State Auditor Tom Schweich rated as "poor" the work that Missouri's departments of Social Services and Elementary and Secondary Education have been doing in supervising early childhood development and education programs.
Schweich's rating was included in the Citizens' Summary for a 31-page report released Monday afternoon, generally covering the state's 2011 and 2012 business years.
He said the Social Services department must improve its procedures for funding "Start Up and Expansion" child care facilities, citing three facilities of 18 applicants that received more than $171,000 in "new funding" awards that, later, stopped participating in the program but didn't return the money.
"The state of Missouri paid $171,000 for children to receive pre-school education that they didn't get," Schweich noted as the audit's main highlight.
"There was $60,000 spent on a facility that was never built, and there was $22,500 spent on a facility that never had any kids. And there was almost $90,000 spent to increase the capacity of a facility that was, then, sold.
"That's just money down the drain."
The $89,000 payment was made to a facility to create 24 more child care "slots" - but only 14 were added, and the owner sold the business three months into the contract period.
The auditor said the state agencies should do more before providing money to make sure "there is an actual need" for it, "and that you have contract controls in place" to make sure the money's spent as expected.
Schweich noted the two departments "agreed with us on most of that," and are working to make recommended changes.
In its comments included in the audit, the Social Services department said it was seeking reimbursement from two of the three providers - the third had met its contractual obligations - and that lawmakers no longer funded the program.
The audit also said Social Services overpaid a contractor providing accreditation guidance to child care facilities. The department said its newest contract with that contractor was written more tightly.
The report pointed to an apparent conflict-of-interest involving an assistant education commissioner who also worked for the University of Missouri, and directed the work of an early childhood education contractor that DESE and Social Services used.
"I don't think any criminal laws were broken," Schweich told the News Tribune. "There are issues about conflicts of interest that present civil legal issues.
"We're saying a conflict of interest exists when somebody is a senior administrator in a department and sits on the board of somebody receiving contracts from that department - and it's even worse when they terminate the existing contractor and sole-source it to the entity where the state employee sits on the board."
Schweich noted that DESE stopped paying for the assistant commissioner's position - the employee, who was not identified in the audit, still works at DESE but no longer oversees the program.
"They've taken the corrective action, and we're happy with that," he said.
Both DESE and Social Services said they, too, were concerned with conflicts of interests and were working to avoid them. But they didn't agree with Schweich's report that there was a conflict of interest in the situation he questioned.
He said there isn't enough information available to determine whether the situation cost the state money.
"There are, definitely, possibilities that the taxpayer was harmed," Schweich said. "But there's also an issue of the confidence of the people in their government."
Schweich acknowledged some of the state's problems could be the lack of enough people to do all of the necessary monitoring.
"We recognize there are staffing problems - that's in the audit," he said. "But we also recognize that, for example, the overhead on certain types of contracts is almost 50 percent, when they are sole-sourced and only 11 percent when they are competitively bid.
"That doesn't require extra people. That requires a better contracting practice."