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Mental Health Services Act
The State Could Better Ensure the Effective Use of Mental Health Services Act Funding

Report Number: 2017-117

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Health Care Services’ Ineffective Oversight of Local Mental Health Agencies and the Mental Health Services Fund Allowed Hundreds of Millions of Dollars to Remain Unspent

Key Points:

Health Care Services Has Not Developed a Process to Recover Unspent Funds From Local Mental Health Agencies

The MHSA intended for local mental health agencies to provide services for the mentally ill, not amass unspent funds. Nonetheless, Health Care Services has not ensured that local mental health agencies revert their unspent MHSA funds to the MHS Fund for the State to reallocate to other local mental health agencies. As we discuss in the Introduction, state law requires local mental health agencies to revert unspent MHSA funds within certain time frames. As Figure 1 in the Introduction shows, this time frame is either three years or 10 years, depending on the program category.4 Nonetheless, Health Care Services has not developed a methodology for the local mental health agencies to revert unspent funds, as Table 3 shows.

Table 3
Health Care Services’ MHSA Oversight

RESPONSIBILITY PROCESS FOR IMPLEMENTATION STATUS
Fiscal reversion
  (beginning 2012)		 Establish a process for MHSA funds that are unspent past statutory time frames and have reverted, and provide guidance related to this process to local mental health agencies. ✖
Establish a reversion calculation methodology and provide guidance related to this methodology to local mental health agencies. ✖
Require that the interest that the local mental health agencies earn on unspent MHSA funds be subject to the same reversion requirements as the funds themselves. ✖
Establish a prudent MHSA reserve level for the local mental health agencies. ✖
Establish controls over local mental health agencies’ deposits to and withdrawals from their MHSA reserves. ✖
MHS Fund administration
  (beginning 2012)		 Review and analyze its MHS Fund balance. ✖

Sources: California State Auditor’s analysis of state laws and regulations and Health Care Services’ policies and practices.
✖ = Not established.

Absent an incentive to spend their MHSA funds in a timely manner, local mental health agencies had accumulated $2.5 billion in unspent MHSA funds as of fiscal year 2015–16. The Appendix lists the local mental health agencies’ unspent funds balances by MHSA programs. Although local mental health agencies may spend each year’s allocation of MHSA funds over several years and may also maintain MHSA funds as reserves, Health Care Services estimated that as of September 2017 local mental health agencies should have returned $231 million of this $2.5 billion to the State because they did not spend it within required time frames. However, the Legislature enacted a one‑time change in state law in 2017 that allowed local mental health agencies to retain all funds that were subject to reversion as of July 1, 2017. Furthermore, this 2017 change in state law requires Health Care Services to develop a reversion calculation methodology and provide related guidance to the local mental health agencies. The MHSA reversion requirements begin again for the fiscal year 2017–18 funding cycle.

Although Health Care Services is now developing the reversion calculation methodology, we find it troubling that Health Care Services has been slow in implementing a reversion process. Health Care Services asserted that it did not enforce the reversion requirements because it believed that it must first develop regulations to establish processes for determining the amount of funds subject to reversion and for collecting the reverted funds. Although Health Care Services determined that it needed such regulations in fiscal year 2015–16, it claimed that other MHSA‑related priorities delayed it from developing them. According to Health Care Services, examples of the competing priorities included administering MHSA revenue and expenditure reports, developing performance contracts with local mental health agencies, serving as a subject matter expert for suicide prevention workgroups or activities, developing the Suicide Hotline Report, and responding to external reviews.

Health Care Services began development of draft regulations in 2016, but it does not plan to submit them for regulatory review until June 2018.5 State law generally requires state agencies to follow the Administrative Procedures Act when adopting regulations. Under this act, Health Care Services must engage in a public comment process after it proposes regulations and must simultaneously submit the proposed regulations to the Office of Administrative Law for review. This review process can take between four and 12 months. The Office of Administrative Law then publishes the proposed regulations in the California Regulatory Notice Register. As a result, if Health Care Services does submit the regulations in June 2018, these regulations would not be in place until sometime between October 2018 and June 2019. However, as the Introduction explains, Health Care Services has spent from $7.9 million to $8.6 million annually over the past four fiscal years to administer the MHSA, and since assuming responsibilities for the MHSA in 2012, its statutory authority includes developing regulations necessary to implement the MHSA. Given the funding it has received and the amount of time that has elapsed since it became responsible for developing these regulations, we believe Health Care Services should already have taken appropriate action to implement a reversion process.

Had Health Care Services met its statutory responsibilities to oversee the reversion of unspent MHSA funds, the local mental health agencies could have used other local mental health agencies’ unspent MHSA funds to provide critical mental health services, as the MHSA intended. For example, absent a reversion process, local mental health agencies statewide had accumulated a total of $85.2 million in unspent MHSA Community Support and Prevention funds as of the end of fiscal year 2015–16, as Table 4 indicates. However, the three local mental health agencies we visited—Alameda, Riverside, and San Diego counties—had little or no Community Support and Prevention funds subject to reversion as of the end of fiscal year 2015–16. In fact, Health Care Services’ records indicate that 46 local mental health agencies did not have Community Support funds subject to reversion and 28 local mental health agencies did not have Prevention funds subject to reversion as of the end of fiscal year 2015–16. These numbers suggest that many local mental health agencies could have used some of the $85.2 million in unspent MHSA funds to further support their Community Support and Prevention programs, if the local mental health agencies holding those unspent funds had reverted them as required. We will discuss reversion of Innovation funds later in this report.

Table 4
Local Mental Health Agencies’ MHSA Funds Subject to Reversion as of the End of Fiscal Year 2015–16

LOCAL MENTAL HEALTH AGENCY MHSA FUNDS SUBJECT TO REVERSION TOTAL
COMMUNITY SUPPORT PREVENTION INNOVATION
Alameda County — — $5,013,000 $5,013,000
Riverside County — $505,000 12,764,000 13,269,000
San Diego County — — 7,224,000 7,224,000
All local mental health agencies* $15,331,000 69,866,000 145,638,000 230,835,000

Source: Health Care Services’ calculation, as of September 2017, of MHSA funds subject to reversion as of the end of fiscal year 2015–16.
* As of December 2017, nine of the 59 local mental health agencies, including Los Angeles County, had not submitted their fiscal year 2015–16 annual reports, and an additional three had not finalized their annual reports in response to Health Care Services’ concerns. Consequently, for these 12 agencies, we had to rely on prior years' annual reports.

Health Care Services Has Not Taken Steps to Ensure That Local Mental Health Agencies Are Consistently Spending MHSA Interest

Although Health Care Services is primarily responsible for overseeing local mental health agencies’ spending of MHSA funds, it has not established guidance regarding the proper treatment of interest they earn on MHSA funds. As a result, local mental health agencies reported having accumulated $81 million in interest earned on MHSA funds through fiscal year 2015–16, as Table 5 shows. State law requires that local mental health agencies use the interest they earn on MHSA funds for their MHSA programs. However, state law does not specify the MHSA programs on which the local mental health agencies may spend interest or whether the interest is subject to reversion. Without statutory instructions to the contrary, the interest a government entity earns on deposited funds is generally subject to the same requirements as the funds earning the interest. Thus, accrued interest on MHSA funds, if not spent, is subject to the same three‑ or 10‑year reversion time frames as the MHSA funds themselves.


