Doug Hoffer's blog

Press Release: Oversight of State cell phones is deficient, resulting in under-utilization & opportunities for savings

MONTPELIER, VT – A new report from the State Auditor’s Office finds problems with the State’s purchasing and oversight of cell-phone services. State Auditor Doug Hoffer said, “The State’s current system is decentralized and does not have consistent policies and procedures to ensure that resources are optimized. As a result, we found potential savings of almost $300,000.”

The report notes that the Department of Buildings and General Services contracts with cell phone providers on behalf of all State agencies. However, decisions related to cell phone purchases and management of their use are handled by individual State entities, meaning there is no central responsibility to track utilization and total spending. The objectives of the audit were to determine 1) whether State-issued cell phones are underutilized and 2) if State agencies and departments could reduce their costs for State-issued cell phones.

In 2012, charges for 3,080 state-issued cell phones totaled $1,646,995. After reviewing phone records, the audit team found that “9% of state-issued cell phones were not used at all and 20% had limited use.”[1]

These little used phones cost the State about $272,000.

Many State entities manage voice minutes via cell phone pools to avoid overage charges for exceeding monthly voice minute allowances.  The pools enable sharing of voice minutes among all cell phones within a pool. The State had 115 cell phone pools in 2012, and these pools purchased a total of approximately 11 million voice minutes. The audit team found that over 5.1 million minutes went unused (47% of the total).
In addition, of the 2,899 cell phones with bundled voice and data service plans, 42% used no data or less than 25,000 KB of data per month. This suggests opportunities for additional savings by switching to lower cost monthly service plans that more closely reflect actual usage (i.e., voice only). Hoffer stated that “The extent of under-utilization of the services purchased represents lax oversight and a significant waste of taxpayer money.”

The Department of Information and Innovation has a statewide policy for security of mobile devices and the Department of Human Resources has a statewide policy addressing personal use of state-owned wireless communication devices.  However, the State lacks a statewide policy that addresses other aspects of cell phone management, such as determination of criteria for business need, periodic review of usage levels, and consideration of continued business need.

Responsibility for most of the decision making relative to cell phones resides at State agencies and departments.  Based on the responses of 42 out of 45 surveyed State entities, less than half have policies or procedures for managing cell phones; only 19% had written criteria to guide decisions regarding who should be assigned a cell phone; and about 10% had written policies addressing monitoring cell phone costs.  Without consistent cell phone management practices and continuous monitoring of cell phone use, the State risks paying for cell phones and services that are not needed.

We made various recommendations to the Secretary of the Agency of Administration and the commissioners of the Department of Information and Innovation and the Department of Buildings and General Services.  Among others, these recommendations included: 1) developing statewide guidelines addressing aspects of cell phone management and 2) requiring State agencies and departments to document their policies and procedures related to cell phone management.

We are pleased to report that the Secretary of Administration agrees with our recommendations. Secretary of Administration Jeb Spaulding added, “We have been looking forward to the Auditor’s report and plan to use it as a springboard to establish a comprehensive statewide framework governing the purchase, acceptable usage, and management of not only cellular devices…but also statewide land use as well.”[2]

See the full report here.

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[1] Limited use was defined as averaging less than 100 voice minutes and less than 25,000 kilobytes of data per month. This equates to five minutes of phone calls, two emails with attachments and less than two websites viewed per business day. For context, the most prevalent service plan purchased by the State is for 400 voice minutes with unlimited data usage.

[2]November 1, 2013 e-mail from Secretary of Administration Jeb Spaulding.

Press Release: Auditor finds cost overruns in correctional health care, but contract oversight has improved

MONTPELIER, VT – Spending on health care for in-state prisoners was $4.2 million over budget for the last three years, according to an audit released today by State Auditor Doug Hoffer.

The Department of Corrections (DOC) contracts with Correct Care Solutions (CCS) to operate a comprehensive health care program for inmates housed in-state. Because of the importance and expense of this contract, the State Auditor’s Office (SAO) decided to review the State’s oversight of this contract.

In fiscal year 2012, DOC housed an average daily population of in-state inmates of 1,583, which included both sentenced offenders and detainees. The State budgeted $49.1 million for the three-year contract but eventually paid $53.3 million, including a $4.7 million management fee.

Hoffer noted that, "Since it’s a cost-plus-management fee contract, the state bears the financial risk and the contractor lacks incentive to minimize costs." The audit report stated that DOC’s "cost monitoring was not robust during the earlier years of the contract but has improved since late 2012."

For complex cases involving treatment outside prison facilities, the contract requires CCS to ascertain whether the inmate has health insurance and to pursue collection on the State’s behalf, including from Medicaid if applicable (only for services provided outside the prisons). During the audit, "testing identified one instance in which Medicaid was not billed for an inmate who was hospitalized at a cost to DOC of $84,000." This is important because state funds for Medicaid are matched with federal funds, while the Corrections’ budget is entirely state funds.

The report further stated that, "DOC’s monitoring of CCS’s performance against the contract requirements has been mixed." Based on testing by the audit staff, CCS met some of its performance standards and was deficient in others, with no apparent pattern. Hoffer stated that, "DOC’s failure to levy contractually allowed penalties for two years represented a lost opportunity for the State to offer a monetary incentive for CCS to correct its deficiencies in a timely manner."

Furthermore, the report found that "the lack of timely application of all allowable penalties appears to be due, at least in part, to significant personnel and operational changes at the Department." Hoffer stated that "DOC’s hiring of a new contract monitor in October 2012 has resulted in substantial improvements to both their cost and performance monitoring processes in the past year. Nevertheless, DOC (and all state entities) should plan for such contingencies so that contract oversight will not suffer when personnel changes occur."

