Washington State Auditors Office

Whistleblower Report

Department of Social and Health Services

Report No. 1000719

Issue Date February 18, 2009

Washington State Auditor Brian Sonntag

February 18, 2009

Department of Social and Health Services Thurston County Olympia, Washington

Report on Whistleblower Investigation

Attached is the official report on Whistleblower Case No. WB 08-006 for the Department of Social and Health Services. The State Auditors Office received an assertion of improper governmental activity at the Department. This assertion was submitted to us under the provisions of Chapter 42.40 of the Revised Code of Washington, the Whistleblower Act. We have investigated the assertion independently and objectively through interviews and by reviewing relevant documents. This report contains the results of our investigation. Questions about this report should be directed to Senior Investigator LaRene Barlin at (360) 902-2213 or Director of Special Investigations Jim Brittain at (360) 902-0372.

BRIAN SONNTAG, CGFM WASHINGTON STATE AUDITOR BS: lb cc: Ms. Kathleen Brockman, Chief Administrative Officer Ginny Heim, Special Assistant, Children's Administration

Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388 FAX (360) 753-0646 http://www.sao.wa.gov

Investigation Summary
State of Washington Department of Social and Health Services
ABOUT THE INVESTIGATION
On September 12, 2007, the State Auditors Office began an investigation into whistleblower assertions regarding expenditures for conferences and appreciation dinners, the use of purchase cards, gifts and the payment of sales and use tax at Region 6 at the Department of Social and Health Services. During the investigation, we conducted interviews and reviewed invoices, purchase card statements, contracts, purchase orders, receipts and emails.

ASSERTIONS AND RESULTS

This report contains seven assertions and each one is listed separately with results:

1.

The Regional Administrator did not competitively bid arrangements for a conference held at a facility in May 2007, exceeded the state-allowed per diem cost for meals and lodging and used public money to purchase items given to attendees.
We found no reasonable cause to believe an improper governmental action occurred concerning compliance with competitive bid laws. We found no reasonable cause regarding meal and lodging per diem rates being exceeded because the Regional Administrator had approved exceptions to the state-allowed rates. We found reasonable cause that the Department used state funds to purchase miscellaneous gifts to give away at the conference. The Department held a conference at a facility on May 21-22, 2007. The Regional Administrator signed an approval for this conference on March 23, 2007. The approval states: no other site could accommodate us at short notice. However, we found no documentation to show an attempt was made to look for other appropriate state facilities or other private facilities for this conference. In addition, the approval signed by the Regional Administrator allows for coffee and light refreshments, an exception to the state lodging rate, providing meals and exception to the 50-mile rule, which allows for reimbursement for lodging expenses when located within fifty miles of the employees residence or official station.

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This conference facility provided lodging, light refreshments, meals and conference rooms, and charged the Department approximately $20,462.83 as follows: Meeting room rental Equipment (power cords, screen, flip charts, etc.) Guest rooms for attendees ($80 per person plus sales and room tax for 92 room nights) State per diem rate allowable was $60 Sales tax Room Tax Per diem meals ($61 per person for 60 people) State meal per diem rate allowable was $39 Coffee and light refreshments for attendees ($26.07 per person for 60 people) (26.07x60=$1,564.20) $5,924.05 $1,136.70

$7,360.00 $ 610.88 $ 147.20

$3,660.00 $1,624.00 (overcharged)

The State Accounting and Administrative Manual (SAAM 10.10.15) states employees need to exercise due diligence and care when incurring travel expenses that would be unnecessary or unjustified in the performance of official state business. We found an inconsistency in the contract that was signed with the facility. It states guest room rates are based on single or double occupancy. However, the contract shows a chart indicating a single rate of $80 and a double rate of $160. So, if two people shared a room, the room rate was $160 per room instead of $80 per room. However, not all rooms were occupied by two persons. Further, the state paid for some non-state employees to attend this conference. When we contacted the Group Sales Manager for the facility, she stated it normally charges $200 for a room and does not offer a state rate. She stated, in order to accommodate a state conference, the facility has to charge each person regardless of whether they share a room. In order to get to the state rate, the Department negotiated with the hotel to charge a per person room charge. A Department policy does allow for meals to be provided at meetings if the cost of the meal per person does not exceed the authorized per diem amount for the location. In addition, an approval form must be completed and approved ten working days prior to the conference. The approval form was not completed in this instance. In addition to the charges by the facility, the Department incurred additional expenses totaling approximately $9,644.81: 50 adoption books Misc. Items from retail stores Misc. Items for Conference (gift bags/mugs/other items) Pens/Bags/Post It Notes w/Logo Three Speakers (1) (2) (3) $1,081.83 $ 431.27 $ 316.29 $1,627.46 $2,200.00 $3,288.03 $ 699.93

Total cost for this conference was $30,107.64. In addition, a state agency cannot use state funds to purchase gifts for attendees and non-state employees.