Table 5
The 59 Local Mental Health Agencies’ MHSA Revenue and Expenditures
Fiscal Year 2015–16
ALL 59 LOCAL MENTAL HEALTH AGENCIES COMMUNITY SUPPORT PREVENTION INNOVATION WORKFORCE TRAINING CAPITAL FACILITIES RESERVE INTEREST TOTAL
Unspent funds available $854,851,000 $351,033,000 $231,593,000 $81,014,000 $195,413,000 $530,106,000 $67,414,000 $2,311,424,000
Revenue* 1,120,396,000 295,642,000 78,330,000 9,005,000 19,662,000 5,066,000 17,597,000 1,545,698,000
Expenditures 883,814,000 270,074,000 58,092,000 29,308,000 78,361,000 — 4,297,000 1,323,946,000
Ending balance 1,091,433,000 376,601,000 251,831,000 60,711,000 136,714,000 535,172,000 80,714,000 2,533,176,000

Sources: The 59 local mental health agencies’ MHSA annual reports.

Note: As of December 2017, nine of the 59 local mental health agencies had yet to submit their fiscal year 2015–16 annual reports, and an additional three had not finalized their annual reports in response to Health Care Services’ concerns. Therefore, we relied on prior years’ annual reports for these 12 local mental health agencies.

* Revenue includes adjustments and transfers to reserves, Workforce Training projects, and Capital Facilities projects.

Absent Health Care Services’ guidance, the three local mental health agencies we visited—Alameda, Riverside, and San Diego counties—have not established policies governing how to spend interest on MHSA funds. For example, Alameda County reported $3.9 million in unspent MHSA interest as of fiscal year 2015–16. It stated that it has treated this interest as an additional fiscal reserve because it did not believe interest was subject to state law’s reversion requirements. Further, Riverside County indicated that due to unclear guidance from Health Care Services, it had accumulated $6.6 million in interest as of the end of fiscal year 2015–16 and did not believe interest was subject to reversion. Nonetheless, it indicated that it developed a five‑year MHSA spending plan that incorporates the spending of interest into its long‑term expenditures. Similarly, San Diego County amassed $11 million in MHSA interest and, lacking Health Care Services’ guidance, expressed uncertainty as to the proper treatment of this interest and whether it was subject to reversion. In contrast, we noted that some local mental health agencies have spent the interest they earned on MHSA funds. For example, Sacramento County reported that it spent all $772,000 of the interest it earned in fiscal year 2015–16 because it believed that consistent expenditure of accrued MHSA interest funds further promotes its mental health service programs.

The local mental health agencies’ inconsistent treatment of MHSA interest indicates the need for guidance from Health Care Services. Health Care Services confirmed that it plans to include guidance for how local mental health agencies should spend MHSA interest as part of the regulations it is developing. However, as we mentioned previously, it does not anticipate submitting these regulations for regulatory review until June 2018.6 Health Care Services’ delay in developing regulations regarding the interest on MHSA funds has allowed local mental health agencies to amass a growing balance of interest earnings that Health Care Services should have directed them to use to fund MHSA programs.

Lacking Health Care Services’ Guidance, the Local Mental Health Agencies Maintain Excessive MHSA Reserves

Since becoming responsible for overseeing the MHSA in 2012, Health Care Services has not defined what constitutes the appropriate reserve level that local mental health agencies should maintain from their MHSA fund allocations. We indicated in our August 2013 audit report that the State had not established any formal guidance on reserve requirements and recommended that Health Care Services issue such guidance. However, Health Care Services has not fulfilled this recommendation. State law requires local mental health agencies to maintain a reserve of MHSA funds to ensure that they do not have to significantly reduce mental health services during years when revenues fall below the average of previous years. However, state law does not specify the necessary reserve level. When Mental Health was responsible for the MHSA program, it required that local mental health agencies maintain reserves equal to 50 percent of the Community Support and Prevention funds they received in the prior year. However, Mental Health rescinded this requirement in 2011 without providing an explanation and instead permitted the local mental health agencies to use their own discretion to set reserve levels. Health Care Services continues to allow this practice.

Moreover, Health Care Services has not established a process for overseeing the local mental health agencies’ deposits to and withdrawals from their MHSA reserves. Before 2012 Mental Health was responsible for reviewing and approving such deposits and withdrawals; however, Health Care Services has not developed a similar approval process. Consequently, local mental health agencies are currently able to deposit funds to or withdraw funds from their reserves at their discretion. Further, because their MHSA reserves are not subject to reversion requirements, local mental health agencies can currently direct any unspent MHSA funds allocated to Community Support into their reserves to shelter the funds from reversion. As Table 5 shows, the local mental health agencies had collectively amassed $535 million in reserves as of the end of fiscal year 2015–16.

Lacking direction from Health Care Services, the 59 local mental health agencies set their reserve levels inconsistently. Specifically, for fiscal year 2015–16, the local mental health agencies’ reserves ranged from nonexistent for Mariposa and Shasta counties to 123 percent of the agency’s prior‑year Community Support funds for Mono County.7 In this fiscal year, the cumulative reserves of all 59 local mental health agencies equaled 47 percent of their total prior‑year Community Support funds.8 For example, Alameda County maintained a reserve of $18.1 million, or 56 percent of its prior‑year Community Support funds. Riverside and San Diego counties maintained reserves of $28.5 million, or 42 percent, and $42.2 million, or 40 percent, respectively. We contacted the three local mental health agencies that had the lowest and highest reserve balances for an explanation of their reserve levels. Mariposa stated that its reserve was depleted to pay off its overspending of Community Support funds in previous years, but that it expects to establish a reserve in fiscal year 2017–18. Shasta County indicated that it does not maintain an MHSA reserve because it makes its Community Support funds available to spend each year. In contrast, Mono County maintained a reserve of $1.7 million, or 123 percent, which it indicates is sufficient to cover its operation costs for one year.

We believe Health Care Services could use historical declines in MHSA funding for Community Support to establish a reasonable reserve level for local mental health agencies. As Figure 2 indicates, the MHSA funds that the State distributed to the local mental health agencies for Community Support fluctuated from year to year over the past 10 fiscal years. We identified 33 percent as the worst decline in this funding to the local mental health agencies in any one fiscal year, while the average decline—for fiscal years in which declines occurred—was 23 percent. Health Care Services could use either of these numbers to determine a reasonable reserve level and to establish a process for allowing local mental health agencies to move funds to or from their reserves. We estimated that if Health Care Services had required the local mental health agencies to maintain reserve levels of 23 percent for fiscal year 2015–16, they could have had an additional $274 million available to provide mental health services. Alternately, under a more conservative approach, Health Care Services could have set the reserve level at 33 percent, in which case we estimate that the local mental health agencies would have had an additional $157 million to spend on mental health services in fiscal year 2015–16.

