-chair of the Legislative Oversight Committee  Staff members from the General Assembly’s Fiscal Research Division  An OSHR Division Director  The Department’s former Deputy Director of Human Resources All of the above individuals believed that the OMMISS Director, temporary employees, and other Department employees working in other divisions were inappropriately omitted from the report. In its response, the Department admits it did not seek “clarification” and “believed [it] understood” while making “incorrect assumptions.” The General Assembly expects agency management to understand Session Laws that provide specific directives, especially considering this directive for reporting overtime was in response to a prior audit report which dealt with excessive overtime paid to the OMMISS Director and other OMMISS staff members. The Department claims that its incorrect “interpretation” of the Session Law should cause the amounts attributable to temporary workers to be removed from the report. It is illogical to believe that an incorrect interpretation absolves the Department of its responsibility to correctly report overtime as required by Session Law. Again, everyone interviewed at the General Assembly, Fiscal Research, and OSHR believed that temporary employees should have been included in the reports to the General Assembly. In its response, the Department states that “there is no practical way of measuring” the amount of overtime of employees working in other Department divisions related to the replacement MMIS project. However, multiple ways of allocating costs to different projects are available to the Department. Nonetheless, difficulty in calculating an amount does not excuse the Department from complying with General Assembly directives. The Department’s response acknowledges that it re-submitted reports to the General Assembly when it “discovered the previously submitted reports were understated.” However, the Department became aware that the reports were understated only after being informed by OSA during this investigation. In addition, the “amended reports” still did not include temporary employees or Department employees working in other divisions Finding 5 In its response, the Department disagrees that it violated state regulations because it “believed” three of the four positions identified did not require approval by the Office of Information Technology Services (ITS). OSA based its conclusions concerning the violation of state regulations on job titles, job specifications, and an analysis by an expert at ITS. The Department claims that these employees were simply misclassified. Based on its response, the Department admitted hiring (and paying) employees with one particular skill set for positions requiring a different skill set. 24 STATE AUDITOR’S RESPONSE The Department rationalizes (while admitting failure to follow policy) that the hiring of the fourth temporary employee was acceptable because the private temporary staffing agency utilized was on an approved list. Whether or not the temporary staffing agency was on an approved list is irrelevant. The relevant issue is whether hiring the fourth employee required approval by ITS. Again, the Department failed to comply with the state regulation requiring approval by ITS. The Department also seems to deflect responsibility by noting that other state agencies may not have complied with state regulations. The fact that other agencies did not comply with state rules does not absolve Department management from its responsibility to comply with North Carolina laws and regulations. Finding 6 The Department’s response does not address the wasteful expenditures, noncompliance with laws and regulations, and lack of oversight identified in the report. Instead, the Department focused on increased oversight from hiring a CIO and the success and magnitude of the NCTracks project. Simply hiring a CIO does not guarantee proper oversight of a function, especially if the CIO does not implement sufficient policies and procedures to ensure proper oversight. Neither the success nor magnitude of the NCTracks project relieves the Department of its responsibility to provide proper oversight of state resources. In addition, OSA learned that the CIO did not complete either the interim or annual performance evaluations of the OMMISS Director in 2013, during his first year directly supervising her and during the height of the project. The Department’s claim that the hiring of a CIO “increased the oversight of OMMISS” is not supported when the CIO did not even complete a performance evaluation of the OMMISS Director as required by state policy. 25 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES North Carolina Department of Health and Human Services Pat McCrory Aldona Z. Wos, MD. Governor Ambassador (Ret) Secretary DHHS April 21. 2015 The l-Ionorable Beth Wood. State Auditor North Carolina Office ol?tl'te State Auditor 2060l Mail Service Center Raleigh. NC 37609?0601 Dear Auditor Wt?iod: thank you For the opportunity to review the Office ot'the State Auditor?s (USA) draft investigative report ?bril-i Carolina Dtyaii'niiem of'Heuflt'i um! Haitian Start-ices - (Ware Iii/Omnifiou Star-rites. In large part. your investigt-ttion was focused on certain temporary workers who were lirst retained by the Department of Health and Human Services (DI beginning in 2004. Your investigation brought to the attention olithe current n'ianagement ol? Dill IS an issue that appears to have existed across state goyernment For a number ot? years the lack ot?appropriate sat'eguards and procedures required ol?state agencies for the selection and ot?lemporary workers from private temporary stat'ting agencies. While DI IS is not responsible for the development ofa statewide policy rcgarding workers. in response to the longstanding issues identitied by your ins-:estigation. l)l ll has undertaken the development ol'a DI-II IS internal policy to eliminate the type ot?long-standing issues identi?ed in your draft report. Your investigation examined the questionable compensation ot'several temporary workers within ()z?lelSS. the majority of whom were lirst retained by DI II l5 prior to 20l l. lipon learning ot'this potential issue. DI IS management initiated its own ol?the rate ot'eompensation for these temporary workers. In instances where IS could not document that the OMMISS temporary worker was being compensated appropriately and commensurate with thejoh duties they were performing. IN IS terminated that temporary worker. DI-II IS appreciates your office bringing this matter to its attention so that appropriate action could be taken. Another focus ol?your imcstigation was on the personal relationships between a number ot'workers ithin 0M MISS. some of whom you indicated had tamilial connections ith the Former MISS Director. lit)!? our internal imestigation. it appears that the vast majority ot?the temporary workers referenced in your draft report were temporary workers ho were initially retained a number of years ago and most ot? whom no longer work at DI IS inyestigated to determine whether there as a violation ofthe State's policy prohibiting nepotism. From internal investigation. no person related to the banner Director was actually supervised by the t?ormcr Director. Ilowe\ er. DI II agrees Telephone 919?855?4800 - Fax 919-715-4645 Location: lOl Blair Drive - Adams Building - Raleigh. NC 27603 Mailing Address: 2001 Mail Service Center Raleigh. NC 27699-2001 An Equal Opportunity At? rmative Action Employer 26 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April El. 2015 Page 3 of with the point made in draft report that all employers assure that personal relationships between