The Department of Human Services' Use of Revenue Maximization Contracts

#413
Joint Legislative Committee on Performance

Evaluation and Expenditure Review (PEER)
Report to
the Mississippi Legislature
The Department of Human Services’ Use

of Revenue Maximization Contracts
In 1 9 9 5 , t h e Mis s is s ip p i Dep ar t m en t o f Hu m an Ser vices (MDHS) en t er ed a

co n t r act wit h t h e In s t it u t es fo r Healt h an d Hu m an Ser vices , In c. (IHHS), a p r ivat e
co n s u lt in g fir m , fo r t h e p u r p o s e o f id en t ifyin g ad d it io n al r even u es t h e d ep ar t m en t
co u ld claim u n d er Tit le IV-E o f t h e So cial Secu r it y Act . Tit le IV-E p r o vid es fed er al
fin an cial as s is t an ce t o t h e s t at e fo r fo s t er car e, ad o p t io n as s is t an ce p aym en t s , an d s o m e
ad m in is t r at ive co s t s .
On Au gu s t 1 0 , 2 0 0 0 , t h e fed er al Office o f In s p ect o r Gen er al, Office o f Au d it

Ser vices , r eco m m en d ed d is allo wan ce o f $ 1 4 .7 m illio n in fed er al r eim b u r s em en t s
r es u lt in g fr o m MDHS’s co n t r act wit h IHHS fo r t h e p er io d Oct o b er 1 , 1 9 9 3 , t o Ju n e 3 0 ,
1 9 9 7 . On Oct o b er 2 0 , 2 0 0 0 , t h e fed er al Ad m in is t r at io n fo r Ch ild r en an d Fam ilies
accep t ed t h es e r eco m m en d at io n s . MDHS h as r ep aid $ 3 m illio n o f t h is am o u n t an d is
d is p u t in g t h e r ep aym en t o f t h e r em ain in g $ 1 1 .7 m illio n .
On Feb r u ar y 8 , 2 0 0 0 , t h e St at e Au d it o r ’s Office is s u ed it s Sin gle Au d it

Man agem en t Rep o r t o f s ever al s t at e p r o gr am s r eceivin g fed er al fin an cial as s is t an ce in
FY 1 9 9 9 . In t h is au d it r ep o r t , t h e St at e Au d it o r ’s Office t o o k excep t io n t o m o r e t h an $ 7
m illio n in r et r o act ive claim s p r ep ar ed b y IHHS.
Th e Dep ar t m en t o f Hu m an Ser vices ’ co n t r act wit h IHHS d id n o t p r o t ect t h e

s t at e’s in t er es t , wh ich wo u ld h ave b een b es t s er ved b y ad h er en ce t o t h e elem en t s o f a
m o d el co n t r act in g s ys t em . Du e t o t h e p o t en t ial fo r co s t ly fed er al au d it excep t io n s , PEER
r eco m m en d s t h at s t at e agen cies co n s id er r even u e m axim iz at io n co n t r act s o n ly aft er
car efu l d et er m in at io n o f n eed an d ad h er en ce t o m o d el p u b lic co n t r act in g an d
m an agem en t p r act ices .
De ce m be r 6 , 2 0 0 0
PEER: The Mis s is s ippi Le gis lature ’s Ov e rs ight Age ncy
Th e Mis s is s ip p i Legis lat u r e cr eat ed t h e Jo in t Legis lat ive Co m m it t ee o n

Per fo r m an ce Evalu at io n an d Exp en d it u r e Review (PEER Co m m it t ee) b y s t at u t e in
1 9 7 3 . A s t an d in g jo in t co m m it t ee, t h e PEER Co m m it t ee is co m p o s ed o f five
m em b er s o f t h e Ho u s e o f Rep r es en t at ives ap p o in t ed b y t h e Sp eaker an d five
m em b er s o f t h e Sen at e ap p o in t ed b y t h e Lieu t en an t Go ver n o r . Ap p o in t m en t s ar e
m ad e fo r fo u r -year t er m s wit h o n e Sen at o r an d o n e Rep r es en t at ive ap p o in t ed
fr o m each o f t h e U. S. Co n gr es s io n al Dis t r ict s . Co m m it t ee o fficer s ar e elect ed b y
t h e m em b er s h ip wit h o fficer s alt er n at in g an n u ally b et ween t h e t wo h o u s es . All
Co m m it t ee act io n s b y s t at u t e r eq u ir e a m ajo r it y vo t e o f t h r ee Rep r es en t at ives
an d t h r ee Sen at o r s vo t in g in t h e affir m at ive.
Mis s is s ip p i’s co n s t it u t io n gives t h e Legis lat u r e b r o ad p o wer t o co n d u ct

exam in at io n s an d in ves t igat io n s . PEER is au t h o r iz ed b y law t o r eview an y p u b lic
en t it y, in clu d in g co n t r act o r s s u p p o r t ed in wh o le o r in p ar t b y p u b lic fu n d s , an d
t o ad d r es s an y is s u es t h at m ay r eq u ir e legis lat ive act io n . PEER h as s t at u t o r y
acces s t o all s t at e an d lo cal r eco r d s an d h as s u b p o en a p o wer t o co m p el
t es t im o n y o r t h e p r o d u ct io n o f d o cu m en t s .
PEER p r o vid es a var iet y o f s er vices t o t h e Legis lat u r e, in clu d in g p r o gr am

evalu at io n s , eco n o m y an d efficien cy r eviews , fin an cial au d it s , lim it ed s co p e
evalu at io n s , fis cal n o t es , s p ecial in ves t igat io n s , b r iefin gs t o in d ivid u al legis lat o r s ,
t es t im o n y, an d o t h er go ver n m en t al r es ear ch an d as s is t an ce. Th e Co m m it t ee
id en t ifies in efficien cy o r in effect iven es s o r a failu r e t o acco m p lis h legis lat ive
o b ject ives , an d m ak es r eco m m en d at io n s fo r r ed efin it io n , r ed ir ect io n ,
r ed is t r ib u t io n an d / o r r es t r u ct u r in g o f Mis s is s ip p i go ver n m en t . As d ir ect ed b y
an d s u b ject t o t h e p r io r ap p r o val o f t h e PEER Co m m it t ee, t h e Co m m it t ee’s
p r o fes s io n al s t aff execu t es au d it an d evalu at io n p r o ject s , o b t ain in g in fo r m at io n
an d d evelo p in g o p t io n s fo r co n s id er at io n b y t h e Co m m it t ee. Th e PEER
Co m m it t ee r eleas es r ep o r t s t o t h e Legis lat u r e, Go ver n o r , Lieu t en an t Go ver n o r ,
an d t h e agen cy exam in ed .
Th e Co m m it t ee as s ign s t o p p r io r it y t o wr it t en r eq u es t s fr o m in d ivid u al
legis lat o r s an d legis lat ive co m m it t ees . Th e Co m m it t ee als o co n s id er s PEER s t aff
p r o p o s als an d wr it t en r eq u es t s fr o m s t at e o fficials an d o t h er s .
PEER Co m m it t ee
Po s t Office Bo x 1 2 0 4
Jack s o n , MS 3 9 2 1 5 -1 2 0 4
(Tel.) 6 0 1 -3 5 9 -1 2 2 6
(Fax) 6 0 1 -3 5 9 -1 4 2 0
(Web s it e) h t t p :/ / www.p eer .s t at e.m s .u s
2 PEER Rep o r t # 4 1 3
The Mississippi Legislature
Joint Committee on Performance Evaluation and Expenditure Review

PEER Committee
SENATORS REPRESENTATIVES
WILLIAM CANON HERB FRIERSON
Chairman Vice-Chairman
HOB BRYAN MARY ANN STEVENS
BOB M. DEARING Secretary
WILLIAM G. (BILLY) HEWES III WILLIAM E. (BILLY) BOWLES
JOHNNIE E. WALLS, JR. ALYCE G. CLARKE
TOMMY HORNE
TELEPHONE:
Post Office Box 1204
(601) 359-1226 Jackson, Mississippi 39215-1204 OFFICES:
Professional Building
FAX: 222 North President Street
(601) 359-1420 Max K. Arinder, Ph. D. Jackson, Mississippi 39201
Executive Director
Decem b er 6 , 2 0 0 0
Ho n o r ab le Ro n n ie Mu s gr o ve, Go ver n o r
Ho n o r ab le Am y Tu ck , Lieu t en an t Go ver n o r
Ho n o r ab le Tim Fo r d , Sp eaker o f t h e Ho u s e
Mem b er s o f t h e Mis s is s ip p i St at e Legis lat u r e
On Decem b er 6 , 2 0 0 0 , t h e PEER Co m m it t ee au t h o r iz ed r eleas e o f t h e r ep o r t

en t it led The De partm e nt o f Hum an Se rv ice s ’ Us e o f Re v e nue Max im iz atio n
Co ntracts .
Sen at o r William Can o n , Ch air m an
This re po rt do e s no t re co m m e nd incre as e d funding o r additio nal s taff.
De ce m be r 6 , 2 0 0 0
T a b le of Co n te n ts
Let t er o f Tr an s m it t al ................................................................................................................................. i
Lis t o f Exh ib it s ................................................................................................................................ v
Execu t ive Su m m ar y .............................................................................................................................. vii
In t r o d u ct io n ................................................................................................................................ 1
Au t h o r it y ............................................................................................................................... 1
Sco p e an d Pu r p o s e ............................................................................................................... 1
Met h o d ................................................................................................................................ 2
Backgr o u n d : Th e MDHS/ IHHS co n t r act an d o t h er p r o p o s ed co n t r act s t o in cr eas e

fed er al r even u es t o t h e s t at e ..................................................................................................................... 3
Reven u e Maxim iz at io n Co n t r act at MDHS........................................................................ 3

Ot h er Pr o p o s ed Co n t r act s fo r MDHS an d Med icaid ........................................................ 4
Wh at is t h e n at io n al exp er ien ce wit h r even u e m axim iz at io n co n t r act s ? ........................................... 7
Reven u e Maxim iz at io n Co n s u lt an t s in t h e Tit le IV-E Pr o gr am ..................................... 7
Wh at p r o b lem s h as MDHS h ad wit h t h e u s e o f r even u e m axim iz at io n co n t r act s ? ........................1 1
Office o f In s p ect o r Gen er al Au d it Excep t io n s ...............................................................1 1

Mis s is s ip p i’s Op t io n s Regar d in g Th es e Au d it Excep t io n s ...........................................1 5
St at e Dep ar t m en t o f Au d it Sin gle Au d it Man agem en t Rep o r t ....................................1 5
Did t h e MDHS/ IHHS co n t r act ad eq u at ely p r o t ect t h e s t at e’s in t er es t s ? ..........................................1 8
Elem en t No . 1: Do cu m en t at io n o f Need .........................................................................1 9