Figure 2
Percentage Change in Local Mental Health Agencies’ Total Community Support Allocations
Fiscal Years 2007–08 Through 2016–17

Line graph showing the annual percentage change in local mental health agencies' total community support allocations from fiscal years 2007–08 through 2016–17..

Sources: The State Controller’s annual reports on the local mental health agencies’ MHSA apportionments and the 2017–18 California State Budget.


Health Care Services intends to include a standard reserve level in regulations on MHSA fiscal issues that it will submit for regulatory review by June 2018, as we previously discussed.9 However, we are concerned that the reserve level it may eventually set may be too high. Specifically, Health Care Services contracted with a consultant in December 2016 to determine an optimal range of reserve levels to maintain services during an economic downturn. The consultant determined that a range of between 64 percent and 82 percent of total MHSA expenditures would be prudent. The consultant based its calculation on what it believed to be sufficient levels of reserves for local mental health agencies to serve the same number of clients during the most recent economic recession. However, we believe the consultant’s range is excessive when compared to the MHSA revenue trends that we identified in Figure 2. If Health Care Services implemented the consultant’s recommendation, it could result in a reduction of funds available to provide MHSA services.

Absent Health Care Services’ establishment of a reasonable reserve level, local mental health agencies may continue to amass excess reserves instead of using these funds to provide additional mental health services. Moreover, those reserves will continue to earn interest, for which—as we noted previously—the local mental health agencies lack spending guidance.

Health Care Services Had Not Questioned Whether the $225 Million Fund Balance in the MHS Fund Was Potentially Available to Local Mental Health Agencies

Health Care Services has not exercised appropriate oversight of the MHS Fund balance under its authority, which totaled $225 million as of the end of fiscal year 2015–16. In 2012, when Health Care Services became responsible for the MHSA, it also became responsible for its departmental appropriations from the MHS Fund. Annually, these appropriations have included spending up to $8.6 million for Health Care Services’ oversight responsibilities and a much larger amount—$1.4 billion in fiscal year 2015–16—for allocation to local mental health agencies. However, as of the end of fiscal year 2015–16, the MHS Fund had a fund balance of $225 million, which relates to Health Care Services. Our analysis of the MHS Fund balance discovered this amount, which the State Controller’s accounting records indicate has existed since at least the time that Health Care Services took over the administration of MHSA in 2012.

Health Care Services stated that it was aware of the $225 million fund balance as part of its monthly reconciliations to the State Controller’s accounting records, but acknowledged that it did not recognize that this balance needed further review to determine the nature of the appropriation, whether it represented funds that were due to local mental health agencies, or why it existed in the MHS Fund balance. Following our discussion in January 2018, Health Care Services reviewed the MHS Fund balance and asserted that the $225 million balance does not represent funds that are due to local mental health agencies, but it could not provide evidence to support its assertion or explain why the fund balance existed. Moreover, in February 2018, the State Controller made an adjustment to the MHS Fund to remove the $225 million fund balance. Health Care Services indicated that it will work with the State Controller to ascertain the reason for this adjustment and determine if there is any impact on funding to local mental health agencies. However, until Health Care Services completes its analysis of the fund balance to determine why it existed, there is uncertainty as to whether the fund balance represents cash that it could distribute to local mental health agencies or a long‑standing accounting error that Health Care Services failed to identify and correct.

Recommendations

To effectively monitor MHSA spending and provide guidance to the local mental health agencies, Health Care Services should publish its proposed regulations in the California Regulatory Notice Register by June 2018 and subsequently take the following actions.

Health Care Services should complete its analysis of the $225 million fund balance in the MHS Fund by May 1, 2018, to determine why this balance existed, whether there is any impact on funding to the local mental health agencies and, if so, distribute those funds accordingly. Further, it should establish a process to regularly scrutinize the MHS Fund to identify any excess fund balances and the reasons for such balances.


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Health Care Services Has Provided Only Minimal Oversight of the MHSA Funds That Local Mental Health Agencies Received

Key Points:

Health Care Services Has Not Enforced MHSA Reporting Deadlines

As Table 6 shows, although Health Care Services developed reporting instructions, it has made little effort to ensure that local mental health agencies submit their MHSA annual reports on time. State law requires Health Care Services to administer, collect, and publish the annual reports, which identify each local mental health agency’s MHSA Fund revenues, expenditures, and interest earned. Because state law requires Health Care Services to use the annual reports to determine any MHSA funds subject to reversion, their timeliness is critical to its ability to perform its oversight functions. State regulation requires the local mental health agencies to submit their annual reports by December 31 following the end of the fiscal year, June 30. Although Health Care Services developed instructions to facilitate completion of the annual reports, its records show that most local mental health agencies have failed to submit their annual reports on time over the past four years. For example, only one of the 59 local mental health agencies submitted its fiscal year 2015–16 annual report by the regulatory deadline.

Further, Health Care Services’ records contain numerous instances of local mental health agencies submitting their reports long after the deadlines have passed. For example, as of December 2017, nine local mental health agencies had yet to submit their fiscal year 2015–16 annual reports, and an additional three had not finalized their annual reports in response to Health Care Services’ concerns. One of the nine local mental health agencies that did not submit its fiscal year 2015–16 annual report is Los Angeles County (Los Angeles)—the largest local mental health agency in the State. Los Angeles indicated that it expects to submit the fiscal year 2015–16 annual report in early 2018, and it asserted that it will be able to meet the submission deadline for future reports after it finalizes an overhaul of its cost reporting process, which it expects to complete by fiscal year 2018–19. In addition, Lake County has not submitted annual reports since fiscal year 2011–12, which it attributes to an administrative oversight and staff turnover, and it is currently working to prepare the missing reports. Because Health Care Services has not ensured that the local mental health agencies submit their annual reports in a timely manner, it lacks current information regarding their MHSA funding, hampering its efforts to calculate MHSA reversion amounts and to monitor local mental health agencies’ spending of MHSA funds.

Table 6
Health Care Services’ MHSA Oversight

RESPONSIBILITY PROCESS FOR IMPLEMENTATION STATUS
Annual reports
  (beginning 2012)		 Develop instructions for local mental health agencies to complete the annual reports. ✔
Establish and enforce a process to withhold MHSA funds from local mental health agencies that fail to submit their annual reports by the statutory deadline. ✖
Fiscal audits
  (beginning 2012)		 Establish a fiscal audit process for local mental health agencies’ use of MHSA funds. ✔
Establish a schedule for fiscal audits of local mental health agencies’ use of MHSA funds. ✖
Program reviews
  (beginning 2016)		 Establish a review process for local mental health agencies’ MHSA programs. ✖
Establish a schedule for reviews of local mental health agencies’ MHSA programs. ✖

Sources: California State Auditor’s analysis of state laws and regulations and Health Care Services’ policies and practices.
✔ = Established.
✖ = Not established.

