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California’sVocationalRehabilitationProgram:Although Federal Requirements HaveContributed to Its Rising Costs, by MoreEffectively Managing the Program, theDepartment of Rehabilitation Can BetterServe More Californians With Disabilities

February 200099111

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CALIFORNIA STATE AUDITOR

STEVEN M. HENDRICKSONCHIEF DEPUTY STATE AUDITOR

BUREAU OF STATE AUDITS555 Capitol Mall, Suite 300, Sacramento, California 95814 Telephone: (916) 445-0255 Fax: (916) 327-0019

MARY P. NOBLEACTING STATE AUDITOR

February 10, 2000 99111

The Governor of CaliforniaPresident pro Tempore of the SenateSpeaker of the AssemblyState CapitolSacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents itsaudit report concerning our review of the Department of Rehabilitation’s (department)administration of California’s Vocational Rehabilitation Program (program).

The report concludes that, although federal requirements have contributed to its rising costs, thedepartment has failed to manage certain aspects of its program adequately. Specifically, thedepartment does not track the cumulative costs of its cases and sometimes spends far beyondwhat is reasonable. Additionally, it does not always promptly close expensive, unsuccessfulcases. Further, the department does not fully use its existing management tools to monitor theprogram. Finally, the department’s current method for evaluating the severity of clients’disabilities favors clients with learning and certain mental disabilities.

Respectfully submitted,

MARY P. NOBLEActing State Auditor

CONTENTS

Summary 1

Introduction 5

Chapter 1

Even With Federal Constraints,the Department Could ServeAdditional People With Disabilitiesby Better Managing the VocationalRehabilitation Program 11

Recommendations 30

Chapter 2

The Department’s Method for Evaluatingthe Severity of Clients’ Disabilities FavorsClients With Learning and CertainMental Disabilities 31

Recommendation 35

Appendix

Purchased-Service Costs and SuccessfulOutcome Rates by District for theCalifornia Vocational Rehabilitation Program 37

Response to the Audit

Department of Rehabilitation 39

California State Auditor’s Commentson the Response From theDepartment of Rehabilitation 65

1C A L I F O R N I A S T A T E A U D I T O R

SUMMARY

Audit Highlights . . .

Our review of theDepartment ofRehabilitation’s (department)administration of theVocational RehabilitationProgram (program) revealsthat:

� Program costs have morethan doubled during thepast nine years while thenumber of clientsattaining employmenthas dropped nearly50 percent.

� Federal requirementstogether with the failureof the department tomanage the programadequately have allowedcosts to escalate.

� Despite the department’spoor performance overall,some of its districts arebetter than others atmanaging costs.

� The scoring instrumentthe department uses toidentify who receivesprogram services firstfavors those with certainmental and learningdisabilities.

RESULTS IN BRIEF

The Department of Rehabilitation (department) is notusing to greatest advantage its limited resources forfurnishing vocational rehabilitation services to disabled

Californians, and its method for identifying individuals whomost need assistance has serious flaws. Over the past eight years,the department’s expenditures have escalated for its VocationalRehabilitation Program (program), which serves people withmental, physical, visual, hearing, and learning disorders as wellas those recovering from drug and alcohol addictions. Despitethe department’s outlay of funds, the number of program clientswho have become employed has dropped dramatically. Inaddition, the department allows a few cases to run up excessivecosts because it does not monitor its cumulative costs foreach client case in the program. For cases closed in fiscal year1998-99, it incurred 26 percent of its purchased-service costs onjust 3 percent of the cases. Moreover, in an attempt to meet thefederal requirement to serve individuals with the most severedisabilities first, the department developed and uses a scoringinstrument with a faulty design that gives preference to thosewith certain mental and learning disorders. With its limitedresources, the department cannot afford to mismanage funds orfavor particular disabilities, because such practices result in fewerdeserving individuals receiving needed services. Indeed, duringthe past four years, the department’s lack of funds prompted itto refuse services to thousands of potential clients during twodifferent periods, and applicants had to wait more than eightmonths for services or seek assistance elsewhere.

The department’s costs have risen partly because it must fulfillrequirements imposed by federal regulations, especially some1992 amendments to the federal Rehabilitation Act of 1973. Inparticular, four federal regulations have led to higher costs forthe department’s program, requiring that the department:

· Presume all individuals applying for services, regardless ofthe severity of their disabilities, can attain employment withassistance from the program.

C A L I F O R N I A S T A T E A U D I T O R2

· Allow clients to make informed choices about their voca-tional goals, the services they receive, and the providers ofthose services.

· Coordinate its provision of services with local agencies thatfurnish services related to the rehabilitation of people withdisabilities.

· First serve the most severely disabled before helping thosewith less severe disabilities because the department does nothave adequate funding to serve all eligible individuals.

Nevertheless, other states under similar constraints have beenmore successful than California in controlling costs for theirvocational rehabilitation programs and in helping clientsachieve their employment goals. In addition, our review of fourof the department’s district offices showed that two offices havebeen relatively successful at curbing service costs while helpingclients become employed, further indicating that the depart-ment could more effectively manage its funds and case closures.

Although federal regulations limit many of its decisions, thedepartment could improve the use of its existing managementtools to direct aspects of the program that lie within its control.For example, the department currently does not track the cumu-lative costs of its cases and intervene when needed to ensureclients get the assistance they need to become employed. As aresult, it spends unreasonable amounts on some clients. Forinstance, the department has already spent more than $80,000for one client whose indecision has caused her to change hercourse of study numerous times. Although this individual hasearned a degree in anthropology, the department continues tofund her education, now helping her pursue a career in law.Additionally, the department does not promptly close expensivecases when conditions indicate the clients cannot attain em-ployment. By not monitoring highly expensive cases andpromptly closing those that are unsuccessful, the departmentspends excessive amounts of money that it could instead use toserve additional deserving clients.


RECOMMENDATIONS

To ensure that it optimizes its limited resources, the departmentshould:

· Monitor cumulative case costs.

· Close cases promptly when it becomes apparent that theclients cannot attain employment.

· Use its existing management tools more effectively to helpmonitor the program.

· Identify and adopt strategies used by other states and itsown district offices that have effectively reduced costs andimproved success rates.

To ensure that the most severely disabled in all disability groupshave equal access to services, the department should modify itsscoring instrument.

AGENCY COMMENTS

The department concurs with some of our conclusions andrecommendations and disagrees with others. In particular, itacknowledges that it needs to optimize the use of its limitedresources and states that it has already started to improve itsfiscal monitoring by emphasizing accountability for employ-ment outcomes. Additionally, the department plans toidentify and implement strategies used by others to increaseemployment outcomes and better manage costs. It will alsoconsider expanding its use of existing management tools tomonitor the program. Further, the department recognizes thatits significance scale, the instrument it uses to measure theseverity of disabilities, requires revision. However, thedepartment disagrees with our recommendations to improve itsmanagement of limited program funds by estimating the costsof its clients’ plans, establishing cost standards and requiringapproval of plans that exceed them, and monitoring the cumu-lative costs of plans against department-established standards.Our comments follow the department’s response. ■


Blank page inserted for reproduction purposes only.


INTRODUCTION

BACKGROUND

The Vocational Rehabilitation Program (program) is theprimary program administered by the Department ofRehabilitation (department). The federal Rehabilitation

Act of 1973, as amended, authorizes the program, which isintended to assist individuals with disabilities in preparing for,entering into, and retaining gainful employment. To accomplishthese goals, the department either provides or purchases awide range of services, including disability assessment, counsel-ing and guidance, individualized rehabilitation assistance,occupational licenses, tools and equipment, transportation andmaintenance, training and education, and job placement. Theprogram serves individuals with disabilities, such as visual andhearing disorders, learning disorders, alcohol and drug abusedisorders, mental retardation, quadriplegia, and other physicaland mental disabilities.

FIELD OPERATIONS

The department’s services are primarily delivered through itslargest unit, the Field Operations Division. Counselors andsupport staff stationed in approximately 120 field officesthroughout the State assisted about 114,000 individuals in fiscalyear 1998-99. The field offices are grouped into 17 districtswithin three regions—Northern California, Los Angeles/Orange,and Southern California. In each district, a district administratoroversees the delivery of services in all field offices located withinthat district.

CLIENT SERVICES

When an individual applies for services, a counselor firstdetermines the applicant’s eligibility. To be eligible, an indi-vidual must have a physical or mental disability that hindersemployment and must require vocational rehabilitation servicesto obtain or retain gainful employment. Counselors must gener-ally also assess the severity of the disability of each individualthey consider eligible.