individuals it] the workplace do not intpact the work or create a perception that "who you know? has an influence on any decision made in the workplace. Additionally-x your investigation revealed to us an error in the reporting by ll is of the compensatory time of otte ofits employees. has identi?ed the cattse ofthe error and has undertaken corrective action- including tlte supplementation of certain reports previously provided to the General Assembly. l?inally. your draft report focused on the ntanz-tgement and oversight of As you know, the primary foetts of OMMISS for tlte past two years has been on the successful launch of the new claims payment system. Not only did the new Chief Information Officer (CID) launch the new system successfully on .luly l. 2013. he also successfully led MISS to cettilication of this new payment system. The biggest IT project in North Carolina?s history (which. as you know. audit reports issued several years ago indicated a number of issues and delays) was linally completed and. according to just announced news from the federal government- has passed a stringent audit by the federal government that proves that the new claims payment system is operating correctly. Tltis success means North ("arolina will receive approximately 9M from the federal government and will be entitled to ltavc the federal government contribute additional monies for the operation ofthis system going forward. ll believes the recent notification front the federal government is proof of the excellence that the new 00?s leadership and management imparted to this division. ll lS disagrees with some of the inferences and conclusions contained within this draft report. Dill-{S believes the attempt. in several situations in draft report. to apply inapplicable standards and policies. results in a flawed analysis of some of the important and valuable findings of investigators. Per your request. please find the response that Dl-ll-lS has prepared for into the final report issued by USA. FINDING 1. ?At least $1.6 million dollars wasted through excessive wages and commissions, unjusti?ed overtime. and holiday pay to ineligible employees? DHHS Response: Dl ll l8 disagrees with the sum identified in this Finding and contends it is overstated l)l ll lS has categorized the I: temporary workers identified by OSA in Table 1 into the following three groups: I temporary workers terminated by DHHS after its internal investigt-ttion of this matter]. 2} at'Jpropriately compensated temporary workers who were no longer engaged by ll IS at the time Dl ll IS investigated this matter." attd 3) appropriately compensated temporary workers currently engaged by Di ll The temporary workers identified on Table who comprise group one are as follows: Contract Assistant. Receptionist. Business Analyst [the second Business Analyst identified in Table I). Budget Analyst. and Executive Assistant. 3 The temporary workers identified on Table I who comprise group two are as follows: Business Tech. Applications Analyst. Business 8; Tech. Applicatiot'ts Analyst. l-lealtl't Claims Consultant. and Business Systems Analy st. The temporary workers identi?ed on Table 1 who comprise group three are as lbllows: Operations Program Manager Consultant. Business Analyst {the first Business Analyst identified in Table and Technical Resource. 27 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 20l5 Page 3 ol' 1? As to the temporary workers in group one. agrees that it appears these temporary workers may have received compensation in excess of the compensation that should have been paid to the private temporary staf?ng agency for the temporary workers in this group. However. For the reasons explained below. Dl disagrees with inclusion in this Finding ol?the compensation paid to the temporary workers in groups two and three. DI Il investigation indicates these temporary workers were appropriately compensated l?or the duties and responsibilities they performed tor the organization. ?fSalaries Emplovecs Qualificationsjj? DI IS disagrees with OSA's characterization as "excessive" ol?the compensation of seven temporary workers identi?ed in Table I (workers in groups two and three.) However. does not dispute ?nding with respect to the remaining ?ve temporary workers identi?ed in Table I (grmip one)." As to the ?rst group ol?temporary workers. as soon as DI ll IS learned ofthe allegation from USA regarding compensation issues ol?these temporary workers. IS launched an internal investigation. DHHS identified issues with these temporary workers? compensation. When DI-IHS was unable to document that the temporary worker was being compensated appropriately and commensurate with the job duties they were performing. IS terminated that temporary worker. As to this ?rst group oi" temporary workers identi?ed in Table l. DI IS does not dispute that these ?ve temporary workers. (who were ?rst engaged by OM MISS from 2006 through 3012). received compensation that appears to have been in excess oI?thc compensation that should have been paid to the private temporary staf?ng agency For these temporary workers. As to the seCond group of temporary workers. when DI IS received the draft audit report from USA. these temporary workers were no longer engaged by II IS. Although DI II IS was no longer expending funds for these workers. DHHS did undertake an z-tnt-tlysis ol?the past compensation workers by comparing their compensation to the compensation approved by for temporary workers in similar roles at DI ll IS. As explained below. DI It IS contends these workers were appropriately compensated and that (.JSA should not include the compensation attributable to these workers in this Finding. With respect to the third group of? temporary workers. DI ll IS disagrees with compensation analysis ol?these workers. As explained below. DHI-IS contends these temporary workers were appropriately compensated and that should not include the compensation attributable to these workers in this Finding. In Table I. in its draft report. USA indicates the "quali?ed rate" was determined by an Of?ce oI?State Human Resources ol'lieial ho determined the rates using these temporary workers? qiiz-ili?cations. job titles. andr?orjob speci?cations. In its draft report asserts that management?s practice ol? paying tempm'ary employees more than their conllicts with the State Human Resource Manual". This assertion inaccurately applies requirements from this manual. In addition. there is not an OSHR policy that addresses temporary workers furnished by a private temporary stalling agency. The workers at issue in this matter are all temporary workers furnished by a private temporary staf?ng IIVL tempolary vlotkus IILIL are those In Iable as the Iollow Ing, Contract Assistant. Receptitmist. Business Analyst. Budget Analyst and Assistant. 