Elem en t No . 2: Develo p m en t o f a Req u es t fo r Pr o p o s als ...........................................2 0
Elem en t No . 3: No t ice o f In t en t .......................................................................................2 1
Elem en t No . 4: Evalu at io n o f Pr o p o s als .........................................................................2 1
Elem en t No . 5: Develo p m en t o f a Wr it t en Co n t r act .....................................................2 1
Elem en t No . 6: Co n t r act Mo n it o r in g ...............................................................................2 3
Elem en t No . 7: Co n t r act Evalu at io n ................................................................................2 3
Reco m m en d at io n s ..............................................................................................................................2 4
Agen cy Res p o n s e ..............................................................................................................................2 5
PEER Rep o r t # 4 1 3 iii

List of Exh ib its
In s p ect o r Gen er al’s Au d it Excep t io n s Regar d in g Tit le IV-E Claim s Mad e

b y Mis s is s ip p i Dep ar t m en t o f Hu m an Ser vices fo r 1 9 9 3 -1 9 9 7 , b y
Cat ego r y, Am o u n t Dem an d ed , an d St at u s ..................................................................................1 2
PEER Rep o r t # 4 1 3 v
The Department of Human
Services’ Use of Revenue
Maximization Contracts
Executive Summary
PEER r eviewed a “r even u e m axim iz at io n ” co n t r act b et ween

t h e Mis s is s ip p i Dep ar t m en t o f Hu m an Ser vices an d t h e
In s t it u t es fo r Healt h an d Hu m an Ser vices , In c. (IHHS) t o
d et er m in e t h e ext en t t o wh ich t h e co n t r act p r o t ect ed t h e
s t at e’s in t er es t . Th e p u r p o s e o f t h e co n t r act was t o
id en t ify ad d it io n al r even u es t h e d ep ar t m en t co u ld claim
u n d er Tit le IV-E o f t h e So cial Secu r it y Act . Tit le IV-E
p r o vid es fed er al fin an cial as s is t an ce t o t h e s t at e fo r fo s t er
car e, ad o p t io n as s is t an ce p aym en t s , an d s o m e
ad m in is t r at ive co s t s .
PEER als o r eviewed t h e r es u lt s o f a fed er al au d it o f IHHS’s

wo r k o n t h is co n t r act an d a s in gle au d it m an agem en t
r ep o r t b y t h e Office o f t h e St at e Au d it o r .
Audit Exceptions
On Au gu s t 1 0 , 2 0 0 0 , t h e Office o f In s p ect o r Gen er al, Office
o f Au d it Ser vices , r eco m m en d ed d is allo wan ce o f $ 1 4 .7
m illio n in fed er al r eim b u r s em en t s r es u lt in g fr o m MDHS’s
r even u e m axim iz at io n co n t r act wit h IHHS fo r t h e p er io d
Oct o b er 1 , 1 9 9 3 , t o Ju n e 3 0 , 1 9 9 7 . On Oct o b er 2 0 , 2 0 0 0 ,
t h e fed er al Ad m in is t r at io n fo r Ch ild r en an d Fam ilies
accep t ed t h es e r eco m m en d at io n s .
MDHS h as r ep aid $ 3 m illio n o f t h is am o u n t an d is

d is p u t in g t h e r ep aym en t o f $ 1 1 .7 m illio n t h e In s p ect o r
Gen er al s ays was b as ed o n in eligib le o r u n allo wab le co s t s
p r ep ar ed fo r t h e s t at e b y IHHS. Th e Exh ib it , p age viii,
d et ails t h es e excep t io n s b y cat ego r y, am o u n t d em an d ed ,
an d s t at u s .
MDHS ap p ealed t h e d is allo wan ces t o t h e Dep ar t m en t al

Ap p eals Bo ar d o f t h e U.S. Dep ar t m en t o f Healt h an d
Hu m an Ser vices . Th e d ep ar t m en t is als o s eek in g
r eco n s id er at io n b y t h e Ad m in is t r at io n fo r Ch ild r en an d
Fam ilies o f t h e d is allo wan ces .
PEER Rep o r t # 4 1 3 vii

On Feb r u ar y 8 , 2 0 0 0 , t h e St at e Au d it o r ’s Office r eleas ed a
Sin gle Au d it Man agem en t Rep o r t t h at was an au d it o f
s ever al s t at e p r o gr am s r eceivin g fed er al fin an cial
as s is t an ce fo r s t at e Fis cal Year 1 9 9 9 . In t h e au d it , wh ich
in clu d ed t h e Tit le IV-E p r o gr am , s t at e au d it o r s t o o k
excep t io n t o m o r e t h an $ 7 m illio n in r et r o act ive claim s
p r ep ar ed b y IHHS. St at e au d it o r s als o r eco m m en d ed t h at
t h e d ep ar t m en t in it iat e in t er n al co n t r o ls t h at wo u ld en s u r e
co m p lian ce wit h all s t at e an d fed er al laws , r egu lat io n s ,
an d gr an t r eq u ir em en t s .
Exhibit: Inspector General’s Audit Exceptions Regarding Title IV-E

Claims Made by Mississippi Department of Human Services for 1993-
1997, by Category, Amount Demanded, and Status
CATEGORY OF EXPENSES AMOUNT AMOUNT AMOUNT IN

DEMANDED REPAID DISPUTE
Administrative & Training Costs
Unallowable costs $8,739,634 $8,739,634
Undocumented administrative 476,476 476,476
and training costs
Incorrect federal match rate 219,000 $219,000
claimed
Sub-total $9,435,110 $219,000 $9,216,110
Foster Care Maintenance

Payments
Unallowable institutional $2,515,577 $2,515,577
payments
Undocumented maintenance 294,626 $294,626
payments
Sub-total $2,810,203 $294,626 $2,515,577
Other Administrative Costs

Unallowable consultant fee costs $2,534,699 $2,534,699
Sub-total $2,534,699 $2,534,699 -0-
Total $14,780, 012 $3,048,325 $11,731,687
viii PEER Rep o r t # 4 1 3

Contract Deficiencies
MDHS’s co n t r act wit h IHHS d id n o t p r o t ect t h e s t at e’s
in t er es t , wh ich wo u ld h ave b een b es t s er ved b y ad h er en ce
t o t h e elem en t s o f a m o d el co n t r act in g s ys t em . Su ch a
s ys t em , o r a s et o f “b es t p r act ices ,” in vo lves at leas t s even
s t ep s , in clu d in g:
§ d o cu m en t at io n o f n eed ;
§ d evelo p m en t o f a fo r m al r eq u es t fo r p r o p o s als (RFP) o r

r eq u es t fo r q u alificat io n s ;
§ n o t ice o f in t en t , o r m et h o d o f ad ver t is in g it s RFP;
§ im p ar t ial evalu at io n o f p r o p o s als r eceived ;
§ d evelo p m en t o f a wr it t en co n t r act ;
§ co n t r act m o n it o r in g; an d ,
§ co n t r act evalu at io n .
Majo r d eficien cies in MDHS’s co n t r act wit h IHHS in clu d ed

MDHS’s failu r e t o as s es s it s n eed fo r t h e s er vices . PEER
q u es t io n s t h e n eed fo r an y s t at e agen cy t o co n t r act fo r
“r even u e m axim iz at io n ” s er vices , b ecau s e t h is fu n ct io n
s h o u ld lo gically b e p er fo r m ed b y agen cy p er s o n n el wh o
s h o u ld h ave s u fficien t k n o wled ge o f t h e p r o gr am s t h ey
ad m in is t er t o kn o w wh at fed er al fu n d s ar e availab le an d
h o w t o o b t ain t h em .
MDHS als o en t er ed in t o t h e co n t r act wit h o u t is s u in g a

r eq u es t fo r p r o p o s als o r co m p et it ively b id d in g fo r t h e
co n t r act . Th er efo r e, t h e agen cy d o es n o t kn o w wh et h er it
co u ld h ave o b t ain ed t h e s am e s er vices at a lo wer r at e.
Als o , t h e co n t r act d id n o t in clu d e m eas u r ab le p er fo r m an ce
s t an d ar d s o f IHHS’s wo r k o r in d em n ificat io n fo r t h e s t at e
in t h e even t o f au d it excep t io n s .
Recommendations
1 . Th e Mis s is s ip p i Dep ar t m en t o f Hu m an Ser vices
s h o u ld en s u r e t h at it s s t aff r eceives r egu lar t r ain in g
in r elevan t fed er al laws an d r egu lat io n s in t h e
p r o gr am s t h at o ffer r even u e m axim iz at io n
o p p o r t u n it ies . Regar d les s o f wh et h er t h e
d ep ar t m en t p er fo r m s t h e t as k it s elf o r u s es an
o u t s id e co n s u lt an t , accu r at e an d u p -t o -d at e
k n o wled ge o f t h es e p r o gr am s is n eces s ar y fo r p r o p er
o ver s igh t o f co n t r act p er fo r m an ce.
PEER Rep o r t # 4 1 3 ix
s h o u ld o n ly co n s id er u s e o f o u t s id e r even u e
m axim iz at io n co n s u lt an t s aft er car efu l
d et er m in at io n o f n eed an d ad h er en ce t o t h e
r em ain d er o f t h e “b es t p r act ices ” as s o ciat ed wit h
s o u n d p u b lic co n t r act in g an d p r o cu r em en t
p r o ced u r es .
Fo r Mo re Info rm atio n o r Clarificatio n, Co ntact:
PEER Co m m it t ee
P.O. Bo x 1 2 0 4
Jack s o n , MS 3 9 2 1 5 -1 2 0 4
(6 0 1 ) 3 5 9 -1 2 2 6
h t t p :/ / www.p eer .s t at e.m s .u s
Sen at o r Bill Can o n , Ch air m an

Co lu m b u s , MS 6 6 2 -3 2 8 -3 0 1 8
Rep r es en t at ive Her b Fr ier s o n , Vice Ch air m an

Po p lar ville, MS 6 0 1 -9 7 5 -6 2 8 5
Rep r es en t at ive Mar y An n St even s , Secr et ar y

Wes t , MS 6 6 2 -9 6 7 -2 4 7 3
x PEER Rep o r t # 4 1 3
The Department of Human
Services’ Use of Revenue
Maximization Contracts
Introduction
Authority
Th e PEER Co m m it t ee r eviewed t h e Mis s is s ip p i Dep ar t m en t
o f Hu m an Ser vices ’ (MDHS) u s e o f an in d ep en d en t
co n s u lt an t t o in cr eas e fed er al r even u es . PEER co n d u ct ed
t h is r eview p u r s u an t t o t h e au t h o r it y gr an t ed b y MISS.
CODE ANN. § 5 -3 -5 7 et s eq . (1 9 7 2 ).
Scope and Purpose