For each person accepted into the program (client), a counselorgenerally has 90 days to prepare a plan for employment (plan).Developed in collaboration with the client, the plan establishesthe client’s employment goal and lays out steps to achieve thegoal. On average, a client is “in plan” for about 2.5 years. Atleast annually, the counselor meets with the client to review theclient’s progress and to reassess the plan objectives. While theclient is in plan, the department pays for expenses necessary toachieve the client’s employment goal. Besides the obvious costsof job training and placement, these expenses may also includetransportation to and from a work or training site; modificationsto a client’s home, office, or automobile; and, in some instances,such family member expenses as child care, counseling, andmedical care. In certain circumstances, the department mayrequire clients to pay a portion of the plan costs.

Clients remain in plan until they become employed, theydrop out, or the department closes the case. The departmentcan close a case for a variety of reasons, such as the client failsto cooperate, becomes incarcerated, or dies, or the departmentcannot locate the client. According to federal regulations, asuccessful outcome occurs when, as a result of vocational reha-bilitation services, a client achieves his or her planned goal andis employed for at least 90 days.

PROGRAM FUNDING

Funding for the program comes primarily from a state andfederal partnership in which the State matches one dollar toapproximately four dollars in federal funds. For fiscal year1999-2000, the department estimates a funding level of$312.4 million for the program, with $245.9 million comingfrom federal funds; $40.5 million supplied by the State’s GeneralFund; $22.3 million provided by the department’s contracts withlocal agencies, called cooperative agreements; and the remaining$3.7 million derived from other sources.

PROGRAM COSTS

Program costs primarily include administrative expenses and theamount the department spends to furnish client services, whichfall into two categories: services provided by the department andpurchased services.


For fiscal year 1998-99, the department spent$287 million, including $37 million for adminis-tration, $101 million for services provided bydepartment employees, $137 million for pur-chased services, and $12 million for variousother purposes.

Because it is not an entitlement program, thegovernment is not required to provide the fundingnecessary to supply services for all eligible appli-cants. However, when a state has insufficientfunds to provide all eligible individuals withvocational rehabilitation services, federalregulations require the state to providerehabilitation services first to those individualswho are most severely disabled. Because Californialacks sufficient funding to serve all eligible appli-cants, the department has operated under anorder-of-selection process since September 1, 1995.Under an order-of-selection process, the Statemust develop a method to identify and ensure

that individuals with the most severe disabilities receiveservices first. We describe the State’s order-of-selection processin Chapter 2.

SCOPE AND METHODOLOGY

The Joint Legislative Audit Committee (JLAC) asked the Bureauof State Audits to conduct a programmatic and fiscal audit ofthe Vocational Rehabilitation Program (program). Specifically,JLAC was concerned about the program’s increasing costs toserve clients, the level and consistency of services, and whethereligible individuals—regardless of their ethnic backgrounds ortypes of disabilities—have equal access to services.

To gain an understanding of the program, we reviewed relevantfederal and state laws and regulations. In addition, we examinedthe department’s policies, procedures, training materials, andstrategic plan. We also looked at reports prepared by other stateand federal agencies critiquing the program.

To understand why service costs are rising, we comparedfederal program objectives to federal program requirements. Weanalyzed the department’s cost data by district and its cost perclient, and we reviewed a sample of the department’s most

Cost Categories for the VocationalRehabilitation Program

· Administration—encompasses alldepartmental costs associated withadministering the program, includingplanning, budgeting, evaluation, financialmanagement, and data processing.

· Services provided by the department—includes all costs related to departmentalfield staff’s provision of counseling,guidance, and placement services toclients.

· Purchased services—includes thedepartment’s expenditures for servicesfrom other entities, such as computerequipment vendors, public and privateschools, and transportation services.

· Other—covers all costs for vocationalrehabilitation purposes not included inthe three categories above.


expensive or protracted cases. We also compared the averageannual per-case costs of clients who participate in cooperativeprograms with those who do not participate. To assessCalifornia’s program, we also compared the department’s costsand rehabilitation rates to those of Louisiana, Wisconsin,Georgia, Illinois, and Ohio—five states with large programs thatalso operated under order of selection during the same time thatCalifornia has used this process. We also compared costs forrehabilitation services in states that use an order-of-selectionprocess with costs in states that do not use the process. Weperformed limited site visits at four district offices—Santa Rosa,Oakland, Fresno, and Greater Los Angeles—to inquire aboutoffice policies, use of budgets, and best practices. Finally, weanalyzed departmental costs before and after the departmentbegan operating under an order-of-selection process.

To determine whether the department provides services consis-tently, we analyzed the number, types, and average costs ofservices that the department furnishes from district to district.In addition, we interviewed management and staff members atthe department’s headquarters and in the district offices. Weinquired about district office operations and methods forsupplying services to eligible individuals.

To determine whether the department provides servicesequitably, we reviewed the 1993 study from the U.S. Departmentof Education’s Office for Civil Rights, which identified signifi-cant ethnic disparities in the number of clients determinedeligible for services at several district offices. Although the reportdid not attribute the disparities to departmental practices, thedepartment adopted measures to ensure that all ethnic groupshave equal access to vocational rehabilitation services, whichthe Office of Civil Rights later approved. The departmentresolved the issues raised in the study by 1994, so we did notpursue them further. In addition, we analyzed the department’ssignificance scale, which it uses to measure the severityof applicants’ disabilities. We also analyzed statistics about thedepartment’s clients and compared them with data on theprevalence of disabilities throughout the State. However, becausethe department generally serves only the most severely disabled,its caseload would not necessarily mirror the prevalence ofdisabilities in the State. Thus, our comparison was inconclusive.


To identify other factors that affect the department’s ability todeliver services, we analyzed data on employees’ caseloads andsalaries, position vacancy rates, sources of vocational rehabilita-tion funding, and the department’s methods for forecastingcosts. We also surveyed the five states named above to identifybest practices for delivering vocational rehabilitation services;however, Illinois declined to respond. ■


CHAPTER 1Even With Federal Constraints, theDepartment Could Serve AdditionalPeople With Disabilities by BetterManaging the VocationalRehabilitation Program

CHAPTER SUMMARY

Federal requirements together with the failure of theDepartment of Rehabilitation (department) to adequatelymanage the Vocational Rehabilitation Program (program)

have allowed costs for the program to skyrocket and the numberof eligible clients served to decline. Since 1990, the department’saverage cost per case has increased 106 percent. At the sametime, the number of disabled clients served has decreased, andthe number achieving their employment goals has dropped byalmost half. Over the last four years, the department was forcedto close its doors to new clients twice because its managementbelieved it lacked sufficient funds to serve these individuals. As aresult, thousands of disabled Californians eligible for vocationalrehabilitation services had to go elsewhere or wait for more thaneight months on each occasion until the department’s doorsopened again.

In 1992, Congress amended the federal Rehabilitation Act of1973, and some of these changes have increased costs for theState’s program. These amendments require the department topresume that all applicants can benefit from services and toallow clients to make informed choices about the services theyreceive. Other federal provisions direct the department tocoordinate rehabilitation services with local agency programs,which are expensive in California. Also, another federalprovision requires that the department first serve clients withthe most severe disabilities unless it can afford to serve alleligible individuals.

The department’s inability to control costs is a result of notonly the limitations imposed by these federal provisions butalso the department’s failure to effectively manage certainaspects of the program that are within its control. For example,


the department does not monitor the cumulative costs of casesand does not promptly close unreasonably expensive cases thatare unlikely to result in clients achieving their vocational goals.For cases closed in fiscal year 1998-99, the department incurred26 percent of its purchased-service expenses on cases costingmore than $20,000 and representing only 3 percent of the totalcases closed. In many of these cases, the clients did not achievetheir employment goals. Also, the department’s lack of focus onservice costs and case results at its district offices has contributedto increased costs for the services it has purchased.

The department has various tools for monitoring district perfor-mance; however, it does not use them effectively to ensure thatdistricts provide consistent, cost-effective services to disabledindividuals. Nonetheless, our review of four district officesrevealed two that closely monitor their costs per case. Thesetwo districts maintained consistently lower case costs whilesuccessfully closing cases at rates comparable to those atother districts.

THE VOCATIONAL REHABILITATION PROGRAM HASEXHIBITED DECLINING PERFORMANCE

California’s limited resources to assist individuals with disabili-ties compel the department to manage its costs effectively so itcan provide services to as many eligible individuals as possible.However, between fiscal years 1990-91 and 1998-99, California’sprogram experienced an overall decline in performance. Thedepartment’s average annual cost to serve each client increased106 percent, from $1,225 to $2,521. Figure 1 shows that at thesame time, the number of clients the department served de-creased, and the number of clients leaving the program withemployment in fiscal year 1998-99 was about half of what it wasnine years before.

