Audit of
Workers’ Compensation Program
October 23, 2014E. Wayne Gent Superintendent of Schools
School Board Members
Audit Committee Members
Chuck Shaw, Chair Noah Silver, CPA, Chair Frank A. Barbieri, Jr., Esq., Vice Chair David H. Talley, Vice Chair
Marcia Andrews N. Ronald Bennett, CPA
Karen M. Brill Gregory S. Daniel
Jennifer Prior Brown, Esq. Michael Dixon, CPA/PFS
Michael Murgio Richard Roberts, CPA
Debra L. Robinson, M.D. Bill Thrasher, CGFO
Representatives
Frank A. Barbieri, Jr., Esq., School Board Member E. Wayne Gent, Superintendent of Schools
JulieAnn Rico, Esq., General Counsel Bobbi Moretto, Principal Representative Kathryn Gundlach, CTA President
MISSION STATEMENT
The School Board of Palm Beach County is committed to providing a world class education with excellence and equity to empower each student to reach his
or her highest potential with the most effective staff to foster the knowledge, skills, and ethics required for responsible citizenship and productive careers.
Audit of
Workers’ Compensation Program
Table of Contents
Page
EXECUTIVE SUMMARY i
PURPOSE AND AUTHORITY 1
SCOPE AND METHODOLOGY 1
BACKGROUND 2
CONCLUSIONS
1. Report of TPA’s Internal Control System 4
2. Best Practices Implemented, But Periodic Review and Update of Manual Needed 4
3. Some Sample Medical Bills Not Paid Within 45 Days 5
4. Lack of Monitoring of Recoveries for Penalties and Fines 6 5. No Formal Policy for Uncollectible Accounts Write-Off 7
APPENDIX
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Audit of
Workers’ Compensation Program
Executive Summary
The School District is self-insured for workers’ compensation; it contracted with F.A. Richards & Associates (FARA), a Third Party Claims Administrator (TPA), to administer its workers’ compensation claims during July 1, 1996, through September 30, 2013. FARA was responsible for claims management and processing.
Pursuant to the 2013-2014 Work Plan for Audits, we have audited the District’s Workers’ Compensation Program. The primary objectives of the audit were to (1) report the TPA’s internal control system, (2) assess the adequacy of the program’s internal control, (3) assess the accuracy and timeliness in managing and processing workers’ compensation claims, and (4) determine the extent of compliance with the TPA Contract provisions. This audit produced the following major conclusions.
1. Report of TPA’s Internal Control System
FARA engaged an independent CPA firm to examine (1) the description (control objectives) of its iClaimsExpert Property and Casualty Claims Management Information System for processing transactions during July 1, 2011, through June 30, 2012, and (2) the suitability of design and operating effectiveness of controls to achieve the related control objectives stated in the description.
The independent CPA’s Report concluded that the controls related to the objectives stated in the description were suitably designed and provided reasonable assurance that the objectives would be achieved, if the controls operated effectively throughout the period July 1, 2011, to June 30, 2012.
Management’s Response: Management concurs. (Please see page 8.)
2. Best Practices Implemented, But Periodic Review and Update of Manual Needed Risk Management has implemented several control procedures and best practices several years ago to enhance the management of the District’s Workers’ Compensation Program. Our review and evaluation of the internal control procedures implemented by Risk
Management concluded that the control procedures and best practices adopted by the department could be more effective if they were codified in the department’s Procedures
Manual. Moreover, we also found that the Workers’ Compensation Program could be
further improved by developing and implementing formal procedures for certain areas, such as monitoring of penalties and fines, and write-off of uncollectible accounts. We recommend that Risk Management Department periodically review and update its Procedures Manual to ensure that the procedures and practices for essential areas are complete.
Management’s Response: Management concurs and will update the procedures manual to reflect the best practices that we have in place. (Please see page 8.)
