More than 20 years ago, Kentucky took on management of the financial affairs of people who couldn't care for themselves or had no one else to care for them.

But currently, that system is riddled with problems and mismanagement, according to a report released yesterday by State Auditor Ed Hatchett Jr.

The Cabinet for Families and Children, responsible for overseeing the affairs of incapacitated people, "does not effectively safeguard, monitor or manage the assets of its wards," according to the report, which details improper spending of client money and poor and improper checks and balances that increase the chance of fraud.

The cabinet could not account for a $265,000 shortfall in a master bank account that held clients' assets, said Hatchett. The state's computer system reported a $5 million balance in the master account, but the bank showed $265,000 less.

The cabinet also "blatantly violated duty to clients by paying some people's bills with the money of other people," said Hatchett.

Hatchett's office looked for possible fraud during the four-month investigation, and didn't find any. But he did not rule it out. State officials, who said they weren't aware of any problems, said they could account for half of the $265,000 and would be able to account for all the money before the end of the year. They blamed the error on a poor computer system that they will improve.

The state has already responded by making several short-term changes to the system.

A major change includes shifting some control of people's financial affairs to the state's Finance Cabinet. The cabinet also plans to contract with an outside agency to manage client assets. That would effectively replace the state's present fiduciary section, which has a staff of eight managing clients' financial resources.

The state would continue to operate the guardianship section, which has a staff of 54 managing clients' personal affairs.

These problems "were not on our radar screen," said Dietra Paris, commissioner of the cabinet's Community Based Services Department, which oversees the affairs of 2,500 people -- mostly elderly -- through its Fiduciary and Guardianship Sections.

Hatchett said the questionable and sometimes illegal practices were uncovered after a complaint urged his office to look at the system, which was authorized by the General Assembly in 1978.

"There are a number of our vulnerable citizens who need this kind of professional care, and it's a critically important function," Hatchett said. "It would be very difficult if the (District) courts across the state could not depend on guardianship."

In this case, guardianship is a legal relationship in which a court appoints the state to oversee the affairs of a person who has been ruled unable to care for their personal needs or finances.

"The state is generally considered the last preference," in such situations, said Judge Jim Alexander, trial commissioner, who oversees appointments and monitors guardianship for Fayette County.

The state's fiduciary and guardianship office names one staff member to track income and benefits, investments, real estate and personal assets. It pays their expenses and files their tax returns.

A separate state worker makes decisions about living arrangements and medical treatments, and daily activities such as doctor visits and grocery shopping.

Hatchett's report documents cases where assets were not recorded or monitored. In one case, a person pre-paid burial arrangements at two funeral homes. Funeral homes also had been overpaid, the report showed.

Other clients received health benefits through Medicaid when they were ineligible.

Some state guardians were spending client's money to keep them eligible for benefits.

In one e-mail that the report cited, a worker proposes spending $3,150 for items, including $75 for glamour shots, $1,000 for clothing, $200 for shoes and $75 for a cot.

Spending down the account is not illegal and it may prevent the loss of valuable benefits, said Sheila Redmond, assistant general counsel for cabinet.

"We try to spend our clients' money as responsibly as we can. ... If they want portraits we try to accommodate that," said Mike Jennings, cabinet spokesman.

The state also has been charging inconsistent or excessive fees and, at times, has failed to notify benefit providers of client deaths. In one case, the state continued to receive more than $35,000, including Social Security payments, nearly two years after a death. On the other hand, $114,000 belonging to the estates of those who died as long ago as 1997, still had not been distributed, the report said.

In addition to the missing $265,000, many of the other problems are being caused by a poor computer system, state officials said.

Specifically, they blamed the instances where one person's expenses were being paid with others' money on the computer program that ran the master bank account.

In addition, Jennings said guardians were handling jobs, such as initiating and approving check requests that supervisors should have handled.

"Some of this work calls for the experience of a hard-nosed accountant," said Jennings.

Officials also said the 54 guardians were trying to manage the affairs of 2,500 people.

Cherie Mollison, president of the National Guardianship Association, based in Arizona, was not familiar with the report but said that with each guardian handling an average of 500 clients, "you have to wonder what the expectations are. If you're going to correct problems, you've got to get caseloads down."

In addition to contracting out the financial work, the cabinet will put tighter controls on disbursements, such as funeral costs, set up a three-level system to approve checks written from a client's account, and put clients' valuables in safe-deposit boxes.

Redmond did not know how much it would cost to hire an outside agency to manage client finances. Some of the money would come from downsizing the present fiduciary section and from guardianship fees. The rest would come from the cabinet's general budget.

Hatchett promised a future audit to evaluate the changes. State officials said the audit should occur annually.

State officials weren't the only ones surprised by problems in fiduciary and guardianship.

"The program has always been responsive to the needs of clients," said Barbara Ellerbrook, executive director of the ARC, formerly the Association for Retarded Citizens.

"It's not an easy process and guardianship is not granted arbitrarily," she said.

Marie Tychonievich, a retired social worker, who worked for the state for 28 years, said guardians have "the toughest job in state government. To be a guardian, you're expected to know everything. It's a systematic problem, not the people."

Kentucky.com

-- Anonymous, October 16, 2002