PEER r eviewed a co n t r act b y t h e s t at e Dep ar t m en t o f
Hu m an Ser vices wit h an in d ep en d en t co n s u lt an t fo r
“r even u e m axim iz at io n ” an d t h e r es u lt s o f a fed er al au d it
o f t h e co n s u lt an t ’s wo r k . Reven u e m axim iz at io n , als o
k n o wn as “in co m e au gm en t at io n ,” “r even u e en h an cem en t ,”
o r “in co m e o p t im iz at io n ,” gen er ally r efer s t o t h e effo r t s o f
s t at e an d lo cal go ver n m en t s t o in cr eas e t h e am o u n t o f
fed er al r even u e t h ey r eceive.
Sp ecifically, PEER fo cu s ed o n d et er m in in g t h e ext en t t o

wh ich t h e s t at e’s in t er es t was p r o t ect ed t h r o u gh MDHS’s
r even u e m axim iz at io n co n t r act . PEER als o r eviewed
s im ilar p r o p o s als b y o t h er co n t r act o r s s u b m it t ed t o b o t h
MDHS an d t h e Divis io n o f Med icaid .
PEER Rep o r t # 4 1 3 1
Method
PEER r eviewed an d an alyz ed co n t r act s b et ween MDHS an d
t h e co n s u lt an t , t h e In s t it u t es o f Healt h an d Hu m an
Ser vices , In c. (IHHS), r elat ed d o cu m en t s , r elevan t fed er al
s t at u t es an d r egu lat io n s , as well as m o d el p u b lic
p r o cu r em en t p r act ices . PEER als o r eviewed t wo u n s o licit ed
r even u e m axim iz at io n p r o p o s als s u b m it t ed t o MDHS
b et ween May an d Ju n e 2 0 0 0 an d t h r ee p r o p o s als
s u b m it t ed t o Med icaid in t h e s am e p er io d . PEER als o
in t er viewed cu r r en t an d fo r m er s t at e an d fed er al o fficials
wit h in MDHS an d t h e U. S. Dep ar t m en t o f Healt h an d
Hu m an Ser vices . PEER als o in t er viewed o fficials in o t h er
s t at es wh o h ave u s ed o r ar e u s in g r even u e m axim iz at io n
co n s u lt an t s .
Chapter I. Background: The MDHS/IHHS contract
and other proposed contracts to increase federal
revenues to the state
Revenue Maximization Contract at MDHS

In 1 9 9 1 , MDHS en t er ed in t o t wo co n t r act s wit h t h e
In s t it u t es fo r Healt h an d Hu m an Ser vices , In c. (IHHS), a
p r ivat e co n s u lt in g fir m b as ed in Sar at o ga Sp r in gs , New
Yo r k. Bo t h called fo r r even u e m axim iz at io n --o n e u n d er t h e
n o w d efu n ct Jo b Tr ain in g an d Par t n er s h ip Act an d t h e
o t h er u n d er Tit les IV-A, IV-E, an d XX o f t h e So cial Secu r it y
Act .
In 1 9 9 2 , MDHS t er m in at ed t h e IHHS co n t r act s . In Au gu s t

1 9 9 5 , MDHS en t er ed in t o a n ew co n t r act wit h IHHS
s p ecifically t o id en t ify ad d it io n al r even u es t h e d ep ar t m en t
co u ld b e claim in g u n d er Tit le IV-E o f t h e So cial Secu r it y
Act . Tit le IV-E o f t h e So cial Secu r it y p r o vid es fed er al
fin an cial as s is t an ce t o t h e s t at e fo r fo s t er car e, ad o p t io n
as s is t an ce p aym en t s , an d s o m e ad m in is t r at ive co s t s .
Th e co n s u lt an t ’s wo r k fo cu s ed o n s o -called “r et r o act ive”

claim s , r eviewin g cas es u p t o t wo year s o ld . Th e co n s u lt an t
id en t ified cas es t h at fit eligib ilit y gu id elin es fo r t h e fed er al
fo s t er car e p r o gr am an d p r ep ar ed claim s fo r
r eim b u r s em en t . MDHS t h en s u b m it t ed t h e IHHS-p r ep ar ed
claim s fo r r eim b u r s em en t t o t h e Ad m in is t r at io n fo r
Ch ild r en an d Fam ilies wit h in t h e U. S. Dep ar t m en t o f
Healt h an d Hu m an Ser vices .
IHHS als o as s u m ed r es p o n s ib ilit y in 1 9 9 8 fo r d et er m in in g

wh et h er n ew MDHS clien t s wer e eligib le fo r Tit le IV-E. Th is
r eq u ir es r eview o f t h e cas es o f t h o s e ch ild r en p laced in t h e
cu s t o d y o f MDHS wh o ar e t h en m o ved b y t h e d ep ar t m en t
in t o an “o u t -o f-h o m e” p lacem en t .
IHHS was p aid o n a co n t in gen cy fee b as is , wh ich m ean t

t h at p aym en t was b as ed o n t h e am o u n t o f t h e in cr eas e in
fed er al fu n d s gen er at ed . As o f No vem b er 1 4 , 2 0 0 0 , t h e
s t at e h as p aid IHHS $ 7 ,2 4 7 ,5 4 0 .8 4 fo r r even u e
m axim iz at io n effo r t s , p lu s $ 9 8 3 ,5 3 3 fo r a n ew t im e-
k eep in g s ys t em u s ed b y s o cial wo r ker s .
Th e d ep ar t m en t ’s cu r r en t co n t r act wit h IHHS will exp ir e

Decem b er 3 1 , 2 0 0 0 .
Other Proposed Contracts for MDHS and Medicaid
Th r ee o t h er co n s u lt an t s --Maxim u s , Davis an d As s o ciat es ,
an d Healt h Man agem en t As s o ciat es --h ave p r o p o s ed
r even u e m axim iz at io n s er vices fo r MDHS an d t h e Divis io n
o f Med icaid . Maxim u s o f Ar lin gt o n , VA, is t h e gr o u p t h at
p r evio u s ly h an d led ch ild s u p p o r t co llect io n s in Hin d s an d
War r en co u n t ies . Davis an d As s o ciat es o f Was h in gt o n , DC,
an d At lan t a, GA, is allied wit h Healt h Man agem en t
Sys t em s , In c., b as ed in New Yo r k . Healt h Man agem en t
As s o ciat es is h ead q u ar t er ed in Tallah as s ee, FL. Healt h
Man agem en t Sys t em s , In c., is n o t as s o ciat ed wit h Healt h
Man agem en t As s o ciat es , In c., n o r ar e t h e t wo
o r gan iz at io n s as s o ciat ed wit h IHHS.
MDHS o fficials s t at ed t h e d ep ar t m en t was n o t p lan n in g t o

co n s id er t h e p r o p o s als , o n e o f wh ich co n s is t ed s o lely o f a
vis u al p r es en t at io n . Divis io n o f Med icaid o fficials s t at ed
t h at all t h e p r o p o s als t h at it h as r eceived ar e “u n d er
r eview.”
Bo t h t h e Maxim u s an d t h e Davis an d As s o ciat es p r o p o s als

ar e b as ed o n a co n t in gen cy fee, wh ich m ean s t h e
co n t r act o r s r eceive a p er cen t age o f t h e fu n d s gen er at ed as
a r es u lt o f t h eir wo r k. Th e gr eat er t h e in cr eas e in fed er al
fu n d s t h r o u gh t h e Tit le IV-E p r o gr am , t h e m o r e m o n ey t h e
co n t r act o r s ear n . Th is is in co n t r as t t o a fixed -fee
co n t r act , in wh ich t h e co n s u lt an t p er fo r m s t h e s er vice fo r
a s p ecific am o u n t . Regar d les s o f h o w m u ch is gen er at ed
b y t h e co n t r act o r ’s effo r t s , t h e fee r em ain s t h e s am e. Th e
Healt h Man agem en t As s o ciat es , In c., p lan is b as ed o n a
fixed fee fo r s er vice.
Proposed Maximus Projects
Maxim u s , wh ich m ad e id en t ical p r o p o s als t o b o t h MDHS

an d Med icaid , es t im at ed t h at it co u ld r eco ver u p t o $ 1 5
m illio n a year in ad d it io n al Med icaid fu n d s fo r h u m an
s er vices p r o gr am s . Th e p r o p o s al s t at ed t h at “r em ain in g
r eco ver y o p p o r t u n it ies ” exis t ed wit h in :
§ Med icaid t ar get ed cas e m an agem en t fo r ch ild welfar e

an d ju ven ile ju s t ice s er vices ($ 1 0 t o $ 1 5 m illio n
an n u ally);
§ ad d it io n al Tit le IV-E ch ild welfar e r even u e;
§ Med icaid fo r s ch o o l-b as ed h ealt h s er vices ;
§ m en t al h ealt h ; an d ,
§ Med icaid t h ir d -p ar t y liab ilit y.
No s p ecific act io n s o r fu r t h er es t im at es o f ad d it io n al
fed er al r even u e t o eit h er agen cy ar e in clu d ed in t h e
Maxim u s p r o p o s al. Th e o n ly wr it t en m at er ials p r es en t ed
t o MDHS o fficials wer e co p ies o f s lid es o f a co m p u t er
p r es en t at io n p r o gr am fr o m t h e Ju n e 2 9 , 2 0 0 0 , m eet in g.
Th e Maxim u s p r o p o s al is b as ed o n a co n t in gen cy fee
ar r an gem en t , wh ich m ean s t h e fir m r eceives an u n n am ed
p er cen t age o f t h e ad d it io n al fed er al fu n d s it r eco ver s .
Proposed Davis and Associates/Health Management Systems

Projects
Th e wr it t en p r o p o s als b y Davis an d As s o ciat es s t at e t h at

it s p r o ject wo u ld in cr eas e r even u es at MDHS, t h e St at e
Dep ar t m en t o f Ed u cat io n , an d t h e s t at e d ep ar t m en t s o f
Healt h , Men t al Healt h , an d Reh ab ilit at io n Ser vices , as well
as t h e Divis io n o f Med icaid .
Th e Davis an d As s o ciat es MDHS p lan es t im at ed a o n e-t im e

r et r o act ive r eco ver y o f $ 2 5 .5 t o $ 4 0 .5 m illio n . Davis an d
As s o ciat es als o es t im at ed t h at it s p lan wo u ld r es u lt in
Both the Maximus and $ 2 9 .4 t o $ 4 9 .4 m illio n an n u al r eco ver y in a p r o p o s al t h at
Davis and Associates calls fo r a r et o o lin g o f t h e co s t r at e s t r u ct u r es in
submissions are based n u m er o u s p r o gr am s . Th e p r o p o s al calls fo r o t h er ch an ges
on a contingency fee in o r d er t o claim ad d it io n al fed er al r eim b u r s em en t s u n d er
contract. a var iet y o f fed er al fu n d in g s t r eam s , in clu d in g Tit le IV-E,
Tit le IV-B (Ch ild Welfar e Ser vices ), fed er ally fu n d ed agin g
p r o gr am s , So cial Ser vices Blo ck Gr an t p r o gr am s , an d t h e
Tem p o r ar y As s is t an ce t o Need y Fam ilies (TANF) p r o gr am .
Th e Davis an d As s o ciat es p lan fo r Med icaid es t im at es it

co u ld r eco ver $ 1 1 m illio n in n ew r even u e each year an d
$ 4 m illio n in n ew ch ild s u p p o r t co llect io n s . Th e ch ild
s u p p o r t co llect io n fu n d s co u ld b e co llect ed t h r o u gh a
co m p u t er p r o gr am d es ign ed t o t r ack n o n -s u p p o r t in g
ab s en t p ar en t s . Th e p r o p o s al s t at ed t h at t h e am o u n t o f
an n u al r eco ver y fo r s ever al s p ecific m axim iz at io n p r o ject s
at Med icaid is u n kn o wn u n t il aft er co m p let io n o f an in -
d ep t h feas ib ilit y s t u d y.
Th e Davis an d As s o ciat es p lan fo r Med icaid fo cu s es o n