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3. Some Sample Medical Bills Not Paid Within 45 Days
Florida Statute 440.20, Section 6(b) requires medical bills properly submitted be paid within
45 calendar days after the receipt. However, three (6%) of the 50 sample medical bills were not paid until 55 to 119 days after receipt, with delays ranging from 10 to 74 days beyond the statutory requirement. To ensure the full compliance with F.S. 440.20.6(b), medical services claims should be processed and paid within 45 calendar days.
Management’s Response: Management concurs. For the past few years, the State of Florida has conducted quarterly audits to ensure bills are paid timely and the TPA has met the required 95% passing rate each time. We have registered with the State Centralized Performance System (CPS) on the Division of Workers’ Compensation (DWC) website to receive copies of email notices in the event there is a future late payment. (Please see page 8.)
4. Lack of Monitoring of Recoveries for Penalties And Fines
The TPA Contract required the District’s Risk Management Department to audit and monitor the payments of penalties, fines, and overpayments to ensure that (a) payments were
accurately classified, and (b) the District was reimbursed by FARA for penalties incurred due to actions by FARA’s employees. However, there were no written procedures to address overpayments, penalties and fines that were partially caused by FARA. Risk Management should develop and implement procedures to review and monitor the recovery of penalties and fines that were wholly or partially caused by FARA.
Management’s Response: Management concurs. We will monitor line items for overpayments, fees, interest and civil penalties to ensure those marked as “outside our control” by the TPA are classified correctly. Additionally, we will ensure that any overpayments that are within the TPA’s control are reimbursed timely per our newest contract requirements, which detail reimbursement requirements. We will codify this process in our procedures manual. Please note that $521 is a very low percentage of the $9 million of payments processed by the TPA annually. (Please see page 9.)
5. No Formal Policy for Uncollectible Accounts Write-Off
Risk Management did not have formal procedures for writing-off uncollectible accounts. To ensure proper fiscal accountability, procedures for monitoring accounts receivable and write-off of uncollectible should be codified in the policies and implemented accordingly through procedures manual.
Management’s Response: Management concurs. We will develop a policy and write a procedure for writing off uncollectible accounts. (Please see page 9.)
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M E M O R A N D U M
TO: Honorable Chair and Members of the School Board E. Wayne Gent, Superintendent of Schools
Chair and Members of the Audit Committee FROM: Lung Chiu, CPA, Inspector General
DATE: October 23, 2014
SUBJECT: Audit of Workers’ Compensation Program
PURPOSE AND AUTHORITY
Pursuant to the 2013-2014 Work Plan for Audits, we have audited the District’s Workers’ Compensation Program. The primary objectives of the audit were to (1) report the TPA’s internal control system, (2) assess the adequacy of the program’s internal control, (3) assess the accuracy and timeliness in managing and processing workers’ compensation claims, and (4) determine the extent of compliance with the TPA Contract provisions.
SCOPE AND METHODOLOGY
This audit was conducted in accordance with Generally Accepted Government Auditing
Standards. Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
This audit covered the workers’ compensation claims for Fiscal Year 2013 (July 2012 through June 2013). To accomplish the audit objectives, we performed the following procedures:
Reviewed applicable laws and District’s policies and procedures relative to workers’ compensation.
Researched best practices related to workers’ compensation program.
Interviewed staff of the School District and the vendor, who administered the District’s Workers’ Compensation Program.
Performed recalculations of employees’ weekly workers’ compensation. Reviewed audit reports in related area from other local government agencies.
THE SCHOOL DISTRICT OF LUNGCHIU,CIG,CPA SCHOOL BOARD PALM BEACH COUNTY, FLORIDA INSPECTOR GENERAL CHUCK SHAW,CHAIRMAN
FRANKA.BARBIERI,JR,ESQ., VICE CHAIRMAN
OFFICE OF INSPECTOR GENERAL MARCIA ANDREWS 3318 FOREST HILL BLVD., C-306 KAREN M. BRILL
WEST PALM BEACH, FL 33406 JENNIFER PRIOR BROWN, ESQ. MICHAEL MURGIO
(561) 434-7335 FAX: (561) 434-8652 DEBRA L. ROBINSON, M.D. www.palmbeachschools.org
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Examined source documents including paid invoices, risk management policies, and procedures and training manual.