28 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 2015 Page 4 of 7 agency. use ohhis criteria to determine payment rates for these temporary workers is not appropriate. When a state agency contracts with a private temporary stalling agency. the bill rate that is charged by that agency for the temporary worker is typically based upon a market pay rate plus a percentage mark-up (commission). In contrast. for most state employees. the current pay scale for their position is not based upon annual updated competitive market pay rate data. Accordingly. the pay rate paid by a private temporary staf?ng agency to a temporary worker may be higher than what is paid to a regular state employee. With respect to contention regarding the use ot?time-limited positions. a number of issues regardir'rg the creation and duration ol?a time?limited position limited the feasibility of this option. During investigation. internal Department prolessionals reviewed the qualilications of the temporary workers in groups two and three together with inlormation regarding the actual job duties and responsibilities ol? these temporary workers. DI-IHS determined that these seven temporary workers identi?ed in 'l?able I had pay rates consistent with their quali?cations.job duties and responsibilities and applicable market rates typically paid by private temporary stalling agencies for those job duties. In addition to internal analysis ot?tlte compensation ol? these workers. one ol?thc temporary workers in group three had their initial compensation set by ITS and another temporary worker in group three has gone through the II supplemental stalling process administered by the Of?ce of Information 'I?echnology Services This process. in part. was designed to assist with determining appropriate compensation. Based on the information has reviewed there were live. not twelve. temporary workers hired by whose pay rates appear to have exceeded their quali?cations. the discussion in OS/?t?s dral?t report regarding the seven remaining temporary workers fails to identify clear. applicable rules or policies which were violated and includes an incomplete compensation analysis. Accordingly. DI does not agree ith the total sum provided in the draft report by USA. Iowever. for the live temporary workers DI ll IS and 03A agree were int-rppropriately compensated. II IS agrees with the amount calculated by USA of approximately $120.86} This sum is signilicantly less than the total amount ol? 38011-1 I present in dral?l audit report For the twelve temporary workers identilicd in 'l'able I. R_a_t_e_s Charged by Private Sector Staf?ng AUergigjjicgc?cdlemRotary Solutions Rate'f DI-II IS disagrees with OSA's assertion regarding excessive commission rates. comparison ol?the $3 Flat rate charged by 'l'emporary Solutions against the commissions paid by to the private temporary stalling agencies is not a l?air comparison. II contends sum is overstated. USA uses the commission charged by Temporary Solutions as the standard against which commissions paid by are compared. However. the Temporary Solutions? commission used by USA does not include a charge for workers compensatitm or unemployment insurance. In contrast. most ot?the private temporary stalling agency commissions paid by [8 that USA used in this comparison include a charge for workers compensation and unemployment insurance. In addition to the commission charged by 'l'emporary Solutions. it also bills state agencies separately for the employer portion of health insurance coverage tor those temporary workers who elect this coverage. This cost is typically I?actored into the bill rate charged to state agencies by private temporary stalling agencies. Private temporary stalling agencies also typically build into their bill rate a charge lin? ?ayc benelits I?or an eligible 29 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES letter to Auditor Beth Wood April 2015 Page 5 ol? l7 temporary worker. For these reasons. calculation ol"?excessivc commission" paid by' ll lS is llawed and overstated. Additionally. at the time most ol?thesc temporary workers were initially hired. the State lacked a comprehensive policy on the hiring and compensation ol?teimmrary workers and the appropriate payment ol?commissions to private temporary stalling agencies. On February 27. 20l3. in recognition ol? several state?w idc issues involving the hiring ol?tcmporary workers. lixecutiv ()rder 4 was issued. #4 required state agencies to use 'l?cmporary Solutions as the primary source for hiring temporary In May 2013. shortly alter the issuance ol?liO in recognition ol?ecrtaiu stalling challenges. ()Sl lR provided additional guidance to state agencies as the agencies worked to implement This guidance included a process by which agencies could request to use private temporary stalling agencies in lieu ol? 'l'emporary' Solutions. ll-lS followed this process by submitting its list ol? utilized private temporary stalling agencies in June 2013 and again in July 2013 per request by ()Sl lR. All ol?the temporary workers identilied on Tables I and 2 were provided to by private temporary stalling agencies contained on the lists submitted by l)l ll lS to ()Sl IR. l)l ll 18 disagrees with assertions regarding "excessive commissions" and contends should delete the sum attributable to these commissions from the total amount provided by USA in this Finding. Since l?ailed to include the full cost associated with using 'l?emporary Solutions in its analysis. the amount attributed by USA to ?excessive commissions" is overstated when attempted to compare the commissions cost ol"lemporary Solutions to the commissions actually paid to private temporary stalling agencies. ?Signi?cant and. ()vcrtime? l)l ll lS disagrees with assertion regarding overtime in this linding. In the drall report. contends that during the period July l. ZOI I. through June 30. 20M. the stun ol? $234.73 was paid lor ov crtime to live temporary workers ?w ithout documented justilication". dralt report fails to identify any standard or requirement l?or ?documented justi?cation" that was violated. It appears the basis relied upon by USA for this portion ol?the Finding were comments made by temporary workers who worked the hours. Based on these comments. the drall report concludes these temporary workers .. could not provide reasonable explanations that justilied the need for them to work overtime." During the relevant time periods this overtime was accrued. was working to bring onlinc a new replacement MIS. The design and development ol'this massi\c l'l sy stem was the largest l'l~ project in .\?orth (?aroliua?s state go\ crnment history. A number ol? state employees and temporary stall orked incredible hours to meet critical deadlines. 'l?he lact that some temporary workers. sey eral years alter accruing the overtime. failed to recount the specilic work they did is not unexplainable. There were procedures in place during the relevant time periods for the review and approval ol~ overtime for all temporary workers. livery temporary worker reports to a supervisor or manager that must oversee and direct the temporary worker's workload. At the end ol?cach pay period. that same supervisor or manager must sign oll? on the temporary orker?s timesheet and attest to the hours worked. Nowhere in the dralt report is it mentioned that the auditors spoke with the supervisors or managers that actually approv cd these 30 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 2 l. 2015 Page 6 ol~ l7 temporary worker's time to determine the supervisor's rationale in approving the overtime and what the needs ol?the organization were that necessitated the overtime. The inclusion ot'the statement in dralt report that the Department?s said that he does not approve overtime worked by temporary workers, is perplexing. There are approximately 420 state employees in the organization led by the (710. DHHS contends it would be unreasonable to expect that a CIO of an organization this si7e. (a responsible for overseeing the largest projects in state government history). to be expected to expend his time reviewing and approving work hours for staff he does not directly supervise. DHHS agrees that oversight ot'ovcl?timc hours is an important management responsibility. That is why it is DH practice and expectation that supervisors and managers review and approve the time ol?their direct stalT \-v'hether online in the BEACON system or through the use of paper time sheets. From the internal review ot?this matter. ll 18 believes that process was followed. Therel?orc. ll 