Tit le XXI [Ch ild r en ’s Healt h In s u r an ce Pr o gr am ], Tit le IV-B
(Ch ild Welfar e s er vices ), Tit le IV-E, an d t h e TANF
p r o gr am s . Lik e it s MDHS p r o p o s al, t h e Davis an d
As s o ciat es Med icaid p r o p o s al es t im at ed r eco ver y o f an
u n k n o wn am o u n t o f ad d it io n al r even u es t h r o u gh
d ep ar t m en t s o f Healt h , Ed u cat io n , Men t al Healt h ,
Reh ab ilit at io n Ser vices , an d Co r r ect io n s an d t h e Divis io n
o f Med icaid , as well as MDHS.
Health Management Associates Proposal
Healt h Man agem en t As s o ciat es , In c., s u b m it t ed a $ 9 8 ,7 1 5

p r o p o s al t o p u t t o get h er “s p ecial fin an cin g ar r an gem en t s ”
wh ich “t ake ad van t age o f t h e d iffer en ce in t h e aggr egat e
b et ween cu r r en t Med icaid p aym en t s t o cer t ain t yp es o f
p r o vid er s an d t h e Med icar e u p p er p aym en t lim it .” Th e
p r o p o s al is b as ed o n t h e fact t h at “s t at es h ave t h e o p t io n
o f p ayin g p r o vid er s u p t o a m axim u m o f t h e am o u n t t h at
Med icar e wo u ld p ay fo r s im ilar s er vices .”
Th e p r o p o s al m akes n o fir m es t im at es o f p o t en t ial

r even u es , b u t s eeks t o u s e t h es e s p ecial fin an cin g
ar r an gem en t s in t h r ee ar eas :
§ lo n g-t er m car e p aym en t s ;
§ o u t p at ien t p aym en t s ; an d ,
§ in p at ien t d is p r o p o r t io n at e s h ar e h o s p it al p aym en t s .
Chapter II. What is the national experience with
revenue maximization contracts?
At least three other states that have used revenue maximization contracts and
outside consultants in the Title IV-E program have experienced serious audit
exceptions by federal officials and have been forced to repay money. A fourth
state, Wisconsin, has had a positive experience with a revenue maximization
contract.
Revenue Maximization Consultants in the Title IV-E Program

PEER’s r eview o f r even u e m axim iz at io n lit er at u r e r evealed
t wo p o t en t ial t yp es o f p r o b lem s : (1 ) fed er al au d it
excep t io n s d em an d in g r ep aym en t o f s ign ifican t s u m s o f
m o n ey fr o m s t at es an d lo cal go ver n m en t s ; an d , (2 ) p o licy
is s u es . PEER’s exam in at io n was t o id en t ify s t at es t h at u s ed
r even u e m axim iz at io n co n s u lt an t s t o in cr eas e fed er al
fu n d s t h r o u gh Tit le IV-E an d t h en exp er ien ced au d it
excep t io n s . As d is cu s s ed in gr eat er d et ail b elo w, t h e s t at es
id en t ified faced co m b in ed r ep aym en t d em an d s b y t h e U.S.
Dep ar t m en t o f Healt h an d Hu m an Ser vices o f n ear ly $ 1 7 .2
m illio n .
Nat io n ally, t h e t r o u b lin g p o licy is s u e ar is in g wit h u s e o f

r even u e m axim iz at io n p r act ices fo r t h es e t yp es o f s er vices
is t h at an agen cy m ay h ave a gr eat er fin an cial in t er es t in
r em o vin g a ch ild fr o m a h o m e if t h e ch ild is eligib le fo r
fed er al fo s t er car e fu n d s . Co n ver s ely, in t r yin g t o t ak e fu ll
ad van t age o f availab le fed er al fu n d s , s o m e ch ild r en m igh t
n o t r eceive n eed ed s er vices if t h ey d o n o t q u alify fo r
fed er al p r o gr am s .
Alabama’s Experience with Revenue Maximization
Alabama repaid the federal government $2 million due to inappropriately

prepared claims by an outside consultant.
In Alab am a, an o u t s id e co n s u lt an t u p gr ad ed t h e cas es o f
n ear ly 2 ,0 0 0 ch ild r en in t h e Tit le IV-E p r o gr am b y
r eclas s ifyin g t h e s t at u s o f t h e ch ild r en . Th e r eclas s ificat io n
b y t h e In s t it u t e fo r Hu m an Ser vices Man agem en t , In c.
(IHSM), r es u lt ed in an o ver p aym en t o f $ 4 .4 m illio n . St at e
au d it o r s fir s t d et ect ed t h e er r o r s d u r in g a r o u t in e au d it .
In 1 9 9 5 , an In s p ect o r Gen er al’s r eview s h o wed t h at t h e
Alabama’s Department
of Human Resources in ap p r o p r iat e clas s ificat io n s co n t in u ed . In s am p lin g t h ir t y
ultimately repaid $2 cas e files , t h e In s p ect o r Gen er al fo u n d t h at eleven wer e
million in ineligible im p r o p er ly cat ego r iz ed , b as ed o n r eco r d s in t h e ch ild ’s
claims prepared by an file. Fo u r wer e im p r o p er ly clas s ed as eligib le fo r IV-E, wh ile
outside consultant. s even wh o s h o u ld h ave b een d eclar ed eligib le wer e n o t ,
r es u lt in g in u n d er p aym en t .
Alt h o u gh t h e In s p ect o r Gen er al n o t ed t h at Alab am a d id

n o t r eceive t h e co r r ect am o u n t o f fed er al m at ch , t h e
r eview als o s t at ed t h at wit h o u t a cas e-b y-cas e r eview, it
was im p o s s ib le t o q u an t ify t h e am o u n t t h e s t at e wo u ld
h ave r eceived .
Nebraska’s Experience with Revenue Maximization
Nebraska repaid $259,081 in federal funds deemed ineligible as part of a

revenue maximization consultant’s contingency fee.
In 1 9 9 4 , Neb r as k a co n t r act ed wit h Maxim u s t o gen er at e

ad d it io n al fed er al r even u es fo r it s h ealt h an d h u m an
s er vices p r o gr am s . Th e co n s u lt an t ’s fee was co n t in gen cy
fee b as ed , o r d ep en d en t o n t h e am o u n t o f ad d it io n al
r even u e Maxim u s r ais ed . Th e co n s u lt an t r eceived t welve
an d o n e-h alf p er cen t o f ad d it io n al r even u e u n d er a var iet y
o f fed er al p r o gr am s , in clu d in g Tit le IV-E. Th e s t at e s o u gh t
r eim b u r s em en t o f t h e co n t in gen cy fee it p aid Maxim u s .
In May 1998 the U.S. Th e Divis io n o f Co s t Allo cat io n wit h in t h e U. S.

Department of Health Dep ar t m en t o f Healt h an d Hu m an Ser vices d is allo wed
and Human Services’ $ 2 5 9 ,0 8 1 in fed er al fu n d s o u t o f a t o t al o f $ 5 3 5 ,1 9 3 , a
Departmental Appeals
d ecis io n t h e Regio n al Dir ect o r o f t h e U. S. Dep ar t m en t o f
Board concluded that
contingency fee
Healt h an d Hu m an Ser vices u p h eld . Neb r as k a ap p ealed
contracts were not an t h e d is allo wan ce t o t h e Dep ar t m en t al Ap p eals Bo ar d ,
allowable wh ich in May 1 9 9 8 co n clu d ed t h at co n t in gen cy fee
administrative cost co n t r act s wer e n o t an allo wab le ad m in is t r at ive co s t u n d er
under federal fed er al r egu lat io n s . Th e b o ar d r eas o n ed t h at u n d er
regulations. fed er al r egu lat io n s t h at r eq u ir e ad m in is t r at ive co s t s t o b e
“n eces s ar y an d r eas o n ab le fo r p r o p er an d efficien t
ad m in is t r at io n o f t h e gr an t p r o gr am s ,” co n t in gen cy
co n t r act fees wer e u n allo wab le b ecau s e t h e fee b o r e n o
r elat io n s h ip t o t h e co n t r act o r ’s effo r t .
Indiana’s Experience with Revenue Maximization
Indiana experienced total audit exceptions of $14.9 million for erroneously

paid claims over a two-year period.
In 1 9 9 0 , t h e In d ian a Fam ily an d So cial Ser vices

Indiana’s Family and Ad m in is t r at io n , Dep ar t m en t o f Fam ilies an d Ch ild r en ,
Social Services en t er ed in t o a co n t r act wit h IHHS t o id en t ify ad d it io n al
Administration repaid
r et r o act ive Tit le IV-E cas es fo r r eim b u r s em en t . A r eview
$8.5 million in
disallowed claims
t h at co ver ed IHHS-p r ep ar ed claim s fo r t h e p er io d 1 9 9 1 t o
prepared by IHHS. 1 9 9 3 d is allo wed $ 6 .4 m illio n in r et r o act ive claim s d u e t o
wh at t h e In s p ect o r Gen er al “in eligib le an d d u p licat e
claim s .”
Th e r es u lt s o f t h e fir s t r eview p r o m p t ed an au d it b y t h e
In s p ect o r Gen er al o f r et r o act ive claim s fo r calen d ar year
1 9 9 3 . Th e au d it r eco m m en d ed d is allo wan ce o f $ 8 .5
m illio n , wh ich In d ian a r ep aid .
Wisconsin’s Experience with Revenue Maximization
Wisconsin has experienced $100 million additional revenue due to the work
of its contractor, Maximus.
Maximus has Th e Dep ar t m en t o f Healt h an d Fam ily Ser vices in

generated nearly $100 Wis co n s in h as gen er at ed an ad d it io n al $ 1 0 0 m illio n in
million for Wisconsin’s r et r o act ive claim s fo r it s h u m an s er vices p r o gr am s as a
human services
r es u lt o f an “in co m e au gm en t at io n ” co n t r act wit h t h e
agency, with no OIG
findings or
p r ivat e co n s u lt in g fir m Maxim u s . Wis co n s in t u r n ed t o t h e
recommendations for co n cep t o f r even u e m axim iz at io n in t h e m id -1 9 9 0 s t o
disallowance. r eco u p s o m e o f t h e fu n d in g lo s s es s u s t ain ed as a r es u lt o f
welfar e r efo r m an d co n ver s io n o f t h e fo r m er Aid t o
Fam ilies wit h Dep en d en t Ch ild r en (AFDC) p r o gr am t o t h e
Tem p o r ar y As s is t an ce t o Need y Fam ilies p r o gr am (TANF).
Fu r t h er m o r e, a 1 9 9 8 au d it o f Wis co n s in ’s Tit le IV-E

p r o gr am b y t h e Office o f In s p ect o r Gen er al h ad n o
fin d in gs o r r eco m m en d at io n s fo r d is allo wan ce. In s t ead ,
t h e OIG fo u n d t h at t h e s t at e co u ld h ave claim ed s ligh t ly
m o r e o n it s Tit le IV-E claim s , a Wis co n s in Dep ar t m en t o f
Healt h an d Fam ily Ser vices o fficial s aid .
Th e Maxim u s p r o p o s al was s elect ed fr o m s ever al

r es p o n d en t s t o a r eq u es t fo r p r o p o s als . Th e
Wis co n s in / Maxim u s co n t r act calls fo r a t en p er cen t
co n t in gen cy fee fo r t h e co m p an y b as ed o n in cr em en t al
in cr eas es in t h e s t at e’s Tit le IV-E r eim b u r s em en t s . Th e
s t at e p aid t h is fee s o lely fr o m s t at e fu n d s an d d id n o t s eek
fed er al r eim b u r s em en t fo r t h es e co s t s . Th e co n t r act als o
co n t ain s a p r o vis io n t h at m ak es t h e co m p an y liab le fo r u p
t o t en p er cen t o f an y d is allo wan ce again s t t h e s t at e.
Fin ally, t h e co m p an y agr eed t o p r o vid e legal as s is t an ce t o
t h e s t at e in figh t in g an y au d it excep t io n s , s h o u ld t h ey
o ccu r .
Chapter III. What problems has MDHS had with
the use of revenue maximization contracts?
The Office of Inspector General recommended a disallowance of approximately

