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Recurring audit finds a financial flaw in the structure of Iowa's mental health regions

The Hawk Eye - 8/17/2021

Aug. 17—The Southeast Iowa Link mental health and disability services region got a clean bill of health on its annual audit except for a requirement Iowa law prevents the region from fulfilling.

According to the audit, the results of which were presented during a SEIL meeting last week, the region does not have recorded liability for compensated absence, meaning the region does not have money to cover an employee if they were to leave and be entitled to a payout of those benefits, but those liabilities are recorded somewhere else: in the county budgets.

"Those would be reported in the audit of each county that has employees of Southeast Iowa Regional Link," said Des Moines County Budget Director Cheryl McVey, who handles some of the fiscal agent work for the SEIL region, which includes the counties of Des Moines, Henry, Jefferson, Keokuk, Lee, Louisa, Van Buren and Washington.

When a governmental entity is audited, the auditor is not simply looking at the entity's financial records. They are looking at the whole package, part of which includes whether good government principles are being followed. As a result, even though compensated activity liabilities are taken care of, because they are not directly taken care of by the SEIL region, this counts as a mark against the region on its audit.

SEIL Chief Executive Officer Ryanne Wood said that while it may look like an issue, the auditors know there's nothing the region could do to fix the error and as such it would only become a problem for SEIL if an employee were to leave and the county would have to pay out compensated absences.

"Management has not recorded a liability for compensated absences in governmental activities and, accordingly, has not recorded an expense for the current year change in that liability," the audit report states.

There is, however, no penalty for the region for the error.

The error itself may be an unintended consequence of the way Iowa's mental health and disability regions operate and pay their employees.

Prior to regionalization, counties levied for mental health services and paid their own expenses. But under the region system, each county is required to pay a designated amount to the region through its mental health levy.

The region then writes a check back for the county if need be. The amount paid by each region is correlated to a certain per capita expense the county is supposed to pay. In the SEIL region, the counties must pay the region $42 per resident, regardless of what levy rate this causes.

The amount the counties get back from the region has nothing to do with what it pays in. Des Moines County made a payment of $1.2 million to the region in FY20, but only got back about $200,000. Some counties got back substantially more, while others got substantially less. Each county gets paid back for specific services they offer.

The money Des Moines County gets back goes to pay for mental health advocates, who help those who have been placed under court commitments. All mental health employees except advocates in the SEIL region are employed by a county and only work within their county, with the exception of Wood, who is paid a small amount by the region for serving as CEO.

The money included in the liability for compensated absences for the two advocates does exist, it just exists in Des Moines County where are the advocates are employed. However, year after year, this continues to be a mark on the region's record since it's not done the way an auditor is looking for, even though this is the only way it can be done by the region.

There is a hope this might be eliminated with the new mental health funding bill. One question that has been asked is how employees would be paid since counties would no longer have Fund 10, the fund that pays for mental health services, under the new bill, which went into effect July 1.

One idea would be for all of the current mental health employees to become region employees. If this were to happen, the region would be responsible for liability for compensated absences and the note would be eliminated. Another idea that's been discussed is that the fiscal agent would employ all mental health employees. If that were the case, the region would see issues on every audit.

On paper, it looks like the SEIL region massively overshot its budget, with a deficit of $2.5 million. This, however, was intentional, and the deficit really was only about $2,000.

The large deficit is driven by counties in the region, which are required to spend down their own ending fund balance. Lee County alone spent down $1.1 million and yet still retained nearly $400,000 and its ending fund balance.

The spending of ending fund balances, which generally are kept to ensure continuity of services until the next round of property taxes are received, now is mandated by law. Under the Fiscal Year 2020 budget, the counties were trying to race their way down to a 20% ending fund balance.

Over the next several years, the ending fund balance is going to take an even bigger hit. The counties will be required to have a total ending fund balance of less than 5%. Any more than this amount in the regions will see their reimbursement by the Department of Human Services decrease and, at worst, the DHS can confiscate excess money from the regions.

In Iowa, the fiscal year starts in July, but property tax notices don't even go out until the first part of August and aren't due back until the end of September. This means the region, and any government entity which relies on property tax, needs enough money to hold themselves over until property taxes come in.

Usually, expenditures and revenues are roughly the same with ending fund balances slightly growing or shrinking based on the fact that the levy rate can't perfectly be broken down to account for every dollar spent, though if an ending fund balance was spent down, it may have to be built back up intentionally to keep it at a level where it can sustain itself.

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