15? disagrees that these hours were not properly z-tuthorized or "documented". It is uncl *ar what OSA contends would have constituted proper documentation. DHHS disagrees with your inclusion otthe overtime hours for the temporary workers. Dill-IS believes that management had suf?cient procedures in place as evidenced by documentation that supports management review and approval ol'the overtime hours. DHHS agrees with ?nding regarding payments for holiday leave for certain temporary workers. ll 18 agrees that compensation to some temporary workers. via holiday leave pay. was inappropriate. While this may have been the rate negotiated with the private temporary stalling agency. Dl-ll IS agrees that this portion ot? the compensation arrangement exceeded the normal and customary practice in el?l?ect at the time for the compensation ol? temporary workers and rellected poor judgement on the part ot?the Former OMMISS Director. The amount attributable for this is approximately $26026. USA Calculations in Finding Actpallgf e_et_ disagrees with the totai calculations in this linding. ll l8 believes a more accurate stun attributable for the total amount ol?qucstionable costs associated with ?ndings more closely approximates 3146.889 over the three year period 08A reviewed rather than the FBI identified by OSA. Qi/LticgoJmleIt?daLons OSA's investigation brought to light an issue that is not unique to D1 1} 15. As 111$ undertook its own internal investigation. it discovered the absence ot?a statewide policy for ALL agencies regarding the selection and compensation often'iporary workers l?rom private temporary stalling agencies. DHHS believes the absence ofsuch a policy was a primaIy ?ause ofthe hiring and compensation issues identi?ed. For years. there has been a lack ot?approln?iate checks and balances on a manager's decisions regarding temporary workers. There has also been an absentee t? procedures which would provide guidance and assistance to managers in making many ot?the necessary decisions regarding temporary workers. 31 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 2015 Page 7 of 7" As DI IllS discovered some ofthe issues addressed in your draft report. D1 ii 15 took immediate action by evaluating the process in place at OMMISS and conducting our own evaluation ofthe qualifications and pay rates of the temporary workers identified by your audit. As a result of the DHHS internal investigation. several temporary were terminated. ll lS has since developed an internal policy to avoid such issues in the future. new policy addresses your recommendation that Di ll-lS ri'raiiageri'ierit should provide proper oversight related to salary administration and engagement of temporary workers. However. as to your recommendation regarding the monitoring and approval of overtime for these temporary workers. ll 18 contends the current policies and practices related to monitoring and approval ofovertime for these temporary workers is adequate. i8 welcomes suggestions as to how that process could be reasonably improved. DI {[13 will follow recommendation to seek legal counsel to determine ifthere is any legal recourse that DHHS can take related to recovery of any inappropriately paid holiday pay. FINDING 2. Director engaged in or allowed nepotism? DHHS Response: The internal ii?ivestigation did not substantiate the allegation that the former Director engaged in ?nepotisrn? as that term is defined by the State government policy on nepotism. l-iowever. agrees with USA that the employment of family members within an organisation. regardless ofthe supervision structure. frequently results in a number of issues within an organizz-ttion. II is unaware of any current en?rployrnent arrangement within that violates the State?s nepotism policy. Director Hired l-?arnilv?iroups" The draft report states that I ?groups of family members? were hired by the former OM MISS Director or by those she supervised with the inference that there is some violation of policy andtor regulation related to that fact. However. the draft report fails to provide the facts or analysis necessary to understand how the situations identi?ed equate to nepotism as that term is defined by the current State policy. Eight ofthe ?groups of family members" referenced in the draft report are not individuals related to the former OMMISS Director. As to the three individuals who are identified in the draft report as "related" to the OMMISS Director her ex?husbt-lnd. her ex-liusband's wife and her daughter -- neither the ex- or his wife fall within the definition of"imtnediatc family? and the daughter did not report to the former Director. Nonetheless. ll 18 recognizes and agrees with USA that hiring practices such as this should be avoided. Although the OSA's draft report refers to these situations as "nepotism". own draft report indicates it understands that the situations outlined above do violate the State?s nepotism policy. As 08A accurater notes in its draft report. the State's nepotism policy "only addresses individuals that report directly to their family it is unclear why these relationships were added to draft report under the heading Of"Cllg320d in nepotism" if no evidence is provided that shows the violz-ition of the State 32 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES letter to Auditor Beth Wood April 3015 Page 8 of 17 definition of nepotism.? None ofthe facts uncovered through DI ll lS? internal investigation revealed that ?nepotism?. as that term is de?ned by the state-wide policy. occurrec Nonetheless. agrees that every organization should use care as indi\ iduals with relationships to each other are hired. 'l?hese types ofsituations. if not handled appropriately. can create signi?cant issues for an organization. While a situation may not be precisely prohibited by the current nepotism policy. the judgment of a manager is called into question when that manager allows the hiring practices ofthose he or she supervises to create an appearance that a particular individual or group of individuals are hired or given preferential treatment based on ?who they know". Director l_lired Individuals with Personal Connections to Her" investigation did not substantiate that the former OMMISS Director engaged in "nepotism" by hiring individuals she may have known from the or from her prior work experience. However. DI ll lS concurs with investigative ?ndings that it appears that for some temporary workers the former Director may have deviated or allowed stafro deviate from the normal procedures that were in place for hiring temporary workers. It appears that several temporary workers were hired at a higher compensation rate than their quali?cations warranted and were also offered additional bene?ts than were appropriate or routinely made available to other temporary workers. ?l'his created a perception of inequitable hiring practices oftemporary' workers and a perception within the organization that some temporary workers. based on their prior relationships to the former Director or others on staff. received a higher rate ofcompensation and additional bene?ts. Lipon learning oflhis allegation from lS management undertook an internal rev ievv ofthis situation and in instances where Dl MS was unable to document that the temporary worker was being compensated appropriately and commensurate with other temporary staff in the organization. ll terminated that temporary worker. lS disagrees with attempt to compare the earnings ofthe Director's executive assistant to other State employees in similar positions in Table 3. This Table is not an ?apples to apples" comparison. The Director?s executive assistant was subject to the Fair Labor Standards