2003 Legislative Audits
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1. Summary of Report 2003-01: POSSIBLE STAFF CONFLICTS OF INTEREST IN UTAH RETIREMENT SYSTEMS
The Utah State Retirement Board should strengthen the restrictions placed on the personal investment activity of the investment staff. The Chief Investment Officer (CIO) may have made personal investment decisions based on privileged information obtained from his position with the Utah Retirement Systems (URS). We think some of his investments may be inconsistent with the URS conflict of interest policies. In addition, experts advised us that some of the CIO's personal trades may be considered a form of trading on insider or privileged information that is prohibited by state and federal securities laws.
2. Summary of Report 2003-02: UTAX PROJECT
The Utah State Tax Commission (Tax Commission) sought to improve their processes for administering the state's taxing abilities. They chose a modernization project, UTAX, which would deliver new computer systems capable of handling the $4.6 billion in revenues. A private technology contractor was chose to provide the needed systems for a target price of #34 million. During our review of UTAX, we became concerned about specific aspects of the contract and management's enforcement of the contract. We believe project management should have held the contractor more accountable. We believe the Tax Commission may have been able to issue monetary penalties against the contractor for delays and defaults of the project systems, yet failed to do so. We were also concerned about the target price under the contract. We believe there was no basis for the price, which led to over-funding of the UTAX project.
Full Report - A Performance Audit of the UTAX Project
3. Summary of Report 2003-03: INVESTMENT PRACTICES OF UTAH RETIREMENT SYSTEMS
The surest way to achieve the long term investment goals of a public pension fund is to develop a prudent, long term investment strategy and stay with it. Towards this, we found that the retirement board should impose greater discipline on the investment process by requiring strict compliance with its asset allocation policy. While the retirement board's investment policy is designed to achieve an optimal return on investment for an acceptable risk level, the actual investment practices have sometimes varied from the board's allocation policy. In addition, the board should provide better oversight of the strategic decisions made by staff. A strategic decision is one that moves the fund away from the policy benchmark described in the board's asset allocation policy. Finally, the Utah Retirement Systems (URS) needs to provide greater oversight of its investments in venture capital, corporate buyouts and other private financing. These types of investments can be complex, illiquid and difficult to value, this requiring greater care and supervision than other investments.
4. Summary of Report 2003-04: ALLEGATIONS AGAINST THE TAX COMMISSION
Despite several allegations made by a citizens group that the Tax Commission is mistreating taxpayers, we believe the Tax Commission is treating taxpayers fairly in the following areas we reviewed:
1. We believe the allegation that the Tax Commission has an inadequate system of notifications is unfounded. We found no evidence of inadequate notification. In fact, the Tax Commission gives more notification than required by statute.
2. We believe the allegations that the Tax Commissioners are too adversarial with appeals is also unfounded. This conclusion is based on our review of the final disposition method used in taxpayer appeals over the past six years. This review showed that the vast majority of appeals (95 percent) are handled informally.
5. Summary of Report 2003-05: UTAH'S LOCAL MENTAL HEALTH SYSTEMS
State agencies, local mental health authorities (LMHAs), and mental health centers (MHCs) need to provide better assurance that the more than $132 million in primarily public funds entrusted to the MHCs are being used efficiently and effectively and as dictated by law, policy, and contract terms. Oversight of Utah's local mental health system needs to improve at both county and state levels to ensure that these public funds are used appropriately. The MHCs may need to improve accountability and adherence to contract provisions and state laws. Improved, coordinated monitoring will provide more information to the governmental units sharing oversight responsibility; better reporting is important to enable assessment of whether the locally operated MHCs efficiently and effectively use the funds they receive from multiple sources.
6. Summary of Report 2003-06: INFORMATION TECHNOLOGY SERVICES
We reviewed allegations concerning management operations within the Division of Information Technology Services (ITS). These allegations were brought forth by ITS employees who were concerned about the appropriateness of some management activities. We found the following:
1. ITS misspent $1.7 million on three unjustified software purchases. In all cases the purchases were made with little analysis to insure the appropriateness of each purchase. Further, all three purchases were procured in a non-compliance manner even though competition existed. Currently, the ultimate implementation of all three products is very doubtful.
