$3 Billion in Savings Eyed

MacIver News Service | January 10, 2012

[Madison, Wisc…] Governor Walker hopes the initiatives identified by a state panel will save taxpayers nearly three billion dollars over the next decade.

A year after it was first created by an executive order, the Governor’s Commission on Waste Fraud and Abuse released their final report Wednesday.

“Based on months of review and discussion it is clear that the state’s budgeting and financial systems are antiquated,” wrote Commission Chairperson Craig Rakowski. “To eliminate waste, fraud and abuse there needs to be a clear understanding on how budgeted money is actually being spent. In other words, we need to do a much better job following the cash.”

Overall the Commission believes its recommendations can reduce spending by local units of government by $82.6 million and state government by $373 million for a total annual savings to taxpayers of $445 million.

In addition to specific recommendations, the report outlines five general, big picture areas of concern:

  1. Wisconsin’s accounting and financial information systems need to be brought up to date. According to DOA personnel the accounting system currently being used by them is almost 20 years old. There obviously has been a significant change in technology during those 20 years, technology that Wisconsin is not taking advantage of. It is impossible to make sound financial decisions without timely, reliable and accurate information. Many times these systems have already been developed and implemented in other states and would be available to us.
  2. The traditional method of budgeting being performed needs to be challenged. While zero based budgeting appears to be extremely hard and time consuming some modified form needs to be put in place. We cannot continue to roll forward previous budgets without accepting that there is cushion and waste built into them. The fact that agencies have been required to lapse certain percentages of their budgets and that many times the same items are being lapsed for the second or third time shows that this cushion exists.
  3. One of the report recommendations is to make a certain dollar amount of lapsing permanent. I think we should take this a step further and say that if something is lapsed more than once it should be removed from the budget altogether. Why, for instance, is an agency that has relocated to reduce lease cost by $500,000 not required to reduce their budget by that same $500,000 but instead allowed to use it towards their lapses budget after budget?
  4. The State of Wisconsin should be doing business on a GAAP basis. In my opinion the modified cash basis currently in place allows for cutoff issues and could be used to circumvent the State’s balanced budget requirement.
  5. Once information systems are put in place which provides timely accurate financial information, agency’s budgets and cash flow should be tracked on a monthly or at least a quarterly basis. This would allow expenditures in the last quarter of the year to be reviewed for appropriateness. Any possible “using up” of the remaining budget could easily be identified with this type of information.

“Many times questions asked by members of the commission remained unanswered because we were told that information was just not available,” Rakowski wrote in the final report. “This needs to be remedied.”

Rakowski wrote that based on conversations the commission had with individuals familiar with the state’s public assistance programs, waste fraud and abuse in those programs range from two to 15 percent of budgeted funds.

“The most common opinion is around 10%,” Rakowski. “This is unacceptable as it is keeping assistance from the individuals in our society that really need it.”

From the report:

Public comments and suggestions focused on Wisconsin’s public assistance programs more than any other topic discussed by the Commission. Wisconsin has well over 1 million beneficiaries and Medicaid expenditures alone are expected to eclipse $7 billion this fiscal year.

What the Commission found was an explosion in public assistance spending and program expansions over the last decade with no corresponding investment in program integrity. Actually, program integrity spending went down, reduced by 76% at the same time FoodShare enrollment more than doubled and Medicaid enrollment grew by 50%.

In part, because of the discussions of this Commission the Department of Health Services has created an Office of Inspector General and has invested in cracking down on fraud in public assistance programs. Results have already been seen. Benefits saved due to fraud in FoodShare alone climbed 46% in October and payments recouped 80% compared to the first month of 2011.

As we previously reported,  Deputy Administrator Andrea Reid of the UI Division of the Department of Workforce development told the Commission last year that unemployment benefit fraud in Wisconsin has skyrocketed over the past few years.  Between 2008 and 2010, the amount of overpayments shot up from $21 million to $78 million. The number of cases increased 130 percent. The amount of overpayments over $1000 that were intentionally concealed went from $9.25 million in 2007 to $40.5 million in 2010, a 338 percent increase.

Even with the cases of fraud increasing, few people have been successfully prosecuted for it.  In order to face punitive action, a person must have fraudulently received more than $5000 in benefits and committed 5 acts of concealment. In 2010, 2,169 people met those requirements, yet only 31 of them were prosecuted. That resulted in 11 convictions.

In 2011, the Wisconsin legislature passed a one-week waiting period before would-be recipients can receive UI benefits. This move, criticized my many legislative opponents as cruel, is expected to save the state up to $50 million a year as the extra time will allow the state to investigate the validity of claims.

Reid told the commission in August that the state’s ability to root out fraud is limited, in part, because the data processing equipment was more than 25 years old.

“This application is inefficient, does not meet our business requirements, and can not be modified quickly enough to respond to program modifications or law changes,” she said.

In their final report the Commission found that DWD is working to correct the above issues and upgrading its information technology which is expected to improve its efficiency.

Administration officials also noted that the Commission’s work has also led other state agencies to already begin implementing some cost saving measures because of the discussions they had during 2011.

  • The Department of Health Services has created an Office of Inspector General and has invested in cracking down on fraud in public assistance programs. Results have already been seen. Benefits saved due to fraud in FoodShare alone climbed 46% in October and payments recouped 80% compared to the first month of 2011.
  • State employee compensation plans were modified in an effort to reduce the amount of unnecessary and costly overtime.
  • Wisconsin Department of Veterans Affairs (WDVA) found that they could accommodate their agency staff in office space soon to be vacated by the former Wisconsin Department of Commerce, which is estimated to save WDVA between $300,000 and $400,000 annually.

“The recommendations by the Commission will help state government operate more efficiently and effectively,” said Governor Walker.  “Moving forward I will work with members of both political parties to implement the remaining recommendations made by the commission.”

Read the entire report, here.