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OR-Kids tech flaws cause $23 million in false federal claims

SALEM — Oregon has repaid more than $23 million in federal funding, after flawed software caused the state’s child welfare system to claim money for which it was ineligible.

Managers at the state Department of Human Services were aware of defects in the OR-Kids information system when they decided to go live with it in August 2011, but they forged ahead anyway, according to an audit report released by the Secretary of State’s office on Thursday. Three years later, DHS has identified hundreds of unresolved problems with the software and still allows the system to retroactively claim federal reimbursement for services provided more than two years ago, which is beyond the federal limit.

In a written response to the audit, DHS Director Erinn Kelley-Siel defended OR-Kids as a key investment that centralized child welfare program data that was previously spread across paper files and seven separate computer systems.

“Everyone who works in a large organization knows that complex technology systems have challenges,” Kelley-Siel wrote. “However, the OR-Kids system provides essential technical support for child safety and related business operations for the Oregon Department of Human Services.”

Kelley-Siel was unavailable to answer questions about the audit findings on Thursday, an agency spokesman said.

The OR-Kids system processes payments to services providers in the child welfare system, but also tracks provider certification, adoption cases, eligibility for government-funded services and case management. DHS had an average of 8,500 children in foster care in 2012 and received 67,500 reports of child abuse or neglect that year, more than 6,300 of which the agency determined were founded.

Similar to other recent state technology projects, the OR-Kids system ran into delays and cost overruns even before it launched. The state contract with company CGI Technologies and Solutions, Inc. was not supposed to exceed $29.6 million, but the final cost of the contract reached $40 million, according to the audit report. DHS’ total cost for the project was $74 million. OR-Kids went live in August 2011, more than a year later than planned, and DHS began to receive complaints that foster parents were not receiving payments and child welfare managers could not access important data.

OR-Kids was a crucial investment for Oregon, which needed new software to comply with reporting standards to receive federal money for child welfare programs. The state child welfare program’s previous system relied upon several mainframe computers and other databases and spreadsheets, and it did not meet federal reporting requirements, according to the audit report.

DHS also indicated to state auditors that it had another goal: to “maximize State Revenue by increasing the amount of Federal funds used towards the cost of ongoing care,” according to the audit report.

The OR-Kids system automates payment adjustments that were previously handled manually. For example, it evaluates whether children in the system are eligible for federally subsidized programs and in cases where DHS already paid for services with state general fund, OR-Kids may request federal reimbursement. Flaws in this system ultimately caused DHS to obtain approximately $23.9 million “from federal programs to which it was not entitled,” and OR-Kids understated by $11 million the amount of general fund and other money DHS should have spent on child welfare programs.

The audit looked only at financial controls in the OR-Kids system, in an effort to assist state and federal compliance auditors. The Secretary of State’s Office did not examine how the state and private vendor developed and implemented the software system, nor did it evaluate how well the system performed case management functions. However, the auditors did write that DHS had a list of more than 290 unresolved problems related to data quality and other issues as of June.

Auditors also discovered two instances when human error caused the system to generate huge over-payments to contractors. In July 2013, a state employee intended to pay a service provider approximately $324 but because the employee incorrectly entered information into the system, it generated a payment of $1.7 million. A supervisor approved the payment, which was sent to the provider but ultimately recovered by DHS. The same scenario occurred at a different DHS branch office in April, and the agency again sent an overpayment of at least $1.7 million, according to the audit report.

The problems disclosed in the audit were not a surprise to Janet Arenz, who closely followed implementation of the software in her role as executive director of the Alliance of Children’s Programs. The group represents 47 organizations that serve children around the state, from therapeutic foster care providers for children with severe emotional and behavioral issues, to addictions recovery. In recent years, Arenz requested an audit of OR-Kids in meetings with staff at the Secretary of State’s Office, Oregon Department of Administrative Services and state lawmakers.

“The problems with OR-Kids, which lasted over two years for providers contracting with DHS, was one of the most difficult and in some cases devastating challenges faced by children’s service providers,” Arenz said Thursday. For example, some service providers struggled to meet payroll obligations and took out personal loans while they waited for DHS to resolve payment errors in OR-Kids.

State Sen. Betsy Johnson, D-Scappoose, said the audit was a good first step, but the issue deserves broader review.

“I appreciate the secretary of state looking into the child welfare system from a fiscal perspective,” Johnson said. “I look forward to a performance audit sometime in the near future as well.”

Johnson is a member of the Legislature’s powerful Joint Ways and Means Committee, which writes budget bills. She predicted that news of OR-Kids’ problems will only add to lawmakers’ skepticism about major state technology projects, following the failure of Oregon’s health insurance exchange and other problems with expensive computer systems.

“Based on the heightened level of scrutiny following the Cover Oregon debacle, agencies are going to have to make much more detailed, comprehensive and substantiated requests for information technology investments,” Johnson said. “The Legislature, based on my observation of (the interim session this week), has an exponentially heightened interest in making sure we are not party to another catastrophic failure like Cover Oregon.”

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