Additionally, the total amount the department spends on eachcase has increased. These total case costs will likely continue torise because the cumulative costs of the department’s ongoingcases are already higher than the cumulative costs of thecases that it recently closed. Specifically, the average cumulativecost for each case closed during fiscal year 1998-99 was $3,300,while the average cumulative cost for each case open as ofJune 30, 1999, was $4,360.

During the last nineyears, the average annualper-client cost has morethan doubled while thenumber of clients leavingthe program withemployment is abouthalf of what it was.


Rising costs severely limit the department’s ability to provideservices to all disabled Californians who are eligible forvocational rehabilitation. In fact, over the last four years, thedepartment did not accept any new program participants duringtwo periods because its management believed the departmentdid not have the resources to serve any new clients. Conse-quently, thousands of eligible individuals had to look elsewherefor services or wait on each occasion for more than eightmonths until the department was ready to assist them.

FEDERAL REQUIREMENTS ARE PARTIALLY RESPONSIBLEFOR RISING PROGRAM COSTS

The department’s declining performance and increasing costshave occurred partly because federal requirements for states’vocational rehabilitation programs obligate the programs topresume that all eligible applicants will benefit from services.Moreover, the requirements direct programs to give clients moresay in the services they receive than they had previously, tocoordinate provision of services with local agencies, and to serve

FIGURE 1

The Number of Individuals Being Served and the NumberAchieving Their Employment Goals Have Declined

(in Thousands)

Source: Department of Rehabilitation’s Client File Control Register as ofJune 30, for fiscal years 1990-91 through 1998-99.

0

50

100

150

200

Num

ber

of

Ind

ivid

uals

Total served

Total achieving goals

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

Fiscal Year

138 134 136142 143

122116 119

114

111211131616161822


the most severely disabled first unless the program can serve alleligible applicants. Nevertheless, California has a significantlylower success rate and on average spends 19 percent more perdisabled client than do the five other states that use comparablemethods to operate their programs.

Changes in Federal Law Have Contributed to theDepartment’s Increased Costs

In 1992, Congress substantially rewrote the federal lawsthat govern California’s program. Known as the “1992 amend-ments” to the federal Rehabilitation Act of 1973, these sweepingchanges to states’ vocational rehabilitation programs includenine provisions that dramatically affect participant eligibilityand involvement as well as the services provided to individualswith disabilities. Clearly, the department’s implementation ofthese provisions has contributed to its rising service costs,and two of the nine provisions have particularly increased itsexpenses for purchased services.

State Vocational Rehabilitation Programs Must PresumeApplicants Will Benefit From Services

Requiring a “presumption of benefit,” one of the 1992amendments swelled the number of applicants accepted into theprogram significantly because it automatically eliminated thedepartment’s previous practice of screening out applicantswho staff did not expect would become employed. Before the1992 amendments, one criterion for eligibility in the programwas a reasonable expectation that the client would benefit fromvocational rehabilitation services and thus become moreemployable. The 1992 amendments require that the state agencypresume that an individual can attain employment after receiv-ing vocational rehabilitation services unless the agency candemonstrate by clear and convincing evidence that the indi-vidual is incapable of being employed.

As Figure 2 indicates, the acceptance rates for individualsapplying for services increased significantly after Californiafully implemented the “presumption of benefit” provision inOctober 1993. For the three fiscal years before that October,the acceptance rates for applicants ranged from 56 percent to58 percent. For the six fiscal years ending after the implementa-tion, the acceptance rates rose significantly, ranging from83 percent to 92 percent. These data suggest that California

Due to one provisionin the 1992 federalamendments, thedepartment now mustaccept many clients itwould have previouslyturned away.


began accepting as clients many disabled individuals whom thedepartment would previously have classified as not reasonablyemployable.

FIGURE 2

Changes in Federal Law Significantly Increased Rates atWhich the Department Accepted Disabled Clients

Source: Department of Rehabilitation’s Client File Control Register as of June 30, for fiscal years 1990-91 through 1998-99.

The Provision Requiring Client Choice Has Added to the Cost andUse of Certain Rehabilitation Services

The other requirement from the 1992 amendments that hascontributed to California’s rising costs for vocational rehabilita-tion emphasizes client choice. This provision requires that thestate agency allow the client to make informed decisions aboutthe vocational rehabilitation services he or she will receive,including which individual or entity will supply the servicesand which methods the provider will use. Before the 1992amendments, federal law required that the vocationalrehabilitation counselor and the individual with a disabilityjointly develop the plan for employment (plan), which describes

0

20

40

60

80

1990

-91

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1991

-92

100

Fiscal Year

58.1 55.7 55.8

92.3

83.2

91.8

83.185.4 85.3The department implemented

the 1992 amendments by October 1993.

Perc

enta

ge

of

Ap

plic

ants

Acc

epte

d


the client’s employment objective and the services to be pro-vided. Although the 1992 amendments retain many factorspreviously considered by the counselors when determiningneeded services, the new provision places the client in thedriver’s seat. In fact, the 1992 amendments require that theindividual’s plan include a statement by the client describinghow he or she received information about and became involvedin choosing among alternative goals, objectives, services,entities providing services, and methods used to provide andprocure services.

An audit report issued in July 1996 by the U.S. Department ofEducation’s Office of the Inspector General titled CaliforniaDepartment of Rehabilitation, The Decline in the Success ofCalifornia’s Vocational Rehabilitation Program Cannot be Attributedto the Rehabilitation Act Amendments of 1992, found thatincreased client choices arising from the department’simplementation of the 1992 amendments have brought aboutsignificant increases in the cost and use of purchased services forclients. Our analysis of the cost and use of purchased servicesconfirms the Inspector General’s finding. During fiscal year1992-93, before the department implemented the amendments,it spent an average of about $603 per disabled client, or a totalof $82 million for purchased services. In fiscal year 1994-95, justone year after implementing the amendments’ requirements,the department spent an average of $830 per client or a total of$116 million for purchased services. Most of this cost increaseresulted from clients’ training and educational expenses, whichjumped an average of $569 per client, going from $946 to$1,515 during the period from fiscal years 1992-93 to 1994-95.In addition, the number of clients receiving these costly servicesincreased from 23,000 to 37,200, nearly 62 percent, during thesame period.

Other Federal Requirements Have Also Contributed toRising Rehabilitation Costs

In addition to the 1992 amendments, other federal requirementshave also contributed to the program’s increasing costs. Theseprovisions direct states to coordinate their services with localagencies and to serve first those clients who are most severelydisabled.

After implementingthe new federalrequirements, thedepartment’s educationalexpenses jumped anaverage of $569 perclient and the numberof clients receiving thesecostly services increasedby 62 percent.


The Requirement That California Work With Local Agencies HasGenerally Led to Higher Costs Per Case

Federal regulations require the department to cooperate withlocal agencies that furnish services related to the rehabilitationof individuals with disabilities. Though not required, the depart-ment has established cooperative agreements with local agenciesto provide vocational rehabilitation services to clients that theymutually serve. Approximately 30 percent of the department’sdisabled clients are served through these special programs inhigh schools, community colleges, colleges and universities, andmental health agencies. Clients involved in some of thesespecial programs are more successful at finding employmentthan clients who do not participate. However, the annual per-case costs for clients that participate are generally higher thanfor clients who do not. Specifically, we found that for fiscal year1998-99, the department spent an average of $3,500 for clientswho participated in cooperative programs, compared with$2,970 for clients who did not participate. For cooperativeagreements with mental health agencies alone, the departmentpaid $4,429 per client, or 50 percent more than it paid for clientswho did not participate.

On the other hand, some of these local programs have highersuccess rates than California’s program as a whole. For example,for fiscal year 1998-99, 64 percent of the cases closed for clientsserved under college or university programs were able to findemployment compared with the 47 percent employment rate ofall cases closed that year. However, the success rate for clientswho participated in the mental health cooperative program wasjust 44 percent—lower than the rate for the department’s clientsoverall. Nonetheless, for certain mental health disabilities,clients who participate in the cooperative program do betterthan those who do not. For instance, the majority of partici-pants in the mental health cooperative program are individualswith such disabilities as psychotic, mood, or sleep disorders. In the cooperative program, 44 percent of clients with thesedisorders found employment compared with 34 percent ofclients with these disorders who did not participate in theprogram.