Act This means that l)l ll IS was required to pay time and a half for any overtime hours orde by this individual. l)l ll lS believes that some ofthe state employees in fable 3 to whom this individual is compared are not Stu/e Human Resources .llunrrul. Workforce Planning. Recruitment and Selection. Section 2. Page 38. Revised January l. 2014 de?nes "nepotism" as: ?Members ofan immediate famin shall not be employ ed within the same agency ifsuclr employment ill result in one member supervising another member ofthe employ ee?s immediate family. or if one member will occupy a position which has influence over another member's employment. promotion. salary zulministration or other related management or personnel considerations. The term immediate famin includes wife. husband. mother. father. brother. sister. son. daughter. grandmother. grandfather. grandson and granddaughter. Also included is the step-. half- and in-law relationships based on the listing in this Paragraph. It also includes other people living in the same household. who share a relationship comparable to family members. ifeithcr occupies a position which requires influence over the other's employment. promotion. salary administration or other related management or personnel considerations." 18? request to be present during interviews was denied. ll only has the information provided to it through this draft report and supplemental material that was provided upon request by USA. DI internal investigation about the relationships referenced in report was stymied by its inability to know from USA the specific relationships referenced and from being denied access to the interviews with DHHS staff on this issue. 33 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 2015 Page 9 ol? subject to FLSA. The signi?cance of this is that workers who are exempt from do not earn overtime pay. The former OMMISS Director's executive assistant?s base compensation was only $53560 (which is comparable to the other employees in the Table}. The former OMMISS Director's executive assistant was in a work unit that required signi?cant amounts of overtime which resulted in her receiving overtime pay in addition to her base pay. "Lack ol? Oversight Allowed Nepotism" 18 disagrees with suggestion that the Department's former Assistant Secretary for Finance and Business Operations did not provide proper oversight ot?the former Director's hiring decisions. In an organization of this size. supervisors and managers have authority to make many decisions that would not be reviewed at the level ol?an Assistant Secretary. 11 is an unr ?alistic expectation that every decision of every employee within an organization is known to upper management. As for the hiring {versus temporary workers engaged through a private temporary staf?ng agency) these hiring decisions must be vetted and approved through the agency?s human resources of?ce. These hiring decisions [?ollovv' a speci?c process that is set forth in roles and policy from the Of?ce of State Human Resources. As has been previously mentioned in this response, during the relevant time periods ofthis investigation. no such policies or rules existed regarding the hiring of temporary workers. the reference to the More Human Resources Manual that requires agencies to ?select from the pool of the most qualified persons to [ill vacant positions" is a requirement that is not applicable to this situation. This citation is a reference to the process [or hiring a state employee. not a temporary- worker. Since there is no requirement to post a temporary- worker position there is not the "pool" referenced in this manual From which to select the temporary worker. While the private temporary staf?ng agency may send several resumes to the hiring manager for review. it is sometimes the case that the private temporary staf?ng agency may not have multiple quali?ed applicants to offer. This standard is not applicable to the facts at hand. The former OMMISS Director clearly had the authority to obtain the services of temporary workers to ?ll the needs ot~ the division under her direction. It is not reasonable to expect the Assistant Secretary to have gained knowledge ot'these types of personal relationships. even with greater scrutiny. Table 4 The purpose ofthis Table is unclear. in it. identi?es a number of individuals it contends had a "connection" to the former Director. However. USA only questions the qtraliticationsfpay rate for ot?thc individuals identi?ed in this Table. In response to Finding l. DHHS has already addressed lr?inding regarding temporary workers who may have received compensation in excess ol?tlreir quali?cations. l?or the reasons explained in response to Finding l. DHHS does not agree with every USA designation ?unqualitiedr?excessive pay? on this Table. (Please see Di response to Finding 1.) USA Reconrmendatiorrs The Department adheres to the state-wide policy in effect regarding nepotism. 34 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 20l5 Page 10 of]? The Department does eon'lply with applicable state hiring policies to ensure that the most qualitied applicants are hired into non-temporary positions. Temporary workers engaged through private temporary staffing agencies do not fall within the state hiring policies referenced in this section ofthc report. The Department recognizes that prior to the implementation of 150 there was a state?wid 1 absence of appropriate safeguards and procedures regarding the engagement of temporary workers. DHHS has undertaken the development ofan internal policy to address many ofthe issues identified by this investigation. There is not an expectation that the CIO will be involved in reviewing all hiring decisions within the offices he oversees. There are approxin'iately 420 positions within these offices not including temporary and contract resources. The oversees an office working on approximately $1.28 in IT projects. It would not be effective or efficient for him to utilize his time to review every hiring decision made within his organization. This task is appropriately assigned to those managers that report to him or to others who. in turn report to him. ll [3 agrees that the Department?s Human Resources Division should be more involved in the process ofthe engagement of temporary workers and the new ll IS internal policy includes this in the process. FINDING 3. Director received unauthorized compensatory time that may result in in?ated retirement bene?ts" DHHS Response: Dill-18 disagrees with this finding. [i 18? review ofthis employee?s accrued compensatory time confirms her retirement beneiits were not affected or inflated. Dl ll-IS provided USA documentation evidencing the fact the retirement benelits ofthc former OMMISS Director were not affected or inflated by any disputed compensatory time. The former Director retired effective rebuilt-try i. 2015.. Di ll-lS disagrees with determination that the former Director was prohibited from accruing compensatory time. 08A appears to takes the position. incorrectly. that due to a raise received by the former OMMISS Director. she allegedly would be ineligible to earn any compensatory time. The ?aise referenced by USA was initiated in December 2012. and approved in January 2013. l-lowever. there is no t'lt?lCllI'ticni?litill of any prohibition of the accrual of compenst-itory leave noted anywhere in the formal approval by ()Sl-lR or in the BEACON system. Additionally. the salary raise justification Dl-ll-lS sent to ()Sl-lR requesting approval for the raise lacks any reference ofthis alleged condition for approval ofthc raise. 