As of September 30, 1993, DMH had 6,183 full-time equated employees, including 360 in the central office. Also, as of September 30, 1993, DMH served 1,801 adults and 247 children in State psychiatric hospitals, 481 residents in centers for developmental disabilities, and 237 patients at specialized facilities for a combined total of 2,766 patients and residents. There were combined totals of patients and residents of 3,088 and 3,602 as of September 30, 1992 and September 30, 1991, respectively. Total DMH expenditures for the fiscal years ended September 30, 1993 and September 30, 1992 were $1.377 billion and $1.307 billion, respectively.

Conclusion: Our assessment of DMH's internal control structure disclosed three material weaknesses:

 DMH did not effectively restrict, control, or monitor access to the General Accounting/Financial Management Information System. Consequently, DMH could not detect unauthorized or improper transactions. (Finding 1)

DMH responded that it concurred with the finding and would comply on an ongoing basis.

 DMH had not provided for the organizational independence of the internal auditor. In addition, DMH had not effectively utilized its internal auditor to establish and improve DMH's internal control structure. (Finding 2)

DMH responded that it provided organizational independence for the internal auditor effective March 1995. In addition, DMH responded that it is DMH's intent that the internal auditor work on priorities established by the director to review weaknesses identified in DMH's internal control structure.

 DMH did not correct known weaknesses in the systems of internal accounting and administrative control in its facilities (Finding 3).

DMH responded that it concurred with the corresponding recommendations and would comply on an ongoing basis. Also, DMH informed us that it had started a monitoring process in June 1994, with periodic follow-up, for the facilities compliance with internal control structure standards.

Also, DMH was not in substantial compliance with Sections 18.1483 - 18.1488 of the Michigan Compiled Laws pertaining to its systems of internal accounting and administrative control.

Our assessment also disclosed other reportable conditions in DMH's internal control structure in the areas of expenditure processing, representations made to the Department of Management and Budget, controls over equipment, and client funds (Findings 4 through 7).

Our recommendations are directed toward weaknesses in DMH's internal control structure as it relates to the General Accounting/Financial Management Information System. On October 1, 1994, the State of Michigan implemented a new Statewide accounting system as part of the Michigan Administrative Information Network (MAIN). Accordingly, DMH will need to address its corrective action in relation to MAIN.

Audit Objective: To assess DMH's compliance with both State and federal laws and regulations that could have a material effect on either DMH's financial schedules and financial statements or any of its major federal financial assistance programs.

Conclusion: Our assessment of compliance with laws and regulations did not disclose any instances of noncompliance that could have a material effect on DMH's financial schedules and financial statements or its major federal financial assistance programs.

Audit Objective: To audit DMH's financial schedules and its Hospital Patients' Trust Fund financial statements as of and for the fiscal years ended September 30, 1993 and September 30, 1992.

Conclusion: We expressed an unqualified opinion on DMH's financial schedules and on its Hospital Patients' Trust Fund financial statements. However, our audit disclosed reportable conditions regarding cost settlements, accounts payable, revenue classification, and Hospital Patients' Trust Fund accounting (Findings 8 through 11).

Our audit objective for the assessment of the internal control structure included an evaluation of the department's implementation of the requirements for establishing and maintaining systems of internal accounting and administrative control as set forth in Sections 18.1483 - 18.1488 of the Michigan Compiled Laws.

DMH had complied with 19 of the 32 prior audit recommendations. Of the 13 recommendations that DMH did not comply with, we repeated 5 in this report. We did not repeat the other 8 recommendations because DMH plans to implement 5 of the recommendations, 2 were referred to another audit, and 1 was not applicable to the current audit.