Reviewed supporting documentation for sample workers’ compensation claims.
We appreciate the courtesy and cooperation extended to us by staff during the audit. The final draft report was presented to the Audit Committee at its October 23, 2014, meeting.
BACKGROUND
Workers’ Compensation Insurance
Workers’ compensation insurance program provides protection for employees if they become ill or injured while working. The insurance covers work related illnesses and injuries such as slips, falls, and strains occurred in the workplace or job site. Workers injured on the job are entitled to receiving medical care for their work related injury or illness and may be entitled to receiving compensation, in cash (indemnity payment) for lost wages, usually until they return to work.
Florida Statutes §440, Workers’ Compensation, defines and governs the employers’
responsibility for workers’ compensation in the State of Florida. Third Party Claims Administrator (TPA)
The School District is self-insured for workers’ compensation; it contracted with F.A. Richards & Associates (FARA), a Third Party Claims Administrator (TPA), to administer its workers’ compensation claims during July 1, 1996, through September 30, 2013. FARA was responsible for claims management and processing.
School District’s New TPA. The District contracts with York Risk Services Group as its TPA for October 1, 2013, through September 30, 2018. Moreover, FARA was acquired by and became part of York Risk Services Group in 2011.
Processing of Medical bills
FARA received medical bills at its local office in Boca Raton and at the home office in Mandeville, Louisiana. Bills received at the Boca Raton office were date-stamped, scanned, batched and sent by mail to the home office. All mail (including mail from the Boca Raton Branch) received at the home office were date-stamped. Medical bills were sent to the Bill Review Section where they were date-stamped again and subsequently distributed to the bill processors. Bill processors entered bills in the InGenix (a bill review system) where they were reviewed for compliance with the rules and Florida Workers’ Compensation Health Care Provider Manual. InGenix generated a daily report after processing the claims and this report was exported to a claims management system (iClaimsExpert). iClaimsExpert generated payments and created the Explanation of Bill Review (EOBR) for each bill entered. The payments and Explanation of Bill Review were exported to a service provider for printing and mailing of payments. FARA’s bill review department was responsible for providing the “received and “paid” dates to the State of Florida Workers’ Compensation Division.
3 Employee Benefits & Risk Management
The District’s Department of Risk and Benefits Management is responsible for overseeing three key functional areas: (1) Benefits, (2) Safety & Risk Management, and (3) Wellness. The Safety & Risk Management Section is responsible for the operation, coordination and oversight of the District’s safety and workers’ compensation programs. This section also manages the Districts’ liability and automobile insurance, which are also self-insured.
Within the Safety & Risk Management Section, the Claims Unit is responsible for:
Advising school and department personnel on Workers’ Compensation procedures, claims and benefits.
Selecting external legal counsel to represent the District and assist in making recommendations for settlement of claims.
Monitoring the TPA and approving fees charged by the TPA.
Reviewing various Workers’ Compensation Reports submitted by the TPA. Making monthly wire transfer to replenish the Loss Fund Account.
The Safety Unit is responsible for:
Investigating employee and student accidents and making recommendations, if needed, for corrective actions.
Performing required safety inspections and training on United States Occupational Safety
and Health Administration (OSHA) and other safety standards.
Maintaining liaison with principals and department heads to ensure compliance with Federal, State and District safety requirements.