'l?ypically a salary raise justification sent to includes important conditions and facts to justify the approval for the raise. in addition to the silence in thejustification regarding this seemingly important item. there is no written memo memoriaiixing this alleged condition. in the approval paperwork entered into the system. no such condition is noted. information was provided to the employee that she would be treated differently than other state employees and be ineligible to earn compensatory time. In fact. it would be extremely unusual for this type ofdecision to be made singling out one employee to be excluded from a benefit for which other employees continue to be eligible. The former Director indicated that she continued recording 35 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 21. 2015 Page 11 of 7 all of her hours worked as she had al\\ays done. The former Director?s hours \yorked ere reviewed and approved by the (?10 on a paper time sheet and loaded into the BEACON System by his administrative support. lmportantly. other than a briefemail from a 11 1S 11R staff member regarding deleting the former Director from the compensatory report to 081 IR. her direct supervisor. the C10. was never provided ith documentation that this employee as ineligible to accrue compensatory time. 'l'hat lack of inlormation and understanding is clearly evidenced in the reply email that he \yould manage the employee?s compensatory time. 'l'hcre is quite a long history involved in the interpretation that the former Director was ineligible to receive compensatory time. lloyvey er. D1 11 IS contends that has misinterpreted a series of communications from several years ago bet? een former employees memo dated September 26. 2012 from the Acting Secretary for l)l 11 IS to the Interim State Personnel Director. described its future plans for dealing with the issue ofcompensatory time earned by employees. In the memo 11 1S requested that ()Sl 1R: a market analysis ofsimilar positions to provide data that will assist the State in setting competitive market rates as we seek to retain and recruit employees. Based on the results ofthis analysis. 1 further request that salary adjustments be made for all appropriate employees in the MMISS and IT project teams once the study is concluded." In a memo dated October 2012. 1R responded to D1 11 request. ln a pertinent part. ()Sl 1R replied: ?With the ability to adjust MMIS base salaries to the appropriate labor market rate. the practice of paying ?ash to exempt staff for compensatory hours over 200 will end on January 31. 2013. lloyvey cr. 1 am granting an exception to the 12 months cumulative limit ofthe (.?ompensatory 'l?ime Policy for staffto receive an additional six months (for a total of 18 months) to use compensatory time earned from liebruary 1. 2013 through September 30. 2013. lhe 18 months ill be calculated from the date the compensatory leave is earned. lixtending the time period in which this compensatory time may be used ackno? ledges the additional hours this staff will be working in the five months leading up to 'go live? in .luly 2013 and the initial days of the implementation phase. Compensatory time earned. but not paid out or used prior to February 1. 2013. must be used within tvyelve months from the date it \y as earned. Unused compensatory leave shall be lost ifit is not taken within this designated time frame. The labor market salary adjustments and the exception granting staff 18 months to use compensatory time earned bet? een February 1 and September 30. 2013 recognizes the staffs effort and contributions to this important project." (emphasis added) the former Director did work in excess of a 40 hour work week and hours over her normal schedule \ycre added into her compensatory leave balance. 'l?he compensatory leave that \y as eligible for the 18 months exception granted by the Interim State Personnel Director specifically related to those hours worked in excess ofhcr normal schedule from l'ebruary l. 2013 through September 30. 2013. 36 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 21. 2015 Page ll of I 7 DHI IS contends that the questioned compensatory time ofthis employee did not actually affect this employee?s retirement benefits or inflate any bene?ts she received. A thorough review was conducted of the former MISS Director?s compensatory hours along vvith her normal working hours. liven ifthe former Director had received no additional compensatory time after .luly 3 . 2013 (the date the neyy legislative reporting requirement took affect) a careful rev oflier already accrued compensatory lea\e balance revealed she had enough prey iously approved compensatory time to cover any absences she may have had from August I. 20 I 3 through .lanuary 3 I. ZOIS. When the former Director retired effective I?ebruary I. 20 I 5. she had over 240 hours of accumulated vacation. The IR State Iluman Resources Manual I. *ave Policy. Section 5. Page I 17 states the lolloyying: "Vacation leave may be accumulated without any applicable maximum until December 31 of each year. Ilovvev er. ifthe employee separates from service. payment for accumulated leave shall not exceed 240 hours. . . 'l'he former Director's final vacation balance once she as paid out for the 340 hours allowed by policy. as I333 hours. This I333 hours \yas the amount she earned for being in pay status for at least halfthe vyorking days in the month ofJanuary 2015. Since she was using the 18 months ofcompensatory time that ?as approved from the Interim State Personnel Director for any absences that occurred from .luly 1 I. 20 I 4 through January 3 . 3(ll5. there \v as an excess amount ofvacation I333 hours) she essentially lost. 'I'ltc former MISS Director did not receive any direct pay ment for her compensatory leave balance at the time ofher retirement. In addition. she \yill not have access to or receive any payment for the excess annual leave hours. As a result. the former Director?s retirement benefits ere not "in?ated" due to any "unauthorized compensatory" time. Recommendations Recommending that the "more closely monitor and revicvy and approve in the State?s online payroll sy stem" ignores the fact that the currently and at all times herein. carefully monitored the time of every employee he directly supervised. The revieyys the time for each ofhis direct reports and after review. either approves or disapprovcs the submitted time. As described in the response above. DI II IS rcy icyy ed the former Director?s leave balances upon her retirement and determined that there as no effect on the former MISS Director?s retirement benefits related to compensatory Icayc questioned by FINDING 4. ?Reports to General Assemny omitted at least $260,000 of overtime and compensatory time? Response: DI ll IS agrees that prior reports submitted inadvertently omitted some compensatory time. As is explained belo\\_ an error ?as made by DI II IS and in the process of approv ing 37 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 21. 2015 Page I3 of 7' compensatory time and the reporting ol?that time to tlte General Assembly. ll [8 disagrees with the sutn contained in this ?nding since it is overstated. DHHS docs agree that and OSHR differ from OSA as to the interpretation of Session Law 2013? 360. Section As l} and OSHR worked together to implement the reporting requirements ot? this session law. both [)Ill and OSI believed the reporting sought was for the overtime and compensatory time of actual gate employees. not temporary workers. Undoubtedly. itt response to an earlier situation in 30 2. regarding the pay?out [or time to a number ofeinployees the General Assembly enacted a provision in Session Law 20l3?360. Section to provide for additional oversight of the compensatory time state employeesi. In pertinent part. that law provided: Section [221.4(1) .