$14.8 million in federal reimbursements for the period October 1, 1993, to June 30,
1997, resulting from MDHS’s revenue maximization contract with IHHS. MDHS has
repaid $3 million and is disputing the repayment of approximately $11.7 million in
federal funds the Inspector General says was based on ineligible or unallowable
costs prepared for the state by IHHS.
In addition, the State Auditor questioned $7,047,645 in FY 1999 foster care

reimbursement requests prepared by IHHS and submitted by DHS to the federal
Administration for Children and Families.
Office of Inspector General Audit Exceptions

In Oct o b er 1 9 9 8 , t h e Office o f In s p ect o r Gen er al, Office o f
Au d it Ser vices , in it iat ed an au d it o f Mis s is s ip p i’s Tit le IV-E
p r o gr am fo r t h e p er io d Oct o b er 1 , 1 9 9 3 , t o Ju n e 3 0 , 1 9 9 7 .
The disallowance In it s fin al r ep o r t is s u ed Au gu s t 1 0 , 2 0 0 0 , t h e Office o f

represents 93% of the In s p ect o r Gen er al, Office o f Au d it Ser vices , r eco m m en d ed
increase in federal a t o t al d is allo wan ce o f $ 1 4 ,7 8 0 ,0 1 2 in fed er al
funding Mississippi
r eim b u r s em en t s t o t h e s t at e o ver a fo u r -year p er io d . Th is
experienced based on
am o u n t co n s t it u t es n in et y-t h r ee p er cen t o f t h e
the work of IHHS.
$ 1 5 ,9 3 8 ,6 4 7 in cr eas e in fed er al fu n d in g b as ed o n t h e wo r k
o f IHHS fo r t h at fo u r -year p er io d .
Th e OIG r eco m m en d ed t h e s t at e “m ak e ad ju s t m en t s ” o r
r ep aym en t s o f ap p r o xim at ely $ 1 4 .8 m illio n , as s h o wn in
t h e Exh ib it o n p age 1 2 . MDHS h as r ep aid $ 3 m illio n an d is
d is p u t in g r ep aym en t o f t h e r em ain in g $ 1 1 .7 m illio n .
Exhibit: Inspector General’s Audit Exceptions Regarding Title IV-E
Claims Made by Mississippi Department of Human Services for 1993-
1997, by Category, Amount Demanded, and Status
CATEGORY OF EXPENSES AMOUNT AMOUNT AMOUNT IN

DEMANDED REPAID DISPUTE
Administrative & Training Costs
Unallowable costs $8,739,634 $8,739,634
Undocumented administrative $476,476 $476,476
and training costs
Incorrect federal match rate $219,000 $219,000
claimed
Subtotal $9,435,110 $219,000 $9,216,110
Foster Care Maintenance

Payments
Unallowable institutional $2,515,577 $2,515,577
payments
Undocumented maintenance $294,626 $294,626
payments
Subtotal $2,810,203 $294,626 $2,515,577
Other Administrative Costs

Unallowable consultant fee costs $2,534,699 $2,534,699
Subtotal $2,534,699 $2,534,699 -0-
Total $14,780, 012 $3,048,325 $11,731,687
SOURCE: Office of Inspector General, Office of Audit Services, U.S. Department of Health
and Human Services, Review of Mississippi’s Retroactive Claim for Foster Care
Administrative and Training Costs and Maintenance Payments, Report No. A-04-98-
00126.
Administrative and Training Exceptions: $9.4 million
Fed er al r egu lat io n s allo w s t at es t o claim r eim b u r s em en t

fo r ad m in is t r at ive exp en s es d eem ed n eces s ar y an d p r o p er
fo r efficien t o p er at io n o f t h e fo s t er car e p r o gr am . Th e OIG
au d it r eco m m en d ed d is allo wan ce o f ad m in is t r at ive an d
t r ain in g co s t s in t h r ee cat ego r ies :
(1 ) $ 8 ,7 3 9 ,6 3 4 fo r ad m in is t r at ive co s t s t h at t h e In s p ect o r
Gen er al alleged in clu d ed u n allo wab le s er vices , s u ch as
ar r an gin g fo r p h ys ician exam in at io n s ;
(2 ) $ 4 7 6 ,4 7 6 fo r wh at OIG s aid wer e u n d o cu m en t ed

ad m in is t r at ive an d t r ain in g co s t s ; an d ,
(3 ) $ 2 1 9 ,0 0 0 b ecau s e t h e s t at e ap p lied fo r r eim b u r s em en t
at an in co r r ect m at ch in g r at e o f ab o u t s even t y-five
p er cen t , ver s u s t h e co r r ect r at e o f fift y p er cen t . MDHS
r ep aid t h e $ 2 1 9 ,0 0 0 wh en t h e In s p ect o r Gen er al
b r o u gh t t h e er r o r t o t h e d ep ar t m en t ’s at t en t io n , wh ich
was wh ile t h e au d it was s t ill u n d er way. Th e
d ep ar t m en t r ep aid t h e m o n ey b y way o f a “n egat ive
ad ju s t m en t ” o r a r ed u ct io n in t h e q u ar t er ly am o u n t
d u e t h e d ep ar t m en t fr o m t h e Ad m in is t r at io n fo r
Ch ild r en an d Fam ilies .
Th e In s p ect o r Gen er al s t at ed t h at t h e p r o b lem s o ccu r r ed

According to the b ecau s e MDHS lack ed s u fficien t in t er n al co n t r o ls t o en s u r e
Inspector General, t h at t h e s u b m it t ed claim s m et all ap p licab le Tit le IV-E
MDHS lacked sufficient r eq u ir em en t s . Fu r t h er m o r e, t h e In s p ect o r Gen er al s aid
internal controls to MDHS failed t o m o n it o r t h e act ivit ies o f it s co n s u lt an t s an d
ensure that submitted s u b -co n t r act o r s in p r ep ar at io n o f t h e r et r o act ive claim s .
claims met all
applicable Title IV-E
requirements and the Th e lar ges t am o u n t r eco m m en d ed fo r d is allo wan ce in t h is
department failed to cat ego r y, $ 8 ,7 3 9 ,6 3 4 , co n cer n s h o w s o cial wo r k er s ’ t im e
monitor its an d s er vices wer e ch ar ged t o t h e fo s t er car e p r o gr am . Th e
consultant’s In s p ect o r Gen er al fo u n d t h e s t at e’s claim s in clu d ed
preparation of s er vices s p ecifically exclu d ed fr o m r eim b u r s em en t u n d er
retroactive claims. fed er al r egu lat io n s , s u ch as co u n s elin g o r in ves t igat io n s .
Foster Care Maintenance Payments Exceptions: $2.8 million
The Inspector General Th e s t at e p ays fo r t h e car e o f fo s t er ch ild r en in b o t h an

found that MDHS did in s t it u t io n al an d em er gen cy s h elt er s et t in g. Th es e co s t s
not properly calculate can b e eligib le fo r r eim b u r s em en t u n d er Tit le IV-E, s o lo n g
costs of foster care,
as t h e co s t o f car e is co m p u t ed acco r d in g t o fed er al
included claims for
excluded services, and
r egu lat io n s . Th e au d it co n t en d s t h at MDHS failed t o
lacked supporting calcu lat e t h is co s t p r o p er ly b ecau s e t h e d ep ar t m en t failed
documentation for t o ap p r o ve t h e p r o vid er s ’ r at es b efo r e s u b m it t in g it s claim
some foster care fo r r eim b u r s em en t .
maintenance
payments. In ad d it io n , t h e In s p ect o r Gen er al fo u n d t h at t h e s t at e
in clu d ed claim s fo r exclu d ed s er vices b y s o m e in s t it u t io n s
an d in co r r ect ly co m p u t ed s o m e o f t h e r at es p aid t o o t h er s .
Als o , t h e In s p ect o r Gen er al s t at ed t h at t h e d ep ar t m en t
lacked s u p p o r t in g d o cu m en t at io n fo r $ 2 9 4 ,6 2 6 in fo s t er
car e m ain t en an ce p aym en t s , o r p aym en t s t o fo s t er h o m e
b o ar d p ar en t s fo r car e o f fo s t er ch ild r en .
Th e In s p ect o r Gen er al again as s er t s t h e o ver claim

o ccu r r ed b ecau s e MDHS d id n o t s u p er vis e t h e wo r k o f it s
co n s u lt an t s an d d id n o t en s u r e accu r at e p r ep ar at io n o f t h e
r et r o act ive claim s b y it s co n s u lt an t s . Th e In s p ect o r
Gen er al r eco m m en d ed t h at t h e s t at e r ep ay Tit le IV-E
$ 2 ,5 1 5 ,5 7 7 fo r t h e in eligib le in s t it u t io n al p aym en t s .
MDHS r ep aid $ 2 9 4 ,6 2 6 fo r wh at t h e In s p ect o r Gen er al
co n t en d ed wer e u n d o cu m en t ed m ain t en an ce p aym en t s as
s o o n as t h e In s p ect o r Gen er al n o t ified t h e d ep ar t m en t o f
t h e er r o r , wh ich was p r io r t o r eleas e o f it s au d it r ep o r t .
Th e d ep ar t m en t ab s o r b ed t h e r ep aym en t b y t ak in g a
r ed u ct io n in it s q u ar t er ly gr an t awar d fr o m t h e
Ad m in is t r at io n fo r Ch ild r en an d Fam ilies .
Administrative Payments (Contingency Fee Payments Not

Allowed under Federal Regulations): $2.5 million
The Inspector General Tit le IV-E allo ws r eim b u r s em en t t o s t at es fo r

disallowed $2,534,699 ad m in is t r at ive co s t s t h at ar e n eces s ar y fo r t h e “p r o p er an d
in claims based on efficien t ” o p er at io n o f t h e p r o gr am . Un d er an Office o f
IHHS’s contingency fee. Man agem en t an d Bu d get (OMB) r egu lat io n kn o wn as
Cir cu lar A-8 7 , h o wever , co n t in gen t fees d o n o t co n s t it u t e a
“r eas o n ab le” co s t as s o ciat ed wit h ad m in is t r at io n o f a s t at e
Tit le IV-E p r o gr am . Bas ed o n OMB Cir cu lar A-8 7 , t h e
In s p ect o r Gen er al r eco m m en d ed d is allo wan ce o f
$ 2 ,5 3 4 ,6 9 9 in claim s b as ed o n t h e fee o f IHHS.
Wh en t h e co n t r act was in it ially execu t ed in Au gu s t 1 9 9 5 ,