Lacking stronger enforcement by Health Care Services, local mental health agencies do not have an incentive to submit their annual reports in a timely manner. Although Mental Health had established regulations allowing it to withhold funds from local mental health agencies that did not submit the annual reports on time, Health Care Services concluded in 2014 that state law did not clearly support these regulations and that it might be at risk of legal challenges if it followed them. Nevertheless, Health Care Services has made minimal effort to address its perceived lack of enforcement authority. In fact, Health Care Services has had the legal authority, as well as the funding, to establish regulations that would allow it to implement sanctions against local mental health agencies that do not comply with the annual reporting requirements since 2012, when it became responsible for the MHSA. Although Health Care Services intends to address this issue in regulations it is currently developing, it does not anticipate submitting these regulations for regulatory review until June 2018.10 As we discussed previously, our legal counsel indicated that this review process can take between four and 12 months.

In 2016 Health Care Services developed an outreach process to provide technical assistance to the local mental health agencies when they complete the annual reports, and it adopted annual report deadline reminders, including an internal tracking sheet that identifies the status of outstanding annual reports. However, Health Care Services acknowledged that as part of its outreach process, it extended annual report deadlines for some local mental health agencies, stating that it did so because it believed it had no clear legal authority to enforce report deadlines. Absent specific legal authority for allowing it to formally change the submission deadline, our legal counsel believes that Health Care Services’ deadline extensions are unlawful. Furthermore, Health Care Services explained that it is not tracking the number of deadline extensions it has granted to the local mental health agencies and will not enforce the established annual report submission deadline until it implements new regulations that give it the right to do so. Unless it ensures that local mental health agencies submit their annual reports on time, Health Care Services will hamper its own efforts to effectively monitor MHSA spending, reserves, interest earned, and funds subject to reversion.

Health Care Services Has Not Effectively Implemented Fiscal Audits and Program Reviews of Local Mental Health Agencies’ Use of MHSA Funds

Health Care Services has not implemented meaningful oversight of local mental health agencies’ MHSA spending and programs. According to state law, Health Care Services must enter a performance contract with each local mental health agency that establishes how the local mental health agency will implement MHSA requirements (performance contract). As part of the performance contract, the local mental health agency must agree to comply with all state laws and regulations regarding the allocation and use of MHSA funds, and it also must agree to allow access to its records and programs for state audits and reviews. Health Care Services decided to begin conducting MHSA fiscal audits in 2014. However, Health Care Services has been slow to begin conducting local MHSA fiscal audits and program reviews despite having had the authority and the funding to fulfill these responsibilities. Further, some of its decisions regarding the fiscal audits it has conducted have significantly limited their usefulness.

Although Health Care Services has taken some steps toward implementing fiscal audits, it had not completed an audit for any local mental health agency as of December 2017. Specifically, in 2014 Health Care Services developed a process for MHSA fiscal audits and hired three permanent audit staff. However, as of December 2017, it had completed fieldwork at only three local mental health agencies—San Diego, Glenn, and Solano counties—and these audits are not yet finalized. Health Care Services stated that before it conducts additional audits, its MHSA audit and program staff will need to collaborate to develop a schedule of planned audits. Further, Health Care Services indicated that it will not release audit results for local mental health agencies until it establishes a regulatory appeals process that enables them to challenge any of its findings of unallowed costs. Health Care Services indicated that these appeals regulations are separate from its regulations for fiscal issues, and it will not submit the appeals regulations for regulatory review until approximately September 201811—four years after it developed its audit process. As described previously for the regulatory approval process, if Health Care Services submits its regulations for regulatory review in September 2018, this process may take between four and 12 months, and thus these regulations would not be in place until sometime between January 2019 and September 2019.

Further, Health Care Services made a decision regarding the focus of its fiscal audits that has limited their value and relevance for assessing fiscal controls over the current operations of local mental health agencies. Specifically, Health Care Services decided to conduct its MHSA fiscal audits in conjunction with its reviews of California Medical Assistance Program (Medi‑Cal) cost reports to ensure that the reported expenditures from both MHSA and Medi‑Cal programs were consistent and unduplicated. However, a backlog of overdue Medi‑Cal cost reports has resulted in Health Care Services focusing on significantly outdated data and processes during the three fiscal audits for which it has completed fieldwork. For example, its audit of San Diego County (San Diego) focused on fiscal year 2008–09 MHSA funding. Thus, the audit’s findings and recommendations would be of limited value given the age of the information under review. According to Health Care Services, San Diego’s Medi‑Cal report submissions are backlogged and fiscal year 2008–09 was the most recent year for which Health Care Services could review both Medi‑Cal and MHSA information in San Diego. Health Care Services acknowledged that performing fiscal audits on more recent fiscal years may be needed to ensure more relevant reviews and findings of controls over MHSA funds.

In addition, Health Care Services has been slow to implement a comprehensive MHSA program review process that will enable it to assess how each local mental health agency allocates, spends, and monitors its MHSA funds. In our August 2013 report, we noted that we had found no evidence that the State conducted systematic and comprehensive monitoring of local mental health agencies to ensure that their MHSA programs were both effective and compliant with MHSA requirements. Thus, we recommended that Health Care Services conduct such comprehensive on‑site MHSA program reviews. We remain concerned that Health Care Services has still not fulfilled this recommendation. A 2016 amendment to state law requires that at least once every three years Health Care Services conduct program reviews of the local mental health agencies’ performance contracts. The intent of the program reviews is to determine the local mental health agencies’ compliance with the terms of the performance contracts and with MHSA requirements. Although this law took effect in 2016, Health Care Services has yet to establish a schedule of program reviews and does not anticipate beginning the program reviews until July 2018 at the earliest. Health Care Services indicated that it first needs to develop the review process.

Recommendations

To ensure that it provides effective oversight of local mental health agencies’ reporting of MHSA funds, Health Care Services should publish its proposed regulations in the California Regulatory Notice Register by June 2018. Health Care Services should then subsequently implement a process that will enable it to withhold MHSA funds from local mental health agencies that fail to submit their annual reports on time.

To ensure that local mental health agencies appropriately spend MHSA funds, Health Care Services should publish its proposed regulations in the California Regulatory Notice Register by September 2018. It should then develop and implement an MHSA fiscal audit process, independent of the Medi‑Cal reviews, to review revenues and expenditures for the most recent fiscal year.

To ensure that local mental health agencies comply with their performance contracts and MHSA requirements, Health Care Services should establish a process for conducting comprehensive program reviews and begin conducting those reviews by July 2018.


