The state Department of Social Services continued to pay cash benefits to clients after they died and failed to adequately review client eligibility for another cash assistance program, according to a report by state auditors released Thursday.

The audit covered the 2008 and 2009 fiscal years and included 21 recommendations, 12 of which were made in the previous audit of the department, released in 2009.

The auditors also found that the department did not properly handle federal funds that should have gone to residents receiving assistance or back to the federal government, had accounts receivable that were up to 28 years old, failed to claim insurance benefits to cover funeral costs of people who received public assistance, and paid for health care coverage of people who failed to pay their premiums.

As they did in the 2009 report, the auditors raised concerns about the department’s ability to monitor its operations. DSS has only one auditor in its internal audit unit, down from 10 in the late 1990s. The unit does not monitor the department’s checking account, through which $4.9 billion in expenditures were processed in the 2009 fiscal year, and does not audit the department’s administrative functions, the report said.

“Without an adequately designed internal audit function, it is unlikely that DSS has the ability to identify improper, inefficient, illegal, fraudulent or abusive acts that have already transpired as well as the conditions that will allow these acts to continue without detection,” the state auditors wrote.

In a response included in the report, the department said it would consider requesting additional staffing.

DSS spokesman David Dearborn said Thursday, “While this audit report covering fiscal 2008 and 2009 preceded the current administration, the issues identified by the auditors have been noted, with additional monitoring of ongoing progress ordered by the commissioner. A review will also look toward how technological modernization being planned across the department may be brought to bear on improvements where needed.”

DSS has the largest budget of any state agency, at more than $5 billion, and administers programs that serve close to $750,000 people.

In the case of payments made to dead people, the auditors reviewed a sample of cases involving dead clients who had received cash assistance from the State Supplemental benefits program for seniors and people with disabilities. Of 20 clients whose cases were reviewed, eight were issued benefits after they died, a total of $1,457.

In all 20 cases, the state paid vendors on behalf of the clients for administering nonemergency medical transportation after the clients died. The vendors receive monthly payments regardless of whether the clients receive rides in a given month, and, in the 20 cases the auditors reviewed, were paid $680. DSS did not attempt to recoup the money, the auditors wrote.

Audits released in 2007 and 2009 also found that clients who died were issued benefits–which were cashed–and that transportation vendors received payments for the dead people.

In the case of benefits being issued to dead people, procedures were not followed, the auditors wrote, while in the case of the transportation payments, DSS had not yet developed a procedure to recoup money paid after a client dies. The auditors recommended that the department improve its procedures.

In its response, DSS said it generally agreed with the findings and noted that in four of the cases, the benefits were either fully or partially removed from the clients’ electronic accounts, and in one case, the checks issued after the client’s death were not cashed.

In the four cases where benefits were removed from the accounts, the auditors wrote, it occurred a year after the funds were deposited. They noted that the department’s computer system is programmed to expunge funds that remain in the accounts one year after being provided.

The audit also found that the department lacked controls to ensure that clients in another program are eligible for benefits. Auditors wrote that caseworkers had not reviewed or gotten the proper information to determine client eligibility for State Administered General Assistance, or SAGA, which provides cash payments to people considered disabled or unemployable who are not eligible for cash benefits from any other state or local program.

The auditors reviewed 25 payments totaling $4,494 made in the program, a small fraction of the $313.5 million paid through the program in the two years covered by the audit. They found that in two cases, people received payments even though the documentation needed to determine eligibility was not on file. In six cases, clients were deemed eligible even though information about them suggested that they had not applied for benefits from other sources, a requirement for eligibility.

In another case, the department determined that a client was fraudulently collecting $206 a month for seven months despite having moved to Florida. DSS discontinued the client’s benefits, but did not recoup the money that had been paid, a total of $1,442.

The department also failed to follow established procedures for handling federal benefits, potentially leaving some state residents without assistance they were owed, according to the audit.

When a person applies for Supplemental Security Income from the federal government, the state can provide the person with interim benefits in the month between when the claim is filed and the benefits are paid. The state can then receive the initial payment the person would have gotten. If that payment is more than the state paid, the state must either pay the excess amount to the client within 10 working days, or, if the client can’t be located, died, or otherwise can’t be paid, return it to the Social Security Administration.

The auditors found that DSS had $225,168 in Supplemental Security Income payments that had not been distributed as of March 31, 2010, $109,031 of which had transaction dates of Jan. 28 or earlier.

The department agreed to the auditors’ recommendation that it determine the proper disposition of the benefit money and said it would clear up the outstanding items and implement procedures to minimize outstanding payments.

The auditors also found that the state paid more than $264,000 to cover 1,518 people who did not pay their April 2009 premiums in the Charter Oak Health Plan and the HUSKY B program for  children.

Both programs are currently run by managed care companies that receive a monthly payment from the state for each member.

DSS paid the managed care companies about $102,078 on behalf of 784 HUSKY B members even though they should have lost eligibility for not paying premiums, the auditors found.  HUSKY B is part of the federal Children’s Health Insurance Program for children whose families do not qualify for Medicaid, and the federal government reimburses the state for 65 percent of the program costs.

At the same time, DSS paid the managed care companies approximately $162,115 for 734 Charter Oak members who did not pay their premiums and should have lost coverage, the auditors reported.

Auditors also found the department continues to fail to consistently claim insurance benefits to help cover the funeral expenses of poor residents on public assistance–finding evidence of the problem dating back almost two decades.

Prior to 1986, state law had stipulated that no one could be denied assistance for holding personal property, including life insurance, worth less than $600. But an applicant would have to transfer that property over to the state to be held to cover burial expenses.

That statute was revoked in 1986, but the legislature did not indicate how the state’s burial reserve fund would be closed out, the auditors wrote. A 1996 opinion from the attorney general held that DSS must still recover assets for policies under its control and release up to $600 to the deceased resident’s estate to cover funeral expenses. DSS should retain the balance of any unassigned assets.

The auditors reviewed 15 of the 287 insurance policies still under DSS oversight during the audit period, finding three instances when the department did not recover life insurance benefits after welfare recipients had died, nor distribute proceeds to help cover funeral costs.

As of February 2010, the auditors wrote, the deceased individuals from these three cases had been dead 19 years and two months, 18 years and seven months, and 11 months, respectively.

“The Central Office is not notified of a client’s death in a timely manner and therefore does not initiate the recovery of funds in a timely manner,” the auditors wrote.

The department responded in the audit that it learns of death notices through its regional office or by “random sampling of our existing files” but will “continue to evaluate current procedures to determine whether any improvements can be made.”

The auditors raised concerns about that issue with the Department of Social Services as early as 1998. That report found the agency failed to pursue benefits in one case worth more than $1,500.

House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said the audit gives the impression of “a system gone wild” at DSS, with resources being wasted.

He noted that Republican legislators proposed expanding the state’s Medicaid Fraud Control Unit as part of their budget proposal this year, but faced criticism that it wasn’t a substantive proposal to address a massive budget gap. He said the DSS audit shows that there is significant waste that can be cut.

Cafero suggested that the department should have to face stricter controls on its budget. If the department is too large, he said, perhaps it should be broken up into smaller sections.

“It’s atrocious,” he said of the audit’s findings, adding that both liberals and conservatives should be outraged. “All that waste means either taxpayer money’s being wasted, or if you look at it from another way, then it’s that many less people that can be educated, housed, brought to health, et cetera.”