California Must First Serve Clients Whose Rehabilitation CostsMore Than Services for Less Disabled Individuals

Exacerbating the problem of rising costs is the fact that underfederal regulations, California must first serve the most severelydisabled clients applying for services, and these services usually

The department paysabout 50 percentmore for clients thatparticipate in mentalhealth cooperativeprograms than it paysfor those who do not.


cost more than services for other eligible individuals. Whenthe State does not have sufficient funding to providevocational rehabilitation services to all eligible clients,federal regulations require the State first to provide services tothose individuals who are most severely disabled. To accomplishthis objective, as Chapter 2 explains, the department has estab-lished an order-of-selection process to determine which clientshave the most severe disabilities. California has been workingunder this order-of-selection process since September 1, 1995.Consequently, as Figure 3 shows, about 80 percent of thedepartment’s clients who received services under a plan foremployment during fiscal year 1998-99 qualified as most se-verely disabled. Serving clients with the most severe disabilitiescosts more than assisting less disabled individuals, presumablybecause the most severely disabled generally take longer tobecome rehabilitated and need more services. Nevertheless,vocational rehabilitation programs in other states that are

FIGURE 3

Clients Identified as Most Severely Disabled ConstituteMost of the Department’s Caseload*

(As of June 30, 1999)

Source: Department of Rehabilitation’s Client Tracking System Extract as ofJune 30, 1999.

* During fiscal year 1998-99, the department served 75,304 clients under plansfor employment.

80.4%Most severely

disabled

13.4%Severely disabled

2.8%Disabled

3.4%Undetermined


operating under the same federal regulation to serve the mostseverely disabled first are spending on average about 19 percentless per client than California spends.

Other States Using an Order-of-Selection Process Also HaveHigher Costs Than States Not Using This Process

Generally, costs for vocational rehabilitation programs in statesthat must use order of selection to determine the severity ofdisabilities are significantly higher than costs for programservices in states that are able to serve all eligible clients. Wecompared states with annual program expenditures exceeding$50 million that operated under order of selection during thesame time that California did (peer states) with all states thathad annual expenditures exceeding $50 million but did not usean order-of-selection process during this time. Table 1 showsthat California and its peer states spent on average about$1,150 more per client annually than other states, suggestingthat states required to serve the most severely disabled firstspend significantly more money per client than states that donot need to address the most severe disorders first.

California Spends More Funds Per Case on Its MostSeverely Disabled Clients Than It Does on Clients WithLess Severe Disabilities

Furthermore, we analyzed the cost of California’s vocationalrehabilitation cases and, confirming the expected, found thatthe State consistently spends more to rehabilitate its mostseverely disabled clients than it does on clients with less severedisabilities. Under order of selection, California separates itscases into three categories of severity: most severely disabled,severely disabled, and disabled. Individuals that the departmentconsiders most severely disabled have severe physical ormental impairments that impede their potential employment.Clients with these impairments require multiple vocationalrehabilitation services over an extended period of time toprepare for employment. People who are severely disabled mayhave disorders that are similar to those of a most severely dis-abled individual, but their limitations are fewer and less likely tobe barriers to employment.

Since California began using order of selection inSeptember 1995, the department has only had enoughfunding to accept new clients in the most severely disabled andseverely disabled categories. For this reason, we determined the


TABLE 1

Vocational Rehabilitation Programs in StatesWith the Order-of-Selection Process

Have Higher Costs

Average AnnualStates With Order of Selection Cost Per Client*

Peer States†

Georgia $3,232Ohio 3,081Illinois 2,571Louisiana 2,464Wisconsin 1,666

Peer States’ Average $2,603

California $3,227

Average (California and peer states) $2,707

Average AnnualStates Without Order of Selection‡ Cost Per Client *

Indiana $2,339Missouri 1,598New York 1,583Alabama 1,579South Carolina 1,556Virginia 1,161Florida 1,033

Average $1,550

Source: U.S. Department of Education’s Rehabilitation Services Administration databaseof States’ Annual Vocational Rehabilitation Program and Cost Reports for federalfiscal years 1995-96 through 1997-98.

* Average annual cost per client is calculated as total state expenditures for federal fiscalyears 1995-96 through 1997-98 divided by total clients served during the same timeperiod.

† Peer states are those states with annual program expenditures exceeding $50 millionthat were under order of selection during the same period as California.

‡ States without order of selection are those states with annual program expendituresexceeding $50 million that were not under order of selection during the same periodas California.


average cumulative purchased-service costs for cases closed inboth the most severely disabled and severely disabled clientgroups. Figure 4 shows that the average cost of services receivedunder a plan for employment by clients in the most severelydisabled category significantly exceeded the average cost ofthese services to rehabilitate individuals in the severely disabledcategory. Figure 4 includes only the cost of purchased servicesbecause the department does not track by client its administra-tive and departmental service costs.

FIGURE 4

Purchased-Service Costs for the Most Severely DisabledClients Are Significantly Higher Than Those for

Severely Disabled Clients

Source: California Department of Rehabilitation’s Client Tracking System Extract for statefiscal years 1994-95 through 1998-99.

* We calculated the average per-client cost as cumulative purchased-service costs forcases closed divided by the number of cases closed for each fiscal year.

Fiscal Year

Ave

rag

e Pe

r-C

lien

t C

ost

of

Purc

has

ed S

ervi

ces*

0

500

1,000

1,500

2,000

2,500

3,000

3,500

$4,000

1994-95 1995-96 1996-97 1997-98 1998-99

Most severely disabled

Severely disabled

$1,599

$805$916

$1,514$1,693

$1,791

$3,070

$3,995

$3,657 $3,624


Other States’ Programs Governed by the Same RegulationsAre Spending Less and Accomplishing More Than IsCalifornia’s Program

Although changes in federal law affect all state vocationalrehabilitation programs, the performance of California’s pro-gram does not compare favorably with the performance ofprograms in peer states that use order of selection to assess theseverity of disabilities. California’s rate of success for clients iswell below that of its peer states, and its costs are higher.

As Figure 5 indicates, from federal fiscal years 1989-90 to1997-98, California’s successful closure rate, or the number ofcases closed because the department considered the clientsrehabilitated in relation to the total number of cases closed,declined about 23 percentage points. Although California’s peerstates also experienced decreases in their percentages of rehabili-tated clients of 12 percentage points on average, these declineswere not as pronounced as California’s rate drop. After theperiods of decline, both California and its peer states experi-enced improved rates of successful case closure. However, thepeer states’ rate recovery started two years before that ofCalifornia, and their average successful outcome rates wereapproximately 15 percentage points higher than California’srate. This discrepancy suggests that additional factors besides thefederal requirements are causing California’s poor performancein using its funds effectively and closing client cases successfully.

Moreover, compared with other states that use order ofselection, California generally spends more money in attempt-ing to rehabilitate its clients. Specifically, as shown in Table 1 onpage 20, from federal fiscal years 1995-96 through 1997-98,California spent an annual average of $3,227 per client, while itsfive peer states spent an average of $2,603 per client. We sur-veyed the peer states to identify the practices they employ thatmay account for their costs being lower and their success ratesbeing higher than those of California. However, we did notidentify any significant differences. Nonetheless, as we discusslater in this chapter, we identified practices at some of thedepartment’s district offices that can help the program be morecost-effective.

On average, the peerstates’ successful outcomerates were 15 percentagepoints higher and theirannual costs per clientwere $624 lower thanCalifornia’s.


FIGURE 5

California’s Vocational Rehabilitation Rates for Disabled Individuals AreConsistently Lower Than Those of Its Peer States*

Source: U.S. Department of Education’s Rehabilitation Services Administration database of States’ Quarterly Cumulative CaseloadReports for quarters ending September 30 for federal fiscal years 1989-90 through 1997-98.

* Peer states are those states with annual program expenditures exceeding $50 million that were under order of selection duringthe same period as California.

0

10

20

30

40

50

60

70

1989-90 1990-91 1992-93 1994-95 1995-96 1996-97 1997-981993-941991-92

California Peer state average

Perc

enta

ge

of

Succ

essf

ully

Clo

sed

Cas

es

Fiscal Year

64.261.6

54.6 52.8

47.944.8

41.243.4

46.0

65.3 65.1

61.1

55.1 54.5 53.2

58.1 58.261.3

THE DEPARTMENT HAS FAILED TO MANAGE CERTAINASPECTS OF THE PROGRAM ADEQUATELY

Increasing costs for client services and a record that shows a lowpercentage of clients obtaining employment for at least threemonths indicate that the department has failed to manage orfocus properly its program. Our review suggests that the depart-ment has significant weaknesses in the following areas:

· Tracking the cumulative costs of individual cases to keepthem from becoming unreasonably high.