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The Oversight Commission Is Implementing Processes to Evaluate the Effectiveness of MHSA‑Funded Programs

Key Points:

Table 7
The Oversight Commission’s MHSA Oversight
RESPONSIBILITY PROCESS FOR IMPLEMENTATION STATUS
Innovation project approvals
  (beginning 2012)		 Establish and follow a process for approving the local mental health agencies’ Innovation projects. ✔
Adopt a process that results in the local mental health agencies’ improved understanding of Innovation projects. ✔
Innovation project reporting
  (beginning 2018)		 Adopt regulations for Innovation project reporting. ✔
Establish and follow checklists and guidelines for staff to review annual Innovation status reports. ✖
Prevention project reporting
  (beginning 2018)		 Adopt regulations for Prevention project reporting. ✔
Establish and follow guidelines for staff to review Prevention status reports. ✖
Triage grants
  (beginning 2013)		 Establish and follow a schedule for the local mental health agencies to submit reports on the progress and outcomes of their triage grants. ✔
Establish outcome metrics to evaluate the effectiveness of triage grants. ✖

Sources: California State Auditor’s analysis of state laws and regulations and the Oversight Commission’s policies and practices.
✔ = Established.
✖ = Not established.

MHSA Innovation Projects

State law requires that an Innovation project do one of the following:

Further, an Innovation project must address one of the following as its primary purpose:

Source: Welfare and Institutions Code.

The Oversight Commission Is Implementing Processes to Provide Technical Assistance to and Improve Dialogue With the Local Mental Health Agencies Regarding Innovation Projects

As we discuss in the Introduction, the Oversight Commission is responsible for reviewing and approving local mental health agencies’ uses of Innovation funds before the agencies spend those funds. As the text box shows, state law requires that Innovation projects focus on the provision of creative services and approaches to meet certain purposes, such as increasing the quality of services or increasing access to underserved populations. However, local mental health agencies have struggled to spend Innovation funds within the required time frames. In fact, even though Innovation funds are only 5 percent of the total MHSA funds that local mental health agencies receive, Health Care Services identified that they make up $146 million—or 63 percent—of the $231 million in MHSA funds subject to reversion as of the end of fiscal year 2015–16.

Several factors in particular may have contributed to the local mental health agencies’ inability to spend Innovation funds in a timely manner. Specifically, the Oversight Commission’s Innovation subcommittee noted three challenges that local mental health agencies face when developing viable Innovation projects. The first challenge is pressure from their stakeholders to focus on direct services that are less risky and that result in easily attainable outcomes. The second challenge is a lack of clarity as to the types of projects the commissioners, who vote whether to approve a project, consider “innovative.” The third challenge local mental health agencies face is not enough dissemination of lessons learned from project ideas that did not succeed and limited sharing of new project ideas among local mental health agencies. In addition, the three local mental health agencies we visited—Alameda, Riverside, and San Diego counties—expressed frustration with the approval process because the commissioners do not always approve their Innovation project even though they worked with the Oversight Commission to prepare the plans. For example, San Diego indicated that the commissioners did not initially approve requests to extend and expand an existing Innovation project because they questioned the innovativeness of the proposals and the outcomes. However, the commissioners had approved the initial Innovation project. Further, Riverside County noted that the commissioners did not approve its proposed project—a collaboration with San Bernardino County to improve access to mental health care in emergency rooms—even though the Oversight Commission had given only positive feedback about the project over the course of three consultation calls. Among other concerns, the commissioners said that the proposed project had inconsistencies, such as expanding mental health services in emergency rooms while stating a need to divert mental health consumers from emergency rooms. The commissioners encouraged the two counties to resubmit the project after revising it to address these concerns.

The Oversight Commission asserted that actions it is taking are improving the local mental health agencies’ understanding of projects that the commissioners find innovative. Specifically, the Oversight Commission established a subcommittee on Innovation projects, which held its first meeting in May 2017 to listen to and engage with MHSA stakeholders—such as local mental health agencies, health care providers, consumers, and family members—regarding strategies to support and improve opportunities for using Innovation funds. The subcommittee met again in July 2017, and based on that meeting, it developed a flowchart that details the steps for project approval, as well as a template to assist local mental health agencies in developing and presenting their Innovation projects. Although Health Care Services already had an existing template it made available to local mental health agencies, the subcommittee’s updated template provides specific details about the information that the agencies should include in their proposed Innovation projects, such as a narrative description of the project, the problem in the community that the project addresses, the sustainability of the project, and recommended content and structure of the presentation to the commissioners. However, the Oversight Commission stated that the subcommittee has fulfilled its mission to engage with local mental health agencies on strategies to support Innovation projects, and it is unclear whether it will keep or disband the subcommittee. Until the Oversight Commission can demonstrate that local mental health agencies are spending Innovation funds within the required time frames, we believe that it should maintain the Innovation subcommittee or a similar mechanism to evaluate whether its efforts are effective in improving local mental health agencies’ understanding of innovative projects.

In addition, the Oversight Commission stated that it wants to create opportunities for local mental health agencies to share ideas and disseminate lessons learned from previous Innovation projects. To this end, the Oversight Commission partnered with local mental health agencies, community members, and private sector groups to organize a one‑day Innovation event in February 2018 to bring together 250 mental health and innovation leaders to identify technical assistance resources available to local mental health agencies. At this event, participants engaged in activities to help create innovative solutions and approach problem solving in new ways to improve the mental health system.

We believe these actions are reasonable steps to encourage more engagement and dialogue between the local mental health agencies and the Oversight Commission. However, it is too soon to know the impact that these actions will have on improving local mental health agencies’ understanding and reducing the level of unspent Innovation program funds.

Innovation Project Approval Process

A local mental health agency can expend funds for an Innovation project upon approval by the Oversight Commission. To secure the Oversight Commission’s approval for an Innovation project, a local mental health agency must do the following:

Sources: Welfare and Institutions Code and the Oversight Commission's Innovation Review Process flowchart.

The length of the Oversight Commission’s approval process does not appear to have been one of the factors affecting the ability of local mental health agencies to spend Innovation funds. As the text box indicates, local mental health agencies must undergo a multistep process to receive approval for their Innovation project from the Oversight Commission. The Oversight Commission does not have a standard time frame for how long this approval process should take because it believes that establishing a standard approval time frame is not practical. Specifically, it stated that the review time depends on when a local mental health agency submits its Innovation project and when the Oversight Commission meets to review that project. We found that from December 2015 through August 2017, the Oversight Commission approved 58 Innovation projects and denied four projects that it received. The Oversight Commission reviewed 48 of the 58 approved Innovation projects, or 83 percent, within three months of their receipt. It approved six additional projects within six months, while it took more than six months to approve the remaining four projects.

The Oversight Commission noted that the local mental health agencies may delay the approval process by withdrawing and resubmitting their projects based on their level of readiness for review. As discussed previously, the Oversight Commission is undertaking efforts to provide technical assistance and improve dialogue with the local mental health agencies regarding its process for approving Innovation projects. These efforts should help reduce delays in the approval process.

