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Southwest Key Programs Failed to Protect Federal Funds Intended for the Care and Placement of Unaccompanied Alien Children

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Southwest Key Programs Failed to Protect Federal Funds Intended for the Care and Placement of Unaccompanied Alien Children Department of Health and Human Services OFFICE OF INSPECTOR GENERAL SOUTHWEST KEY PROGRAMS FAILED TO PROTECT FEDERAL FUNDS INTENDED FOR THE CARE AND PLACEMENT OF UNACCOMPANIED ALIEN CHILDREN Inquiries about this report may be addressed to the Office of Public Affairs at [email protected]. Christi A. Grimm Principal Deputy Inspector General September 2020 A-06-17-07004 Office of Inspector General https://oig.hhs.gov The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as amended, is to protect the integrity of the Department of Health and Human Services (HHS) programs, as well as the health and welfare of beneficiaries served by those programs. This statutory mission is carried out through a nationwide network of audits, investigations, and inspections conducted by the following operating components: Office of Audit Services The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting audits with its own audit resources or by overseeing audit work done by others. Audits examine the performance of HHS programs and/or its grantees and contractors in carrying out their respective responsibilities and are intended to provide independent assessments of HHS programs and operations. These audits help reduce waste, abuse, and mismanagement and promote economy and efficiency throughout HHS. Office of Evaluation and Inspections The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide HHS, Congress, and the public with timely, useful, and reliable information on significant issues. These evaluations focus on preventing fraud, waste, or abuse and promoting economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI reports also present practical recommendations for improving program operations. Office of Investigations The Office of Investigations (OI) conducts criminal, civil, and administrative investigations of fraud and misconduct related to HHS programs, operations, and beneficiaries. With investigators working in all 50 States and the District of Columbia, OI utilizes its resources by actively coordinating with the Department of Justice and other Federal, State, and local law enforcement authorities. The investigative efforts of OI often lead to criminal convictions, administrative sanctions, and/or civil monetary penalties. Office of Counsel to the Inspector General The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering advice and opinions on HHS programs and operations and providing all legal support for OIG’s internal operations. OCIG represents OIG in all civil and administrative fraud and abuse cases involving HHS programs, including False Claims Act, program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG also negotiates and monitors corporate integrity agreements. OCIG renders advisory opinions, issues compliance program guidance, publishes fraud alerts, and provides other guidance to the health care industry concerning the anti-kickback statute and other OIG enforcement authorities. Notices THIS REPORT IS AVAILABLE TO THE PUBLIC at https://oig.hhs.gov Section 8M of the Inspector General Act, 5 U.S.C. App., requires that OIG post its publicly available reports on the OIG website. OFFICE OF AUDIT SERVICES FINDINGS AND OPINIONS The designation of financial or management practices as questionable, a recommendation for the disallowance of costs incurred or claimed, and any other conclusions and recommendations in this report represent the findings and opinions of OAS. Authorized officials of the HHS operating divisions will make final determination on these matters. Report in Brief Date: September 2020 Report No. A-06-17-07004 Why OIG Did This Audit Southwest Key Programs Failed To Protect Federal The Office of Refugee Resettlement (ORR) within the Department of Funds Intended for the Care and Placement of Health and Human Services, Unaccompanied Alien Children Administration for Children and Families (ACF), manages the What OIG Found Unaccompanied Alien Children (UAC) Southwest Key claimed unallowable costs related to the UAC Program. Based Program. We initiated a series of on our financial review results, we determined that Southwest Key claimed audits of UAC Program grantees unallowable costs for capital leases, a related-party lease, and other ancillary because, beginning in fiscal year costs related to leases. Southwest Key also claimed unallowable (FY) 2012, there were significant compensation related to influx bonuses and executive compensation. increases in both the number of Additionally, Southwest Key claimed other unallowable expenses. We also children served by the UAC Program determined that Southwest Key’s financial management system lacked and program funding, as well as effective controls for ensuring accountability of Federal funds. Specifically, multiple changes to ORR policies Southwest Key did not comply with Federal regulations and ensure that it beginning in FY 2014. followed its own policies and procedures. We selected Southwest Key Programs (Southwest Key), a UAC Program What OIG Recommends grantee, to audit because it is one of We recommend that Southwest Key: (1) refund to the Federal Government the largest providers of services to $10,529,446 in unallowable direct costs and $1,246,973 in associated indirect children in the UAC Program. We costs; (2) refund to the Federal Government $1,354,429 in unallowable conducted this audit in conjunction executive compensation; (3) implement procedures to review leases and with our review of Southwest Key’s ensure that all rental and ancillary costs claimed comply with Federal safety standards for the care and regulations; (4) ensure that no Federal funding, direct or indirect, is used for release of children in its custody. future compensation that exceeds the statutorily allowed rate for executive compensation; and (5) maintain documentation supporting Federal financial Our objective was to determine reports. We also made policy and procedural recommendations. whether Southwest Key claimed only allowable expenditures in accordance Additionally, we recommend that ORR: (1) review remaining Southwest Key with applicable laws and regulations leases to ensure that the leases are in compliance with Federal regulations and during Federal FY 2016. recover any unallowable costs, (2) provide guidance on allowable costs, and (3) review Southwest Key’s bonus policy to ensure compliance with Federal How OIG Did This Audit regulations. We also made a procedural recommendation. We reviewed a statistical sample of In written comments on our draft report, Southwest Key disagreed or partially financial transactions in FY 2016 and disagreed with all but one of our findings and outlined actions it has taken and Southwest Key’s financial plans it has to address the findings. We maintain that our findings and management system. recommendations are valid. In written comments on our draft report, ACF generally concurred with five of our six recommendations and indicated that it will consider OIG’s work regarding lease and bonus findings. Southwest Key’s and ACF’s comments are summarized in the report and included in the appendices. The full report can be found at https://oig.hhs.gov/oas/reports/region6/61707004.asp. TABLE OF CONTENTS INTRODUCTION ............................................................................................................................... 1 WHY WE DID THIS AUDIT ................................................................................................................ 1 OBJECTIVE ....................................................................................................................................... 2 BACKGROUND ................................................................................................................................. 2 The Unaccompanied Alien Children Program ..................................................................... 2 Applicable Federal Requirements ....................................................................................... 2 Southwest Key Programs .................................................................................................... 2 HOW WE CONDUCTED THIS AUDIT ................................................................................................ 3 FINDINGS ......................................................................................................................................... 3 Southwest Key Claimed Unallowable Costs for Leases ...................................................... 4 Southwest Key Claimed Unallowable Costs for Capital Leases .............................. 4 Southwest Key Claimed Unallowable Rental Costs for a Related-Party Lease ....... 5 Southwest Key Claimed Unallowable Ancillary Costs Associated With Leases ...... 6 Southwest Key Claimed Unallowable Compensation ......................................................... 7 Southwest Key Claimed Unallowable Influx Bonuses ............................................. 7 Southwest Key Paid Six Employees Excessive Executive Compensation ................ 8 Southwest Key’s Bonus Policy Could Allow for Unreasonable Bonuses ................. 9 Southwest Key Claimed Other Unallowable Costs ............................................................. 9 Southwest Key Lacked Effective Control and Accountability of Federal Funds ............... 10 Southwest Key Did Not
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