During fiscal year 1995, the Retirement System paid external investment managers about $16 million to handle its investments. Compared with seven other state retirement systems, Kansas’ total management fees were among the highest both on a one-year and five-year basis. One reason for high management fees was the cost to manage the direct placement and real estate portfolios. When we compared the fees Kansas and other states paid for similar investment portfolios, we found that Kansas’ fees were higher in two out of three cases. In one case, it appeared an investment manager may not have honored an agreement not to charge the Retirement System more than other systems with similar-sized portfolios and investment styles, or to report the reason why the fee was higher.
Department of Wildlife and Parks, Conservation Commission, Water Office - FY 1994
If the Department completes the work planned for fiscal years 1996 and 1997, it will accomplish most of the major requirements of the Comprehensive Highway Program, except one to spend certain amounts each year for transportation programs to aid the elderly and disabled. At the end of fiscal year 1995, the State Highway Fund had a cash balance exceeding $1 billion, largely because of bonds sold to finance construction projects that will begin in 1996 and 1997. Revenues from tax and fee increases established to help finance the Program will more than cover the debt service on the bonds the Department has issued. Because those taxes and fees don’t revert to their previous levels at the end of the Program, they will continue to provide an enhanced level of funding for the Department into the future. Even with the enhanced revenues, the Department’s current spending estimates show the balance in the State Highway fund could be depleted by fiscal year 2003. Finally, the Department has established and generally followed good procedures to ensure that quality highways are built at a reasonable cost, but it needs to improve its process for detecting bidder collusion, and it needs to ensure that its staff conduct all required tests to ensure that roads are well built.
Verifying Information Provided by the Department of Social and Rehabilitation Services On Its Compliance with the Terms of the Foster Care Lawsuit Settlement Agreement--Monitoring Report #2
We concluded the Department had complied with 17 of the 26 areas reviewed during this monitoring period, and with all four areas we followed-up on from the first monitoring period. The areas of noncompliance included not addressing the effectiveness of the Family Preservation unit, the statewide and regional placement needs, or identifying strategies to assist in the development of resources in the needs assessments for preventive services, placements, and services; not developing caseload guidelines; not evaluating the effectiveness of paraprofessional staff; not maintaining accurate and reliable information on the FAME computer system; and not requesting certain minimum financial resources. We also identified two areas, the maintenance of flexible fund dollars and the determination of youth service workers’ caseloads, where we were unable to determine whether the Department was in compliance. All of these areas will be followed-up on in the next monitoring report.
Reviewing Early Retirement Incentive Programs in Kansas Schools
Over the past six years, school districts with early retirement incentive programs have spent more than $50 million to pay for early retirement benefits. For fiscal years 1996 through 2000, the cost of these programs is estimated to be between $90 million and $210 million. Nine of 10 school districts we reviewed generated a cost savings ranging from $7,400 to $288,000 from their early retirement incentive programs in fiscal year 1995. Only one county, three cities, and 14 community colleges in Kansas offer early retirement incentive programs. Officials in 12 other states that have offered early retirement incentive programs reported they didn’t achieve long-term success. The reasons cited generally included inadequate planning, lack of controls over replacing retired employees, lack of good cost and savings information, lack of education about the program, and the tendency to offer early retirement incentive programs too often.
Examining Problems with the University of Kansas Medical Center’s Heart Transplant Program
Four hearts were turned down because of inadequate nurse staffing in May and June 1994, partly because of a shortage of nurses, and partly because the cardiothoracic surgeon had a fundamental disagreement with the nurse manager about the types of nurses who should care for his patients. Between July 1994 and March 1995, 17 hearts were turned down because of a lack of surgeons. Patients who were on, or added to, the waiting list were not informed that hearts were being rejected for non-medical reasons. Top officials of the Medical Center were aware of problems with the heart transplant program, and several knew that donor hearts were being rejected for non-medical reasons. However, these officials failed to recognize how serious the problems were and failed to take appropriate action to deal with them. A total of 14 people were on the waiting list during the period when no heart transplants were being performed. Four were removed from the list, three received transplants at other hospitals, three died, and four are on waiting lists at other hospitals.Similar problems could happen in other departments at the Medical Center because individuals who knew about problems failed to take appropriate steps to ensure the problems were effectively resolved. In addition, the lines of authority and responsibility have not been clearly communicated to Medical Center staff.Finally, heart transplants still would be available at St. Luke's Hospital in Kansas City, Missouri, if the Medical Center permanently closed its heart transplant program, although there would be some financial and other impacts on the Medical Center.
