SALT LAKE CITY — A legislative audit released Tuesday claims the Utah State Office of Rehabilitation mismanaged its budget, resulting in a $4.9 million deficit last year.

The audit was presented to a subcommittee of the Legislative Management Committee on Tuesday, and lawmakers said it could raise broader implications for lack of accountability of state agencies.

The rehabilitation office, tasked with helping people with disabilities find employment, has been under scrutiny since it asked the Legislature for a $6.3 million bailout earlier this year.

The new audit showed the office has lacked financial planning and budget controls and, as a result, the agency used "unsustainable budget practices to meet uncontrolled costs."

Those practices resulted in nearly $5 million in deficits last year, the elimination of about $17 million of federal spending reserves traditionally available in the second year of the office's vocational rehabilitation grant, and a potential penalty from the federal government of up to $6 million.

"These unsustainable practices were made possible by the USOR accelerating its use of federal funds and exploiting the timing difference between state and federal fiscal years," the audit states.

Leah Blevins, audit supervisor, said two main problems contributed to the office's financial issues: lack of budget oversight and a rise in the office's client caseload.

Following the recession in 2009, the office's caseload and spending grew to a point that in 2012 the office obligated higher percentages of its two-year federal grant awards in the year it received its grants, so the increased spending meant the agency carried over smaller portions of its federal funds in 2012 and 2013.

Blevins said instead of controlling spending, the finance staff inflated the budget to avoid the appearance of overspending, hoping to "right the ship" when the client demand returned to more normal levels.

"That just never happened," she said.

No evidence of fraud

Rep. Brian King, D-Salt Lake City, wondered whether the audit reflected any evidence of "bad acting," but Blevins said the audit found no evidence of fraud, and that all money was spent on clients.

"We found that it was all well-intended," Blevins said. "The intent was to help as many people as they possibly could; it just caught up with them."

Who is responsible?

Senate President Wayne Niederhauser, R-Sandy, questioned how such an oversight could occur, when the agency reports to both the State Office of Education and the State Board of Education.

"Who's watching whether an agency goes over budget?" he said.

Stephen Jardine, with the Office of the Legislative Fiscal Analyst, said it was all three entities' responsibility.

"It just got missed," he said.

That's why the audit found all three entities' internal accounting lacked adequate budget processes. It revealed regular budget reports submitted by the State Office of Education were "inaccurate and unreliable" and that "weak oversight and communication prolonged and worsened financial problems" among the departments.

"I'm concerned about the broad aspects of our whole system of accountability in the state," Niederhauser said. "It raises a lot of questions in my mind."

That's why Tuesday's committee unanimously voted to refer the audit to the Executive Appropriations Committee for review and to address the issues it raises concerning general budgeting and accountability within the state.

The issue was also refered to a Social Services Appropriations subcommittee to decide whether the agency should be moved to report to an agency other than the education office.

Recommendations

The audit also outlined recommendations to address the issue, including developing additional policies and procedures to ensure accurate reporting, and governance reform, which has already begun.

In response to the financial issues, a systematic replacement of nearly all the executive leadership at both offices took place in recent years. The new leaders have developed plans to execute the necessary changes which they said they are confident will prevent problems in the future, the audit states.

Darin Brush, executive director of the Utah State Office of Rehabilitation, said he has outlined a plan to help the agency recover, but it will take some time to balance out the budget since the office will need to use its grant money to pay back the $6 million federal penalty.

"It's a multi-year issue," he said. "We can talk about fixing this thing, but we won't get the carbon out of the system for a couple of years."

Brush, David L. Crandall, chairman of the Utah State Board of Education; and Brad C. Smith, superintendent of the Utah State Office of Education sent a letter to the auditor general on Sept. 1 in response to the audit.

"We appreciate your recognition of the aggressive steps we have already taken to address these issues, beginning with extensive changes in governing and executive leadership," the letter states. "We have developed plans to resolve the core causes of the problems, and most of the work is underway."

"As with any complex situation many years in the making, permanent fixes take time to implement," the letter continues. "Nonetheless, we are confident that all of these issues will be resolved."

Not the first time

It's not the first time that an audit has pointed out questionable spending and verification practices within the Utah State Office of Rehabilitation.

In 2013, a performance review by the Utah State Auditor's Office said employees violated or failed to follow policies when deciding whether to pay to equip automobiles with wheelchair lifts, ramps, hand controls and other assistive devices, or place elevators in residences.

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