State fiscal errors drain budget

A series of accounting blunders in a state program that provides mental health services to children has resulted in a $300-million blow to the California budget, the administration of Gov. Arnold Schwarzenegger acknowledged Monday.

Officials at the Department of Mental Health told a state Senate panel that they thought they had money to cover their bills when in fact it had been appropriated for other uses under a new accounting practice.

The department also drastically underestimated the number of families it would serve this year -- leaving it short tens of millions of dollars -- and double-billed the federal government for some services and now must repay those funds.

“We are committed to doing a better job,” said Stephen Mayberg, director of the Mental Health Department.

At a hearing Monday, legislators expressed bewilderment at the scope of financial mismanagement.

“It is extremely disturbing,” said Sen. Elaine Alquist (D-Santa Clara), chairwoman of a committee that oversees mental health spending. “There are a lot of things here that seem to have gone awry.... There is another way to put this, but I am a lady and I will keep my comments in that vein.”

The federal government is auditing the department’s books as the state absorbs the bad financial news.

Officials already were worried: Tax receipts plunged in January, and the White House rolled out plans a few weeks later to cut billions in aid. The errors at the Department of Mental Health compound the woes.

At issue is the department’s Early, Periodic Screening and Treatment Program, a $1-billion program that provides mental health treatment to children and families. The services are provided by the counties, which are reimbursed by the state.

The cash crunch threatens to strain the budgets of counties that are seeking reimbursement for services provided as long as three years ago. Los Angeles County is owed $110 million.

Administration officials are asking the Legislature to make cuts in other areas, such as cost-of-living increases for welfare recipients, next year to free up money to pay the counties.

Mayberg acknowledged the agency’s poor bookkeeping. Officials did not realize, he said, that any unspent money in their account at the end of the fiscal year last June would be emptied into the state’s general budget and used for other purposes. The new accounting policy was the result of merging two agencies, a move department officials hoped would boost efficiency.

“Sometimes there are just unintended consequences to good government,” Mayberg said. “This was a matter of not thinking through the consequences of two different departments having different accounting structures.”

At the hearing Monday, county officials implored the Legislature to find the money to pay them.

“We’re concerned it is going to mean that fewer children are going to get the medically necessary services that are required,” said Nicette Short, an advocate with the California Alliance of Child and Family Services.

Shawn Martin, a staffer at the nonpartisan legislative analyst’s office, advised lawmakers to hold off paying the counties until the Department of Mental Health showed that it had implemented reforms. He criticized the department for “lax fiscal administration.”

At the hearing, the department also acknowledged overbilling the federal government by more than $100 million.

Mayberg said the state had not yet spent those funds, however, and was in the process of repaying the money to Washington.

However, he said that an ongoing federal audit into that and other accounting issues could result in major fines for the state, creating a further drain on the budget.

The state Department of Finance, meanwhile, has conducted its own audit and identified several areas where accounting procedures for mental health spending can be improved, department spokesman H.D. Palmer said.

“We think the department has put the necessary procedures in place to prevent this from happening again,” Palmer said.

His department’s audit urged changes in the way the department made projections for growth.

The state has underestimated the number of Californians who need mental health services for each of the last several years.

“This is a rapidly growing program,” Mayberg said. “We are working on getting a better understanding of how to better meet demands.”

evan.halper@latimes.com