Reviewing the Operations of the Woodlands Race Track
To date, the primary beneficiaries of the Woodlands’ operation appear to be the two original owners of Sunflower Racing Inc., the entity licensed to build and operate the track. When Hollywood Park bought the track, Sunflower’s owners received Hollywood Park stock valued at about $15 million for their $2 million equity investment in the company. In addition, they received several million dollars in salaries and consulting fees. The non-profit organization that holds the racing license has received $2.9 million to distribute to charity since the track opened. However, in May 1995, Sunflower Racing, Inc., suspended its charitable payments to TRAK East, and TRAK East did not notify the Racing Commission. Since June 1995, Sunflower has not made scheduled bank loan payments, and the banks have agreed to defer until July 1996 a $27 million payment that had been due in January 1996. To date, it does not appear that Hollywood Park has seen a direct financial benefit from owning the track; however, Hollywood Park will be the major beneficiary if slot machines are allowed at Kansas tracks. The Woodlands met most of the regulatory requirements we reviewed. However, a significant number of its contracts were not on file with the Racing Commission, two employees and one concessionaire were not properly licensed, and a member of the TRAK EAST board sold goods to the Track, an apparent violation of State law.
Most procedures for ensuring that vendors are providing agreed-upon services have been established by individual commissions and divisions, and they vary from one to another. For nearly one-fourth of the 62 contracts and grants we reviewed, it appeared the Department didn’t get the services it expected, or it was not possible to tell. Procedural weaknesses we noted that can allow grantees to be paid even though services haven’t been provided include the failure to require vendors to submit documentation of the services provided, failure to use that information when it is provided, and failure to make payments contingent on providing a certain level of service for some grants. We also noted that grant expenditures often didn’t receive a final review until long after the grants were over, which could make it more difficult to recover moneys that grantees owed the Department.
Examining the Use of Economic Development Initiatives Fund Moneys
During fiscal years 1994 and 1995, four companies that relocated within Kansas received a total of about $1.2 million in Economic Development Initiatives Fund moneys (about 1.2% of the total Fund). All four received job training money, for which they were eligible regardless of whether they moved, and two received additional money for capital expenses directly related to their moves. We noted two problem areas. One company received $54,000 in training money for 50 new positions, but those positions were never created. Another company was given money intended for a “major expansion” that added only 16 new jobs. The Department of Commerce and Housing correctly accounted for the jobs tied to the companies that moved, but didn’t have an accurate overall system for counting new and retained jobs. Groups and businesses reported spending their economic development money for authorized purposes such as brochures, supplies, construction, and training materials, but the documentation they submitted generally wasn’t adequate to ensure that the money was spent as reported. Finally, Kansas Technology Enterprise Corporation didn’t always have good documentation to show why it funded some projects that its approval committee initially didn’t think were worthwhile.
Kansas Neurological Institute
LARNED STATE HOSPITAL
OSAWATOMIE STATE HOSPITAL
PARSONS STATE HOSPITAL
TOPEKA STATE HOSPITAL
WINFIELD STATE HOSPITAL
RAINBOW MENTAL HEALTH FACILITY
Reviewing the Department of Health and Environment’s System for Assessing the Impact of Rules and Regulations Mandated by the Federal Government: A K-GOAL Audit of the Department of Health and Environment
In general, the Department did not always accurately and completely assess the economic impact of new regulations. The sample of economic impact statements we reviewed did not always contain the information required by law. For example, the economic impact statement prepared for underground storage tank regulations excluded about $40 million in costs for the federally mandated portion of the regulations. The economic impact statement related to clean water regulations underestimated the impact on industries by at least $10 million. These problems can be attributed to the agency’s lack of standardized procedures, its policy of excluding certain costs from the impact statements, and its failure to involve all those affected by the regulations in the process.
Reviewing the Implementation of Kansas’ Waste Tire Disposal Program: A K-GOAL Audit of the Department of Health and Environment
The Department of Health and Environment has established adequate regulations for the Waste Tire Disposal Program. However, the Department issues permits to operators who haven’t met all the State’s requirements, issues permits without inspecting waste tire facilities, allows some facilities to continue operating in apparent violation of State laws and regulations, doesn’t routinely inspect facilities or conduct follow-up inspections when problems are identified, and makes no attempt to inspect out-of-State transporters who hold Kansas permits. In addition, the Department needs to improve its handling of permit fees collected from waste tire operators. The Department also provides grant moneys to local units of government to help clean up, dispose of, or recycle waste tires in Kansas. However, the Department has not adequately monitored grants to ensure that grant moneys are being spent according to grant agreements and regulations.