The Oversight Commission Is Adopting a Process for Analyzing the Local Mental Health Agencies’ Status Reports for Prevention and Innovation Projects

The Oversight Commission is taking steps to implement its responsibility to evaluate the effectiveness of the Prevention and Innovation projects. In response to a 2013 change in state law, the Oversight Commission issued regulations in October 2015 requiring local mental health agencies to annually provide detailed demographic data on individuals that their Prevention projects have served. Additionally, in response to the same 2013 state law change, the Oversight Commission issued regulations that require the local mental health agencies to annually submit status reports for each Innovation project. According to the Oversight Commission, it intends to use both of these sources of information to determine who the Prevention and Innovation projects are serving and thus enable detailed reporting on access to care. Further, the Oversight Commission’s goal is to promote public accountability and oversight by tracking funding, services, and outcomes. The Oversight Commission required that local mental health agencies submit their first Prevention and Innovation status reports by the end of December 2017.

Although the Oversight Commission has hired new staff and is streamlining its internal processes to focus on research and evaluation—including the development of reporting templates—it has not yet fully developed processes to guide staff in their monitoring efforts. In particular, the regulations for the Prevention status reports require detailed demographic data on the populations that the local mental health agencies serve. With these data, the Oversight Commission intends to be able to evaluate strategies for monitoring outcomes, to measure how well the local mental health agencies are achieving the goals of the MHSA, and to explore strategies for improvement. However, when the Oversight Commission adopted the regulations, local mental health agencies expressed three main concerns with the reporting requirements. First, they believed that providing all the required information would be difficult because Health Care Services did not have the ability to electronically receive the more detailed data. Second, they believed that that the regulatory requirements might be inconsistent with the manner in which they initially established their MHSA programs. Finally, the local mental health agencies were concerned about the lack of a standard to measure and report the durations of untreated mental illnesses. In response, the Oversight Commission agreed to modify the regulations, a process that it expects to complete no later than July 2018.

Moreover, according to the Oversight Commission, it has not developed internal processes to review and analyze the Prevention and Innovation reports because it believes it cannot determine what areas the staff will need to monitor until it finds out whether the local mental health agencies will submit all the required data on time and whether the data they report will be valid and reliable. The Oversight Commission has asserted that it does not have the enforcement authority to ensure that local mental health agencies comply with the reporting requirements; rather, it only has the authority to refer issues for enforcement to Health Care Services. Thus, the Oversight Commission anticipates that developing the ability to analyze the data the local mental health agencies report will take about one year. Despite these anticipated challenges, we believe that the Oversight Commission should implement a process in a timelier manner to review and evaluate the status reports to provide oversight and accountability of MHSA programs as the law requires.

In addition, the Oversight Commission is currently developing data tools that track local mental health agencies’ funding, services, and outcomes. In August 2017, the Oversight Commission launched an online MHSA fiscal transparency tool that uses an interactive map to display the 59 local mental health agencies’ annual MHSA revenues, expenditures, and year‑end balances of unspent funds. However, the effectiveness of this tool is dependent on the local mental health agencies’ annual reports, and as we discussed previously, because of the lack of enforcement by Health Care Services, the local mental health agencies have often submitted the annual reports late or not at all. The Oversight Commission stated that the fiscal transparency tool is a first step in its plan to develop online tools to enhance public accountability for the local mental health agencies’ spending of MHSA funds. The second step is a tool to provide the public with information on the MHSA services available in each county, and the Oversight Commission expects to launch an initial version of this tool by December 2018. The third step involves a tool for tracking project outcomes, and the Oversight Commission estimated that it will be between three and five years before it adopts metrics on MHSA outcomes because it is currently analyzing existing data sources, developing data use agreements, and establishing the legal authority to access needed data.

Although we believe that the Oversight Commission is now taking adequate steps to develop data tools that enhance public accountability and awareness of the MHSA, it acknowledges that it has faced challenges in its ability to report and evaluate outcomes due to its limited resources dedicated to research and evaluation. To fulfill its statutory responsibility, the Oversight Commission should ensure that it launches all three data tools as planned.

The Oversight Commission Is Developing Statewide Metrics to Evaluate the Effectiveness of MHSA‑Funded Triage Grants

The Legislature created the MHSA triage grants in 2013 with the intent of establishing a competitive grant process, administered by the Oversight Commission, that would enable local mental health agencies to add at least 600 mental health triage personnel statewide, among other objectives. The intent of these triage grants is to expand the number of mental health personnel available at various points of access throughout the community, such as emergency rooms, jails, homeless shelters, and clinics. The funding for triage grants comes from the MHSA’s 5 percent state administrative funds.

In its 2014 status report to the Legislature, the Oversight Commission indicated that in its first funding cycle it had awarded three‑year grants to 22 local mental health agencies in fiscal year 2013–14, with an annual total allocation of $32 million in MHSA funds. Additionally, the Oversight Commission awarded three‑year grants to two more local mental health agencies because it had unexpended funds from fiscal year 2013–14. In 2016 the Legislature approved the funding of the triage grant program through June 2018. According to the Oversight Commission, it granted amendments to 18 of the 24 local mental health agencies that had received grants in fiscal year 2013–14 to extend these grants for one more year, through fiscal year 2017–18. The Oversight Commission announced availability of the grants for the next three‑year funding cycle in December 2017 and plans to award the grants in summer 2018.

Although state law anticipates that the Oversight Commission will evaluate the effectiveness of the services provided through the grants, the Oversight Commission has indicated that it has faced challenges in creating a consistent statewide picture based on the local mental health agencies’ individual evaluations. The Oversight Commission requires the local mental health agencies that receive the grants to submit progress reports on the number of triage personnel they have hired, the individuals they have served, and the encounters with individuals that have led to referrals to mental health services. The Oversight Commission reviews these reports and conducts site visits to ensure that the grantees have attained the goals they identified in their grant applications. Nonetheless, the Oversight Commission stated that during the initial round of triage grant awards, it prioritized implementing services, and consequently it did not develop a unified evaluation approach but rather chose to let the grant applicants specify how their projects would be evaluated.

In October 2016, the Oversight Commission conducted a survey to which 20 local mental health agencies responded to assess which local mental health agencies were collecting data that could be used to evaluate the success of the triage grants. The Oversight Commission expressed that these survey data provided some basis for a statewide assessment of the effectiveness of the triage grant program. However, it also stated that the evaluations it received from the local mental health agencies represented different approaches and proved too diverse for the Oversight Commission to aggregate and translate into a statewide picture. The Oversight Commission indicated that it will allocate a portion of the newest round of triage grant funds for a statewide evaluation that may include the use of a third‑party contractor to conduct a statewide analysis.

Although these steps are reasonable, we question why the Oversight Commission did not establish a process for evaluating the effectiveness of the MHSA triage grants sooner, given that the law has been in place since 2013. The Oversight Commission stated that the focus for the first round of triage grants was to implement services as quickly as possible, rather than to establish statewide evaluation criteria. Without the statewide metrics, local MHSA stakeholders are unable to fully evaluate the effectiveness of the triage grants and the Oversight Commission is not fulfilling its statutory responsibility to conduct such evaluations.