__tt'ie Department shill! not approve our overtime or mmpensumri? time related to the replacement offer I. 2013. without the prior written approval of the Of?ce Qmete each specific instance or compensomrl? time. (emphasis added) The statute goes on to require that the department will submit to the legislative oversight committees as well as the Fiscal Res ?areh Division at report on mm! (Humor! ofuppmved overtime and (purports:nary related to the {emphasis added} As Dill-[S and 081 put in place a process to effectuate the requirements ofthe session law referenced above. neither agency initially discussed whether the ovenimc of'temporz-try workers should be included in the report. Neither agency sought clarification since both agencies believed they understood the purpose and requirement of the new law. Both agencies believed the purpose ofthis requirement was to provide additional oversight to {t in the approval of compensatory time of state employees who previously had received unprecedented payments for compensatory-' time earned while working on the replacement MMIS. While it is accurate that there was an error in the process used by and OSI regarding the approval ol?compensatory titne ol? one employee and the reporting ol?that time to the General Assembly. the email communications that contemporancously document how this occurred reveal it was due to the incorrect assumptions of several stafi?mcmbers at both agencies. Accort?iingly. as revealed by the compensatory time reports. the agencies agreed on a process by which would estimate the amount ol?compensatory time and overtime that its state employees wottld likely accrue during a given month and submit that projection for review and approval by would review and note their approval or dist-tpproval. At the end ofthe month. D1 [1 [8 would "true up" with and submit the actual compensatory time-?overtime actually earned by the state employee as well as DHHS included the compensatoty?oveitime of all OMMISS state employees in this report except as explained above. However. there certainly may have been employees of DHHS who worked in other divisions who. as a pan of their duties and responsibilities. performed some work "related to the replacement lowever. since these employees are not dedicated to the project and are not ptut ot?the OMMISS organization. current time keeping systems do not permit to track their time spent on the project. Additionally. even Ii [8 could have tracked their time spent on the project. it would have been dit?ticult or impossible to determine whether the overtime ofa worker with responsibilities other than working on the MMIS was "related to the replacement or to their other job duties and responsibilities. 38 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES letter to Auditor Beth Wood April 5 Page Isl of 7 the estimated compensatory tin'te/ovcr time estimated for the upcoming month. DI would subsequently report. as required by the session law. the actual earned compensaton time/overtime ofthe OMMISS state employees to the required legislative bodies. lj?ormer OMMISS Director?s Compensatorv 'l?im_e When OSA first brought this issue to attention. DI ll-lS began a review ofthe submitted reports and the report prepz-tration process and documentation between the Department and ()Sl-lR. What is learned was that in the first report DI ll IS submitted to 08] IR. Dl-ll IS included the projected con'tpensatoty time ofthe former Director. This fact is noted in the draft report. However. staff involved in the approval incorrectly believed that the former OMMISS Director was ineligible to earn compensatory time. Accordingly. ()SllR's approval back to ll {8 noted that the former OMMISS Director should not be on the report as they believed she was ineligible to earn compensatory time. At that point. it is cl an that within Dl [8 there was a miscommunication regarding the future handling ofthe former OMMISS Director?s future compensatory time. As a result that compensatory time was not included on future reports to OSHR and subsequently. incorrectly. excluded from reports filed with the General Assembly. It is clear that the ?ause ofthis error in reporting resulted from the confusion and misunderstamling between DI ms and as to the former OMMISS Director?s ability to continue to accrue compensatory leave. (See DI ll {8 response to Finding 3 for additional detail on this issue.) When DI ll IS discovered the previously submitted reports were understated. a revised report was prepared and submitted to IR to request retroactive approval for the compensatory leave hours dating from the effective date ofthe initial report. Additionally. corrected reports were also submitted to the legislature. As these compensatory leave hours are utilized on a first in. first out basis. none of the accrued hours that were unapproved had been used by the former Director. 'l'herefore. the calculation identifying the sum of $69930 as the impact attributed to this issue is incorrect and should be deleted from the sum indicated in this finding. lelnporary W'orkers' Overtime As noted previously. based upon a review ofemail emnmunications and subsequent. discussions with DI ll-lS. as well as 081 lR of?cials. it is cl at that neither agency interpreted the session law at issue as requiring the reporting of the overtime of temporary workers. The employees involved in implementing a process for the reporting and approvz-rl ofthesc hours believed the requirement of the session law was a direct result of previous audit/investigation findings related to payment ofov-ertime and compensatory time to OMMISS Stu/e Given that Dl-ll IS and staff responsible for implementation ofthe new reporting and approval procedure between the two agencies believed they understood the requirements and that two different agencies interpreted the session law similarly. neither agency sought further elz-trification ofthe session law. Overtime paid to temporary workers was not part ofthe report to either ()Sl IR or to the General Assembly. 39 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April ll. 20] 5 Page I5 of I 7 Based on the interpretation the implementation ofthis reporting requirement. the sum attributable to overtime of temporary vvorkers for the period August I. 20 I 3 July 3 . 201?1 should be deleted from this finding in draft report. Employ ecs ()utside OM MISS DI Il IS did not underrepoit the time ofthese vvorkers. As noted in footnote 4 abov c. there is no practical vvay ofmeasuring or determining \vhich DI ll IS employees I \v orde outside ofthe division 2) accrued compensatory time or overtime during this period on a matter that could be considered to be ?related to the replacement The Department agrees vv ith the Auditor?s recommendalion that the reports should comply vv ith Session I.avv. The Department has already filed amended reports that include accurate information from the inception ofthe reporting requirement. DI ll IS vv ill seek clari?cation from the General Assembly as to whether DI II IS should submit a supplemental report regarding the overtime paid to temporary vvorkers during the relevant reporting periods.K FINDING 5. "State regulations for hiring information technology services contractors violated? DHIIS Response: II disagrees that it violated state regulations in the hiring ofthree ofthe four temporary \v'orkers identified in this finding. Based upon the primary job duties ofthree ofthe four temporary vvorkers. DI ll IS believed these positions did not require sourcing through the II supplemental staffing process administered by the Of?ce of Information 'I'echnology Services per