PERFORMANCE AUDIT REPORT Centralizing Administrative Hearings: Reviewing the Advantages and Disadvantages Executive Summary with Conclusions and Recommendations A Report to the Legislative Post Audit Committee By the Legislative Division of Post Audit State of Kansas March 2001 01-13
Legislative Post Audit Committee Legislative Division of Post Audit THE LEGISLATIVE POST Audit Committee and its audit agency, the Legislative Division of Post Audit, are the audit arm of Kansas government. The programs and activities of State government now cost about $8 billion a year. As legislators and administrators try increasingly to allocate tax dollars effectively and make government work more efficiently, they need information to evaluate the work of governmental agencies. The audit work performed by Legislative Post Audit helps provide that information. We conduct our audit work in accordance with applicable government auditing standards set forth by the U.S. General Accounting Office. These standards pertain to the auditor's professional qualifications, the quality of the audit work, and the characteristics of professional and meaningful reports. The standards also have been endorsed by the American Institute of Certified Public Accountants and adopted by the Legislative Post Audit Committee. The Legislative Post Audit Committee is a bipartisan committee comprising five senators and five representatives. Of the Senate members, three are appointed by the President of the Senate and two are appointed by the Senate Minority Leader. Of the Representatives, three are appointed by the Speaker of the House and two are appointed by the Minority Leader. Audits are performed at the direction of the Legislative Post Audit Committee. Legislators or committees should make their requests for performance audits through the Chairman or any other member of the Committee. Copies of all completed performance audits are available from the Division's office. LEGISLATIVE POST AUDIT COMMITTEE Representative Lisa Benlon, Chair Representative Richard Alldritt Representative John Ballou Representative Dean Newton Representative Dan Thimesch Senator Lynn Jenkins, Vice-Chair Senator Anthony Hensley Senator Dave Kerr Senator Derek Schmidt Senator Chris Steineger LEGISLATIVE DIVISION OF POST AUDIT 800 SW Jackson Suite 1200 Topeka, Kansas 66612-2212 Telephone (785) 296-3792 FAX (785) 296-4482 E-mail: LPA@lpa.state.ks.us Website: http://skyways.lib.ks.us/ksleg/paud/homepage.html Barbara J. Hinton, Legislative Post Auditor The Legislative Division of Post Audit supports full access to the services of State government for all citizens. Upon request, Legislative Post Audit can provide its audit reports in large print, audio, or other appropriate alternative format to accommodate persons with visual impairments. Persons with hearing or speech disabilities may reach us through the Kansas Relay Center at 1-800-766-3777. Our office hours are 8:00 a.m. to 5:00 p.m., Monday through Friday.
LEGISLATURE OF KANSAS LEGISLATIVE DIVISION OF POST AUDIT MERCANTILE BANK TOWER 800 SOUTHWEST JACKSON STREET, SUITE 1200 TOPEKA, KANSAS 66612-2212 TELEPHONE (785) 296-3792 FAX (785) 296-4482 E-MAIL: lpa@lpa.state.ks.us March 15, 2001 To: Members of the Kansas Legislature This executive summary contains the findings and conclusions, together with a summary of our recommendations and the agency responses, from our completed performance audit, Centralizing Administrative Hearings: Reviewing the Advantages and Disadvantages. The report also contains appendices showing information on 8 other states centralized hearings offices as well as data on the numbers of hearings held by 48 agencies in Kansas The report includes several recommendations for the Department of Administration s Office of Administrative Hearings and for the Legislature. We would be happy to discuss these recommendations or any other items in the report with you at your convenience. If you would like a copy of the full audit report, please call our office and we will send you one right away. Barbara J. Hinton Legislative Post Auditor
LEGISLATIVE DIVISION OF POST AUDIT Question 1: What Benefits and Problems Have Resulted From Having Administrative Hearings for the Department of Social and Rehabilitation Services Conducted by Hearing Officers in the Department of Administration? Until 1998, the Department of Social and Rehabilitation Services (SRS) conducted its own administrative hearings with inhouse hearing officers. In 1998, responsibility for SRS hearings, along with the staff assigned to conduct those hearings, was transferred to the newly created Office of Administrative Hearings in the Department of Administration. At the same time, the Office was given the authority to handle hearings for other State agencies that requested its services. The Office of Administrative Hearings is structurally independent of SRS, which eliminates the inherent conflict of interest. The current arrangement allows the Office of Administrative Hearings structural independence from the Secretary of SRS, because the Secretary can t hire or fire the hearing officers or influence their decision-making directly. The ultimate benefit of the transfer is that people who appeal SRS decisions have an independent party available to hear both sides of the case. This independence helps to ensure people receive an unbiased decision. Except for the people who appealed SRS decisions, the majority of hearing participants reported being satisfied with the Office. Our survey of people who participated in SRS hearings handled by the Office included those that appealed SRS decisions, their attorneys, SRS attorneys, SRS field staff, and Office hearing officers. Most people responding to our survey were satisfied with how the Office handles its hearings. The exception was the people who appealed SRS decisions. They may be more likely to be unsatisfied because their personal interests are at stake. Transferring the Office hasn t affected the timeliness or the cost of administrative hearings. For the most recent fiscal year, the Office met all statutory deadlines for 100% of the SRS... page 7... page 8... page 9 Legislative Post Audit March 2000 i