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One of the speakers used a limousine service from and to the airport at a cost to the state of $329.23. The speakers contract allows for travel expenses in accordance with state travel rates and regulations. The speaker did not exceed the amount allowed for travel by the contract; however, the cost seems excessive. The cost of a roundtrip airport shuttle would have been approximately $76.50. We find no reasonable cause to believe an improper governmental action occurred concerning competitive bid laws. However, even though an approval is on file from the Regional Administrator for this conference, the per diem rate for meals and lodging was exceeded and the per person amount charged for light refreshments appears unnecessarily high. In addition, we find the Department did use state funds to purchase miscellaneous gifts to give away at the conference. During an interview, the Regions Business Manager stated, future conferences will be coordinated through the Departments Central Purchasing Unit. As of June 2008, Region 6 no longer uses this facility as a conference site.

2.

The Regional Administrator failed to competitively bid the cost of the Sexually Aggressive Youth Conference held at a facility in June 2007 and exceeded the per diem cost of meals.
We found no reasonable cause to believe an improper governmental action occurred. However, we did find reasonable cause that the Department used state funds to purchase gifts for speakers and attendees. The Department held a Sexually Aggressive Youth Conference at a conference facility on June 17-19, 2007. A memo to the Fiscal Division dated May 7, 2007 from the training coordinator stated: Both Shilo Inn at Ocean Shores and Alderbrook have provided competitive bids perdieum [sic] and would be optimal for location. However, the Department could not provide any bid documentation. approval for this conference. We found no signed

The facility provided lodging, light refreshments, meals and conference rooms. The Department negotiated state per diem and lodging rates. The facility charged the Department $18,061.54 for this two-day conference as follows: Meeting Room Rental Equipment (audio/visual charges) Guest Rooms for attendees (71 rooms @ $60 per person plus sales and room tax) Per diem meals (85 meals @$39 per person) Snacks Service Charge Tax $ 200.00 $ 700.00

$8,520.00 $ 6,363.00 $ 600.00 $ 579.81 $ 831.73

We found an inconsistency in the contract with the facility. It states, guest room rates are based on single or double occupancy. However, the contract shows a chart indicating a single rate of $60 and a double rate of $120. So, if two people shared a room, the room rate was $120 per

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room instead of $60 per room. However, not all rooms were occupied by two persons. Further, the state paid for some non-state employees to attend this conference. When we contacted the Group Sales Manager for the facility, she stated the facility normally charges $200 for a room and does not offer a state rate. She stated in order to accommodate a state conference the facility has to charge each person regardless of whether they share a room. In order to get to the state rate, the Department negotiated with the facility to charge a per person room charge. In addition to the charges by the facility, the Department incurred the following $11,639.99 in expenses: 80 books given to all attendees Supplies for conference (gift bags/seasonal items) Tote Bags (screen printed) Five Gift Bags for the speakers (salmon/bag/water bottle) Four Speakers (1) (2) (3) (4) Appreciation Items from coffee company for committee members $6,798.85 $ 310.36 $ 509.83 $ 219.95 $ 800.00 $ 500.00 $ 400.00 $2,100.00 $No documentation

Total cost of this conference was approximately $29,701.53. A state agency cannot use state funds to purchase gift items for conference attendees. In addition, gift bags cannot be purchased with state funds for the speakers unless it is included within the negotiated contract. Because conferences and seminars are exempted from competitive bid requirements, we found no reasonable cause to believe an improper governmental action occurred. However, we did find reasonable cause because the Department used state funds to purchase gifts for the speakers and attendees.

3.

