INTERNALAUDIT REPORT

2013-05

Community Health ServicesDivision

Billing and CollectionFollow-up

Departmentof Health and Human Senrices

April 16,2013

MUNICIPALITYOFANCHORAGE INTERNAL AUDIT DEPARTMENT

Internal Audit Department PeterRaiskums,CIA, CFE,CGFM
632 W 6th Avenue,Suite600
Director
P . O .B o x 1 9 6 6 5 0 Phone: (907) 343-4438
Anchorage,Alaska 99519-6650 Fax: (907)343-4370
www.muni.org/departments/internal_audit E-Mail: raiskumspw@muni.org
 oF AttcHoRAGE
MuNrcrPALrrY
Internal
AuditDepartment -4438
Phone:907-343
632W.6'nAve..Suite600 Fax:907-343-4370
MayorDan Sullivan

April 16,2013

HonorableMayor and Membersof the Assembly:

I am pleasedto presentfor your review Internal Audit Report 2013-051Community Health

ServicesDivision Billing and CollectionFollow-up; Department of Health and Human Services.
A brief summaryof the report is presentedbelow.

In accordancewith the 2012 Audit Plan, we have completed a follow-up audit of the Community
Health ServicesDivision Billing and Collection. The objective of this audit was to determinethe
effectivenessof corrective action taken by the Department of Health and Human Serviceson the
deficienciescontainedin Internal Audit Report 20lI-13. Specifically, we reviewed billing and
collection procedures,reviewed accountsreceivable reports, and evaluatedinternal controls over
client billing and paymentcollectionduring the year 2012.

Basedon our observation,it is our opinion managementaction correctedthe majorityof the issues
identified in Internal Audit Report 20Il-13. Our follow-up audit revealed that action taken by
Department of Health and Human Services persorurelcorrected three of the four deficiencies.
However, unpaid client bills were still not being sentto collection agencies.

Managementwas responsiveto the follow-up finding and recommendation.

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PeterRaiskums,CIA, CFE
Director, Lrternal Audit
 April 16,2013

Internal Audit Report 2013-05

Community Health ServicesDivision Billing and Collection Follow-up
Department of Health and Human Services

Introduction . In 2011, we performed an audit of the billing and collection proceduresat the
Departmentof Health and Human Services@epartrnent),Community Health ServicesDivision*

@ivision) and issued Internal Audit Report 20ll-13 dated November 29,2011. To assessthe
effectivenessof corrective actions, w€ were requestedto perform a follow-up audit in 2012. This
report containsthe results of the follow-up audit.

The Division focuseson the health of the community and provides preventive health care services
including immunizations, family planning services,testing and treatrnentof sexually transmitted
infections, breast and cervical health screening, communicable disease investigations, and
tuberculosis control. Clients are charged for services by the various clinics. Charges may be
discountedbasedon income and family size.

In 2012,the Division had 19,085visits from 10,721clientsresultingin chargesof $2,065,219

adjustedto $623,959after applicablediscountswereapplied.Total progrilmrevenuecollectedin
zAn was$389,555.

Obiective and Scope.The objective of this audit was to conducta follow-up audit to determinethe
effectivenessof corrective actionstakenby the Departmenton the deficienciescontainedin Internal
Audit Report 20ll-13. Specifically,we reviewedbilling andcollectionprocedures,reviewedaccounts
receivablereports,ffid evaluatedinternal confols over client billing and paymentcollection during
the year 2012.

* RenamedDirect ServicesDivision
InternalAudit Report2013-05
CommunityHealthServices DivisionBilling andCollectionFollow-up
Departmentof HealthandHumanServices
April 16,2013

The audit was conducted in accordancewith generally acceptedgovemment auditing standards,

except for the requirementof an extemal quality control review, and accordingly,included testsof
accounting records and such other auditing procedures as we considered necessaryin the
circumstances.The audit was performed during the period of Januarythrough February2013. The
audit was requestedby the Administration and the Assembly.

Overall Evaluation. Managementaction correctedthe majorityof the issuesidentifiedin Internal

Audit Report 20lI-13. Our follow-up audit revealed that action taken by Departmentpersonnel
correctedthree of the four deficiencies.However, unpaid client bills were still not being sent to
collectionagencies.

FINDINGS AND RECOMMENDATIONS

1. Prior Audit Finding: Billing ProceduresNeedImprovement. Accountsreceivableolder

thansix monthsfor insurancecompaniesdoubledfrom $20,631in 2010to $42,072in20ll.

a. Corrective Action. Our review of the accountsreceivablereport for insurance

companiesshoweda reductionin the balanceof receivablesolder than six months.
Specifically,we found that accountsreceivableover six months old for insurance
companiesdecreasedfrom $42,072in 201I (48.44%of total accountreceivables)to
$25,150(28.66ohof totalaccountreceivables)
in 2012dueto betteruseof stafftime.

b. Evaluation of Corrective Action. Effective.

c. Recommendation.Not Required.

d. Management Comments. "'W'econcur with Internal Audit's finding of effective

correction action and anticipatecontinuedimprovement in this area."
Internal Audit Report 2013-05
Community Health ServicesDivision Billing and Collection Follow-up
Departmentof Health and Human Services
April 16,2013

) Prior Audit Finding: Collection Agencv Not Used.Delinquentaccountsreceivableswere

not sentto a collection agency.

a. Corrective Action. Although Department personnel consideredthe use of a

collection agency as we recommended,use of a collection agency was not
implemented for client accountsdelinquent over 90 days. Our audit revealedthe
Division transferred$117,498 in 20ll and $107,840 in 2012, from accounts
receivableto a suspenseaccountwhere further collectioneffortswerenot taken.As of
December3l ,2012, the suspenseaccountcontained$332,524.Sendingdelinquent
accountsto a collection agencycould generateadditionalrevenue.

b. Evaluation of Corrective Action. Not effective.