cases it handled, as it had the fiscal year before the transfer. However, the Office doesn t routinely track the timeliness of the cases it handles for other agencies. The cost per case had increased from $245 to $291 since before the transfer, but that was primarily because the Office handled fewer cases in the most recent fiscal year than it did in our comparison year before the transfer. The Office s operating costs didn t increase significantly during that time. Our analysis uncovered two small problems. First, the Office s current billing method isn t equitable or based on real costs incurred, because different agencies paid very different hourly rates for the Office s services. Second, the Office doesn t include income it receives from agencies other than SRS in its budget request submitted to the Governor and the Legislature. Question 1 Conclusion. Having administrative hearings for the SRS conducted by hearing officers in the Department of Administration s Office of Administrative Hearings has removed the inherent conflict of interest that existed when SRS employed its own hearing officers. However, the people who appeal SRS decisions may need more information regarding the Office s independence from SRS. Any issues that have arisen have primarily related to the Office s new statutory authority to provide hearing services to agencies other than SRS. Whether tracking the timeliness of the other agencies cases, determining an equitable fee rate to charge those agencies, or determining how to account for the moneys it receives from those agencies, the Office has had some difficulty in adjusting to this new role. Nevertheless, it has maintained its timeliness standards, and its costs have remained fairly level, so it appears that in time it will adjust to this role. Question 1 Recommendations. To establish consistent and equitable business practices, the Office should take steps to track the timeliness of all its cases, readjust its inequitable billing rates, report all income sources on budget documents, and inform participants of its independence from SRS. The Department of Administration agreed with the report s findings and agreed to implement our recommendations.... page 11... page 11 Question 2: Should the State Move Toward a Centralized Administrative Hearing Agency by Requiring More State Agencies to Use the Office of Administrative Hearings? Further centralization of administrative hearings is the best way to eliminate inherent conflict of interest for more agencies. Our review of administrative law and other legal journals as well as our survey of 8 other states with centralized hear-... page 12 ii Legislative Post Audit March 2000
ings showed a general consensus that the primary benefits of centralization are independence, fairness, and the absence of conflict of interest. According to our survey of 47 agencies that hold hearings under the Kansas Administrative Procedure Act, agencies obtain hearing officers in a variety of ways, but each arrangement has some type of built-in conflict of interest. Experience with the current centralized Office of Administrative Hearings has been positive. Officials from the 8 agencies who d voluntarily contracted with the Office told us they were pleased with the quality of the Office s work and thought the hearing officers were fair, efficient, and knowledgeable. In addition, 2 agency officials told us they d saved money. Two of 8 Shawnee County District Court judges expressed a strong favorable opinion about the Office s work they d reviewed. As compared with people who d experienced decentralized administrative hearings handled by 4 other State agencies, more people involved in SRS hearings handled by the Office responded they were satisfied with their experience. Other states that have centralized offices reported other benefits in addition to eliminating inherent conflict of interest. Among the other benefits they cited were reducing the number of hearing officers on staff, saving money, and attracting and retaining high-quality staff. Agency officials we surveyed had some reservations about further centralization, but we don t think those concerns are insurmountable. Those officials expressed concerns about such things as losing control over the process, the hearing officers not having enough knowledge of an agency s particular issues, or losing federal funding. We looked closer at those reservations, we found that they didn t present significant barriers to further centralization. Considerations for the Legislature. If the State s use of centralized hearings is to be expanded, a number of issues will need to be resolved, such as which agencies and which types of hearings would be included, how the process would be funded, what role agency heads should have in reviewing the Office s decisions, and what standards hearing officers should be required to follow. Question 2 Conclusion. There s a nationwide trend toward centralizing administrative hearings; besides Kansas, 25 other states currently have such offices. The value of an independent review of citizens disputes with an agency has been recognized. While we didn t look to see if conflicts of interest actually impacted... page 14... page 15... page 15... page 18... page 20 Legislative Post Audit March 2000 iii
hearing officers decisions in those agencies that handle their own hearings, it s clear the conflict of interest is simply inherent in the system. The State could benefit in a number of ways by centralizing its administrative hearings, including gaining a consistent application of administrative procedures and a professional staff of hearing officers. However, a move toward centralization would need to be done in a logical and measured way to avoid as many growing pains as possible. Question 2 Recommendations. To help eliminate conflict of interest, the Legislature should further centralize administrative hearings in Kansas. In doing so, the Legislature should consider including elements like restricting the scope of review of agency heads to policy issues, rather than of all findings; including hearings that aren t under the Kansas Administrative Procedure Act, unless there is a legitimate reason why it would be impracticable to have those hearings handled centrally; requiring hearing officers to abide by a code of ethics; and funding through State General Fund appropriations to the extent that federal moneys aren t jeopardized.... page 20 APPENDIX A: Scope Statement... page 21 APPENDIX B: Sample Selection Methodology and Survey Response Rates APPENDIX C: Survey of 8 States Centralized Administrative Hearing Offices APPENDIX D: Survey of those State Agencies which Hold Administrative Hearings under the Kansas Administrative Procedure Act... page 23... page 25... page 29 APPENDIX E: Agency Responses... page 31 This audit was conducted by Robin Kempf, LeAnn Schmitt, Jennifer Wagner, and Steve Ballantyne. Cindy Lash was the audit manager. If you need any additional information about the audit s findings, please contact Robin Kempf at the Division s offices. Our address is: Legislative Division of Post Audit, 800 SW Jackson Street, Suite 1200, Topeka, Kansas 66612. You also may call us at (785) 296-3792, or contact us via the Internet at LPA@lpa.state.ks.us. iv Legislative Post Audit March 2000