Notwithstanding the progress already made, more needs to be done to help ensure that the State is not paying excessive amounts for these services and that the contractor meets the performance standards in the contract. Accordingly, we have offered various recommendations to help reduce DOC’s current costs and improve internal controls, and to reduce its risks in the implementation of health care delivery models under current consideration.

The full report can be found here.

Press Release: Hoffer announces new audits

State Auditor Doug Hoffer today announced that his office has initiated four new audits. The Auditor’s Office has completed the first three audits since Hoffer took office (State Workers Comp Program and two AOT contracts) and plans to issue two more audit reports shortly. Hoffer said, “After consulting with my Deputy Auditor and the senior staff, and reviewing preliminary risk assessments, I have selected four new audit topics.” They include the following:

· Designated Agencies: Designated agencies (DAs) are community mental health and developmental disability organizations responsible for providing services to individuals with developmental disabilities, adults with mental illness or significant behavioral health needs, and children with, or at risk of, severe emotional disturbance or behavioral health needs. DAs are designated by the Commissioner of Mental Health and Commissioner of Disabilities, Aging and Independent Living.

The objectives are to 1) summarize how the Agency of Human Services funds the Designated Agencies under the master grant agreements and ensures that payments for services provided to program recipients are not duplicated, and 2) determine the extent to which Designated Agencies met selected performance and outcome measures in the master grant agreements. Hoffer stated that, “the 13 DAs do important work and collectively received $300 million in funding in FY 2013. It’s important that we take at look at how well the system is working.”

· Sex Offender Registry – Part 2: The objectives are to 1) assess the extent to which the data in the State’s Sex Offender Registry are reliable and current, and 2) determine the extent to which the recommendations in our 2010 report were implemented. The audit of the Sex Offender Registry was first requested by the legislature in 2009 and this is a follow-up.

· Department of Liquor Control: The objective is to assess whether changes to the Department's system for distribution and sale of liquor would enhance revenue and reduce costs. According to Hoffer, “the Legislature has expressed interest in increasing DLC revenues and my office can provide an objective analysis of organizational, operational, and financial alternatives to the current model.”

· State Energy Plan: The objectives are to 1) determine whether state agencies that own the most buildings and vehicles met the Act 40 (2011) goal to reduce energy consumption by 5% in 2012 and 2013, and 2) determine whether and how the state has assurance that the state agency energy plan is being implemented. Hoffer commented that “we need to ensure that the State is doing its part to reduce energy consumption.”

Salmon: Public policy by sound bite

While speaking on the radio recently (WDEV), Tom Salmon offered his views on tax policy. He said he would like Vermont to be a "no income tax state." Apparently he views this as a necessary remedy because "we're a very sketchy state for businesses [and] New Hampshire continues to eat our lunch."

The idea that Vermont's economy is anti-business and suffers in comparison to other states is a common refrain but is not supported by the evidence. For example, for three major economic measures -- rate of job creation, unemployment, and per capita GDP, Vermont has exceeded the national average over the last ten years and is virtually identical to (or better than) New Hampshire.

Like the rest of the country, Vermont still has problems. But to suggest that Vermont is an economic basket case is just plain wrong. And it is hyperbole (if not demagoguery) to suggest that New Hampshire is “eating our lunch.”

Finally, not only is Mr. Salmon's desire for Vermont to be a no-income tax state the wrong remedy, it creates a $600 million dollar hole in the state budget. Mr. Salmon hasn’t said how he would fill that hole. Typically, having no income tax means the state must rely more heavily on regressive property taxes and fees (like New Hampshire). The result is a skewed distribution of the tax burden that benefits the wealthy. 

Mr. Salmon is certainly entitled to his opinion, but as the State Auditor, one would hope that he forms his opinions after careful analysis of the facts. To my knowledge, the Auditor’s Office has not produced any reports that provide the evidence necessary to support Mr. Salmon’s conclusions. In this case, it appears that Mr. Salmon is satisfied with unexamined assumptions and sound bites. These are not qualities we look for in a State Auditor.

Salmon missed five-year fraud scheme

Democratic candidate for State Auditor Doug Hoffer expressed concern today about the indictment of a state employee for embezzlement of $500,000 from a program audited annually by the State Auditor. Hoffer said, “The crimes alleged are an affront to the people of Vermont, but it’s especially disappointing that the State Auditor’s Office did not see any red flags since this theft was ongoing for five years.”

According to press reports, the accused had 250 checks sent to “entities that were not owed funds and had the checks mailed to her sister…in Newport.”

The embezzlement occurred in the Department of Children & Families’ Reach-Up program, which is a $50 million program funded primarily by the federal government. Thus, the program is covered in the annual “Single Audit” of federal expenditures, which is directed and paid for by the State Auditor. A key objective of the Single Audit is to test programs’ internal controls to ensure the safety of cash payments.

Flawed Diagnosis by the Dubie/Scott Team

Like Brian Dubie, Senator Scott is calling for tax reductions to make Vermont more competitive. But it appears that their prescription is based on a flawed diagnosis.

There are two problems here. First, as I noted in a reply to Mr. Dubie's press release, the UConn study fails to account for the very significant differences in the products manufactured in each state (the author's noted this and cautioned readers about it). This means the study is not an apples-to-apples comparison. Moreover, it's not the cost of inputs that really matter, it's the value added (which they did not measure).

Second - and perhaps more importantly - the authors did not look at changes in manufacturing jobs to determine whether the rankings are a good predictor of outcomes. Here are the figures for Northeast states and the three states found to have the lowest unit costs for manufacturing (#1 ranking is the most expensive and #50 is the cheapest).

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