· Identifying and then closing promptly its many expensive,unsuccessful cases to avoid spending funds that could gotoward services for additional eligible clients.

· Monitoring district performance to ensure consistent,cost-effective delivery of services.

Despite the department’s overall management shortcomings,some districts perform better than others, maintaining muchlower costs while still achieving rates of success comparable tothose of other districts. Lacking departmental leadership,districts with cost-effective practices have developed manage-ment techniques to monitor and control costs.

The Department Does Not Monitor the CumulativeCosts of Its Cases

The department’s failure to track the cumulative expenses of itscases causes it to spend far beyond its average on some cases andcontributes to its spending a large percentage of funds on asmall percentage of clients. Federal policy states that, after aclient’s employment goal has been identified, cost is a relevantfactor in determining an appropriate, cost-effective means forproviding services and authorizes states to employ cost effi-ciency strategies in providing needed services to clients. By noteffectively monitoring cases to ensure costs are necessary andreasonable, the department is spending money it could use toserve additional deserving clients.

Currently, the department does not monitor the cumulativeservice costs of its clients’ plans for employment. Instead, itfocuses on reviewing and approving certain types of expendi-tures during the progression of a client’s plan. For example, thedepartment reviews and approves items such as vehicle repairsthat exceed annual limits of $350, but it does not increase itsscrutiny of cases for which growing costs for purchased servicessignificantly exceed the program’s averages.

Additionally, although it is the department’s practice to estimateand monitor anticipated annual case costs when it creates a planfor a disabled client, the department does not estimate the totalcost of achieving the plan. At the outset, the department doesnot clearly outline the total resources it commits for a client orthe possible need to explore more cost-effective alternatives.Further, as the client progresses in the plan, the department isunable to check the accumulating costs against an original

By not monitoring casesand promptly closingthose that areunsuccessful, thedepartment spendsmoney it could use toserve additionaldeserving clients.


estimate. Because the department does not estimate total plancosts for its clients nor compare cumulative costs to these esti-mates, it is not likely to intervene at appropriate points whenaggregate costs exceed reasonable amounts. For example, forcases closing in fiscal year 1998-99, the department incurred26 percent of its purchased-service costs on just 3 percent of itscases. In fact, it spent over $20,000 per client on these cases—more than six times its average cost of approximately $3,300 forpurchased services.

Our review of a sample of cases exceeding $50,000 revealed thatalthough some clients may reasonably require more services,the department apparently does not always consider what isreasonable and appropriate before providing services. Forexample, in one case, the department agreed to provide servicesfor a client whose vocational goal of becoming an orthodontistrequired an undergraduate degree, a graduate degree indentistry, and specialty training in orthodontics. Thus, thedepartment committed itself to a costly vocational goal forwhich it has already spent $92,000 in purchased services for theclient’s education at a university and current training at aprivate dental school. However, since the client graduated fromthe university, the department has not purchased any servicesspecifically related to the client’s learning disabilities. In fact,aside from periodic evaluations, services have been limited topaying for books, tuition, fees, and supplies. Consequently,although the client is disabled, it is questionable whether hecontinued to require vocational rehabilitation services followinghis graduation from the university.

For another case that has already lasted 10 years, the departmentcontinues to provide services, currently totaling over $80,000, toa client who graduated with a degree in anthropology. In col-lege, the client appeared uncertain on a course of study, whichchanged from environmental studies to physical therapy andthen finally to anthropology. Had the department monitoredthe case, it may have ensured the client received the guidanceshe needed to pursue a career with ample job opportunities.After she received her degree in anthropology and was unable tofind employment, the client contemplated pursuing a doctoratedegree in archaeology or a master’s degree in management. Atthis point, the counselor expressed concerns about the client’sindecisiveness and unclear vocational goal. However, instead ofproviding redirection and moving the client toward gainfulemployment, the counselor complied with the client’s request to

Had the departmentmonitored one case, theclient may have receivedthe needed guidance topursue a vocationalgoal with ample jobopportunities.


revise her vocational goal so she could pursue a career in law. Asa result, the department has obligated itself to another long-term, expensive goal.

The Department Does Not Close Expensive, UnsuccessfulCases Promptly

We also found that spending more funds for each case does notensure the success of those cases. In fact, for cases closed in fiscalyear 1998-99, once the department’s spending on a client’s planreached about $20,000, the likelihood that the client would besuccessful in attaining his or her plan objective decreased signifi-cantly. Figure 6 shows this point of diminishing returns.

FIGURE 6

Although It Initially Increased, the Percentageof Clients Obtaining Employment Dropped

as the Department’s Per-Case Spending Increased(Fiscal Year 1998-99)

Source: Department of Rehabilitation’s Client Tracking System Extract for state fiscal year1998-99.

* We calculated the percentage of successful closures by dividing the number ofsuccessful case closures in each range by the total cases closed in the same range.

If it were to focus on monitoring cumulative service costs, thedepartment could exercise its right to close unsuccessful, expen-sive cases when conditions indicate that a positive outcome isunlikely. Had the department been able to close the unsuccessful

Range of Dollars Spent by the Department toPurchase Services for Clients

Perc

enta

ge

of

Succ

essf

ul

Clo

sure

s in

Ran

ge*

0

20

40

60

80

100

0-3,000

3,001-5,000

5,001-10,000

10,001-20,000

20,001-30,000

30,001and over

Clients that did not achieve their goalsClients achieving their goals

57.4 39.5 38.2 36.9 50.8 52.1

42.6

60.5 61.8 63.1

49.2 47.9


cases described above after it had spent $20,000, it wouldhave saved enough funds to provide services to more than2,700 additional clients at the department’s average cost forrehabilitating clients.

Although the department is operating under the “presumptionto benefit” requirement, federal law does not oblige the depart-ment to spend unreasonable amounts of money to continuepurchasing services for clients who cannot reach theiremployment goals. The department should exercise prudencein providing services to clients so that it uses to best advantageits limited vocational rehabilitation funds to serve additionalCalifornians with disabilities.

Our sample of 20 fiscal year 1998-99 client cases included15 that exceeded $50,000 in cumulative costs; 5 of these15 expensive cases closed unsuccessfully. All 5 of theseunsuccessful cases involved clients who were taking part in thedepartment’s Work Activity Program, which provides primarilywork-related experiences in a sheltered setting to developmen-tally disabled clients. The clients in these 5 cases received ser-vices over a period of four to seven years at a total cost of$322,200 before the department moved to close them asunsuccessful in fiscal year 1998-99. In 4 of the 5 cases, theservices the department provided consisted of primarily workadjustment services such as behavioral training to develop theappropriate attitudes, habits, and personal and social skillsnecessary for employment. According to the State’s regulations,without a special waiver, the duration of these types of servicesmust not be more than six months, and even with a waiver, wewould not expect these types of services to greatly exceed thesix-month standard. However, in each of the 4 cases, thedepartment continued to provide services to clients for severalyears before concluding they were not employable and closingtheir cases.

The results of our review of these initial 5 sample casesprompted us to review the remaining 33 cases that cost morethan $50,000 and that the department closed as unsuccessfulduring fiscal year 1998-99. We found that 26 of these 33 cases,or 79 percent, were also clients that the department servedthrough its Work Activity Program. The department stated thatit spends significantly more on the clients it serves through thisprogram than it does on its other clients. According to thedepartment, from fiscal years 1994-95 through 1998-99, it servedabout 12,000 clients in its Work Activity Program. Although the

By closing cases when apositive outcome isunlikely, the departmentcan assist other eligibleclients who are waitingto receive services.


department estimated that on average these clients receivedservices for 2.4 years at a cost of $11,550 per client, theseestimates are likely understated because many of these clientscontinue to receive services. Of the 7,400 Work Activity Programcases the department closed during fiscal years 1994-95 through1998-99, about 4,950, or 67 percent, closed without the clientsachieving their employment goals. By not promptly closingexpensive cases of clients who, after a reasonable time period,have demonstrated they are unable to achieve their employmentgoals, the department is not optimizing its vocational rehabilita-tion funds to serve more Californians with disabilities.

The Department Does Not Fully Use Its ExistingManagement Tools

The department has various tools at its disposal to monitordistrict performance. However, it is not fully using thesemanagement tools to ensure that districts provide consistent,cost-effective services. For example, the department periodicallyconducts detailed reviews of its district offices. However, thesereviews focus primarily on client satisfaction and compliancewith state and federal regulations related to case processingrather than on plan outcomes and service costs. Althoughcustomer satisfaction and compliance with case processingregulations are important, they do not alert management todistricts that may be experiencing climbing costs and decreasingoutcomes. As a result, these reviews do not identify the poorer-performing districts that may need the department’s attentionand technical assistance.