2. ITS's Chief Technical Architect (who is also one of two ITS deputy directors) may have benefitted his son with state business. First, total ITS payments to Vendor D (the son's employer) rose from a yearly average of $415,000 in fiscal years 1999 and 2000 to $1.4 million in fiscal year 2001 - the first year the chief technical architect's son was employed by this vendor as their state sales representative. Second, two questioned purchases, which totaled $1.1 million, were done quickly with an inadequate supporting analysis. Third, these questions were procured through sole-source contracts which raise questions.
7. Summary of Report 2003-07: MEDICAL SCHOOL ADMISSION FOLLOW UP
The University of Utah School of Medicine has carried out most of the procedural recommendations described in our January 2002 audit of its admission process. Even so, the admissions process needs additional improvements. The selection criteria could be applied more consistently, the number of applications eliminated during the initial stages could be increased, and each applicant's academic record could be considered more. Diversity continues to remain a primary consideration of the Admissions Committee and some committee members still consider race and gender to be primary indicators of an applicant's diversity. We believe the school should demonstrate the basis for the criteria it has selected for its admissions process. Whether it be its diversity policy or its position regarding grades and MCAT scores, the school should make an ongoing evaluation of which factors best predict success as a physician.
Full Report - A Follow-up Audit of Medical School Admissions
8. Summary of Report 2003-08: DIVISION OF TAXPAYER SERVICES
There is a lack of delinquent tax accounting screening within the Taxpayer Services Division (the division) at the Tax Commission. Inadequate screening allows liens that have been placed on delinquent accounts to expire without determining if the liens should be reissued. Inadequate screening also allows cases to be sent to an outside collection agency without the division first identifying assets that could be garnished. As a result, potential state revenue may have been lost. Further, we noted the division's delinquent tax collection is not as productive as it should be. Current accountability and productivity measures are inadequate; workload problems exist among district collection agents and the bankruptcy section; and a breakdown of trust between many division employees and management has negatively affected productivity. Improved compliance procedures are identified that could potentially increase delinquent tax collections and improve tax compliance. Finally, we found concerns with the division's incentive program. It does not appear to be based on a criterion of excelled performance.
9. Summary of Report 2003-09: PUBLIC EMPLOYEE HEALTH PROGRAM AND CHILDREN'S HEALTH INSURANCE PROGRAM
The Public Employee Health Program (PEHP) administers health and other insurance for the State of Utah and other public agencies. PEHP's premium rate increases for the State of Utah are similar to increases in national trends. Utah premiums increased an average of 10 percent annually over the last five years; national premiums increased 8 percent annually. In addition, PEHP's benefits and costs appear to be competitively attractive compared within the local industry and with other states. However, PEHP needs to be more aggressive in its efforts to control pharmacy benefit costs perhaps by implementing a four-tier formulary and percentage payment structure in the future.
The Children's Health Insurance Program (CHIP) can negotiate contracts more aggressively. CHIP provides health insurance coverage for about 28,000 children. One of CHIP's responsibilities is to provide age-appropriate vaccinations for all members. Currently, CHIP expends nearly $400,000 per year for vaccines it has already purchased. Contract oversights from CHIP administration led to the forfeiture of $160,000 in reimbursements from an insurance carrier. In addition, CHIP should explore utilizing HMO plans where available to provide plan options for its members and realize some cost savings.
10. Summary of Report 2003-10: JUDICIAL CONDUCT COMMISSION
The Utah Judicial Conduct Commission (JCC), like other conduct organizations in all states, plays an important role in the administration of judicial discipline by investigating and conducting confidential hearings regarding complaints against justices and judges. We found the JCC complaint process needs more standardized procedures. In addition, although part of the purpose of judicial discipline is to reassure the public that the judiciary does not tolerate judicial misconduct, the JCC does not publicize their actions. In our opinion, this reduces their effectiveness. Further, the JCC's actions should be fair, consistent and accountable. Written decisions are unclear as to how the JCC determines which of the available sanctions (i.e., judicial disciplinary actions) to give. To ensure that JCC decisions are consistent and fair it is important to provide commissioners with historical information and precedent. Finally, the Supreme Court has a role in judicial discipline. In the past, the JCC may have usurped the Supreme Court's authority to review and implement the appropriate sanction.