Reviewing Certain Investment Transactions of the Municipal Investment Pool
This special audit was performed by the accounting firm that will be conducting the Statewide audit this year. It was authorized by the Legislative Post Audit Committee to review the exchange of investments between the Municipal Investment Pool and the State’s idle funds. Legislative Post Audit’s earlier review of these exchanges concluded that the State’s idle funds had a net loss of about $2 million as a result of the exchange. The Treasurer’s Office disputed this conclusion, but agreed to follow the recommendations of the auditors doing the Statewide review. Those auditors found that the exchanges were not equitable, that Legislative Post Audit’s analysis of the exchanges was reasonable, and that the Treasurer’s Office needed to transfer additional investments from the Municipal Investment Pool to the State’s idle funds to correct the inequity. To-date, the State Treasurer’s Office has “reimbursed” the State idle funds for about $1 million of the $2 million owed.
Compliance and Control Audit: State Correctional Facilities
In 1992, the Department of Social and Rehabilitation Services set out to modernize an existing computer system designed to collect treatment information about alcohol and drug abuse patients. By 1994, the project was not complete, in large part because it was poorly managed. Upper-level management underestimated the complexity of the project, assigned staff to the project on a part-time basis, allowed the project to proceed without an adequate plan or time budget, and exercised little project oversight. The manager assigned to the project was not well organized, did not develop an adequate workplan, and neglected to hire all the staff the Department had authorized. The Department did not violate any purchasing laws in January 1994 when it hired an outside firm to evaluate the project, nor did we find any evidence of favoritism in hiring the same firm to complete the project.
Reviewing Racing Commission Records Regarding Race Track Operations (100-hour audit)
The audit found that audited reports submitted by the tracks show they recently have begun to experience some financial difficulty, particularly the Kansas City track. The Kansas City track has reported declines in revenues since 1990, and has reported net losses in both 1993 and 1994. The Wichita track also has reported declines in revenues, but it is still profitable. The audited reports from the tracks also indicate that both tracks owe large amounts each year for principal and interest on their long-term debt, and that both tracks’ current financial needs significantly exceed their current financial resources. These last two factors could make it difficult for the tracks to continue operating comfortably in the event that revenues drop off significantly. The audited financial statements indicate that revenues for both tracks have, in fact, been declining.
Reviewing Certain Financial Management Practices at the University of Kansas Medical Center
The process Medical Center officials used to identify overhead activities that benefit both the hospital and the university was reasonable. Officials generally did a good job of determining each side’s “share” of overhead costs, but we had questions about the way they calculated a few of the costs. The Medical Center decided to use its $600,000 fiscal year 1995 appropriation to hire seven additional primary care faculty. Although this expenditure will not help address the financial viability of the primary care foundations in the short term, it may help in the long run as off-site clinics are developed and more managed-care contracts are obtained. Considerably less than half the appropriation has been obligated for primary care initiatives during fiscal year 1995; during the audit, Medical Center staff told us the remaining moneys would be used to fund part of its shrinkage requirements, which is not consistent with spending the money on primary care. The Medical Center has not received all the benefits it hoped to receive from the contractual relationship with the for-profit Salick Cancer Center: profits have not materialized, a permanent facility has not yet been built because of financing problems, and the number of patients has not increased as projected. Also, the contract does not include provisions that would help ensure the Medical Center receives all the expected benefits.
Reviewing the Progress of the Statewide Human Resource and Payroll System Project (SHARP) (100-hour audit)
The Statewide Human Resource and Payroll System Project is scheduled to go on-line for the October 1995 benefit enrollment period, and it is scheduled to produce State paychecks on January 12, 1996. The current Project budget is $11.5 million, which includes the direct costs of modifying the software and making it operational. We found that the Project is essentially on schedule and on budget. However, the Project budget excludes such other costs as the cost of State employees working with the consultants to develop the system, and microcomputers agencies will need to buy to access the system. The Division of the Budget currently estimates this latter figure will total about $362,000 in fiscal years 1995 and 1996. This figure will increase after the Department of Social and Rehabilitation Services’ needs are defined.
Reviewing the Provision of Statute Books to Legislators (100-hour audit)
The State spends about $45,000 annually to provide free law books to legislators, and an additional $100,000 providing free law books to others. If incumbent legislators were only provided with the books needed to update their sets of statutes, the State could have saved about $29,000 in printing costs during fiscal year 1994. The Legislative Coordinating Council has set the current price of statutes books at $405. At that price, the State generates enough money from the sale of statute books to cover the printing costs of books that are sold and distributed for free. The Secretary of State’s Office estimated that it discards about 2,000 law books valued at about $8,400. Closer monitoring of the number of books printed, sold, and discarded could save the State small amounts of printing costs each year.