Inspecting and approving all school playgrounds Workers’ Compensation Claims
During July 2008 through June 2013, FARA received a total of 13,095 accident/injury claims from District employees. Net loss incurred for claims was $26,133,764. Annual claims and loss incurred is shown in the table below:
Fiscal
Year Indemnity Medical Allocated Recovered
Net loss Incurred Total claims 08/09 $855,622.18 $3,461,773.92 $1,049,414.21 ($17,000.00) $5,349,810.31 2,604 09/10 $1,200,296.08 $6,230,489.81 $812,601.66 ($23,579.38) $8,219,808.17 2,672 10/11 $377,573.46 $2,883,872.89 $492,839.21 ($500.00) $3,753,785.56 2,634 11/12 $386,569.59 $3,528,757.38 $484,391.32 ($10,267.82) $4,389,450.47 2,567 12/13 $523,960.87 $3,397,707.93 $499,392.53 ($151.50) $4,420,909.83 2,618 Total $26,133,764.34 13,095
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CONCLUSIONS
1. Report of TPA’s Internal Control System
FARA engaged an independent CPA firm to examine (1) the description (control objectives) of its iClaimsExpert Property and Casualty Claims Management Information System
implemented by FARA for processing transactions during July 1, 2011, through June 30, 2012, and (2) the suitability of design and operating effectiveness of controls to achieve the related control objectives stated in the description.
We have reviewed the independent CPA’s Report. The Report concluded that FARA’s description fairly presents the claims management information system that was designed and implemented throughout the period July 1, 2011, to June 30, 2012. The Report also noted that the controls related to the objectives stated in the description were suitably designed and provided reasonable assurance that the objectives would be achieved, if the controls operated effectively throughout the period July 1, 2011, to June 30, 2012, and user entities.
Management’s Response: Management concurs. (Please see page 8.)
2. Best Practices Implemented, But Periodic Review and Update of Manual Needed The Department of Risk and Benefits Management has implemented the following control procedures and best practices several years ago to enhance the management of the District’s Workers’ Compensation Program:
Reviewing and monitoring of quarterly reports submitted by the TPA for overpayments of workers’ compensation.
Established a “Risk Alert” process with the TPA where the adjusters would notify the District of exceptions found during the claim process where corrective actions were needed.
Since 2009, the department’s safety technicians have been investigating all catastrophic accidents and other claims that were questionable as to causation. Since October 2013, the department’s safety technicians are required to complete the
Accident Investigation From for every lost time claim.
The above should help (a) ensure that overpayments, if any, are timely recouped from the recipients, (b) prevent potential fraudulent claims, and (c) ensure that appropriate corrective actions have been taken to address the deficiencies and prevent similar accidents from recurring in the future.
However, our review and evaluation of the internal control procedures documented in the Risk Management’s Procedures Manual revealed that the above control procedures and best practices had not been codified in the Procedures Manual as of June 30, 2014.
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Moreover, we also found that formal procedures have not been developed for some of the essential areas for administering the Workers’ Compensation Program. Areas with missing procedures included (a) the monitoring of penalties and fines and (b) write-off of
uncollectible and accounts receivable. (Please see conclusions 4 and 5.) Recommendations
Risk Management should periodically review and update the Procedures Manual to ensure that all the essential areas for administering the Workers’ Compensation Program are complete and up-to-date.
Management’s Response: Management concurs and will update the procedures manual to reflect the best practices that we have in place. (Please see page 8.)
3. Some Sample Medical Bills Not Paid Within 45 Days
Florida Statute 440.20, Section 6(b), requires that,
“…. all medical, hospital, pharmacy, or dental bills properly submitted by the
provider, except for bills that are disallowed or denied by the carrier or its authorized vendor in accordance with the department rule, are timely paid within 45 calendar days after the carrier’s receipt of the bill.”
The review of 50 sample medical bills found that three (6%) claims were not processed timely, with delays ranging from 10 to 74 days.