Additionally, the department maintains an extensive statewidecomputer database system that tracks the status and costs of itscases. The department could use this system as a managementtool for identifying and monitoring potential disparities in localservice delivery by comparing productivity and costs fromdistrict to district. However, with the implementation of the1992 amendments, the department stopped requiring districtoffices to establish production goals and discontinued its prac-tice of producing monthly performance reports from the systemthat compared the districts on spending and productivity. As aresult, the department is not using its information system to itsbest advantage as a management tool, especially to highlightdifferences in outcomes and costs from district to district.

Although the departmentmaintains a statewidedatabase that tracks thestatus and costs of cases,it does not fully use thistool to monitor districtperformance.


Despite the department’s lack of focus on outcomes and servicecosts, we found certain districts are doing better than others inmanaging their program costs. The Appendix presents theaverage cumulative costs of purchased services and the percent-age of average successful outcome rates by district. We visitedfour districts and found that the most cost-effective districts arethose that employ appropriate management techniques andstrategies, including monitoring costs and outcomes.

SOME DISTRICT OFFICES SUCCESSFULLY USEMANAGEMENT STRATEGIES TO ACHIEVELOWER COSTS

Of the four districts we visited, two consistently have low costsand successful outcome rates comparable to those of otherdistricts. These two districts—Greater Los Angeles and Fresno—closely monitor client expenditures and maintain a sharp focuson being productive at the lowest possible cost. For example, theGreater Los Angeles district conducts weekly managementmeetings to evaluate spending by unit and counselor. Thepurpose of these meetings is to identify counselors whose casesexhibit unusually high costs. If necessary, district managementreassigns these cases to other counselors or discusses the issueswith the counselors.

In addition, the Fresno district has developed its own districtreports to monitor data such as the number of plans written,closed cases, costs per plan, and costs per rehabilitation. Thismonitoring system allows the district to be aware of its costs andproduction. Another cost-saving effort in the Fresno district is itsbook buy-back program, which encourages clients attendingschool to purchase used textbooks rather than costly new books.

Consistent with department policy, the Fresno and GreaterLos Angeles districts emphasize to their counselors the impor-tance of constantly evaluating client needs versus wants andalso giving clients only what they need to support their plansfor employment. Further, counselors stress to every client thatthe plan for employment is essentially a contract and generallyit will not be changed except to accommodate an alteration inthe client’s disability. Additionally, Fresno has each client sign aform called Terms and Conditions for Provision of Services,which clearly delineates the client’s responsibilities. This dis-courages clients from repeatedly changing their vocational goalsand optimizes the district’s use of money and resources.

By developing reportsto monitor cases, onedistrict is better able tocontrol costs yet stillachieve successfuloutcomes.


RECOMMENDATIONS

To ensure that it uses its limited resources to benefit the greatestnumber of eligible clients, the department should:

· Estimate the total cost of each client’s plan for employmentduring plan development and after each major revision.

· Establish cost standards and require review and approval ofplans exceeding the standard amount.

· Monitor cumulative case costs against the established stan-dards, and take appropriate action when costs exceed thestandards.

· Close cases as soon as it becomes apparent that the clientscannot attain employment.

· Identify and adopt strategies used by other states and thedepartment’s own district offices that have been effective inreducing costs and improving success rates.

· Use existing management tools to assist in monitoring theprogram. This effort may include expanding the scope ofperiodic district reviews to focus on plan costs and outcomesand generating management reports from the department’sstatewide database that highlight district performance interms of costs and outcomes. ■


CHAPTER 2The Department’s Methodfor Evaluating the Severity ofClients’ Disabilities FavorsClients With Learning andCertain Mental Disabilities

CHAPTER SUMMARY

The scoring instrument that the Department ofRehabilitation (department) now uses to identify thoseindividuals whom its Vocational Rehabilitation Program

(program) must serve first favors people with learning andcertain mental disabilities, so access to vocational services maybe inequitable. Recognizing that its scoring instrument isflawed, the department contracted with San Diego StateUniversity (university) in 1996 and 1998 to study and makerecommendations for improving the scoring instrument, but thedepartment has not yet implemented any of the university’srecommendations.

THE DEPARTMENT USES A SIGNIFICANCE SCALE THATFAVORS CLIENTS WITH LEARNING AND CERTAINMENTAL DISABILITIES

The significance scale—the scoring instrument developed by thedepartment to rate a client’s degree of disability—is flawed. Thescale’s weaknesses can cause individuals with learning andcertain mental disabilities to receive higher scores on the signifi-cance scale than people with other types of disabilities. Thedepartment uses the scale for the order-of-selection process,which helps department staff fulfill the federal regulation thatvocational rehabilitation programs without sufficient resourcesto serve all eligible clients must identify and then serve first themost severely disabled individuals. In California’s program, casesof clients with the highest scores are likely to receive thedepartment’s highest priority.


California Developed Its Scale to Identify theDisabled Clients It Must Serve First

Although the federal government defines an individual with asevere disability, it allows states to establish criteria for an indi-vidual with a most severe disability. The department’s significancescale uses a scoring system to rank from zero to five the impactof individuals’ disabilities on 10 different areas in which theymust function reasonably (functional capacity areas) to becomeemployed. A score of zero in a functional capacity area meansthat the applicant does not have a disability that affects thatparticular area. Conversely, a rank of five means that theindividual’s disability has a very high impact on that particularfunctional capacity area. Table 2 shows the 10 functional capac-ity areas and their definitions.

TABLE 2

Functional Capacity Areas That an Individual’s Disabilities May Affect

Functional Capacity Area Definition

Mobility The physical, cognitive, sensory, or psychological ability to moveabout from place to place, including community, home, school, orwork.

Speaking The ability to effectively express information that is understandableto others.

Hearing The ability to effectively receive or use auditory information throughspeech or other essential sounds, and may not have a correlation todecibel loss.

Seeing The ability to effectively perceive or use information receivedthrough written or printed words, concepts, or objects.

Cognitive Processing The ability to effectively process, understand, or act on information,either given or received, without regard to the physical ability tocarry out the behavior.

Personal Care The ability to meet one’s physical and personal needs. This includes,but is not limited to, an individual’s management of resources forone’s needs, such as grooming, medication management, or moneymanagement.

Self-Direction The ability to independently plan, initiate, problem solve, organize,or carry out goal-oriented activities without regard to the physicalability to carry out the activity.

Interpersonal Skills The ability to establish or maintain personal and social interactionas they affect the individual’s participation in training or work-related activities.

Work Tolerance The capacity to sustain required levels of physical or mentalfunctioning in work-related activities.

Work Skills The ability to learn or perform essential physical or cognitive work-related activities.

Source: Barclays Official California Code of Regulations, Section 7051.


The department uses four criteria to determine which eligibleapplicants are most severely disabled: the total score from thescale for each individual, the applicant’s number of highlyaffected functional areas, the expected length of time, andthe number of services needed for his or her rehabilitation. Thesignificance scale supplies the first two of these criteria. Thedepartment has been using the same significance scale to deter-mine which clients receive priority for services since it institutedits order-of-selection process more than four years ago. Conse-quently, as we discussed in Chapter 1, more than 80 percent ofthe approximately 75,000 clients who received services under aplan for employment during fiscal year 1998-99 qualified asmost severely disabled. Table 3 shows the composition of thedepartment’s caseload for this period.

TABLE 3

Disability Groups Served by the Department inFiscal Year 1998-99

Percentage ofTotal Clients Who

Disability Group Received In-Plan Services

Visual 8%

Hearing 6

Extremity Loss 1

Orthopedic* 17

Mental† 40

Acute brain injury 3

Learning disabilities 18

Other‡ 7

* Orthopedic disabilities are impairments of one or more limbs, the back, the spine, orthe trunk caused by conditions such as congenital malformation, cerebral palsy,muscular dystrophy, multiple sclerosis, arthritis and rheumatism, Parkinson’s disease,stroke, and spinal cord injuries.

† Mental disabilities encompass such conditions as psychotic, personality, sleep, andmood disorders, as well as mental retardation, autism, and drug addiction andalcoholism.

‡ Other disabilities include disorders that involve impairment of the body’s systems, suchas circulatory, respiratory, nervous, and digestive systems, caused by conditions such ascongenital heart disease, hypertension, emphysema, hernias, allergies, and leukemia.


