Auditor to panel: DHS acts at odds with law’s intent

A legislative auditor Thursday questioned whether the Department of Human Services circumvented the intent of state law and the Arkansas Constitution by entering into a memorandum of understanding with the University of Arkansas for Medical Sciences for a senior Medicaid adviser to the department’s director.

A department official said the memorandum of understanding with UAMS for Dennis Smith, who was the chief of federal Medicaid operations under President George W. Bush, was not intended to circumvent the process through which state government positions are appropriated by the Legislature.

Nonetheless, the memorandum of understanding was converted into a contract for fiscal 2018. The Legislative Council approved the contract in June 2017, the Human Services Department said in a written response to Arkansas Legislative Audit’s review of the department for fiscal 2016. Fiscal years start July 1.

Smith’s salary is now $257,347.68 a year and he’s not received a pay raise since he started work last year, UAMS spokesman Leslie Taylor after the audit committee’s meeting. Human Services Director Cindy Gillespie’s salary is $282,800 a year, according to the Arkansas Transparency website.

Deputy legislative auditor Jon Moore also questioned the need for more than $200,000 in furniture purchases for the Conway Human Development Center from Bates Furniture in small purchases that he said circumvented competitive bidding procedures.

In its written response, the department said its services program integrity unit found that Conway Human Development Center employees were acting under incorrect guidance and no staff members deliberately intended to circumvent procurement regulations.

The Legislative Joint Auditing Committee’s Committee on State Agencies on Thursday decided to delay action on the audit of the department after Sen. Terry Rice, R-Waldron, said he wants more information from the agency.

Moore said various laws enacted in the 2016 fiscal session provided for the total salaries and number of positions authorized by the Legislature for the Department of Human Services.

On Sept. 1, 2016, the department entered into a memorandum of understanding with UAMS under which UAMS agreed to employ Smith as a nontenured visiting faculty member from Sept. 15, 2016-June 30, 2017. The Human Services Department was to reimburse UAMS for 90 percent of Smith’s salary and fringe benefits based on those totaling $294,000 a year, Moore said.

Under this agreement, the reimbursement was based on Smith working a standard 40-hour week and providing the department with the equivalent of 36 hours of work per week, Moore said.

Under the pact, UAMS was required to invoice the department on a monthly basis for the salary and fringe benefits. Smith was expected to teach or co-teach at UAMS or provide and report for courses for administration in the College of Public Health for 10 percent of his employment, Moore said. Smith was to provide the college with the equivalent of four hours of work per week under the agreement, Moore said.

“Mr. Smith spent 90 percent of his time working at DHS,” Moore told the legislative committee. “We question whether the [memorandum of understanding] circumvents the intent of legislation that appropriated the position Mr. Smith holds at UAMS. We feel the legislative intent of the appropriated position at UAMS was for that individual to work full time for UAMS and fulfill the job duties associated with that position for UAMS.”

In addition, Article 16, Section 4, of the Arkansas Constitution states in part that “the number and salaries of the clerks and employees of the different departments of the State shall be fixed by law,” Moore said.

“In essence, the [memorandum of understanding] is an assignment of an employee from UAMS to DHS without legislative approval, which is contrary to the Arkansas Constitution,” as explained in an attorney general’s advisory opinion issued in 2004, he said.

In a written response, the department said, “We understand that positions within departments of the state are appropriated by the Legislature, but this [memorandum of understanding] was not intended to circumvent that process.

“After internal review and to ensure transparency pertaining to this issue, the [memorandum of understanding] was converted to a contract for fiscal year 2018 [and] this contract was presented before Arkansas Legislative Council on June 16, 2017, and approved,” the department said. “With the approval of the contract by [Arkansas Legislative Council] we considered this issue to be resolved.”

Misty Eubanks, the department’s interim chief fiscal officer and chief procurement officer, told lawmakers that “it wasn’t an effort to circumvent a policy.

“It was just rather than an effort to find an arrangement that put Mr. Smith both at UAMS and DHS for the disposal to the state to get his expertise particularly around this experience with [Centers for Medicare and Medicaid Services],” she said.

Eubanks said the department has various other employees who also are employed by UAMS and “they are on contract to us and then we pay.”

The contracts are reviewed by the Legislative Council and “we expense those back out per the terms of the contract and so that is what we have done to remedy this rather than it being [a memorandum of understanding] between UAMS and our agency not receiving legislative oversight,” she said.

Sen. Blake Johnson, R-Corning, said, “Is this an issue where we don’t have a set salary schedule that would parallel with the health care field or is this something that needs to be addressed?

“Do you feel at DHS that salary schedules are not equivalent?”

Kelley Linck, chief of legislative and governmental affairs for the Department of Human Services, said, “Mr. Smith’s expertise at UAMS is valuable there, but we’re finding his expertise on Medicaid especially is helpful for giving us a lot of advice, too.

“I don’t know how this has anything to do with salary schedules, just positions available, what we had at the time and the agreement at UAMS just worked out the best for us,” he said.

On the furniture buys, Moore said auditors identified 187 invoices from the Conway furniture store totaling $209,542, in which identical or similar items were purchased through small quantity procurements that circumvented competitive bidding procedures. All invoices were for the Conway Human Development Center, which is a residential facility for people with developmental disabilities.

Forty-nine items totaling $30,915 were salvaged between 43 and 606 days from the date of purchase, and 36 of the 49 salvaged items were less than a year old, Moore he said.

“We question the need for $209,542 in furniture purchases for one Human Development Center during one fiscal year and from one vendor. We also question the salvaging of $30,915 in assets of which 73 percent were less than 1 year old,” he said.

The department said it agreed with the auditors’ findings.

The Developmental Disabilities Services Division was notified on March 27, 2017, of multiple invoices from Bates Furniture in Conway. The Conway Human Development Center sent the department’s central office a 1998 letter from the Department of Finance and Administration authorizing “frequent small purchases, not to exceed $1,000, from consideration as split purchases,” the department said.

The Conway Human Development Center was operating under the premise that the letter was accurate, the department said.

Eubanks said her office is now handling these furniture bids and “through procurement we have actually discussed with the vendors” more robust furniture.

“We do not want to use commercial hospital-style furniture because these are home life settings for our residents, so it is very difficult to get between what you would put in your day-to-day home and what a resident in a facility is appropriate,” she said. She also said that furniture needs to be replaced when damaged.