The Regional Administrator paid more than the allowable per diem cost for meals at a foster parent recognition dinner in June 2007.
We found reasonable cause to believe an improper governmental action occurred. A foster care parent appreciation dinner was held at a restaurant in Pacific County on June 26, 2007. We found no itemized bill, but were given a cash register receipt that showed the total spent including the tip. We also found the Department did not have a contract with the restaurant and no breakdown as to banquet room rental versus meal charges. In addition, five gift certificates of $30 each were purchased as foster parent appreciation gifts. We found no documentation to show these had been approved or to show who received them. In this investigation, the Department was unable to provide legal authority for buying gifts for foster parents. The state per diem rate for dinner for Pacific County is $17 per person. The total paid to the restaurant was $2,038.50 with a tip of $340.38. Forty-five dinners were purchased; however, only 36 people attended. We calculated the amount paid per meal exceeds the state per diem rate whether you calculate using 45 dinners ($45.30 per meal) or 36 dinners ($56.63 per meal).

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When the bill was coded by the Fiscal Division for payment, the excess amount of meal per diem was charged as banquet room rental even though we found no documentation to support a banquet room had been rented. In addition, prior approval for this event was not received, as required by Department policy. A July 10, 2007, email from the Regions Fiscal Division to the Area Administrator questions the meal charges and requests a prior approval form be submitted. The area administrator responded the same day stating: The space cost was included in the meal cost . . . Since I have been organizing foster parent appreciation dinners, there has not been a limit set regarding the costs of the dinners/meals other than what the AA or RA set. So things have changed a lot in the last year and nobody told us . . . Nor did we ever have to fill out all of these forms . . . . The Area Administrator stated she would fill out the prior approval form and send it in. She prepared the form and backdated it to June 20, 2007, so it appears the form was submitted prior to the June 26, 2007, dinner. The Regional Business Manager is putting in place new processes and procedures to address this issue. Therefore, because the amount paid for meals exceeded the allowed per diem rate and documentation was inadequate, we find reasonable cause to believe an improper governmental action occurred.

4.

The Regional Administrator failed to supply documentation for the foster parent appreciation dinner held in May 2007 at a golf and country club.
We find reasonable cause to believe an improper governmental action occurred. A foster care parent appreciation dinner was held in conjunction with a private organization at a golf and country club in Olympia on May 16, 2007. Documentation provided by the Department showed it was charged for 214 dinners at $19.25 each (shown on a confirmation sheet from the club and an invoice). We found no supporting documentation such as an approval form or attendance sheet. Total cost of the dinner was $5,358.65 including tax and service charges. The invoice shows the Department paid $4,958.65. The clubs confirmation sheet shows the Junior League of Olympia as the entity who reserved the facility and paid a $400 deposit. A copy of the Leagues check, which was provided by the Department, confirms the League paid the deposit. We could not determine if the Department reimbursed the League for the initial deposit. Because the Department provided no supporting documentation for this event, we find reasonable cause to believe an improper governmental action occurred.

5.

The Regional Administrator has not reported the cost of the recognition awards given to employees as taxable income.
We found reasonable cause to believe an improper governmental action occurred. Recognition awards given to employees that are cash or the equivalent of cash such as gift cards must be reported as taxable income under Internal Revenue Service rules.

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The Department policy requires such awards to be reported to the Payroll Office. A witness stated this has not occurred. Examples include: December 2006 Six $20 gift cards for a local restaurant May 2007 Coffee House Gift Certificates for Employee Appreciation $120.00 $600.00

The Regional Business Manager stated he has been having meetings with the area administrators to instruct them that they must keep track of employees receiving awards and submit that information to the Payroll Office. Therefore, we find reasonable cause to believe an improper governmental action occurred when the Department did not report the cost of recognition awards as taxable income.

6.

The Regional Administrator used public funds to purchase gifts for people attending the regional managers meeting in April 2007.
We found reasonable cause to believe an improper governmental action occurred. A regional managers meeting was held on April 24 and 25, 2007. Each field office purchased items for gift baskets that were given away as door prizes. In some instances, employees purchased these items using the Departments purchase cards. The Department cannot use state funds to purchase items for gift baskets and then give them as door prizes to the regional managers. Reimbursements for April 2007 include: April 2007 Gift Cards Supervisor Conference April 2007 Employee reimbursement for gift basket door prize April 2007 Reimburse employee for purchase of gift basket April 2007 Reimburse Supervisor Conference gift basket April 2007 - Purchase Card Gift Baskets and Gift Certificate $ 60.00

$ 82.38

$ 62.36

$ 44.95

$ 91.35

Employees stated it is a long-standing practice at the Department to give gift baskets as door prizes at this meeting. The Regional Business Manager stated this practice no longer will be allowed with Department funds. Therefore, we found reasonable cause to believe an improper governmental action occurred.

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7.