Studies Have Found That the Department’s Scale HasSerious Shortcomings

Despite the significance scale’s apparent usefulness and level ofdetail, studies of this measurement tool concluded that it hasflaws. For instance, the significance scale may favor individualswith certain mental and learning disabilities because applicantsin these disability groups can receive scores for more functionalcapacity areas than can individuals in other disability groups.

According to the federal Rehabilitation Services Agency, thedepartment requires separate scores for speaking, hearing,seeing, and cognitive processing, which are all areas that involvecommunication, but the department’s definitions for theseabilities are ambiguous. As a result, individuals who have similarlimitations in communication may receive different assess-ments. For example, someone who is deaf and limited inexpressing and receiving verbal communication is likely toreceive one score for speaking and one for hearing, but a personwho is blind and limited in visual and receptive communicationwould receive a score for seeing only. As a result, the deaf personwould receive a higher score on the scale than would the blindindividual. The total score for all 10 functional capacity areas isone of the department’s criteria for determining the severity ofan individual’s disabilities; thus, individuals with the highestscores have the best chance of becoming eligible for services.

Because the significance scale is heavily weighted for cognitiveabilities, an individual with certain mental or learning disabili-ties may receive a higher cumulative score than people withother types of disabilities. During our review of the department’ssignificance scale, we noted that 3 of the 10 functional capacityareas—cognitive processing, mobility, and work skills—directlyinvolve cognitive skills.

The department twice asked the university to evaluate thesignificance scale. Based on its 1996 and 1998 studies, theuniversity concluded that the 10 functional capacity areas donot have equal weight and that the scale gives more weight tocommunication-related abilities than to other areas. The univer-sity also concluded that some of the abilities measured to deter-mine a functional capacity area might overlap, so the 10 func-tional capacity areas are not independent of each other. Forexample, the 1996 study found that scores received for cognitiveprocessing correlated strongly with scores in all functionalcapacity areas except mobility. Therefore, it is likely that an

Because the scale isweighted for cognitiveabilities, clients withcertain mental andlearning disabilities mayreceive a higher scorethan clients with otherdisabilities.


individual who has difficulty understanding simple instructionswould not only score high in (that is, show difficulties with)cognitive processing, but he or she would also receive highscores in other areas that require similar cognitive abilities,including interpersonal skills, personal care, self-direction, andwork skills. On the other hand, a person who is quadriplegicmay score high—or demonstrate difficulties with—the area thatmeasures mobility. Further, we found that rather than limit thedefinition of mobility to the ability to move physically fromplace to place, the department expanded the definition toinclude cognitive and psychological abilities to move about.According to this definition, someone who can walk but hasdifficulty understanding how to get to a destination may receivea higher score than a person who is paraplegic and can travelabout with the help of a wheelchair.

The Department Is Working to Improve Its Significance Scale

The department recognizes that its significance scale isflawed and has taken steps to improve the tool. In 1997, thedepartment formed a work group to revise the scale based onrecommendations from the 1996 university study. After it maderevisions, the department then asked the university to study therevised scale. Although the university reported in its 1998 studythat the revisions did improve the original scale, the universityconcluded that the scale was not yet sufficiently reliable. Afterfour years of studying the scale, however, the department hasnot implemented a modified instrument. The department iscurrently reviewing the university’s recommendations and plansto submit its proposed significance scale revisions to thedepartment’s newly appointed director. Once the new directorapproves a modified instrument for assessing the severity ofapplicants’ disabilities, the new criteria must go through alengthy administrative process before they become part ofstate regulations that govern the program. Consequently, thedepartment will not be using a new scale or evaluation tool inthe near future.

RECOMMENDATION

To ensure that the most severely disabled in all disabilitygroups have equal access to services under order of selection,the department should modify its significance scale.

After four years ofstudying the scale, thedepartment has notyet implemented amodified instrument.


We conducted this review under the authority vested in the California State Auditor bySection 8543 et seq. of the California Government Code and according to generally acceptedgovernment auditing standards. We limited our review to those areas specified in the auditscope section of this report.

Respectfully submitted,

MARY P. NOBLEActing State Auditor

Date: February 10, 2000

Staff: Sylvia L. Hensley, CPA, Audit PrincipalReed M. McDermott, CPADebra L. Maus, CPARobert A. HughesJoemil A. Reguindin


APPENDIXPurchased-Service Costs andSuccessful Outcome Rates by Districtfor the California VocationalRehabilitation Program

Average Percentage ofCumulative Costs Average Successful

of Purchased Outcomes forDistrict Services* Disabled Clients†

Northern Region:

San Francisco $2,623 49.3%

San Jose 2,717 45.7

Pleasant Hill 2,769 43.0

Oakland‡ 2,924§ 45.1

Chico 2,958 47.9

Santa Rosa‡ 3,025 45.0

Sacramento 3,164 44.0

Los Angeles/Orange Region:

Greater Los Angeles‡ 1,690 48.7

Los Angeles Mid-Cities 1,894 40.7

Orange/San Gabriel 2,692 41.2

Van Nuys/Foothills 2,784 36.3

South Coastal 2,882 43.5

Southern Region:

Fresno‡ 1,849 45.2

Riverside 2,049 42.3

San Bernardino 2,099 42.6

Santa Barbara 2,275 44.7

San Diego 2,352 44.7

Source: Department of Rehabilitation’s Client Tracking System Extract and Client FileControl Register for state fiscal years 1994-95 through 1998-99.

* We calculated the average cumulative cost of purchased services for each district bydividing the total number of case closures for fiscal years 1994-95 through 1998-99 intothe cumulative purchased service expenditures for these cases.

† We calculated the percentage of average successful outcomes by dividing the numberof successful case closures for fiscal years 1994-95 through 1998-99 by the total casesclosed during the same time period.

‡ We performed a limited on-site review of this district.

§ The Oakland district’s average cumulative cost of purchased services for fiscal year1997-98 was unusually high ($6,143). Excluding fiscal year 1997-98, the district’saverage costs during this time period would be $2,246.


Agency’s comments provided as text only.

Department of RehabilitationDirector’s Office2000 Evergreen Street, 2nd FloorSacramento, California 95815

January 28, 2000

Sylvia Hensley

Bureau of State Audits

555 Capitol Mall, Suite 300

Sacramento CA 95814

Re: Report 99111

Dear Ms. Hensley:

Thank you for the opportunity to review and comment on the Bureau of

State Audits’ draft audit report entitled, “California’s Vocational

Rehabilitation Program: Although Federal Requirements Have Contributed

To Its Rising Costs, by More Effectively Managing the Program, the

Department of Rehabilitation Can Better Serve More Californians With

Disabilities”.

Our response addresses findings, recommendations and other issues in

the report. The comments are organized to parallel the format contained in

the audit report.

If you have any questions about the response, please contact our

Response Coordinator, Melinda Wilson, at (916) 263-8999.

Sincerely,

(Signed by: Catherine Campisi)

CATHERINE CAMPISI, Ph.DDirector

Enclosures


Blank page inserted for reproduction purposes


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To provide clarity and perspective, we are commenting onthe Department of Rehabilitation’s (department)response to our audit report. In its response, the

department repeatedly disagrees with our recommendations toimprove its management of limited program funds by usingcosts to monitor its clients’ cases. The department contendsthat such practices are contrary to federal law governing theprogram. However, as we discuss in our comments 6 and 10below, the department misrepresents our recommendations bystating that we suggest it apply a ceiling or dollar limit to theservices it provides to its clients. Such a practice does violatefederal law, and nowhere in the report do we suggest it.

The numbers correspond to the numbers we have placed in thedepartment’s response.

We disagree that this state mandate causes the department toserve more individuals with severe developmental disabilitiesthan it would without such a mandate. These individuals,like everyone else, must meet and maintain eligibility require-ments to gain admission to the program and continuereceiving vocational services through the program. Thedepartment is confusing its legal obligation to provide workactivity and supported employment services to developmen-tally disabled clients through its Habilitation ServicesProgram—a state-mandated entitlement program that is100 percent funded through the State’s General Fund—withits Vocational Rehabilitation Program (program), which islargely federally funded.

We disagree that the department has only served clients withsevere and most severe disabilities since implementing order ofselection in 1995. The order of selection applied only tonew clients entering the program. Consequently, consistentwith federal regulations, the department continued to serveclients already in the program, regardless of the severity of theirdisabilities. For example, in federal fiscal year 1996-97, the

COMMENTSCalifornia State Auditor’s Commentson the Response From theDepartment of Rehabilitation

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department reported to the U.S. Department of Education,Rehabilitation Services Administration, that 17,290 (or28 percent) of all clients it served were not severely disabled.We agree that since it implemented order of selection, thedepartment has limited entry into the program to individualsthat are severely and most severely disabled. However, as shownin Figure 3 on page 18, the department continues to provideservices to a number of clients who are not severely disabled.

