The state auditor's office has completed an investigation into the Department of Social and Health Services after an employee of the agency embezzled $304,755 from a long-term-care facility for the disabled.

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An audit of the Department of Social and Health Services, launched after an employee embezzled more than $300,000 from a care facility for the disabled, urges the state agency to “strengthen internal controls over cash-receipting and payments.”

The state Auditor’s Office also urges the department to pursue restitution from the employee for the amount embezzled as well as investigative costs of $3,846.

State Auditor Brian Sonntag’s office started the audit after the Department of Social and Health Service (DSHS) contacted it in 2010 regarding the embezzlement by then-employee Kristi Osborne.

For seven years, beginning in November 2003, Osborne, a fiscal analyst at Frances Haddon Morgan Center in Bremerton, took funds paid by the state and federal governments.

She also took funds from patient accounts, according to the auditor’s investigation.

In January, Osborne, 66, pleaded guilty in U.S. District Court to theft of government funds. She faces up to 10 years in prison and a $250,000 fine when she is sentenced June 28. According to federal charges, Osborne managed the business office at Frances Haddon Morgan, where she did the accounting for the 55-patient facility.

She wrote checks for “fictitious expenditures” and kept the cash for herself, according to federal prosecutors.

Funds were taken from an account for the emergency needs at the home; a gift and welfare account, which included donations; and residents’ personal accounts, according to the auditor’s report.

In a three-page report released Tuesday, the auditor’s office recommended that DSHS needs to “strengthen internal controls over cash-receipting and payments agencywide.” Auditor’s staff suggested DSHS officials ensure that employees handling finances have “adequate supervisory oversight.”

According to the report, DSHS officials changed their financial operations at Frances Haddon Morgan Center by revising banking duties and checking account activities, as well as changing how resident trust accounts were managed. The agency also assigned some business-office functions to another facility.

Frances Haddon Morgan Center, which specialized in care for autistic patients, closed in December as part of state budget cuts.

Jennifer Sullivan: 206-464-8294 or jensullivan@seattletimes.com. On Twitter @SeattleSullivan.