The Regional Administrator is failing to collect and remit sales and use tax to the Department of Revenue on out-of-state and Internet purchases.
We found reasonable cause to believe an improper governmental action occurred. Region 6 employees purchase items out-of-state and over the Internet, including car seats, books, childrens items, furniture, a computer printer, school supplies, toys and diaper bags. From May to September 2007, the Department did not pay sales and use tax on purchases totaling $4,798.75. State law requires Washington residents who purchase items out of state, to be used here, to calculate and pay this tax to the Department of Revenue. The Regional Business Manager and Fiscal Technician, when asked about this, acknowledged that payment had not been made. Because this tax was not calculated and remitted to the Department of Revenue, we find reasonable cause to believe an improper governmental action occurred.

ADDITIONAL CONCERNS
Late Charges During the course of the investigation, we found the purchase card company assessed $90.19 in late charges from June 2007 to September 2007 because the Department did not pay the company in a timely manner. This violates Washington Administrative Code 236-48-253 and Department Policy No. 19.45.01. We found documents that showed some field office employees who made purchases with the cards did not submit receipts to the Department Fiscal Division in a timely manner. In some instances, the Fiscal Division could not pay the purchase card bill because it had no documentation to show if the purchase was for an allowable business purpose. In one instance, the purchase card was suspended by the card company, pending payment. The Regional Business Manager stated a policy is now in place that requires employees to contact him prior to using a purchase card. Light refreshments Group Recognition After reviewing purchase invoices, we also found the Department is reimbursing employees and spending state funds for light refreshments at group recognition events. The State Administrative and Accounting Manual prohibits meals, coffee and light refreshments for employee receptions. We found no documentation in these instances. Department policy requires a prior approval form be submitted ten days before the event. In some instances the form was not submitted, was dated after the event or was provided but undated. In some instances we could not determine what the charge was for.

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December 2006 Greeting Cards (no indication of what these are for) January 2007 Refreshments for awards event January 2007 Food for Program Improvement Plan Recognition no form January 2007 Food/flowers for Program Improvement Plan Recognition - no form February 2007 Food/other Items for employee appreciation no form March 2007 Paper products for employee breakfast for Workload Study completion - Memo approval for staff appreciation and as an incentive for successful completion of Workload Study March 2007 Catered Breakfast for 62 @$5.95 for Workload Study completion (inc. tax/gratuity) Same memo approval as above item April 2007 Snacks/treats for Workload Study Project April 2007 Adoption Food/Child Protective Team (approval forms signed after the event and second signed one day prior) May 2007 Continuous Quality Improvement Meeting (memo requesting approval for light refreshments) June 2007 Food for Council on Accreditation (email giving approval) June 2007 Foster Care Meeting (approval form undated) July 2007 Employee appreciation/recognition lunch (no approval form) July 2007 Reimburse for food items for employee appreciation lunch no form

$ 23.53 $ 40.22 $ 25.91

$122.25 $187.63

$ 44.59

$464.65

$119.84

$278.99

$ 23.23

$ 63.02 $298.29

$330.43

$144.52

On May 2, 2007, the Regional Business Manager sent an email to administrators that stated: We have discovered that we have been approving reimbursement for meals (during meetings) that are not in compliance with OFM guidelines. While we have been able to justify reimbursement for meals when we conduct official business (employee recognition ceremonies, training, etc.) we cannot justify providing the meals in those situations where the meeting is held at the employees regular workplace.

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The Fiscal Technician sent an email to field offices on August 17, 2007, that stated: We are having a lot of employee recognitions coming through the region office along with questions regarding the policy pertaining to these events. We can supply refreshments or meals for this function. However, we must still adhere to the policies set in place for light meals and refreshments and/or meals with meetings. This includes the purpose of the function, list of attendees, and prior approval. To include the receipts. The Region needs to ensure proper documentation accompanies requests for light refreshments. The State Auditors Office recognizes there is currently uncertainty among state agencies as to the interpretation of the dollar amount of allowable recognition awards as it pertains to group awards (RCW 41.60.150). This issue should be clarified either by the Office of Financial Management or by amending and clarifying the law. The Regions Business Manager stated he is working on turning things around. He is providing training and information to field offices and feels he is making progress.

