Report 2009-118 Summary - August 2010

Department of Developmental Services: A More Uniform and Transparent Procurement and Rate-Setting Process Would Improve the Cost-Effectiveness of Regional Centers


Our review of the Department of Developmental Services (Developmental Services), as well as six of the nonprofit regional centers coordinating services and supports for Californians with developmental disabilities (consumers), revealed the following:


Although the Department of Developmental Services (Developmental Services) and the 21 nonprofit regional centers it oversees have sufficient processes for ensuring that services purchased for people with developmental disabilities (consumers) are allowable, it does not have adequate processes in place for ensuring that the costs of these services are reasonable. In the Lanterman Developmental Disabilities Services Act (Lanterman Act), enacted in 1969 and later amended, the State accepts responsibility for providing services and support to consumers and creates a network of regional centers to meet this responsibility. Although the Lanterman Act delegates to the regional centers the day-to-day responsibilities of determining eligibility and establishing consumers' individual program plans (IPPs)—documents that describe consumers' needed services—it charges Developmental Services with overseeing the regional centers. In fiscal year 2009-10, the State's budget for Developmental Services was $4.7 billion, with $3.4 billion of this total going toward direct services purchased by the regional centers for consumers.

The Lanterman Act, and the regulations created to carry it out, provides an adequate framework for ensuring that the services purchased for consumers are allowable, but this framework delegates much of the work of selecting vendors and negotiating rates to the regional centers and is generally silent as to how regional centers are to perform these functions. Similarly, Developmental Services systematically audits and reviews whether services purchased for consumers are allowable but, at the time of our fieldwork, generally did not examine how regional centers establish rates or select particular vendors for services. After we brought this issue to its attention, Developmental Services revised its procedures for audits of regional centers to include a review of how regional centers establish rates and whether these rates are in compliance with applicable state laws and regulations.

Although the regional centers could improve their documentation of procedures in a few areas, most of the expenditures we reviewed for the purchase of services appeared allowable and were supported by proper vendor invoices. However, the regional centers do not document how rates are set, why particular vendors are selected to provide IPP-related services to consumers, or how contracts are procured, nor are they required to do so. As a result, the regional centers could not consistently demonstrate the rationale behind their rate-setting and vendor-selection decisions. In some cases, the ways in which the regional centers established payment rates and selected vendors had the appearance of favoritism or fiscal irresponsibility and did not demonstrate compliance with recent statutory amendments attempting to control the costs of purchased services.

For example, we found that a regional center procured $950,000 in services from a transportation provider under a so-called "negotiated rate" that appears to have been calculated to incur a specific level of spending before the end of the fiscal year rather than to obtain the best value for the consumers the regional center serves. Furthermore, because the regional center did not contractually obligate the vendor to provide any specific deliverable, the regional center could not hold the vendor to any specific level of performance. Finally, this same vendor was later awarded a multimillion-dollar contract to become the regional center's transportation broker—the central administrator for consumer transportation routing—without any formal request for competing proposals and based on a rate structure that, in part, skirted requirements put into place by a July 2008 statutory amendment freezing certain existing rates and requiring that the rates paid to new vendors be no more than the lower of the statewide or regional center rate for all vendors in the applicable service code category. In another example, a different regional center negotiated a rate with a new vendor under circumstances giving the appearance of favoritism. The resulting rate was considerably higher than the rate of an existing vendor performing the same type of service and the vendor owner receiving the higher rate was the sister of the regional center's assistant director who approved the rate.

These and other examples of inappropriate rates, including four other instances in which regional centers did not comply with the July 2008 amendment, highlight the manner in which rate-setting and procurement practices at the regional centers affect whether costs paid by the State are reasonable. Further, the lack of a formal, transparent rate-setting and vendor-selection process invites criticism that regional centers display favoritism toward certain vendors and makes it difficult, if not impossible, for Developmental Services to ensure that the regional centers comply with a July 2009 amendment to state law requiring them to select the least costly available provider of comparable services.

Employees at six locations we visited identified several problems in the working environment at the regional centers. Responses to a survey we conducted of these six regional centers' employees indicated that almost half of the roughly 400 regional center employees who responded to the questions concerning this topic do not feel safe reporting suspected improprieties to their management. For example, employees at Inland Regional Center and Valley Mountain Regional Center disagreed, on average, with the statement "Management has created safe mechanisms for employees to raise concerns about practices that may put the regional center's reputation at risk."

We could not systematically evaluate Developmental Services' process for responding to complaints from regional center employees, because, at the time of our fieldwork, Developmental Services did not centrally log or track complaints from these employees and did not have a written process for handling such complaints. We did, however, have concerns with how Developmental Services handled a particular allegation made by one regional center employee. After we discussed these concerns with the department, in July 2010, Developmental Services formally documented procedures that describe when and how it will investigate complaints from regional center employees, and informed the regional centers of this process.

Regional center employees responding to our survey also frequently indicated that communication with management was not always positive and that rising caseloads reduce their ability to provide the highest-quality service to consumers. Although the Lanterman Act specifies that service coordinators should provide case management to an average of 66 consumers, depending on the type of consumer, the governor and the Legislature temporarily suspended this requirement effective February 2009 through June 2011. As a result, one respondent indicated that her unit averages 80 cases per service coordinator. Another respondent said that caseloads had increased by 20 percent. A program manager indicated that these rising caseloads prevent service coordinators from building and maintaining relationships with the consumers and families they serve.


Developmental Services should require that the regional centers prepare and follow written procedures for their purchase of services that detail what documents will be retained for payment of invoices.

To ensure that negotiated rates are cost-effective, Developmental Services should:

Unless rescinded by the Legislature, Developmental Services should carry out its newly developed fiscal audit procedures for ensuring compliance with provisions of the Legislature's July 2008 rate freeze.

To ensure that consumers receive high-quality, cost-effective services that meet the goals of their IPPs, as required by state law, Developmental Services should do the following:

To ensure that regional centers achieve the greatest level of cost-effectiveness and avoid the appearance of favoritism when they award purchase-of-service contracts, Developmental Services should require regional centers to adopt a written procurement process that:

To ensure that regional centers adhere to their procurement process, Developmental Services should review the documentation for a representative sample of purchase-of-service contracts during the department's biennial fiscal audits.

To ensure that regional center employees have a safe avenue for reporting suspected improprieties at the regional centers, Developmental Services should follow the process for receiving and investigating these types of allegations that it put into writing in July 2010 and should continue to notify all regional centers that such an alternative is available.

To ensure that appropriate action is taken in response to allegations submitted by regional center employees, Developmental Services should centrally log these allegations and track follow-up actions and the ultimate resolution of allegations, as required by its new procedures.


Developmental Services indicates that it is implementing system improvements to address our recommendations. However, it also stated that it does not believe it has the legal authority to implement our recommendation that it require regional centers to document the basis of any IPP-related vendor selections and specify which comparable vendors (when available) were evaluated.