Department of Health and Mental Hygiene Crownsville Hospital Center

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1 Audit Report Department of Health and Mental Hygiene Crownsville Hospital Center November 2004 OFFICE OF LEGISLATIVE AUDITS DEPARTMENT OF LEGISLATIVE SERVICES MARYLAND GENERAL ASSEMBLY

2 This report and any related follow-up correspondence are available to the public. Alternate formats may also be requested by contacting the Office of Legislative Audits as indicated at the bottom of the next page or through the Maryland Relay Service at Please address specific inquiries regarding this report to the Audit Manager listed on the inside back cover by telephone at (410) Electronic copies of our audit reports can be viewed or downloaded from the Internet via The Department of Legislative Services Office of the Executive Director, 90 State Circle, Annapolis, Maryland can also assist you in obtaining copies of our reports and related correspondence. The Department may be contacted by telephone at (410) or (301)

3 November 8, 2004 Senator Nathaniel J. McFadden, Co-Chair, Joint Audit Committee Delegate Charles Barkley, Vice-Chair, Joint Audit Committee Members of Joint Audit Committee Annapolis, Maryland Ladies and Gentlemen: We have audited the Crownsville Hospital Center (CHC) of the Department of Health and Mental Hygiene for the period beginning April 28, 2003 and ending June 30, 2004, the date CHC was closed. Our audit disclosed that CHC had not complied with the provisions of an opinion rendered by the State Ethics Commission regarding a CHC employee s purchase of a motor vehicle that had been donated to CHC s auxiliary organization. Additionally, certain fiscal aspects of the CHC closing process had not been completed as of August 23, For example, according to CHC records, over 1,800 items costing $2.3 million remained on the premises. Respectfully submitted, Bruce A. Myers, CPA Legislative Auditor

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5 Agency Responsibilities Background Information The Crownsville Hospital Center (CHC) is located in Anne Arundel County and, until its closure in June 2004, was part of the Department of Health and Mental Hygiene s Mental Hygiene Administration. The facility was a regional psychiatric facility that provided mental health services to residents primarily from Anne Arundel, Calvert, Charles, Prince George s and St. Mary s Counties and to adolescents from various jurisdictions. During fiscal year 2004, the Administration initiated procedures to close CHC and to transfer the patient population to alternative living arrangements commensurate with their needs (that is, to the community or to other State facilities). A decision was made to consolidate the Department s mental hygiene facilities due to a reduction in the number of patients requiring services and to eliminate the costs to maintain these facilities. As of June 30, 2004, all patients had been transferred from CHC. Current Status of Findings From Preceding Audit Report Our audit included a review to determine the current status of the five fiscal/compliance findings contained in our preceding audit report dated October 22, We determined that CHC satisfactorily addressed four of these findings. The remaining finding is repeated in this report. State Ethics Opinion Findings and Recommendations Finding 1 CHC had not complied with the provisions of an opinion rendered by the State Ethics Commission regarding a former employee s purchase of a motor vehicle donated to the CHC auxiliary organization. Analysis CHC had not complied with an opinion rendered by the State Ethics Commission regarding a former employee s purchase of a donated motor vehicle from the CHC auxiliary organization. Specifically, as of August 23, 2004, CHC had not collected the additional consideration due to the auxiliary organization. 3

6 In accordance with our prior audit s recommendation, CHC requested a formal opinion from the State Ethics Commission regarding the propriety of the vehicle sale. The Commission concluded, in its November 6, 2003 opinion, that the purchase of the vehicle for $1 was a prohibited gift because its fair market value significantly exceeded its purchase price. Since the vehicle was subsequently involved in an accident and declared a total loss, the opinion further provided that the employee, who currently works for a different Department institution, should remit the insurance proceeds to the auxiliary organization. The Ethics Commission subsequently advised the Department that the employee could deduct from the insurance proceeds, which totaled $2,941, documented vehicle expenses incurred during the performance of her duties. Due to the closure of CHC, the auxiliary organization has been disbanded; the appropriate distribution of the insurance proceeds has not been determined. Recommendation 1 We recommend that the Department of Health and Mental Hygiene ensure that the insurance proceeds are collected from the former CHC employee in accordance with the Ethics Commission s opinion, and that the Department determine the appropriate disposition of these funds (for example, deposited to the State s General Fund, or used for patient activities). CHC Closing Process Finding 2 Equipment was not completely accounted for. Analysis Our review disclosed that certain fiscal aspects of CHC s closing process had not been completed as of August 23, For example, although many equipment transfers had been made, over 1,800 items costing $2.3 million remained on the premises, according to CHC records. CHC personnel advised that they expect to be accounting for and disposing of equipment until the end of the calendar year. Recommendation 2 We recommend that the Department of Health and Mental Hygiene ensure that all CHC equipment has been properly accounted for and disposed of (such as transferred to other State agencies or sold) as part of the closing process. 4