We are surprised by the department’s reaction to our conclusionthat its cooperative agreements with local agencies have contrib-uted to higher costs. Early in our audit, the department statedthat client costs were probably higher for cooperative programs.We agree with the department’s suggestion on page 51 of itsresponse that clients with mental disabilities are more expensivethan clients with other types of disabilities. This is true whetheror not these clients participate in cooperative programs and initself does not invalidate our conclusion. Moreover, clients withmental disabilities are not required to participate in cooperativeprograms to receive services. Likewise, clients do not have toparticipate in cooperative programs to receive services such ascollege or university education. Therefore, we believe our overallcomparison of average costs per client for those who participatein cooperative programs with average costs for those who do notparticipate provides adequate support for our conclusion.

We disagree with the department. In our summary, we state that“the department cannot afford to mismanage funds” because itwould result in fewer deserving individuals receiving neededservices. In Chapter 1, we discuss several areas where the depart-ment can improve management of its funds to optimize the useof its limited resources. We are troubled that the departmentfails to acknowledge that it can better manage its funds to servemore individuals with disabilities. Until it does so, the depart-ment will not be able to improve the program as needed.

We disagree with the department’s claims in its response thatthe methodology we used to identify “peer” states is limited,inaccurately depicts the department’s performance, and falselyplaces the department in a negative light. In selecting peerstates, we addressed the most important factors by ensuring thatall five states identified as peers operated under the same federalrules during the four-year review period. Assuming that all thesestates comply with the federal regulations, the differences intheir programs’ performance would largely be the result ofdecisions they have made. Thus, although we recognize that

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additional factors could be taken into consideration, in ouropinion, the methodology we employed was adequate for theanalysis we performed. Even without comparing California’sperformance with other states, we feel the department’s poorrecord of high costs and low outcomes speaks for itself. Addi-tionally, our comparison of client characteristics reveals that,although California has served a growing percentage of severelydisabled clients through the years, that percentage has alwaysbeen lower than the peer states’ averages. For example, in federalfiscal year 1996-97, the most recent year for which we have thisdata on the peer states, 76.8 percent of the clients served inCalifornia were severely disabled compared with 81.9 percent to97.7 percent of the clients served in the peer states. Thus wewould expect California’s average cost per client to be lowerthan the peer states’ average, when in fact it is higher.

The department misrepresents our recommendations. Contraryto the department’s assertions in its response, nowhere in thereport do we suggest that the department apply a ceiling ordollar limit to the services it provides. We do, however,recommend that the department use costs in monitoring ofcases to assess how the client is progressing and the need formanagement action. Monitoring based on costs is consistentwith federal policy and the department’s current practice ofsubjecting expenditures of certain types and amounts to itsreview and approval. The Rehabilitation Services Administration(RSA) Policy Directive RSA-PD-97-04 cited by the departmentstates that after a client’s employment goal is identified,cost is a relevant factor in determining an appropriate, economi-cally sound means of providing services. Further, the directiveauthorizes state agencies to employ cost-efficiency strategies inproviding needed services. We believe our recommendations toestimate and monitor cumulative costs as well as promptlyclose unsuccessful cases are consistent with such strategies.Until it employs such strategies to optimize the use of itslimited resources, the department will not be able to improvethe program as needed.

We are concerned that the department’s response to our recom-mendation to promptly close unsuccessful cases is limited to itsVocational Rehabilitation Work Activity Program (VR/WAP).As indicated on page 27 of our report, approximately 21 percentof the other cases, which exceeded $50,000 and closedunsuccessfully in fiscal year 1998-99, did not involve clients thedepartment served in its VR/WAP. Thus, by limiting its examina-

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tion to VR/WAP cases, the department may be ignoring theneed to change its review and monitoring practices of othercases as well.

On page 17, we have changed the text of our report to clarifythat federal regulations require the department to cooperatewith local agencies that furnish services related to the rehabilita-tion of individuals with disabilities but do not require it to enterinto cooperative agreements with local agencies.

Contrary to the department’s assertion, we present its mostrecent annual cost per client on page 12 of our report. Unfortu-nately, this information was not available from the departmentuntil January 21, 2000. And, because fiscal year 1998-99 costdata is not available from the other states, we could not reviseour analysis on page 22 or Figure 5 on page 23. Additionally,although we are pleased to see that the department’s averageannual costs declined in fiscal year 1998-99, it is inappropriateto compare its current average cost to the peer states’average cost for prior years. However, as we report on page 12,the average cumulative cost of cases that were open as ofJune 30, 1999, was significantly higher than that of casesclosed during fiscal year 1998-99. Thus, we expect client coststo continue to increase.

The department misses the point. Our purpose in presenting thisdata is not to compare the success rate of cases above and belowthe $20,000 point or to suggest that the department use costs asa factor in deciding whether it should close a case. Our purposeis to demonstrate why we believe that costs should be onecriterion the department uses to monitor cases. Historical datashow that, after spending beyond a certain point, the percentageof clients achieving their employment goals begins to declinesignificantly. As shown in Figure 6 on page 26, in fiscal year1998-99, this point happened to be about $20,000. We recom-mend that the department use costs as a means of monitoringits commitment to cases and identifying appropriate times whenit should review cases further. By so doing, the department coulddetermine if each case is making appropriate progress andwhether any management actions are required. Further, moni-toring based on costs is consistent with the department’s currentpractice of subjecting certain types of expenditures to review andapproval, as we discuss on page 24. With over 75,000 activecases, the department cannot effectively monitor each onewithout establishing some review criteria.

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We concur with the department’s point and have removed thesentence from page 25.

Contrary to the department’s assertion, we recognize thatdisability-related support services might be provided throughcomparable benefits. Our review of the department’sdocumentation of this case revealed that the client did notreceive comparable benefits for services related to his disability.In addition, it did not show any substantive counseling andguidance being provided by the department to the client after hegraduated from the university. Instead, case documentationshowed the department simply continued to approve paymentfor tuition, books, and other fees and supplies for the client. Thedepartment did not purchase any services specifically related tothe client’s learning disabilities.

We agree that it is appropriate in certain circumstances for thedepartment to approve a client’s request to change his or heremployment objective. However, we are concerned that thedepartment is willing to commit over $80,000 and 10 years toone client’s search for the appropriate employment goal, whileat the same time excluding other eligible clients from servicesbecause it does not have sufficient resources. Further, we ques-tion whether the department provided appropriate guidance andcounseling to the client by approving a vocational goal inanthropology. Had the department appropriately monitored itscases, it could have ensured this client received the guidance sheneeded and perhaps saved her and the department several yearsof effort and funds in pursuing a vocational goal that providesfew opportunities for employment. We added a sentence onpage 25 to clarify our point.

The intent of our statement was not to suggest that the Fresnodistrict acts contrary to department policy or regulations. Thus,we have changed the text of our report to read that Fresno“generally” will not make changes in a client’s plan except toaccommodate an alteration in the client’s disability.

The focus of our discussion is the significance scale itself. Werealize that the department has modified its overall assessmentsystem. Although we agree that these changes have improvedthe process, we do not agree that they minimize any impactresulting from the use of the significance scale. The departmentstill uses this flawed instrument to classify a client as severelyor most severely disabled, and these classifications continueto be the determining factor in who receives services first.

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Consequently, so long as the department uses this flawed instru-ment, it will continue to give preference to clients with learningand certain mental disabilities.

The department’s attempt to demonstrate that its use of thesignificance scale has no effect on clients with most disabilitytypes is not meaningful. The average scores are based on thesignificance scale, which is flawed. For example, as we discuss onpages 32 and 34, there are three functional areas in which aclient can receive a score for cognitive skills. Clients can receiveup to five points in each of these areas. Consequently, clientswhose disabilities affect their cognitive skills, such as learningand certain mental disabilities, can receive significantly higherscores than those with disabilities that do not affect their cogni-tive skills. Furthermore, the department still uses these scores toclassify a client as disabled, severely disabled, or most severelydisabled, and this classification continues to be the determiningfactor in who receives services first.

We agree that the department should carefully consider anyrevision of its significance scale to avoid making prematurechanges. However, with the research and internal studies it hascompleted over the past four years, the department should be inposition to make the necessary changes soon.

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cc: Members of the LegislatureOffice of the Lieutenant GovernorAttorney GeneralState ControllerLegislative AnalystAssembly Office of ResearchSenate Office of ResearchAssembly Majority/Minority ConsultantsSenate Majority/Minority ConsultantsCapitol Press Corps

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