servers(Watchdog.org) Osawatomie, KS – Questionable financial practices by the Sunflower State’s top information technology agency could result in the federal government clawing back more than $1 million, according to a recent audit.

Officials with the Kansas Legislative Division of Post Audit unveiled a not-so-flattering close-up of the state’s Office of Information Technology Services on Tuesday, shining a spotlight on inconsistent service fees and eye-catching financial adjustments.

Read the full audit here.

According to federal law, the audit states, state agencies are permitted to use federal funds to pay for IT services, but OITS is prohibited from turning a profit on any of it. However, auditors discovered that since 2009 OITS has made roughly $6 million in accounting adjustments to avoid reporting profits. Auditors say this appears to violate federal law. Auditors estimate the state could owe the feds roughly $1.2 million.

Further compounding concerns, the report presented to state lawmakers goes on to state OITS has consistently rolled over budget shortfalls from multiple years to offset current year profits. This, auditors argue, could also be construed as a violation of federal regulations. The state agency is only legally permitted to carry over losses from one year to another.

Perhaps the most mind-boggling facet of the state auditors’ expose was this: when it comes to pricing out agency IT services, OITS is all over the map.

While the state agency has a complex rate model to help calculate costs, it largely just gathers dust. Auditors reported that “instead of setting rates to reflect actual service costs, OITS (manually) sets its rates to ensure budget and funding stability.”

“Many of the rates for other services also do not reflect actual costs, which means that some agencies pay too much for some services, while others pay too little,” the audit stated.

A prime example of the cause for this is the state’s Enterprise Internet Services, a program intended to help government agencies with various website needs and issues. The service is largely used by the Department of Administration and the governor’s office, but few others. While OITS recovered about $40,000 in EIS fees last year, it came nowhere close to covering the $600,000 total cost of the program.

To solve this problem, auditors discovered that “the remaining balance of about $560,000 was classified as overhead, allocated to unrelated services and paid for by other agencies.”

Yes, you read that right: intra-governmental subsidies.

“Ensuring that each rate reflects the actual cost of each service is not a primary goal for OITS,” auditors reported. “Rather, OITS’ primary goal is to ensure that collectively, through all of its rates, it generates enough revenue to cover its total operating costs. As such, OITS acknowledges that individual rates do not necessarily reflect actual cost of individual services.”

Because of its imprecise fee schedule, combined with other differences in tracking costs, state auditors weren’t able to accurately gauge whether OITS’ fees matched their private sector counterparts.

Anthony Schlingsog,chief information technology officer for OITS, argued the state agency had already taken action to address nearly every issue highlighted by the report before the investigation began, a point with which auditors agreed. He also noted that OITS’ cost shifting was done with other state agencies in mind.

“Since OITS is 100 percent fee funded, a net deficit in OITS falls upon the budget director to find the available funds to balance the budget,” Schlingsog wrote in response to the report. “This would, invariably, roll back to the agencies. To avoid doing so, overages were used to cover deficits elsewhere.”

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