Recommendations

To ensure that local mental health agencies are able to spend Innovation program funds in a timely manner, the Oversight Commission should continue its efforts to help local mental health agencies understand the types of Innovation projects that the commissioners believe are appropriate. These efforts should include engagement and dialogue with local mental health agencies through Innovation events and forums about the types of innovative approaches that would meet the requirements of the MHSA. The Oversight Commission should use meetings of the Innovation subcommittee or a similar mechanism to evaluate the progress of its efforts to reduce unspent Innovation funds and the need for continued engagement and dialogue with local mental health agencies.

To ensure proper oversight and evaluation of outcomes for the Prevention and Innovation projects, the Oversight Commission should finalize its internal processes for reviewing and analyzing the program status reports no later than July 2018. Further, in order to fulfill its statutory responsibility to provide oversight and accountability for MHSA programs, the Oversight Commission should ensure that it launches all three data tools to track local mental health agencies’ funding, services, and outcomes as it intends.

To ensure that the MHSA‑funded triage grants are effective, the Oversight Commission should require that local mental health agencies uniformly report data on their uses of triage grants. It should also establish statewide metrics to evaluate the impact of triage grants by July 2018.


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Other Areas We Reviewed

To fully address the audit objectives that the Joint Legislative Audit Committee (Audit Committee) approved, we also reviewed the subject areas described below. The text that follows indicates the results of our review and any associated recommendations that we do not discuss in other sections of this report.

The Local Mental Health Agencies We Reviewed Allocated MHSA Funds Appropriately

Under state law, the 59 local mental health agencies receive MHSA funds to expand mental health services to individuals requiring these services. For this audit, we reviewed three local mental health agencies—Alameda, Riverside, and San Diego counties—to assess how they allocated and monitored their MHSA funds. These three local mental health agencies complied with MHSA legal requirements regarding allocation of their MHSA funding. Specifically, they complied with state law that requires them to prepare three‑year plans that detail how they will use MHSA funds for mental health services projects. In compliance with state law, they also provided periods for public review and comment regarding these plans, then obtained approval from their respective county board of supervisors. In addition, the counties’ mental health directors and auditor‑controllers certified the plans as compliant with the MHSA. The three local mental health agencies we visited had their MHSA three‑year plans and annual updates publicly available on their websites. Our review found that the local mental health agencies’ plans detailed their various MHSA‑funded projects and the planned benefits from these projects.

The Local Mental Health Agencies We Reviewed Generally Monitored Their MHSA‑Funded Projects Effectively

To assess how the three local mental health agencies monitored the spending and outcomes of the MHSA projects they funded, we reviewed 10 MHSA‑funded projects—two from each of the five program categories—at each of the three local mental health agencies we visited. At each local mental health agency, vendors or the agency itself operated these projects. Although the outcomes that we reviewed varied due to differences in program structure, we found that the three local mental health agencies generally had sufficient controls to ensure that they paid vendors appropriately. We also found that two of the three local mental health agencies appropriately monitored their MHSA programs.

San Diego County

San Diego had appropriate processes to monitor MHSA projects and adequate payment controls for vendor invoices. For example, for each of the 10 projects we reviewed, San Diego conducted a risk assessment, performed monitoring activities such as site visits and reviews of progress reports, and collected outcome data. Further, for the 10 invoices we reviewed, San Diego had support for the total amounts that the vendors requested and followed its internal control policies when making the payments to the vendors.

Riverside County

The Riverside County local mental health agency (Riverside) appropriately monitored its MHSA projects and vendor invoices. We reviewed 10 MHSA projects at Riverside—five that it operated and five that were vendor‑operated. We found that Riverside performed appropriate monitoring of these 10 projects through site visits or other review activities. In addition, we found that Riverside properly approved the five vendor invoices we reviewed, including requiring that the vendors provide proper support for the services for which they claimed payment.

Alameda County

Although we found that the Alameda County local mental health agency (Alameda) had appropriate payment controls for vendor invoices and grantee disbursements, it did not adequately monitor its MHSA projects. We reviewed 10 invoices and grantee disbursements and determined that Alameda had adequate payment controls and proper support for the amounts it paid. However, Alameda was unable to demonstrate that it actively monitored four of the 10 projects we reviewed. For example, it contracted with a vendor to provide rehabilitation services for adults with mental illnesses and co‑occurring substance use disorders. However, Alameda was unable to demonstrate how it monitored the outcomes of this vendor’s services. In addition, for the two Innovation projects we reviewed, Alameda did not document the results of its site visits. According to Alameda, it has faced challenges in developing a structured and systematic monitoring system due to staffing capacity, staff vacancies and turnover, and changes in leadership. Alameda acknowledged that its monitoring could be improved and stated that it intends to strengthen its efforts.

Recommendations

Alameda

To strengthen its monitoring of MHSA projects and ensure that it spends MHSA funds appropriately, Alameda should develop and implement MHSA program monitoring guidelines to ensure that staff appropriately perform and document their monitoring activities.

MHSA Funding of the No Place Like Home Program

Despite legal challenges, the Department of Housing and Community Development (Community Development) has taken reasonable actions to implement the No Place Like Home Program (Home Program), which the MHSA will fund. In 2016 state law enacted the Home Program and dedicated $2 billion in bond proceeds to finance the capital costs of permanent, supportive housing for individuals who are in need of mental health services and who are experiencing homelessness or chronic homelessness, or who are at risk of chronic homelessness. Community Development is responsible for administering grants to the local mental health agencies to implement the Home Program—including $1.8 billion it will award in competitive grants to local mental health agencies and $200 million in financing for permanent supportive housing that it will distribute to the local mental health agencies based on their homelessness populations. Community Development has developed program guidelines and is in the process of developing forms and instructions that it believes will be ready when the MHSA funds become available.

However, Community Development is currently involved in court proceedings that have stalled its ability to execute the Home Program grants. In November 2016, a private citizen filed a lawsuit contending, among other issues, that the Home Program violates the intent of the MHSA because, the individual asserts, the Home Program would use MHSA funds to build housing for individuals who are not mentally ill. However, Community Development indicated that it will require local mental health agencies to demonstrate that they are meeting the Home Program’s criteria of providing housing for individuals with a mental illness. Community Development anticipates that the lawsuit will be decided in the spring of 2018 and is hopeful that it will announce the availability of the grants in the summer of 2018.


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Scope and Methodology

The Audit Committee directed the California State Auditor to review the funding and oversight of the MHSA. The audit scope includes eight audit objectives. Table 8 lists the audit objectives and the methods we used to address them.


Table 8
Audit Objectives and the Methods Used to Address Them
Audit Objective Method
1 Review and evaluate the laws, rules, and regulations significant to the audit objectives. Reviewed relevant state laws, regulations, and other background materials applicable to the MHSA.
2 Review and evaluate the roles and responsibilities of Health Care Services, the Oversight Commission, the State Controller, and any other state agency related to the MHSA and the programs and activities funded by the MHSA. Determine whether these entities are meeting the requirements of the MHSA.

