A new state audit says the Utah Division of Rehabilitation Services “lacks program oversight,” resulting in questionable spending on services and equipment and failing to verify applicants’ identities.

SALT LAKE CITY — Representatives of the Utah Division of Rehabilitation Services vowed to lawmakers Thursday to strengthen policies and improve internal controls following an audit that pointed out questionable spending and verification practices.

The performance review by Utah State Auditor John Dougall's office said the division lacked program oversight in "four high-risk areas."

The division, which reports to the State Board of Education, facilitates vocational rehabilitation services for people with disabilities to help them gain or retain employment with the goal of self-sufficiency. The review was said to be the first performance audit of the division in its 92-year history.

"These findings are particularly concerning because the division expends millions of state and federal dollars annually without adequate controls to prevent and detect wasteful spending. Improved controls would allow the (Division of Rehabilitation Services) to further its mission by limiting waste that could be used to assist other citizens who need assistance," a news release from Dougall's office said.

Auditors presented their findings to the Utah Legislature’s Social Services Appropriations Subcommittee on Thursday morning.

The 62-page document says division employees violated or failed to follow policies when deciding whether to pay to equip automobiles with wheelchair lifts, ramps, hand controls and other assistive devices, or place elevators in residences.

In several instances, the division did not consider alternatives to paying for vehicle modifications such as having family, friends, co-workers provide transportation, using public transportation or hiring private transportation, the audit states.

Russell Thelin, the newly appointed executive director of the Office of Rehabilitative Services, told lawmakers the division works extensively with the Utah Transit Authority to ensure its clients have access to public transportation or specialized services such its Flextrans Paratransit Service.

However, there may have been deficiencies in documenting various transportation considerations in client files, Thelin said.

"That's an issue we need to work on," he said.

In other cases, division employees failed to follow policy. For instance, one counselor did not document “noteworthy donations raised to help a client,” the audit says.

In that case, a woman who had been involved in an accident resulting in a significant disability sought financial assistance from the division for modifications to her house and vehicle.

Her case file “documents community efforts to raise funds — allegedly more than $50,000 — to increase the client’s accessibility,” the audit states.

A counselor repeatedly asked the couple to disclose the amount of money raised through private fundraising efforts, but they refused, auditors wrote. Still, the division contributed $39,000 to modify a vehicle and install an elevator in their home.

Auditors also questioned the expenditure of $63,000 to modify the vehicle of a division employee. The employee’s work duties required him to travel to various outreach locations “even though his disability prevented him from driving without accommodations.”

Auditors questioned why the employee was not assigned to a position with limited travel, thereby eliminating the need for vehicle modifications.

“Based on his performance appraisals in his personnel file, it is unlikely that the division would have terminated his employment instead of reassigning him to a position that did not require travel,” the audit says.

Moreover, federal code prohibits termination without making reasonable accommodation for a disability, the audit notes.

State Superintendent of Public Instruction Martell Menlove and Donald Uchida, the recently retired executive director of the State Office of Rehabilitation, noted in a letter to Dougall responding to the audit that the office spends more than $20 million a year on direct client services.

“While only a small percentage of total expenditures, vehicle modifications are unusual in nature, and we agree the determination to incur expenditures for vehicle modifications should be governed by clear policy and documented in a manner that carefully considers all cost alternatives,” Menlove and Uchida wrote.

The audit also found instances in which division employees did not verify the identities of people applying for services, “which increases the risk of fraud and identity theft while also prolonging unemployment for some clients.”

The audit also details incidents in which counselors did not verify whether clients were eligible to work in the United States.

“The division’s client services manual requires I-9 eligibility of its participants,” the audit states.

State auditors also called into question the fee schedule the division uses for clients' medical costs.

The division could have reduced its medical costs by some $612,000 a year if had used the Medicaid rate for medical claims rather than its schedule, auditors said.

“The (division) medical fee schedule is based on approximately 150 percent of Medicaid, but it appears that the division must sometimes pay even more when a specific provider monopolizes a region,” the audit said.

Between 2010 and 2012, the division paid more than $5 million for 29,594 medical expenditure authorizations, the audit said.

Thelin said the office serves people with disabilities who require speciality care. To obtain the care they need, the office needs to spend above than the Medicaid rate.

"Sometimes appropriate services are not provided at that rate (Medicaid rate). We set our rates 150 percent of Medicaid, which is basically in the middle of the road," Thelin said.

While the audit makes no specific recommendations regarding the oversight of the division, which is under the purview of the State School Board, the audit notes that in most states, vocational rehabilitation services are overseen by human services or workforce services departments. Vocational rehabilitation is a stand-alone agency in nine states.

The audit suggests that lawmakers examine the division's current alignment. The division is part of the Utah State Office of Rehabilitation. The office also provides services for the blind or visually impaired, services for the deaf and hard of hearing, and disability determination services.

Menlove said the division receives its funding through the U.S. Department of Education, which is likely why it was placed under the State School Board.

The Utah State Office of Education is carefully reviewing the audit and has begun implementing changes, Menlove said. The rehabilitation office plans to hire an internal auditor evaluate internal controls at the Utah Office of Rehabilitation, review policies and practices, and recommend ways to strengthen internal controls.

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Responding the audit, Menlove's and Uchida's letter to Dougall said the agencies will conduct a thorough review and revision of current policies, direct payment guidelines and eligibility documentation.

“We will use this audit and its recommendations as a starting point to improve and strengthen the policies and internal controls that govern the expenditures of the vocational rehabilitation program. We strive to use resources efficiently and in accordance with federal and state law and policy,” the letter stated.

The agency agreed to give lawmakers a progress report during their 2014 general session.