Cir cu lar A-8 7 lacked an y s t r ict p r o h ib it io n again s t t h e u s e
o f co n t in gen t fees in s u ch co n t r act s . In Sep t em b er 1 9 9 5 ,
h o wever , n ew r egu lat io n s t o o k effect t h at d id s p ecifically
b ar t h e u s e o f co n t in gen t fee co n t r act s in figu r in g a s t at e’s
allo wab le co s t s . MDHS o fficials co n t en d ed t h ey wer e
u n awar e t h at co n t in gen t fee co s t s wer e exclu d ed fr o m
calcu lat io n fo r eligib le r eim b u r s em en t exp en s es . Th e s t at e
is n o t ch allen gin g t h is r eco m m en d at io n b y t h e In s p ect o r
Gen er al an d r ep aid t h e d is allo wed am o u n t b efo r e t h e OIG
is s u ed it s r ep o r t . As wit h t h e ear lier d is allo wan ces , t h e
d ep ar t m en t r ep aid t h e m o n ey b y d ecr eas in g t h e q u ar t er ly
am o u n t t o wh ich it was en t it led u n d er Tit le IV-E.
Documentation to Support IHHS Invoices to MDHS is Lacking
PEER could not verify Du r in g t h e co u r s e o f it s r eview, PEER exam in ed IHHS

the accuracy of IHHS b illin g in vo ices , alo n g wit h fed er al go ver n m en t fin an cial
billings to the state gr an t d o cu m en t s , o r “No t ice o f Gr an t Awar d ” d o cu m en t s .
from the PEER was u n ab le t o ver ify t h e accu r acy o f IHHS b illin gs t o
documentation
t h e s t at e fr o m t h e d o cu m en t at io n p r o vid ed fo r r eview. In
provided for review.
at leas t s ix in s t an ces , t h e No t ice o f Gr an t Awar d , u p o n
wh ich t h e IHHS co n t in gen cy fee is b as ed , was n o t
p r o vid ed . Dep ar t m en t p er s o n n el s t at ed t h at t h e n o t ices
wer e s en t t o d iffer en t en t it ies wit h in t h e d ep ar t m en t ,
wh ich r en d er ed r eco r d -k eep in g d ifficu lt . In o t h er
in s t an ces , PEER co u ld n o t ver ify t h e am o u n t s ch ar ged b y
IHHS wit h t h e availab le gr an t awar d n o t ices .
Mississippi’s Options Regarding These Audit Exceptions

On Oct o b er , 2 0 , 2 0 0 0 , t h e U. S. Ad m in is t r at io n fo r
Ch ild r en an d Fam ilies accep t ed t h e In s p ect o r Gen er al’s
au d it fin d in gs an d r eq u es t ed t h at t h e s t at e r ep ay t h e
$ 1 1 ,7 3 1 ,6 8 7 n o w o u t s t an d in g, as s h o wn in t h e Exh ib it o n
p age 1 2 . Th e s t at e h as alr ead y r ep aid $ 3 ,0 4 8 ,3 2 5 .
On No vem b er 2 2 , MDHS ap p ealed t h e d ecis io n t o t h e

Dep ar t m en t al Ap p eals Bo ar d o f t h e U.S. Healt h an d Hu m an
Ser vices Dep ar t m en t , wh ile s eekin g a r eco n s id er at io n o f
t h e o r igin al d ecis io n wit h Ad m in is t r at io n fo r Ch ild r en an d
Fam ilies .
State Department of Audit Single Audit Management Report

In an audit of selected MDHS federal programs for FY 1999, the state
Department of Audit questioned more than $7 million in reimbursement
requests prepared by IHHS. The State Auditor considered this finding a
material weakness and noncompliance.
State auditors Un d er t h e Sin gle Au d it Am en d m en t s o f 1 9 9 6 , t h e fed er al

considered the go ver n m en t r eq u ir es an au d it o f s t at e p r o gr am s r eceivin g
$7,047,645 charged to fed er al fu n d s t o en s u r e co m p lian ce wit h all ap p licab le
the foster care Title IV-
laws an d r egu lat io n s . On Feb r u ar y 8 , 2 0 0 0 , t h e St at e
E program during FY
1999 as prior period
Au d it o r is s u ed a Sin gle Au d it Man agem en t Rep o r t o n it s
adjustments for au d it o f s elect ed fed er al p r o gr am s o f t h e Mis s is s ip p i
federal reimbursement Dep ar t m en t o f Hu m an Ser vices fo r t h e year en d ed Ju n e 3 0 ,
purposes to be 1 9 9 9 . On e o f t h e s elect ed fed er al p r o gr am s au d it ed b y t h e
questioned costs. Dep ar t m en t o f Au d it was MDHS’s fo s t er car e Tit le IV-E
p r o gr am . Du e t o in ad eq u at e d o cu m en t at io n , t h e au d it o r s
co n clu d ed t h at t h ey co u ld n o t d et er m in e wh et h er
r eim b u r s em en t r eq u es t s p r ep ar ed b y IHHS wer e fo r fo s t er
car e exp en d it u r es in cu r r ed wit h t h e fed er al t wo -year t im e
lim it fo r r eq u es t in g s u ch r eim b u r s em en t s . (Or igin al fo s t er
car e r o s t er s t h at MDHS u s ed t o r ep o r t t h e am o u n t s o f
fo s t er car e p aym en t s wer e d es t r o yed b y an IHHS p r o ject
d ir ect o r .) In ad d it io n , d u e t o t h e cr eat io n o f a n ew t im e
s t u d y t o r eallo cat e p ayr o ll co s t s as s o ciat ed wit h co u n t y
s o cial wo r k er s , t h e au d it o r s co u ld n o t d et er m in e wh et h er
s u ch co s t s h ad b een in clu d ed o n p r evio u s r eim b u r s em en t
r eq u es t s . Du e t o t h is lack o f d o cu m en t at io n , s t at e
au d it o r s co n s id er ed t h e $ 7 ,0 4 7 ,6 4 5 ch ar ged t o t h e fo s t er
car e Tit le IV-E p r o gr am d u r in g FY 1 9 9 9 as p r io r p er io d
ad ju s t m en t s fo r fed er al r eim b u r s em en t p u r p o s es t o b e
q u es t io n ed co s t s . (Th e fed er al p o r t io n o f t h e q u es t io n ed
co s t s was $ 3 ,6 0 6 ,6 4 5 , wit h t h e r em ain in g am o u n t ,
$ 3 ,4 4 1 ,0 0 0 , b ein g s t at e fu n d s .) Th e St at e Au d it o r ’s Office
r eco m m en d ed t h at t h e d ep ar t m en t im p lem en t p r o ced u r es
t o en s u r e co m p lian ce wit h t h e p er io d o f availab ilit y
r eq u ir em en t fo r t h e fo s t er car e Tit le IV-E p r o gr am . In
ad d it io n , t h e St at e Au d it o r r eco m m en d ed t h at t h e
d ep ar t m en t im p lem en t p r o ced u r es t o en s u r e t h at all
s o u r ce d o cu m en t at io n is ad eq u at ely s afegu ar d ed an d
availab le fo r au d it r eview. Fin ally, t h e St at e Au d it o r
r eco m m en d ed t h at t h e d ep ar t m en t co n t act t h e fed er al
gr an t o r fo r r es o lu t io n o f t h e q u es t io n ed co s t s .
Th e St at e Au d it o r ’s r ep o r t als o n o t ed t h e fo llo win g

r ep o r t ab le co n d it io n s :
• St at e au d it o r s fo u n d t h at t h e d ep ar t m en t d id n o t
o b t ain fed er al ap p r o val o f am en d m en t s t o t h e co s t
allo cat io n p lan b efo r e im p lem en t in g ch an ges in t h e
way exp en s es wer e ch ar ged t o t h e Tit le IV-E p r o gr am ,
am o n g o t h er fed er al p r o gr am s .
• A s am p le o f fo r t y cas h d r aws in s ever al fed er al

p r o gr am s , in clu d in g t h e Tit le IV-E p r o gr am , r evealed a
lack o f s u p p o r t in g d o cu m en t at io n fo r t h e r eq u es t s , as
well as an ab s en ce o f wr it t en p o licies an d p r o ced u r es
fo r r eq u es t in g fed er al fu n d s .
• A s am p le o f t wen t y-t h r ee fo s t er car e licen s in g files

s h o wed s even d id n o t m eet fed er al an d s t at e
r egu lat io n s t h at r eq u ir e d et ailed r eco r d s . St at e
au d it o r s n o t ed t h at s u ch a failu r e co u ld r es u lt in fo s t er
ch ild r en b ein g p laced in facilit ies t h at d o n o t co m p ly
wit h eligib ilit y s t an d ar d s .
• A t es t o f fo r t y fo s t er car e ch ild r en files r eviewed

s h o wed t h at t en (o r t wen t y-five p er cen t ) d id n o t h ave
co m p let e o r accu r at e r eq u ir ed in fo r m at io n . Th e St at e
Au d it o r n o t ed t h at s u ch a lap s e co u ld r es u lt in
p aym en t o f an in co r r ect r at e t o a fo s t er car e h o m e
p ar en t o r facilit y o r in clu s io n o f ch ild r en wh o ar e n o t
eligib le fo r Tit le IV-E s er vices . Th e fed er al Office o f
In s p ect o r Gen er al n o t ed a s im ilar p r o b lem in it s au d it
d is cu s s ed ear lier .
• MDHS d id n o t fo llo w a co m p et it ive p r o cu r em en t

p r o ces s in t h e awar d o f Fis cal Year 1 9 9 9 p u r ch as e o f
s er vice co n t r act s fo r t h e fo s t er car e p r o gr am .
Fin ally, am o n g o t h er au d it fin d in gs , s t at e au d it o r s fo u n d
t h e s t at e d id n o t o p er at e it s Tit le IV-E p r o gr am u n d er an
ap p r o ved s t at e p lan fo r t h e 1 9 9 9 fis cal year .
Th e St at e Au d it o r ’s o ffice r eco m m en d ed d evelo p m en t an d
im p lem en t at io n o f p o licies an d p r o ced u r es --o r t h e
s t r en gt h en in g o f exis t in g m eas u r es --t o en s u r e ad eq u at e
in t er n al co n t r o ls t o co m p ly wit h fed er al an d s t at e laws an d
r egu lat io n s .
Chapter IV. Did the MDHS/IHHS contract
adequately protect the state’s interests?
MDHS’s contract with IHHS did not protect the state’s interest, which would have
been best served by adherence to the elements of a model contracting system.
PEER r eviewed fed er al laws an d r egu lat io n s an d o t h er legal