7 Audit Scope, Objectives, and Methodology We have audited the Crownsville Hospital Center (CHC) of the Department of Health and Mental Hygiene for the period beginning April 28, 2003 and ending June 30, The audit was conducted in accordance with generally accepted government auditing standards. As prescribed by the State Government Article, Section of the Annotated Code of Maryland, the objectives of this audit were to examine CHC's financial transactions, records and internal control, and to evaluate its compliance with applicable State laws, rules and regulations. We also determined the current status of the findings contained in our preceding audit report. In planning and conducting our audit, we focused on the major financial related areas of operations based on assessments of materiality and risk. Our audit procedures included inquiries of appropriate personnel, inspection of documents and records, and observation of CHC s operations. We also tested transactions and performed other auditing procedures that we considered necessary to achieve our objectives. Since CHC closed on June 30, 2004, our audit also included a review of the procedures used by CHC and the Mental Hygiene Administration with respect to the closing. Data provided in this report for background or informational purposes were deemed reasonable, but were not independently verified. Our audit scope was limited with respect to the CHC s cash transactions because the Office of the State Treasurer was unable to reconcile the State s main bank accounts during the audit period. Due to this condition, we were unable to determine, with reasonable assurance, that all CHC cash transactions were accounted for and properly recorded on the related State accounting records as well as the banks records. CHC s management was responsible for establishing and maintaining effective internal control. Internal control is a process designed to provide reasonable assurance that objectives pertaining to the reliability of financial records, effectiveness and efficiency of operations including safeguarding of assets, and compliance with applicable laws, rules and regulations are achieved. Because of inherent limitations in internal control, errors or fraud may nevertheless occur and not be detected. Our reports are designed to assist the Maryland General Assembly in exercising its legislative oversight function and to provide constructive recommendations for improving State operations. As a result, our reports generally do not address activities we reviewed that are functioning properly. 5

8 This report includes a finding relating to a condition that we consider to be a significant deficiency in the design or operation of CHC s internal control. In addition, our report includes a finding regarding a significant instance of noncompliance with applicable laws, rules or regulations. Other less significant findings were communicated to CHC that did not warrant inclusion in this report. The Department of Health and Mental Hygiene s response to our findings and recommendations is included as an appendix to this report. As prescribed in the State Government Article, Section of the Annotated Code of Maryland, we will advise the Department regarding the results of our review of its response. 6

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10 Finding 1: CHC had not complied with the provisions of an opinion rendered by the State Ethics Commission regarding a former employee s purchase of a motor vehicle donated to the CHC auxiliary organization. Auditor s Recommendation: We recommend that the Department of Health and Mental Hygiene ensure that the insurance proceeds are collected from the former CHC employee in accordance with the Ethics Commission s opinion, and that the Department determines the appropriate disposition of these funds (for example, deposited to the State s General Fund, or used for patient activities). Center s Response: We do not concur with the auditor s finding as stated. CHC did request an opinion from the State Ethics Commission. The opinion of the State Ethics Commission indicated the employee could deduct documented vehicle expenses incurred during the performance of her duties. CHC ascertained that the employee s expenses exceeded the insurance proceeds. Based on all documented expenses and estimated mileage reimbursements for official State business, there are no outstanding funds remaining to be collected. Finding 2: Equipment was not completely accounted for Auditor s Recommendation: We recommend that the Department of Health and Mental Hygiene ensure that all CHC equipment has been properly accounted for and disposed of (such as transferred to other State agencies or sold) as part of the closing process. Center s Response: We do not concur with the auditor s findings as stated. All equipment has been accounted for as part of the closing process. Beginning July 1, 2004, most of the equipment has been properly transferred to other DHMH facilities. CHC is still in the process of disposing of the remaining equipment. The disposition of the equipment began the day after all patients were transferred. The final disposition of the remaining equipment is ongoing. We expect this phase to be completed by January 31, 2005.

11 AUDIT TEAM James P. Shevock, CPA Audit Manager Carlton A. Sexton Senior Auditor Richard L. Goodman Staff Auditor