Check # Amount (A) Check Date Service Date (B) Invoice Receipt Date (A – B)
# of Days for Payment 0113735 $5,880 8/20/2012 6/1-4/2012 6/26/2012 55 (10 days late) 0113772 64 8/27/2012 4/3/2012 4/30/2012 119 (74 days late) 1150518 1,595 4/2/2013 12/12/2012 12/12/2012 * 111 (66 days late)
* Invoice was not date-stamped.
Recommendation
To ensure the full compliance with F.S. 440.20.6(b), medical services claims should be processed and paid within 45 calendar days by the TPA.
Management’s Response: Management concurs. For the past few years, the State of Florida has conducted quarterly audits to ensure bills are paid timely and the TPA has met the required 95% passing rate each time. We have registered with the State Centralized Performance System (CPS) on the Division of Workers’ Compensation (DWC) website to receive copies of email notices in the event there is a future late payment. (Please see page 8.)
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4. Lack of Monitoring of Recoveries for Penalties And Fines
Risk Management Did Not Review Penalties and Fines. During July 2012 through June 2013, a total of $3,069.93 in penalties, fines, and interest was paid to claimants due to adjuster’s errors, late reporting, or misinformation.
Nature of Penalty Number of Payments Total
Outside our control – paid under indemnity 3 $1,831.84
Within our control – paid under indemnity 3 521.11
Employee Interest 11 716.98
Total $3,069.93
Section 9.6K of the Invitation to Negotiate (ITN No. 08C-006N), states that,
“Overpayments, fees, interest and civil penalties required due to late payments or adjuster mishandling are to be paid by the claims administrator unless the error is solely caused by later reporting or misreporting of information from the District. Any payments made by the claims administrator will be returned to the District within 60 days. The District’s Risk Management Department will perform the audits and monitor such activity.”
However, our review found that Risk Management did not audit and monitor these activities as required. As a result, there was no assurance that penalties incurred were accurately classified. In addition, the District was not reimbursed the $521.11 penalty that was attributable to the actions of FARA’s employees.
No Procedures for Handling Disputed Accounts. For each overpayment on the Notice of
Action/Change Form (DWC-4) submitted to the School District, the established procedure
required FARA to identify the reasons, whether the overpayment was caused by the District or FARA. However, there were no written procedures to address these overpayments, penalties and fines that were partially caused by FARA, the claim administrator. Recommendations
Risk Management Department should:
Monitor the line items for overpayments, fees, interest, and civil penalties, especially for penalties that were classified as “outside our control.”
Establish formal procedures to recoup the amounts due the District for penalties and fines caused by the TPA’s employees.
Include procedures in future TPA’s contract to address overpayments, penalties, and fines that were partially caused by the TPA.
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Management’s Response: Management concurs. We will monitor line items for overpayments, fees, interest and civil penalties to ensure those marked as “outside our control” by the TPA are classified correctly. Additionally, we will ensure that any overpayments that are within the TPA’s control are reimbursed timely per our newest contract requirements, which detail reimbursement requirements. We will codify this process in our procedures manual. Please note that $521 is a very low percentage of the $9 million of payments processed by the TPA annually. (Please see page 9.)
5. No Formal Policy for Uncollectible Accounts Write-Off
Sound business practices call for accounts receivable be monitored, reviewed, aged, and written off when all attempts to collect the receivables are exhausted, and management deems the accounts uncollectible. Amounts to be written off should be adequately documented, and justification be reviewed and approved by supervisor. Procedures for write-off should be codified in the policies, and implemented through procedures manual. The review of Risk Management’s overpayment listing disclosed that, during Fiscal Year 2013, a total of $2,722.16 in overpayments due from five employees and five former employees were written-off, in absence of a written policy for uncollectible accounts. Recommendation
Procedures for write-off of uncollectible accounts should be developed and included in the policies and procedures manual. Such procedures should include the criteria for the write-offs, with supervisor review and approval.
Management’s Response: Management concurs. We will develop a policy and write a procedure for writing off uncollectible accounts. (Please see page 9.)
Appendix
Management’s Response
Appendix
Management’s Response