Recommendation. To maximize revenue generatedfrom servicesprovided by

Departmentclinics, the DepartmentDirector shouldrequirethat unpaidclient bills be
referredto a collection agency.

d. Manasement Comments. "'W'econcurwith InternalAudit's finding thattheuseofa

collectionagencyhasnot beenimplemented.An intemalpolicy decisionwasmadeby
the Departmentthat the use of a collection agencywas not in line with the grant's
primary missionof servinglow-incomeclientsandbestpracticesfor thepromotionof
public health. There areanumberof reasonsfor that policy decisionincluding:

". 'financial barrier to services.'

Grant requirementsdiscouragecreatinga
"o Collection actionsaretypically negativeexperiencesfor thosebeingcollected
upon and can createdistrustbetweenthe client and the agencywho referred
their casefor collections.This distrustmay discourageclientsfrom retuming
to DHHS for neededservices.

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InternalAudit Report2013-05
CommunityHealthServicesDivision Billing andCollectionFollow-up
Departmentof HealthandHumanServices
A pr il 16, 201 3

660Clients mayperceive
that theycannotretum to clinic for servicesbecause
of an outstandingbalancealreadysentto collections.
". Potential increasedcost of servicesfor the collection feesby a3'dparty agency.
". Collection work is currently done by AMEA positions.

"The Department will further reduce delinquent client accounts and generate
additional revenueby:

'0. Building upon changesmade internal

to collection measuressincethe last audit
was conductedin 2011.
(o
Accounts receivablebalanceasofMarch 31,2013 $364.782comparedto an
outstandingbalanceof $503,869for the samereporting period in20l2
". This total includesprivate pay,public and private insurance
"r This reductionof outstandingbalancesis a result of changessuggested
during prior auditssuchasthe establishmentofpolicies requiringproof
of income. This practicehasincreasedgeneralrevenuecollectedat the
time of service
". As of end of 1" Quarter,2013a total of $136,254.35collected ( 3l%
of annualgoal of $443,840)
". Furttrer strengthening accounting procedures (as was done with 3rd Party
reimbursers such as Medicaid and Medicare) that enhanceDHHS ability to
collect from private pay clients
". Increasingthe number of establishedpayment plans for clients unable to pay
their full balancedue at the time of service.
". Increasingthe number ofpayment plans convertedto automatic credit/debit card
payments
". Adopting improved financial policies including:
560Implementing written paymentplan conkacts

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Internal Audit Report 2013-05
Community Health ServicesDivision Billing and CollectionFollow-up
Department of Health and Human Services
April 16,2013

(co
Providing all clients with a statementof Departmentfinancial practicesas
part of the check-inprocess
". Filling a vacantAccountingClerk tr position to assistwith collections.

"The billings and collectionsfunction of clinical serviceshasbeenplacedunderthe

direct supervisionof the Health Information Management(HnyI) ProgramManager.
This team hasa renewedfocus on implementing a shongerbusinessmodel approach
to client collectionsthat is also in line with DHHS' primary goal to promotepublic
health. The Department is confident, that with adequatetime to implement the
improvementsoutlined above,significant gains can be made in reducingdelinquent
accountsand generatingadditional revenuewithout negativelyimpacting our ability
to provide servicesto low incomeindividuals."

Evaluation of ManagementComments.Managementcommentswereresponsiveto
the audit finding and recommendation.

3. Prior Audit Finding: Lack of Segregationof Duties. There was a lack of segregationof
dutiesbetweenbilling, collecting,recordingand depositingcashcollected.

a. Corrective Action. Our audit revealedthe Division had made improvementin the
segregationof duties.Specifically,all mailed-inpaymentswere loggedby a Division
staff member; anotherstaff member recordedthe payment to krsight and prepared
cash receipt documents.The cash receipt documents were verified by both staff
members and the payments and documentswere then dropped into a safe to be
depositedby anotherDivision staff member.However, at the time of our audit, the
Division's PoliciesandProcedures(P&P) werenot updatedandapprovedto showthe
implementationof the segregationofduties. According to Division managementstaff
the P&P was in the processof being updatedto reflect the implementation.

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Intemal Audit Report2013-05

CommunityHealth ServicesDivision Billing and CollectionFollow-up
Deparfrnentof Health and HunranSenrices
April 16,2013

b, Evaluation of Corrective Action. Effective.

c. Recommendation.Not required.

d. Manasement Comments."We concurwith InternalAudit's finding of effective

correction action. The r@oillmendedupdates to P&P 00-8 have been fully
incorporatedinto ttrecurrentapprovedversionof the document.o'

4. Prior Audit Findins: Additional Policiesand ProceduresNeeded.TheDivision did not

havea written P&P to verify a client's incomewhendeterminingchargesfor services.

a. Corective Action. The Division updatedits P&P to verify a client's incomewhen

determiningchargesfor services.Specifically,the P&P allows a client 30 daysto
provideproof of incomein orderto receivethediscountbasedon incomeandfamily
size.

b. Evaluation of Corrective Action. Effective.

c. Recommendation.Not required.

d. Manasement Comments.ttWe concurwith Internal Audit's finding of effective

correctionaction."

DiscussionWith ResponsiFleOflicials. The resultsof this audit werediscussedwith appropriate

Municipalofficialson Febnrary27,2013.

Audit Staff:
Jayi Schin
Scottke

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