- Associated Press - Wednesday, January 22, 2014

LINCOLN, Neb. (AP) - Nebraska has been given 30 days to repay nearly $22 million to the federal government because the state failed to properly track payments it made as part of its troubled effort to privatize child welfare services, Auditor Mike Foley said Wednesday.

Foley said Nebraska could face annual interest fees of more than 10 percent if it fails to repay the money right away.

The announcement came after the state auditor’s office received two federal letters related to the Nebraska Department of Health and Human Service’s child-welfare reform efforts.

“I think the federal government is sending a very firm, unmistakable message to HHS,” Foley said.

The privatization experiment faced problems shortly after it began in 2009, when the state hired five lead agencies to provide services for abused, neglected and troubled children who were in state care. Four of the five providers ended or lost their contracts with the state, citing a lack of funding and an unsustainable number of children in the system. The state has since restored its public child-welfare services everywhere except in the Omaha area.



Foley said the U.S. Department of Health and Human Services called for the repayment because of problems with how the state documented its use of the federal aid.

Federal officials noted that, in some cases, the state failed to show that payments had gone to foster parents as required. A review of 40 foster-care payments in fiscal years 2011 and 2012 found that the state didn’t comply with federal rules in at least half of the cases, according to federal officials.

“We did not require those contractors to segregate their costs or to document those costs,” Foley said. “We just kept sending them the money. Well, you can’t do that. You have to say how much money is actually going to foster families versus other services for the children.”

Foley, a Republican candidate for governor, has clashed repeatedly with the Department of Health and Human Services for its handling of state and federal money.

A DHHS spokeswoman confirmed Wednesday that the department had received the federal agency’s letter and said it was reviewing its options.

Kerry Winterer, the department’s CEO, said in a statement that his agency has revolved the problems with the way expenses were previously documented. The letter from federal officials was expected, he said, and the payment-tracking problems were due to inadequate documentation from the private agencies.

Winterer said the state’s current Child and Family Services director, Thomas Pristow, was not involved in the decision to privatize child welfare services. Pristow has worked with federal officials over the last 12 to 18 months to fix the problem, he said.

“We will decide in the near future our course of action,” Winterer said. “We believe we can provide information that will change the amount owed, and we believe it will be considerably less.”

The department can appeal the federal government’s demand. Doing so would postpone the required payment, but Foley said the state would have to pay the interest if it loses.

The repayment demand was for nearly $7.9 million in fiscal year 2012 and $14.1 million in fiscal 2011. Foley said the fiscal 2013 audit is ongoing, and could lead to other questionable expenditures.

The letters come on the heels of a similar federal demand for $3.2 million in August 2012. Nebraska appealed the demand, but ultimately agreed to the payment.

Foley said that if the department can’t find the money in its budget, state officials may have to ask lawmakers for additional funding to cover the cost.

“The kids in foster care aren’t going away, so the department will still have these costs,” Foley said. “The cost will shift to state taxpayers.”

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