Reviewing Issues Relating to the Financial Management, Efficiency, and Effectiveness of the Kansas Department of Wildlife and Parks
In general, we found the Department’s financial management practices were not adequate to provide needed accountability for restricted moneys, leading the Department to violate State law and misspend nearly $4 million of wildlife and park moneys during fiscal years 1989-1992. Combining parks and public wildlife area staff as a result of the merger created efficiencies that were negated when the Department recently separated those two functions because of the diversion problem. The Department has met some of its goals such as increasing outdoor recreational opportunities and ensuring the public’s safe and legal use of recreation resources; however, it has not improved its wildlife habitat resources or maintained facilities as it should. The Department’s combination of parks and public wildlife area staffs in one division is different from most other states. The Department also has a general layer of management not found in other states, and has devoted proportionally more of its employee resources to support activities and less to field activities than other states we reviewed.
Use of Alcoholic Liquor Fund Moneys By Local Units of Government
In 1994, the 10 localities we visited spent about 85% of their Special Alcohol and Drug Program Fund moneys for programs that complied with the law. Another 11% of the moneys were used to pay for items that in our opinion did not comply with the law. Those expenses included prosecutors’ salaries, police vehicles, and administrative costs. For the remaining 4% of the moneys, the municipalities did not have sufficient documentation for us to determine whether the expenditures complied with the law. Although two counties made slight errors in distributing tax revenues from the State to their Special Alcohol and Drug Program Funds, localities generally have established reasonable procedures to ensure that the moneys awarded to outside agencies are spent according to the law.
Reviewing the Implementation of the Kansas Sentencing Guidelines Act
Through September 1994, 1,629 inmates had been released early through the retroactivity provisions of the Kansas Sentencing Guidelines Act. The Department made some errors in converting inmates’ sentences, a few of which affected inmates’ release dates. Inmates released under retroactivity did not commit any more crimes after they were released than a similar group of inmates released on parole. Sentencing guidelines have decreased sentence length for some more serious crimes, and increased sentence length for some less serious crimes. In three areas--repeat property offenses, certain sex crimes, and certain drug crimes--many people question whether the sentences are proportional to the crime. Guidelines sentences are more uniform, but departures can reduce the degree of uniformity. A number of problems exist with the implementation of sentencing guidelines, including problems relating to technical parole violators, increases in the number of trials, incomplete criminal history records, and incomplete and inaccurate information provided to the Sentencing Commission.
Reviewing Investments and Investment Practices of the Kansas Public Employees Retirement System
For fiscal year 1994, the Retirement System achieved an overall rate of return of 2.3%, placing Kansas’ return seventh among the 11 states we compared. All states reported lower rates of return than for the previous year. Kansas’ rates of return for most individual classes of investments were lower than current-year rates of return reported by the comparison retirement systems. The only exception was the rate of return achieved by the domestic fixed-income portfolio. About half the System’s portfolios (44.4%) achieved a rate of return that was equal to or higher than that achieved by standard indices the Retirement System used to measure those investments’ performance. On a longer-term basis, five of 11 managers who had been with the System five years or more outperformed the averages.
Reviewing Human Rights Commission Contracts for Case Investigation (100-hour audit)
As of December, 1994, the Commission had not yet entered into any contracts for investigative services, and had not spent any of the $125,000 appropriation it received for fiscal year 1995 for such contracts. The Commission’s current plan to contract with local civil rights agencies, rather than with private vendors, may be hampered by those agencies’ limited ability to take on additional work. To evaluate potential cost savings from contracting, the Commission will need to develop good information on the cost of processing investigations in house. Contracting will not have a significant effect on the amount of federal money the Commission receives in the current year, but could increase federal reimbursement in the future.
Examining the Investment Practices of the Municipal Investment Pool
On December 31, 1994, the market value of investments held by the Municipal Investment Pool was about 97% of their cost and about 96% of the total amount owed to investors. Total deposits in the Pool on that date were about $704 million. The State followed a number of good practices in setting up the Pool, but information we reviewed indicated that the State Treasurer’s Office bought longer-term investments than it should have for this type of pool. When interest rates rose, Pool managers responded appropriately by buying shorter-term investments. However, more attractive yields elsewhere caused investors to take more money out of the Pool than was coming in from deposits and maturing investments. To manage the ensuing liquidity problems, the State Treasurer’s Office borrowed against the assets of the Pool, sold some investments at a loss, and exchanged longer-term investments held by the Pool for shorter-term investments held in the State idle funds portfolio. In our opinion, these exchanges were not equal and resulted in a $2 million loss to the State idle funds portfolio.