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Senator Judith Zaffirini: District 21
Press Release
July 8, 2004
Contact: Gabe Valenzuela
(512) 463-0121

(AUSTIN) - Senator Judith Zaffirini, D-Laredo, is seeking an explanation from the Texas Health and Human Services Commission (HHSC) regarding a recent state audit report that called HHSC irresponsible in its oversight and management of funds for the state's Children's Health Insurance Program (CHIP).

The report released Tuesday (July 6) by the Texas State Auditor's Office (SAO) indicates that HHSC made approximately $20 million in unnecessary or excessive payments to Clarendon National Insurance Company, the exclusive provider organization for CHIP.

"This report is extremely disturbing, especially in light of the incredibly difficult budget decisions made during the 2003 regular legislative session," said Senator Zaffirini, vice chair of the Senate Finance Committee and one of five senators on the Appropriations Conference Committee that writes the state's final budget. "Some of us fought very hard to fund CHIP at a higher level and to provide essential health care to children in need, not to pad any corporation's bottom line," she said.

According to the SAO report HHSC had "serious deficiencies in contracting practices and contract monitoring, [that] constitute an abuse of the Commission's fiduciary responsibility" in managing the CHIP program. A variety of factors contributed to the overpayments, including Clarendon's misreporting of revenues and expenditures, inadequate financial reporting requirements for itself and its subcontractors and inadequate contract terms that enabled Clarendon to use $15.96 million of CHIP funds for corporate purposes.

"This is mind-boggling," Senator Zaffirini said. "The legislature demands accountability, and the state auditor's report affords us the foundation from which to investigate this issue and take appropriate action."

HHSC was aware of problems in Clarendon's and in its subcontractors' financial controls and even retroactively renegotiated its contract with Clarendon continuously. Despite the changes, HHSC continued to make payments as per initial agreements and had neither audited nor obtained an audit of Clarendon.

Senator Zaffirini, a member of the Health and Human Services Transition Legislative Oversight Committee that has oversight of the reorganization of the state's health care agencies, said she and her colleagues would implement the necessary controls to preclude similar problems in the future.

"I am shocked and dismayed by this glaring failure that must be corrected immediately, " Senator Zaffirini said. "Legislators must now take the necessary steps to improve significantly the oversight of HHSC and its contracting practices so as to ensure that monies intended to provide health care for children are used for that purpose."