DEPARTMENT'S PLAN OF RESOLUTION

1. Although there was no finding regarding the competitive bid process, the process for contracting for conferences has been clarified and is included in the DSHS Field Purchasing Guide update of October 2008. For the current DSHS guidance, see http://asd.dshs,wa.gove/TRACKS/documents/ PurchasingGuide/DSHSFieldGuide.doc, Chapter 8. As of June 2008, negotiations regarding expenses charged under future contracts must be approved by the Region 6 Business Manager. 2. On March 8, 2008, the Regional Business Manager sent a newly developed regional administrative procedure to fiscal staff, providing guidance on reporting State Use Tax. On May 23, 2008, the Regional Business Manager briefed the Area Administrators on fiscal and contract requirements including: Employee Appreciation Functions; Gift Cards/Gift Certificates; Gift Baskets; Gifts to Clients, Speakers, and Providers; Entertainment; and Conference arrangements. On May 28, 2008, a regional administrative procedure was developed and signed providing guidance on purchasing of gift items. On December 5, 2008, the Regional Administrator sent an email to all regional staff. The e- mail provides guidance on the requirements for purchasing gifts, per diem, documentation, meals at meetings, conferences and awards. Fiduciary Analysts and fiscal staff are reminded of the requirement for documentation to support payment of purchases as outlined in SAAM 85.32.31 through unit meetings, emails, and feedback from the fiscal manager. When processing payments, fiscal staff have been instructed to contact the individual or supervisor to obtain those documents prior to payment. Fiscal staff will continue to monitor whether proper procedures are used and documentation is received. In addition, the Regional Business Manager and Fiscal Manager will continue to spot check to make sure all documentation is in the files.

3.

4.

5.

6.

7.

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These efforts include: a. Monitoring on a daily basis that proper fiscal procedures are being used. b. Notifying workers on a case-by-case basis when they do not follow correct procedures and reviewing what steps they need to take. If the problem continues, the supervisor and if necessary the area administrator will become involved. c. Notifying appropriate staff of findings from audits and the corrective actions to be taken. d. Developing regional procedures when needed. Reporting and Purchasing Gifts attached. Examples are the Use Tax

e. The Regional Business Manager will provide a semi-annual refresher at Area Administrator meetings of proper fiscal procedures, emphasizing issues identified in the previous six months.

AUDITORS REMARKS
We thank Department officials and personnel for their assistance and cooperation during the investigation.

INVESTIGATION CRITERIA/POLICIES
We came to our determination in this investigation by evaluating the facts against the criteria below: Assertions 1 and 2 Washington State Constitution, Article VIII, Section 5, states: Credit Not To Be Loaned. The credit of the state shall not, in any manner be given or loaned to, or in aid of, any individual, association, company or corporation. RCW 43.03.050(3)(4), Subsistence, lodging and refreshment, and per diem allowance for officials, employees, and members of boards, commissions, or committees states in part: (3) The director of financial management may prescribe reasonable allowances to cover reasonable expenses for meals, coffee, and light refreshment served to elective and appointive officials and state employees regardless of travel status at a meeting where: (a) The purpose of the meeting is to conduct official state business or to provide formal training to state employees or state officials; (b) the meals, coffee, or light refreshment are an integral part of the meeting or training session; (c) the meeting or training session takes place away from the employees or officials regular workplace; and (d) the agency head or authorized designee approves payments in advance for the meals, coffee, or light refreshment. In order to prevent abuse, the director may regulate such allowances and prescribe additional conditions for claiming the allowances. (4) Upon approval of the agency head or authorized designee, an agency may serve coffee or light refreshments at a meeting where: (a) The purpose of the meeting is to conduct state business or to provide formal training that benefits the
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state; and (b) the coffee or light refreshment is an integral part of the meeting or training session. The director of financial management shall adopt requirements necessary to prohibit abuse of the authority authorized in this subsection. RCW 43.19.1906(2) Competitive bids Procedure Exceptions, states in part: Insofar as practicable, all purchases and sales shall be based on competitive bids . . . (2) Purchases . . . Quotations from three thousand dollars to thirty-five thousand dollars, or subsequent limits as calculated by the office of financial management, shall be secured from at least three vendors to assure establishment of a competitive price and may be obtained by telephone or written quotations, or both . . . A record of competition for all such purchases from three thousand dollars to thirty-five thousand dollars, or subsequent limits as calculated by the office of financial management, shall be documented for audit purposes . . . . RCW 42.52.160(1) Use of persons, money, or property for private gain, states: (1) No state officer or state employee may employee or use any person, money, or property under the officers or employees official control or direction, or in his or her official custody, for the private benefit or gain of the officer, employee, or another. State Administrative and Accounting Manual, states in part: 10.10.15 Responsibilities of travelers. A traveler on official state business is responsible for: 2. Exercising the same care in incurring expenses and accomplishing the purposes of the travel that a prudent person would exercise if traveling on personal business. Excess costs, circuitous routes, delays, or luxury accommodations unnecessary or unjustified in the performance of official state business travel are not acceptable. 10.10.55 Scheduling meetings, conferences, conventions, and training sessions. When meetings or conferences are necessary, agencies must give first preference to locations at state or other public (e.g., local government) facilities. Limit the number of persons from an agency attending a particular conference, convention, meeting, or training session to the minimum necessary to benefit from the event. The location and facilities for all conferences, conventions, training sessions, or meetings held or sponsored by the state are to be barrierfree in accordance with Section 50.50. Agencies should consider cost to the state, the suitability of barrier-free facilities, accessibility to attendees, and other relevant factors in their selection. First priority is to be given to using state-owned or other public owned barrier-free facilities in lieu of renting or leasing other facilities. Where a convention, conference, training session, or meeting held or sponsored by the state is conducted at a rented/leased barrier-free non-