Major deficiencies in m at er ials t o d efin e t h e co m p o n en t s o f an effect ive,
MDHS’s contract with efficien t , an d fair co n t r act in g p r o ces s . Th es e elem en t s
IHHS include the s h o u ld p r o t ect t h e s t at e wh en it co n t r act s fo r o u t s id e
department’s failure to
s er vices .
assess its need for the
services and
competitively bid the Th es e co m p o n en t s co m p r is e a s ys t em t h at fir s t exam in es
proposal. Also, the t h e n eed fo r s u ch s er vices , in clu d in g wh et h er t h e s er vices
agreement did not can b et t er b e p r o vid ed in -h o u s e o r via co n t r act ; p r o vid es
provide for fo r co m p et it ive an d fair b id s o licit at io n an d s elect io n ; an d
indemnification for the in clu d es an effect ive co n t r act m o n it o r in g p r o vis io n . Su ch a
state in the event of p r o ces s , o r a s et o f “b es t p r act ices ,” in vo lves at leas t s even
audit exceptions. s t ep s , in clu d in g:
§ d o cu m en t at io n o f n eed ;
§ d evelo p m en t o f a fo r m al r eq u es t fo r p r o p o s als (RFP) o r

r eq u es t fo r q u alificat io n s ;
§ n o t ice o f in t en t , o r m et h o d o f ad ver t is in g it s RFP;
§ im p ar t ial evalu at io n o f p r o p o s als r eceived ;
§ d evelo p m en t o f a wr it t en co n t r act ;
§ co n t r act m o n it o r in g; an d ,
§ co n t r act evalu at io n .
Majo r d eficien cies in MDHS’s co n t r act wit h IHHS, wh ich ar e

d is cu s s ed in gr eat er d ep t h in t h e fo llo win g s ect io n s ,
in clu d e t h e d ep ar t m en t ’s failu r e t o as s es s it s n eed fo r t h e
s er vices an d co m p et it ively b id t h e p r o p o s al. Als o , t h e
agr eem en t d id n o t p r o vid e fo r in d em n ificat io n fo r t h e
s t at e in t h e even t o f au d it excep t io n s .
Element No. 1: Documentation of Need
MDHS did not conduct a needs assessment prior to entering into its contract
with IHHS. In fact, the contract came about as a result of IHHS’s making an
unsolicited proposal to MDHS.
Th e fir s t s t ep in co n t r act in g fo r s er vices is t o d et er m in e

wh et h er it is m o r e co s t -effect ive t o co n t r act fo r t h e
s er vices o r t o p r o vid e t h e s er vices in -h o u s e. A n eed s
as s es s m en t s h o u ld b e a fo r m al p r o ces s wh ich in clu d es
wr it t en d o cu m en t at io n o f t h e fo llo win g:
• s p ecific d et ails o n t h e co n s u lt an t s er vices t o b e
p r o vid ed ;
• in t en d ed b en efit s t o t h e co n t r act in g en t it y;
• r eas o n wh y t h e en t it y can n o t p er fo r m t h e s er vice it s elf

o r can n o t p er fo r m t h e s er vice at a lo wer co s t t h an t h e
co n s u lt an t ;
• d et r im en t s t h at wo u ld r es u lt if t h e co n s u lt an t s er vices
wer e n o t r en d er ed ;
• u r gen cy o f t h e s er vice; an d ,
• ju s t ificat io n fo r an y claim s o f a s o le s o u r ce co n s u lt an t .
The first step in Lo gically, t h e “s er vice” o f m axim iz in g fed er al fu n d in g t o a

contracting for p r o gr am wo u ld b e p er fo r m ed m o s t efficien t ly an d
services is to effect ively in -h o u s e. St at e p r o gr am p er s o n n el s h o u ld h ave
determine whether it
s u fficien t kn o wled ge o f t h e p r o gr am s t h at t h ey ad m in is t er
is more cost-effective
to contract for the
t o kn o w wh at fed er al fu n d s ar e availab le an d wh at s t ep s
services or to provide s h o u ld b e t ak en t o o b t ain t h e fu n d s . It is n o t co s t -
the services in-house. effect ive t o p ay a co n s u lt an t a p er cen t age o f t h e fed er al
fu n d s d u e t o an agen cy fo r wo r k t h at agen cy s t aff s h o u ld
b e p er fo r m in g as p ar t o f t h eir r o u t in e jo b d u t ies . Fu r t h er ,
if agen cy s t aff m em b er s d o n o t h ave t h e level o f b as ic
p r o gr am kn o wled ge n eces s ar y t o id en t ify availab le fed er al
fu n d s , t h e s t aff can n o t effect ively o ver s ee t h e wo r k o f a
co n s u lt an t in t h is ar ea an d t h e agen cy t h er eb y r u n s t h e
r is k o f in cu r r in g s ign ifican t au d it excep t io n s . Th er efo r e,
PEER q u es t io n s t h e n eed fo r an y agen cy t o co n t r act fo r
“r even u e m axim iz at io n ” s er vices . Ho wever , if an agen cy is
ab le t o d em o n s t r at e fo r m ally t h at s u ch a r even u e
m axim iz at io n co n t r act wo u ld b e co s t -effect ive, t h e agen cy
s h o u ld p r o cu r e t h es e s er vices u s in g t h e elem en t s o f s o u n d
co n t r act in g d is cu s s ed in t h is ch ap t er .
St at e Dep ar t m en t o f Hu m an Ser vices o fficials m ain t ain
t h at wh ile t h ey h ad t r ain ed s t aff wh o u n d er s t o o d t h e
p r o gr am s , t h ey lacked en o u gh p er s o n n el t o t ake fu ll
ad van t age o f all availab le fed er al fu n d in g o p p o r t u n it ies .
Element No. 2: Development of a Request for Proposals

MDHS entered into the contract with IHHS without issuing a request for
proposals; therefore, the agency does not know whether it could have
obtained better services at a lower rate from a different service provider.
Th e u n d er lyin g as s u m p t io n b eh in d co m p et it ively s elect in g

co n s u lt an t s b y way o f an RFP p r o ces s is t h at t h e agen cy
m ay o b t ain a lo wer p r ice fo r a s p ecified s er vice b y
s o licit in g fr o m a b r o ad r an ge o f s eller s . Req u es t s fo r
p r o p o s als s h o u ld in clu d e:
• in s t r u ct io n s an d in fo r m at io n t o b id d er s co n cer n in g
d eliver y o f b id s ;
• d et ails co n cer n in g t h e p r o p o s ed go o d s / s er vices t o b e

p r o vid ed ;
• co s t in fo r m at io n ;
• gen er al in fo r m at io n ab o u t t h e in d ivid u al o r fir m ,

in clu d in g exp er ien ce wit h s im ilar s er vices ;
• d eliver y an d p er fo r m an ce s ch ed u les ;
• co n t r act t er m s an d co n d it io n s ; an d ,
• s p ecific fact o r s b y wh ich t h e p r o p o s als will b e

evalu at ed .
The underlying In clu s io n o f t h es e elem en t s allo ws b id d er s t o in t er p r et

assumption behind agen cy n eed s in t h e s am e way an d m ak e t h eir b es t o ffer in
competitively selecting r es p o n s e t o t h es e n eed s .
consultants by way of
an RFP process is that
the agency may obtain
Th e r at io n ale fo r co m p et it ive s elect io n o f co n s u lt an t s
a lower price for a t h r o u gh a fo r m al r eq u es t fo r p r o p o s al p r o ces s ap p lies t o
specified service by co n t r act r en ewals as well as n ew co n t r act s . Co n t r act
soliciting from a broad ext en s io n s s h o u ld n o t exceed t wo year s , as t h e ad van t ages
range of sellers. o f co m p et it ive b id d in g ar e lo s t wh en a co n t r act is
r ep eat ed ly r en ewed wit h t h e s am e co n t r act o r o ver lo n g
p er io d s . Regar d les s o f wh et h er a p u b lic b o d y u s es
co m p et it ive b id d in g, it s h o u ld p r ep ar e an d is s u e wr it t en
in vit at io n s t o b id , in clu d in g evalu at io n cr it er ia an d o t h er
t er m s t h at t h e p u b lic b o d y m u s t in clu d e in t h e co n t r act .
Element No. 3 : Notice of Intent
Because MDHS did not competitively bid its revenue maximization contract,
it did not issue a notice of intent or receive competing proposals to evaluate.
Th e agen cy’s n o t ice o f in t en t t o h ir e co n s u lt an t s s h o u ld b e

d is t r ib u t ed in a m an n er t o in fo r m t h e wid es t r an ge o f
q u alified s er vice p r o vid er s . Wh et h er t h e in fo r m at io n is
d is t r ib u t ed b y m ail, n ews p ap er , o r elect r o n ically, t h e
h ir in g agen cy s h o u ld en s u r e t h at t h e r ecip ien t lis t in clu d es
a fu ll s p ect r u m o f p o t en t ial s er vice p r o vid er s .
Element No. 4 : Evaluation of Proposals

Since MDHS did not competitively bid its revenue maximization contract,
there was no unbiased evaluation of submitted offers.
Th e co n t r act in g agen cy s h o u ld es t ab lis h a s t aff r eview

co m m it t ee t o exam in e an d evalu at e each p r o p o s al
r eceived . Th e co m m it t ee s h o u ld es t ab lis h wr it t en cr it er ia
b y wh ich t o evalu at e an d r eview each p r o p o s al in an effo r t
t o r eco m m en d t h e o n e t h at wo u ld b e in t h e b es t in t er es t o f
t h e s t at e an d t h e b id d in g en t it y.
Element No. 5 : Development of a Written Contract

The MDHS/IHHS contract did not include such basic protections for the state
as an indemnity clause, although it provided for legal representation
assistance and some contribution in case of audit disallowance. Inclusion of
such provisions would have provided additional protection for the state in
the event of audit exceptions.
A written contract for Bu s in es s p r in cip les d ict at e t h at an agr eem en t t o

services should co m p en s at e an in d ivid u al fo r s er vices r en d er ed o r go o d s
contain basic elements p r o d u ced s h o u ld b e d et ailed in a wr it t en co n t r act u al
designed to protect
d o cu m en t en fo r ceab le in a co u r t o f law. Th e d o cu m en t
the purchaser of the
services.
s h o u ld s p ecify in d et ail t h e d u t ies an d r es p o n s ib ilit ies o f
b o t h p ar t ies an d exp ect ed fin al r es u lt s o f t h e agr eem en t .
Th e wr it t en co n t r act fo r s er vices s h o u ld co n t ain t h e
fo llo win g b as ic elem en t s d es ign ed t o p r o t ect t h e b u yer o f
t h es e s er vices :
§ d efin it io n o f co m m o n t er m s wit h in t h e co n t r act ,
in clu d in g s p ecific d u t ies an d r es p o n s ib ilit ies , wh at
co n s t it u t es n o n -p er fo r m an ce, b r each , an d d efau lt ;
§ in d em n it y o r “m ak e wh o le” p r o vis io n s , wh ich p r o vid e

fo r fin an cial r eim b u r s em en t o f t h e p u r ch as er in cas e o f
n egligen ce o r n o n -p er fo r m an ce o f t h e co n t r act . In
s o m e cas es , a b o n d m ay s ecu r e in d em n it y fo r t h e s t at e;
an d ,
§ a b as ic co n t r act m o n it o r in g m ech an is m , in clu d in g

m eas u r ab le p er fo r m an ce s t an d ar d s an d p r o vis io n fo r
s u p er vis io n an d o ver s igh t t o en s u r e ad eq u at e
p er fo r m an ce.
Th e wr it t en co n t r act b et ween MDHS an d IHHS d id n o t :