For this audit we focused on Health Care Services and the Oversight Commission because state laws and regulations authorize these entities to ensure that local mental health agencies spend MHSA funds appropriately. Further, beginning in 2016, Community Development is responsible for administering $2 billion in MHSA‑funded grants to local mental health agencies for the Home Program.

  • Obtained and reviewed internal policies and procedures and interviewed officials at Health Care Services, the Oversight Commission, the State Controller, and Community Development to identify and determine their roles and responsibilities related to the MHSA.
3 Review Health Care Services’ MHSA funding allocation and positions for the most recent five-year period and evaluate how the agency is using these funds to implement and oversee the MHSA.

To review Health Care Services’ MHSA funding allocations and positions, we performed the following:

  • Interviewed Health Care Services’ management and budget personnel.
  • Obtained and reviewed Health Care Services’ MHSA monitoring policies and procedures and interviewed its management and budget personnel—including MHSA reversion requirements and calculation methodologies, MHSA annual reporting instructions, and its processes for implementing MHSA program reviews and fiscal audits of the local mental health agencies.
  • Obtained and reviewed Health Care Services’ MHSA funding and position allocation for fiscal years 2011–12 through 2015–16.
4 Determine and evaluate the process by which reversion amounts are calculated, communicated to relevant entities, and returned to the State from the relevant entities. Assess whether these processes comply with the MHSA. To identify the State’s MHSA reversion process and determine if it complies with MHSA requirements, we reviewed state laws. We also interviewed officials at Health Care Services and the three local mental health agencies we visited—Alameda, Riverside, and San Diego counties—regarding policies and procedures for implementing MHSA reversion requirements.
5 To the extent possible, determine and analyze the following over the past five fiscal years: To assess this objective, we performed the following tasks at Health Care Services and the three local mental health agencies we visited—Alameda, Riverside, and San Diego counties:
a. The amount of MHSA funds that were subject to reversion.
  • Reviewed Health Care Services’ proposed methodology, as of September 2017, for determining the MHSA funds subject to reversion, which indicated that $231 million was subject to reversion as of the end of fiscal year 2015–16.
  • Reviewed relevant governing MHSA reversion requirements, including a one‑time change in law in 2017 that allowed local mental health agencies to retain all MHSA funds subject to reversion before fiscal year 2017–18.
b. The amount of MHSA funds that actually reverted to the State.
c. The program sources of reverted funds, including Community Support, Prevention, and Innovation.
d. The total amount of reverted funds that were reallocated to local mental health agencies.
e. Whether any state entity received reverted funds that were reallocated. If so, determine whether the state entity spent reverted funds appropriately.
6 Determine whether any MHSA funds have been used for State General Fund purposes in the most recent five‑year period. If so, determine the amount of funds and evaluate whether those funds have been used in accordance with the MHSA.

To determine whether any MHSA funds had been used for General Fund purposes, we performed the following:

  • Interviewed officials at the State Controller.
  • Reviewed state laws regarding the appropriate use of MHSA funds.
  • Obtained and reviewed MHSA claim schedules and allocation letters.
  • Noted only one instance: legislation effective March 2011 shifted $861 million in MHSA funds to cover General Fund obligations for other mental health programs.
7 For a selection of three local mental health agencies, perform the following over the most recent five‑year period: To assess this objective, we performed the following tasks at Alameda, Riverside, and San Diego counties:
a. Review and assess how each local mental health agency allocates, spends, and monitors the MHSA funds they receive each year.
  • Obtained and reviewed procurement and monitoring policies and procedures and interviewed management and procurement personnel at each of the local mental health agencies.
  • Reviewed each local mental health agency’s three‑year plan active during fiscal year 2015–16 and plan updates regarding allocation of MHSA funding.
  • To assess how the local mental health agencies monitored the spending and outcomes of their MHSA projects, we reviewed 10 MHSA-funded projects at each of the three local mental health agencies.
  • To gain assurance that we selected MHSA-funded projects from the complete population of expenditures for Alameda and Riverside counties, we traced 29 project contracts to the data and found no errors.
  • We did not conduct completeness testing in San Diego County because once an MHSA contract is executed, the County scans the contract into its system and then destroys the original hard copy contract.
  • We discuss the local mental health agencies’ processes for implementing MHSA reversion requirements in Objective 4 above.
b. Determine the amount of funds that were subject to reversion and the amount of funds that were actually reverted to the State.
c. Review and assess the methods each local mental health agency uses to determine and report to the State the amount of MHSA funds subject to reversion, and their process for reverting these funds.
d. Determine whether the local mental health agencies have spent funds subject to reversion and determine whether any reimbursement with interest is owed to the State.
8 Review and assess any other issues that are significant to the audit. To identify and evaluate the MHS Fund balance, we reviewed the state budget, State Controller’s financial records, and MHSA monthly allocation letters. We also interviewed officials at Health Care Services, the State Controller, and Department of Finance.

Sources: California State Auditor’s analysis of audit request number 2017-117 as well as state law, regulations, and information and documentation identified in the table column titled Method.



We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Respectfully submitted,

ELAINE M. HOWLE, CPA
State Auditor


Date:
February 27, 2018

Staff:
John Baier, CPA, Audit Principal
Ralph M. Flynn, JD
Idris H. Ahmed
Daisy Y. Kim, PhD
Andrew Loke

Legal Counsel:
Stephanie Ramirez‑Ridgeway, Chief Counsel
Richard B. Weisberg, Sr. Staff Counsel

For questions regarding the contents of this report, please contact
Margarita Fernández, Chief of Public Affairs, at 916.445.0255.



Footnotes

4 In 2017 state law was amended to extend the time frame to spend Community Support, Prevention, and Innovation program funds from three years to five years for local mental health agencies that serve populations of less than 200,000. Go back to text

5 Health Care Services initially stated that it would submit the draft regulations by June 2018. In its response to this audit on page 51, Health Care Services indicates that it has pushed back this timeline to January 2019. Go back to text

6 Health Care Services initially stated that it would submit the draft regulations by June 2018. In its response to this audit on page 51, Health Care Services indicates that it has pushed back this timeline to January 2019. Go back to text

7 As of December 2017, nine of the 59 local mental health agencies had yet to submit their fiscal year 2015–16 annual reports, and an additional three had not finalized their annual reports in response to Health Care Services' concerns. Therefore, we relied on prior years' annual reports for these 12 local mental health agencies when analyzing these data. Go back to text

8 According to state law, local mental health agencies may transfer up to 20 percent of the average funding over the past five years for Community Support to MHSA reserves. Go back to text

9 Health Care Services initially stated that it would submit the draft regulations by June 2018. In its response to this audit on page 51, Health Care Services indicates that it has pushed back this timeline to January 2019. Go back to text

10 Health Care Services initially stated that it would submit the draft regulations by June 2018. In its response to this audit on page 51, Health Care Services indicates that it has pushed back this timeline to January 2019. Go back to text

11 Health Care Services initially stated that it would submit the draft regulations by September 2018. In its response to this audit on page 56, Health Care Services indicates it has pushed back this timeline to Spring 2019. Go back to text



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