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state facility, the person responsible for the choice of location and facilities is to submit justification in advance in writing to the agency head or authorized designee for approval. The justification is to include: The purpose and objective of the meeting; The name of the organizations or persons expected to attend and an estimate of the attendance; An estimate of the anticipated cost to the state to include travel costs of travelers; and An explanation why state-owned or other public owned barrierfree facilities cannot be used. 10.30.10 What is the basis for reimbursing lodging costs? Reimburse lodging expenses at actual costs, as evidenced by a receipt, up to the specific daily maximum allowable lodging rate in effect at the time of travel for the specific area or locality, unless: An exception is specifically provided by statute, or Authorized by subsection 10.30.20 . . . . 10.30.20 Exceptions to the maximum allowable lodging rates. In the following situations, the maximum allowable lodging amounts may not be adequate and the agency head or authorized designee may approve payment of lodging expenses not to exceed 150% of the applicable maximum per diem amounts listed in subsection 10.90.10 and 10.90.20. The agency head or authorized designee approval must be made in advance of the travel . . . . 4. The traveler attends a meeting, conference, convention, or training session where the traveler is expected to have business interaction with other participants in addition to scheduled events. Further, it is anticipated that maximum benefit will be achieved by authorizing the traveler to stay at the lodging facilities where the meeting, conference, convention, or training session is held . . . . 10.40.10 What is the basis for reimbursing meal costs? Reimbursement for meal expenses is on an allowance basis not to exceed the amounts in effect at the time of travel, unless: An exception is specifically provided by statute, or As authorized by Subsection 10.40.20 70.10.10 Coffee and Light Refreshments. The agency may not provide coffee and light refreshments at meetings and formal training sessions unless the agency has formally adopted written internal policies and procedures that describe the approval process for these items.

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85.32.10 Goods and Services Expenditures Agency responsibilities. It is the responsibility of the agency head, or authorized designee, to certify that all expenditures/expenses and disbursements are proper and correct. 85.32.30 Payment processing documentation. At a minimum, payment processing documentation should include evidence of authorization for purchase, receipt of goods or services, and approval for payment. Agencies may utilize paper or electronic forms . . . . Washington Purchasing Manual, Chapter 7, states in part: 7.2 Purchases exempt from Competition. These acquisitions are clearly and legitimately limited to a single source of supply or involve special facilities, services or market conditions and are designated as exempt from competitive bid requirements. Agencies are required to use state contracts if available, if no state contracts exist, agencies are delegated unlimited purchase authority for the following: . . . 7.2.e Conferences and Seminars. Registration/tuition for conferences and seminars Booth or room rentals, facilities including furnishings and directly related services and materials for public hearings required by agency mission are included in this OSP delegated authority . . . .

