DENVER – Denver Human Services needs to do more to make sure Denver property tax dollars designated to help people with intellectual and developmental disabilities are used correctly by Rocky Mountain Human Services, according to a new audit from Denver Auditor Timothy M. O’Brien, CPA.
“Denver Human Services is trusting an outside organization to correctly spend tax dollars, instead of providing complete oversight as it should,” Auditor O’Brien said. “My audit team found instances when tax dollars were used for non-Denver residents and for work unrelated to the special tax. We also found expenses were not properly documented and justified, and that neither Denver Human Services and Rocky Mountain were providing adequate oversight of subcontractors that provide services using the designated property tax revenue.”
Denver Human Services chose not to agree with three of our recommendations, including our recommendation to enforce the contract reimbursement requirement so Denver Human Services can get into full compliance with city ordinance and fiscal accountability rules. Denver Human Services also says the ordinance and contract do not require individuals to be Denver residents to receive Denver property tax funds. However, residency was required in each of the contracts under audit, as well as city ordinance and the 2003 ballot initiative that increased this special property tax. Rocky mountain Human Services agreed to all eight of its recommendations.
“I am disappointed in the response from Denver Human Services and their misstatements in their responses that do not accurately describe Denver’s law and its own contracts,” Auditor O’Brien said. “The city’s agencies must be held financially accountable and must oversee their contracts with the same accountability and responsibility.”
Denver Human Services oversees a contract with Rocky Mountain Human Services to administer services for people with intellectual and developmental disabilities in Denver. Rocky Mountain is a state-designated community-centered board. From 2017 to 2018, the time period included in this audit, Denver Human Services paid Rocky Mountain $25.2 million. Rocky Mountain provided services to more than 4,500 Denver residents in each of the two years.
The Auditor’s Office completed an audit of Rocky Mountain in 2015; however, continued concerns and a 2018 state audit of community-centered boards made Auditor O’Brien call for a second audit of Rocky Mountain’s finances and accountability.
In the new report, auditors found Denver Human Services and Rocky Mountain each failed to validate that they spent millions of dollars in Denver property tax revenue for their intended purpose.
“Denver Human Services is relying on Rocky Mountain to oversee itself instead of correctly validating that taxpayer dollars were spent as intended,” Auditor O’Brien said.
According to the report, Denver Human Services did not verify Rocky Mountain’s expenses and instead believed the organization’s self-reported costs submitted for reimbursement. Our audit team found Denver Human Services paid $16.5 million of the $25.2 million — or 66 percent — in total reimbursements to Rocky Mountain without validating the expenses.
Denver Human Services is supposed to reimburse Rocky Mountain for services based on complete documentation of specific expenses. Instead, auditors found Rocky Mountain requested reimbursement through “gap funding,” which means submitting a high-level summary each month including only total revenues received and total expenses incurred for the month, rather than details of transactions and the source documents to back them up.
Rocky Mountain expected the city to pay the difference between its high-level revenues and expenses, and for a time, Denver Human Services did that for the first 18 months out of the 24 months we audited, Denver Human Services allowed Rocky Mountain to use “gap funding” for all reimbursed departments. It allowed the practice to continue for another six months for Rocky Mountain’s Children’s Clinical Department.
Denver Human Services representatives said they misinterpreted the ordinance and thought they were meant to act as only a pass-through for the funds, instead of providing complete oversight and monitoring. However, incomplete documentation for expenses continued even after Denver Human Services became aware that “gap funding” was inappropriate and a new Rocky Mountain contract began.
Auditors also identified issues with how both Denver Human Services and Rocky Mountain monitor subcontractors for special projects. The audit team looked at two special projects subcontracts with Rocky Mountain, worth $7.1 million. Denver Human Services indicated it again trusted Rocky Mountain to monitor those contracts, and the city agency did not even keep its own copies of the subcontracts.
Rocky Mountain was also not fully monitoring special projects subcontractors to confirm they were serving Denver residents and that subcontractors met the outputs they were required to produce. Auditors found invoices without documentation to support the expenses, as well as invoices submitted for advance payments. The designated property tax dollars are supposed to be used only for services already completed.
Auditors also identified some people who were receiving services through Rocky Mountain special projects who were not eligible, including eight non-Denver residents and two people who did not qualify as having an intellectual or developmental disability. The subcontractors also did not serve the number of people the contract required them to help.
“We’ve seen this problem before,” Auditor O’Brien said. “Denver Human Services should ensure Rocky Mountain is using Denver dollars to serve only qualified Denver residents. This is required.”
In addition, auditors found Denver Human Services’ internal auditor—whom Denver Human Services agreed to hire after the last audit to better monitor the contract—finished only one narrowly scoped audit before they were put on leave. There was no risk assessment to help focus the auditor’s work and fill their time, and Denver Human Services put the internal auditor on other projects not related to services covered by Denver’s property tax dollars.
A risk assessment helps internal auditors decide what exactly to audit by pinpointing where an audit might do the most good. The Denver Auditor’s Office uses its own risk assessment every year when determining future audits for the city.
Finally, auditors found instances when its advisory council recommended approving a project but Rocky Mountain did not award the funding, and instances when the council recommended rejecting a project but Rocky Mountain awarded the funding. Rocky Mountain has the authority to decide which projects it funds. However, failing to provide written responses increased the perception that Rocky Mountain’s management did not give the council members’ input due consideration.
Despite the problems with financial accountability and validation of services identified in this report, parents and legal guardians of young children who receive services through Rocky Mountain’s Early Intervention Department told us in a survey they were satisfied with the services they received.
“It is reassuring that our audit team found that people served by Rocky Mountain are satisfied with the help they’re getting. But beyond providing good service, Rocky Mountain and Denver Human Services both need to ensure accountability for Denver tax dollars,” Auditor O’Brien said. “I am disappointed that Denver Human Services has chosen to disagree with recommendations that would clearly improve its oversight of taxpayer funds.”