• clear ly d efin e b as ic co n t r act u al t er m s , s u ch as d efau lt ;
• in clu d e m eas u r ab le p er fo r m an ce s t an d ar d s wit h in t h e

co n t r act ;
• in clu d e s t an d ar d in d em n ificat io n p r o vis io n s fo r

p r o t ect in g t h e s t at e’s in t er es t s ; o r ,
• r eq u ir e t h e co n t r act o r t o p ay t h e fu ll co s t s o f legal
d efen s e, as well as an y p aym en t an d p en alt ies o r
d am ages ar is in g o u t o f t h e co n t r act o r ’s p er fo r m an ce
u n d er t h e agr eem en t .
Fu r t h er , u s e o f a co n t in gen cy fee d o es n o t en co u r age
car efu l at t en t io n t o d o cu m en t at io n an d o t h er
r eq u ir em en t s , p ar t icu lar ly wh en t h e p r o vid er b ear s n o
r es p o n s ib ilit y fo r p o t en t ial p r o b lem s .
The MDHS/IHHS contract did require some contribution and provided

for legal representation.
In an ap p en d ix t o t h e o r igin al co n t r act , IHHS agr eed t o

s h ar e “p r o p o r t io n at ely” in au d it excep t io n s “r elat ed
d ir ect ly t o IHHS wo r k , p ayab le 9 0 d ays aft er MDHS in cu r s
d is allo wan ce o r 9 0 d ays aft er MDHS p ays t h e
d is allo wan ce.” Wh at co n s t it u t es “p r o p o r t io n at ely,”
h o wever , is n o t d efin ed in t h e co n t r act .
IHHS als o agr eed in t h e co n t r act t o “p r o vid e wh at ever legal

s er vices ar e n eces s ar y in o r d er t o r es p o n d t o an y ‘n egat ive
in cen t ives ’ t h at ar e im p o s ed b y DHHS [U.S. Dep ar t m en t o f
Healt h an d Hu m an Ser vices ] wit h r egar d t o MDHS’s Tit le
IV-E fu n d in g, an d ad d r es s an y o t h er legal is s u es t h at ar is e
wit h r egar d t o t h e agen cy’s Tit le IV-E claim s .” IHHS h as
p r o vid ed s o m e in fo r m at io n t o as s is t t h e d ep ar t m en t in
r es p o n d in g t o t h e au d it excep t io n s .
Element No. 6: Contract Monitoring

MDHS’s contract with IHHS lacked contractual definitions of or standards of
performance, and the agency did not systematically monitor the
contractor’s performance.
Th e co n t r act in g agen cy s h o u ld p er io d ically co m p ar e

p r o gr es s o f t h e co n s u lt an t t o t h e m eas u r ab le cr it er ia o f
p er fo r m an ce co n t ain ed in t h e wr it t en co n t r act .
Element No. 7: Contract Evaluation

Because MDHS has continued to renew the IHHS contract, the agency has not
conducted a post-contract review of the contractor’s performance.
Po s t -co n t r act evalu at io n is a m ean s o f d et er m in in g h o w

well a co n t r act o r p er fo r m ed as s ign ed t as k s . Th e
evalu at io n s h o u ld fo cu s o n t h e u t ilit y o f t h e d eliver ab les
t o t h e agen cy an d t h e p er fo r m an ce o f t h e co n t r act o r . Su ch
evalu at io n s h elp t h e agen cy t o d et er m in e wh et h er s im ilar
co n t r act s s h o u ld b e s o u gh t in t h e fu t u r e.
Chapter V. Recommendations

s h o u ld en s u r e t h at it s s t aff r eceives r egu lar t r ain in g
in r elevan t fed er al laws an d r egu lat io n s in t h e
p r o gr am s t h at o ffer r even u e m axim iz at io n
o p p o r t u n it ies . Regar d les s o f wh et h er t h e
d ep ar t m en t p er fo r m s t h e t as k it s elf o r u s es an
o u t s id e co n s u lt an t , accu r at e an d u p -t o -d at e
k n o wled ge o f t h es e p r o gr am s is n eces s ar y fo r p r o p er
o ver s igh t o f co n t r act p er fo r m an ce.

s h o u ld o n ly co n s id er u s e o f o u t s id e r even u e
m axim iz at io n co n s u lt an t s aft er car efu l
d et er m in at io n o f n eed an d ad h er en ce t o t h e
r em ain d er o f t h e “b es t p r act ices ” as s o ciat ed wit h
s o u n d p u b lic co n t r act in g an d p r o cu r em en t
p r o ced u r es .
PEER Committee Staff
Max Arinder, Executive Director

James Barber, Deputy Director
Ted Booth, General Counsel
Evaluation Editing and Records

Sam Dawkins, Division Manager Ava Welborn, Editor and Records Coordinator
Linda Triplett, Division Manager Tracy Bobo
Pamela O. Carter Sandra Haller
Kim Cummins
Kimberly Haacke Administration
Barbara Hamilton Mary McNeill, Accounting and Office Manager
Karen Kerr Pat Luckett
Joyce McCants Jean Spell
Charles H. Moore Gale Taylor
David Pray
Lee Anne Robinson Data Processing
Katherine Stark Larry Landrum, Systems Analyst
Lynn Watkins
Tanya Webber Corrections Audit
Larry Whiting Louwill Davis, Corrections Auditor
Julie Winkeljohn

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#413

Joint Legislative Committee on Performance

The Department of Human Services’ Use

In 1 9 9 5 , t h e Mis s is s ip p i Dep ar t m en t o f Hu m an Ser vices (MDHS) en t er ed a

On Au gu s t 1 0 , 2 0 0 0 , t h e fed er al Office o f In s p ect o r Gen er al, Office o f Au d it

On Feb r u ar y 8 , 2 0 0 0 , t h e St at e Au d it o r ’s Office is s u ed it s Sin gle Au d it

Th e Dep ar t m en t o f Hu m an Ser vices ’ co n t r act wit h IHHS d id n o t p r o t ect t h e

Th e Mis s is s ip p i Legis lat u r e cr eat ed t h e Jo in t Legis lat ive Co m m it t ee o n

Mis s is s ip p i’s co n s t it u t io n gives t h e Legis lat u r e b r o ad p o wer t o co n d u ct

PEER p r o vid es a var iet y o f s er vices t o t h e Legis lat u r e, in clu d in g p r o gr am

Joint Committee on Performance Evaluation and Expenditure Review

On Decem b er 6 , 2 0 0 0 , t h e PEER Co m m it t ee au t h o r iz ed r eleas e o f t h e r ep o r t

Sen at o r William Can o n , Ch air m an

This re po rt do e s no t re co m m e nd incre as e d funding o r additio nal s taff.

Lis t o f Exh ib it s ................................................................................................................................ v

Execu t ive Su m m ar y .............................................................................................................................. vii

Backgr o u n d : Th e MDHS/ IHHS co n t r act an d o t h er p r o p o s ed co n t r act s t o in cr eas e

Reven u e Maxim iz at io n Co n t r act at MDHS........................................................................ 3

Wh at is t h e n at io n al exp er ien ce wit h r even u e m axim iz at io n co n t r act s ? ........................................... 7

Reven u e Maxim iz at io n Co n s u lt an t s in t h e Tit le IV-E Pr o gr am ..................................... 7

Wh at p r o b lem s h as MDHS h ad wit h t h e u s e o f r even u e m axim iz at io n co n t r act s ? ........................1 1

Office o f In s p ect o r Gen er al Au d it Excep t io n s ...............................................................1 1

Did t h e MDHS/ IHHS co n t r act ad eq u at ely p r o t ect t h e s t at e’s in t er es t s ? ..........................................1 8

Elem en t No . 1: Do cu m en t at io n o f Need .........................................................................1 9

Agen cy Res p o n s e ..............................................................................................................................2 5

PEER Rep o r t # 4 1 3 iii

In s p ect o r Gen er al’s Au d it Excep t io n s Regar d in g Tit le IV-E Claim s Mad e

PEER r eviewed a “r even u e m axim iz at io n ” co n t r act b et ween

PEER als o r eviewed t h e r es u lt s o f a fed er al au d it o f IHHS’s

MDHS h as r ep aid $ 3 m illio n o f t h is am o u n t an d is

MDHS ap p ealed t h e d is allo wan ces t o t h e Dep ar t m en t al

PEER Rep o r t # 4 1 3 vii

Exhibit: Inspector General’s Audit Exceptions Regarding Title IV-E

CATEGORY OF EXPENSES AMOUNT AMOUNT AMOUNT IN

Foster Care Maintenance

Other Administrative Costs

Total $14,780, 012 $3,048,325 $11,731,687

viii PEER Rep o r t # 4 1 3

§ d evelo p m en t o f a fo r m al r eq u es t fo r p r o p o s als (RFP) o r

§ n o t ice o f in t en t , o r m et h o d o f ad ver t is in g it s RFP;

§ im p ar t ial evalu at io n o f p r o p o s als r eceived ;

Majo r d eficien cies in MDHS’s co n t r act wit h IHHS in clu d ed

MDHS als o en t er ed in t o t h e co n t r act wit h o u t is s u in g a

Fo r Mo re Info rm atio n o r Clarificatio n, Co ntact:

Sen at o r Bill Can o n , Ch air m an

Rep r es en t at ive Her b Fr ier s o n , Vice Ch air m an

Rep r es en t at ive Mar y An n St even s , Secr et ar y

Scope and Purpose

Sp ecifically, PEER fo cu s ed o n d et er m in in g t h e ext en t t o

Revenue Maximization Contract at MDHS

In 1 9 9 2 , MDHS t er m in at ed t h e IHHS co n t r act s . In Au gu s t

Th e co n s u lt an t ’s wo r k fo cu s ed o n s o -called “r et r o act ive”

IHHS als o as s u m ed r es p o n s ib ilit y in 1 9 9 8 fo r d et er m in in g

IHHS was p aid o n a co n t in gen cy fee b as is , wh ich m ean t

Th e d ep ar t m en t ’s cu r r en t co n t r act wit h IHHS will exp ir e

MDHS o fficials s t at ed t h e d ep ar t m en t was n o t p lan n in g t o

Bo t h t h e Maxim u s an d t h e Davis an d As s o ciat es p r o p o s als

Proposed Maximus Projects

Maxim u s , wh ich m ad e id en t ical p r o p o s als t o b o t h MDHS

§ Med icaid t ar get ed cas e m an agem en t fo r ch ild welfar e

§ ad d it io n al Tit le IV-E ch ild welfar e r even u e;

§ Med icaid fo r s ch o o l-b as ed h ealt h s er vices ;

§ Med icaid t h ir d -p ar t y liab ilit y.