Department of Social and Health Services Administrative Policies, state in part: 19.70.10 Coffee and Light Refreshments, Definitions Coffee: Includes any non-alcoholic beverage, such as tea, soft drinks, juice, water, milk or coffee. Light refreshments: Are an edible item that may be served between meals, example: doughnuts, sweet rolls, cookies, fruit or cheese. 19.70.11 Meals with Meetings 1. DSHS may provide meals at certain types of meetings DSHS may pay for meals with meetings when the individual is required to attend and where: a. The Division Director or authorized designee approves payments in writing for the meals in advance of the meeting and where attendance by agency employee(s), official(s) or others and reimbursement for the meals is advantageous to the state; and

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b. The purpose of the meetings is to conduct official state business or to provide training to state employees or state officials; and c. The meals are an integral part of the business meeting or training; and d. The meeting or training session takes place away from the employees or officials regular workplace; and. e. The cost of the meal per person does not exceed the authorized per diem amount for the location in which the event takes place. 2. Documentation of approval and purchase Required documentation for meals with meetings includes: A copy of the approval memorandum All original receipts A supporting document showing the purpose or accomplishments of the meeting A supporting document listing the names of the state organizations or people attending the meeting.

Assertion 3 RCW 43.03.050(3)(4), Subsistence, lodging and refreshment, and per diem allowance for officials, employees, and members of boards, commissions or committees, states in part: (3) The director of financial management may prescribe reasonable allowances to cover reasonable expenses for meals, coffee, and light refreshment served to elective and appointive officials and state employees regardless of travel status at a meeting where: (a) The purpose of the meeting is to conduct official state business or to provide formal training to state employees or state officials; (b) the meals, coffee, or light refreshment are an integral part of the meeting or training session; (c) the meeting or training session takes place away from the employees or officials regular workplace; and (d) the agency head or authorized designee approves payments in advance for the meals, coffee, or light refreshment. In order to prevent abuse, the director may regulate such allowances and prescribe additional conditions for claiming the allowances. (4) Upon approval of the agency head or authorized designee, an agency may serve coffee or light refreshments at a meeting where: (a) The purpose of the meeting is to conduct state business or to provide formal training that benefits the state; and (b) the coffee or light refreshment is an integral part of the meeting or training session. The director of financial management shall adopt requirements necessary to prohibit abuse of the authority authorized in this subsection.

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State Administrative and Accounting Manual, states in part: 10.40.10 Reimbursement for meal expenses is on an allowance basis not to exceed the amounts in effect at the time of travel, unless: - An exception is specifically provided by statute, or - As authorized by Subsection 10.40.20 85.32.10 Goods and Services Expenditures Agency responsibilities. It is the responsibility of the agency head, or authorized designee, to certify that all expenditures/expenses and disbursements are proper and correct. 85.32.30 Payment processing documentation. At a minimum, payment processing documentation should include evidence of authorization for purchase, receipt of goods or services, and approval for payment. Agencies may utilize paper or electronic forms. . . Assertion 4 State Administrative and Accounting Manual, states in part: 85.32.10 Goods and Services Expenditures Agency responsibilities. It is the responsibility of the agency head, or authorized designee, to certify that all expenditures/expenses and disbursements are proper and correct. 85.32.30 Payment processing documentation. At a minimum, payment processing documentation should include evidence of authorization for purchase, receipt of goods or services, and approval for payment. Agencies may utilize paper or electronic forms. . . Assertion 5 Internal Revenue Service, Taxable and Nontaxable Income, Publication 525 (2007), Bonuses and Awards, states in part: Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. These include prizes such as vacation trips for meeting sales goals. If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. State Administrative and Accounting Manual, 5.30.40 Taxable fringe benefits, states: Any property or service that an employee receives from an employer in place of or along with regular wages is a fringe benefit that may be subject to federal employment taxes. If taxable, these benefits are included in gross income and subject to federal income, OASI, and Medicare taxes.

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Refer to IRS regulations for the appropriate calendar year regarding specific taxation, valuation, and reporting information, IRS Publication 15-B Employers Guide to Taxable Fringe Benefits provides detailed information on several types of benefits available at: http://www.irs.gov/pub/irs-pdf-p15b.pdf. Additionally, an IRS training handout on taxable fringe benefits is available on the IRS Federal, State and Local Governments website at: http://www.irs.gov/govt/fslg/content/0,,id=117706.00.html. Fringe benefits that are taxable under certain circumstances include, but are not limited to: Gift certificates Awards and prizes