Session I.a\v 201 l-l45. These three temporary workers were engaged to provide duties such as: contract monitoring. process management coordination or administrative coordination. none of vvhich are H. professional roles. for the three temporary vv orkers referenced above. DI acknovvledges that thejob title and applicable specifications used to classify these three temporary vvorkers may have created a misunderstanding ofthe primary duties being performed such that it appeared that approval process should have been follovv ed. A careful review ofthesc three vv orkers' actual duties and responsibilities reveals that while these temporary vvorkers vv ere providing services in support ofthe I'l~ project. the services they provided ere not of an professional nature that vvould subject their engagement to the ITS approval process. As to the remaining temporary vvorker. this fourth individual as an IT professional vvho had been employed as a state employee by Dl II IS fora number ofy'ears as an H. professional. A rcv'ievv ofthis temporary vvorker's primary duties and responsibilities indicates that DI II IS should have follovved the HS I'he funding for the overtime hours ofthe temporary employees dedicated to the office is 9000 federal funds and 1000 state funds. In contrast. compensatory time avvarded to a state employee who is on this project is likely to be a liability to the state ifthat compensatory time is exercised after that employee ceases to be associated with the .VIMIS replacement project as this percentage of federal funding will not be available to offset the liability. and IS both understood the legislature?s sensitivity for incurring a substantial state liability for the compensatory time of state employees. This \v as yet another reason that led both agencies to believe the session lavv pertained to compensatory and overtime pay and not WORM-IRS. 4O RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth Wood April 20l5 Page lb of I 7 approval process to ?ll the temporary need for this role." I)l II IS agrees \v ith ?nding as to this one temporary worker.? As explained above. for three ofthe four temporary vvorkers referenced in this finding. II IS as not required to follovv the ITS approval process to engage these temporaries. As to the fourth temporary vvorkcr. regardless of vvhether IS correctly followed the procedure. this individual vvas engaged to perform necessary duties and responsibilities vvithin MISS. vvould have incurred the expense for this temporary vvorkcr regardless ofthe process it utilized to engage this vvorker. Accordingly. the ?gure referenced by USA in this finding is illusory since \vould have paid someone to perform this necessary vvork. Rewunendations nevv internal policy vvill strengthen DI II process for assuring compliance \vith the requirements outlined in Session l.a\v FINDING 6. ?Lack of adequate oversight despite ?ndings in prior audit reports" DHHS Response: DI II IS disagrees vv ith this ?nding. lo the contrary. II IS has increased the oversight as evidenced by the hiring ofthe agency?s ?rst in liebruary 2013. When the nevv administration arrived (coincidently at approximately the same time that the February 20l3. audit report referenced in this finding vvas released). it vvas apparent to the nevv ll IS leadership that and other If projects vv ithin the agency both needed and deserved the oversight and attention of an executive level of?cial vv ith extensive management experience. This decision vvas based on a number of factors such as: ll IS is an organizz-ition vv'ith approximz-itely positions. l)l ll IS has an approximately budget. Il IS had a number of large l?I' projects undervvay including the largest IT projects cv er undertaken in the history ofNorth (.?arolina. Accordingly. the role ofthe DI II IS vvas created and an individual vvith extensive IT management experience vv as recruited to ?ll this nevv position.ll Since the arrival ofthe l)l ll IS a number of initiatives have been undertaken to better oversee I'l' operations at lI IS. ?l'he CIO put in place a number ofchanges to allovv I)l ll IS to successfully go live vvith the replacement MMIS on .luly l. 20l3. At the time he vvas hired. this vvas the most critical need facing I')l II IS. A failure to successfully go live on this date \vould result in approximately in additional costs to taxpayers. Furthermore. additional delays ouch impact the State's compliance vv ith federally mandated changes to the Medicaid program. 'l?he primary focus for the past tvvo years has been on the successful launch ofthe nevv claims payment system. Six months after implementation. the replacement 'l?his temporary employee was sourced through an l'l'S approved private temporary staf?ng agency. Based on the recent February 20 I 5 report ofthe l?rogram livaluation Division. it appears that all state agencies experienced similar compliance issues by failing to comply with required l'l'S approval processes. l?he individual hired excess of3t) years ofexperiencc leading large technology and operation's organi/ations in the banking industry. [be last ?nancial institution vvhere he vv as employed was a subsidiary ofthe largest bank in the vvorld. The brings not only extensive. complex large operation If experience he also brings executive management experience from similarly complex I initiatives. 41 RESPONSE FROM THE DEPARTMENT OF HEALTH AND HUMAN SERVICES Letter to Auditor Beth W'ood April 21. 2015 Page 17 of 7 MMIS system paid more claims than the legacy system for the same prior year six month period. It had a lower claim denial rate. It pended only to percent ofthe claims \ersus fourteen percent from the legacy platform. Finally. after six months of production. over three thousand ncyy providers ere successfully added to NC?Traeks. Not only did the new CIO launch up the ne\\ system successfully on July I. 20l3. he also successfully led to certi?cation ofthis ne\\ payment system. The biggest l'l? project in North Carolina?s history was ?nally completed and. according to just announced news from the federal government. has passed a stringent audit by the federal government that proves that the new claims payment system is operating correctly. This success means N'lo (.?arolina ill receive approximately from the federal government and ill be entitled to have the federal government contribute additional monies for the operation oftliis system going forward. ll lS believes the recent notification from the federal government is proof ofthe excellence that the new leadership and management imparted to this diyision. (.25 datim). l')l ll lS will continue to identify opportunities to develop and implement procedures to ensure even stronger administrative oversight ofthe ()ftice ofNC'l'racks. the successor organization to Sincerely. . 7 Aldona X. W'os. Ml). Secretary Cc: \eal Alexander (?hris listes .loe (?ooper Mark (iogal limcry Milliken Mark Payne ("het Spruill 42 ORDERING INFORMATION COPIES OF THIS REPORT MAY BE OBTAINED BY CONTACTING: Office of the State Auditor State of North Carolina 2 South Salisbury Street 20601 Mail Service Center Raleigh, North Carolina 27699-0601 Telephone: 919-807-7500 Facsimile: 919-807-7647 Internet: http://www.ncauditor.net To report alleged incidents of fraud, waste or abuse in state government contact the Office of the State Auditor Fraud Hotline: 1-800-730-8477 or download our free app. https://play.google.com/store/apps/details?id=net.ncauditor.ncauditor https://itunes.apple.com/us/app/nc-state-auditor-hotline/id567315745 For additional information contact: Bill Holmes Director of External Affairs 919-807-7513 This investigation required 1,728 hours at an approximate cost of $162,432. 43