Department of Social and Health Services Administrative Policy No. 19.70.13, Employee Recognition Awards, states in part: C. Reporting Awards. All cash or cash equivalent awards must be considered taxable items based on Internal Revenue Service (IRS) rules and must be reported to the DSHS Payroll Office, in the same month the award was given. D. Processing Awards. 4. When the gifting administration processes a cash or cash equivalent award, they must send the information to the DSHS Payroll Office during the same month they present the award. Procedures. B. To report a cash or cash equivalent award to DSHS Payroll Office, use form DSHS 03-426 Employee Recognition Awards: Reporting Cash Awards or Cash Equivalent Awards. Submit this form, along with a copy of the Award Memorandum, to the DSHS Payroll Office within 30 days of the award or by December 18th if the award is given in December (this is to ensure taxes are reported to the IRS in the correct calendar year). Assertion 6 RCW 42.52.160(1), Use of persons, money, or property for private gain, states in part: (1) No state officer or state employee may employee or use any person, money, or property under the officers or employees official control or direction, or in his or her official custody, for the private benefit or gain of the officer, employee, or another. Assertion 7 RCW 82.12.020, Use tax imposed, states in part: (1) There is hereby levied and there shall be collected from every person in this state a tax or excise for the privilege of using within this state as a consumer: (1) Any article of tangible personal property purchased at retail, or acquired by lease, gift, repossession, or bailment, or extracted or produced or manufactured by the

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person so using the same, or otherwise furnished to a person engaged in any business taxable under RCW 82.04.280(2) or (7) . . . (5) The tax shall be levied and collected in an amount equal to the value of the article used, value of the extended warranty used, or value of the service used by the taxpayer multiplied by the rates in effect for the retail sales tax under RCW 82.08.020, except in the case of a seller required to collect use tax from the purchaser, the tax shall be collected in an amount equal to the purchase price multiplied by the rate in effect for the retail sales tax under RCW 82.08.020. Department of Social and Health Services Administrative Policy No. 19.85.02, Use and Sales Tax, states in part: Scope This policy applies to all: 1. DSHS Administrations. 2. In-state and out-of-state purchases. Policy Requirements. A. DSHS must follow the Department of Revenues (DOR) regulations regarding the identification, calculation, and payment of sales and use tax . . . B. Use tax is due on certain purchases. The situations below illustrate when use tax is payable: 1. Goods purchased in a state where no sales tax was paid . . . 3. Goods purchased from out-of-state sellers through the Internet, or mail order, from vendors that did not collect sales tax . . . . F. DSHS Fiscal Offices are responsible for knowing when sales tax is paid and use tax is payable. Additional Concerns Criteria WAC 236-48-253, Payment of credit or purchasing card bills, states in part: Statements received from the financial institution or firm issuing credit or purchasing cards shall be handled in the same manner as an invoice bearing a prompt payment discount. Payments shall be made in full each month to avoid late payment penalties or interest charges imposed by credit card issuers. Department Administrative Policy No. 19.45.01, Purchasing Cards Requesting, Authorizing and Monitoring, states in part: Policy Requirements. Departmental Divisions, Offices, and Institutions shall: A. Submit payment to the purchasing card vendor timely: Net 30 days.

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State Administrative and Accounting Manual, Chapter 70.10.30, Expenditures for coffee and light refreshments are prohibited in some cases, states: Agencies may not make expenditures for coffee and/or light refreshments in the following situations: For anniversaries of agencies, receptions for new, existing, and/or retiring employees or officials, election celebrations, etc. Any hosting activities. Hosting includes, but is not limited to, those activities that are intended either to lobby a legislator or a governmental official, or are to be a social rather than governmental business event, and include expenditures for coffee and/or light refreshments for those whom agencies are not legally authorized to reimburse.

(Emphasis added.)

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Contacts
Washington State Auditor Brian Sonntag, CGFM sonntagb@sao.wa.gov (360) 902-0360

Director of Special Investigations Jim Brittain, CPA brittaij@sao.wa.gov Deputy Director of Special Investigations Kim Hurley, CPA hurleyk@sao.wa.gov Whistleblower and Hotline Program Coordinator Julie Cooper cooperj@sao.wa.gov Investigators LaRene Barlin Sandy Miller Cheri Elliott Director of Communications Mindy Chambers Public Records Officer Mary Leider Main phone number Toll-free hotline for reporting government waste, efficiency Web site

(360) 902-0372

(360) 725-5352

(360) 902-0377

barlinl@sao.wa.gov millers@sao.wa.gov elliottc@sao.wa.gov

(360) 902-2213 (360) 902-0378 (360) 725-5358

chamberm@sao.wa.gov

(360) 902-0091

leiderm@sao.wa.gov

(360) 725-5617 (360) 902-0370 (866) 902-3900 www.sao.wa.gov

To receive electronic notification of audit reports, visit: https://www.sao.wa.gov/applications/subscriptionservices/

Americans with Disabilities

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