TABLE OF CONTENTS LETTER OF TRANSMITTAL i INTRODUCTION 1 FINDINGS AND RECOMMENDATIONS 4 Summary of Audit Findings Affecting Allowable Costs and Patient Day Statistics 10 Schedule of Allowable Costs and Patient Day Statistics 12 Report Prepared By: State ofGeorgia Department ofAudits and Accounts Medicaid and Local Government Audits Division w., 254 Washington Street, S. Suite 322 Atlanta, Georgia 30334-8400 (404) 656-2006 Michael A. Plant, Director CLAUDE L. VICKERS STATE AUDITOR DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 Telephone (404) 656-2006 Facsimile (404) 656-7535 September 25, 1997 Members of the Board of Medical Assistance, and The Honorable Dr. William R. Taylor, Acting Commissioner Department of Medical Assistance 2 Peachtree Street, N.W., 40th Floor Atlanta, Georgia 30303 Ladies and Gentlemen: This report provides the results of our audit of The Oaks Nursing Home, Inc., provider number 00142271A, a participant in the Nursing Facilities Services Program for the year ended June 30, 1996. This report is intended to be used solely in connection with the administration of the Georgia Department ofMedical Assistance Nursing Facilities Services Program and is not to be used or relied upon for any other purpose. Respectfully Submitted, CLV/sslbw Claude L. Vickers State Auditor 1996 Audit Report: The Oaks Nursing Home, Inc. 1 INTRODUCTION General Information The Georgia Medical Assistance Program (Medicaid) is administered by the Georgia Department of Medical Assistance and is jointly funded by the State ofGeorgia and the federal government. Medicaid pays health care providers for furnishing health care services to individuals or families with low income and limited resources. The Department ofMedical Assistance has established specific payment guidelines and limitations for each covered medical service. Through the Nursing Facilities Services Program, Medicaid pays for care in institutional settings for recipients who are unable to remain at home or in the community. Nursing homes are paid for this service using rates calculated from Nursing Home Cost Reports submitted by each provider. These cost reports include financial, patient census, and other information. Information included in the Nursing Home Cost Report is subject to audit by the Department of Medical Assistance or its agents. In an agreement with the Department of Medical Assistance, the Department of Audits and Accounts has accepted the responsibility of auditing Medicaid providers. Provider Information The Oaks Nursing Home, Inc., a 48-bed long-term health care facility located in Marshallville, Georgia, is a provider emolled in the Georgia Medicaid Nursing Facilities Services Program. The facility provides both skilled and intermediate care services to resident 2 Nursing Facilities Services Program Audit Objectives patients. The facility was operated as a freestanding nursing home for the year ended June 30, 1996. The purpose of this audit was to determine whether The Oaks Nursing Home, Inc., maintained adequate documentation to support the allowable costs and patient day statistics reported in its Nursing Home Cost Report for the year ended June 30, 1996; and to determine whether The Oaks Nursing Home, Inc., complied with the federal and state laws, regulations, policies and procedures for the Nursing Facilities Services Program in effect for that period. The specific objectives of this audit were to: determine if allowable costs reported in the Nursing Home Cost Report are reasonable and allowable, in all material respects, in accordance with federal and state laws, regulations, policies and procedures governing the Georgia Nursing Facilities Services Program; compare patient day statistics included in the cost report to provider records to determine if the patient day statistics are accurately reported; and recommend appropriate action based on the results of our audit. 1996 Audit Report: The Oaks Nursing Home, Inc. 3 Scope and Methodology To accomplish these objectives, we perfonned a limited review of the provider's internal control structure to the extent necessary to plan our audit. We interviewed provider personnel and examined records and documentation to detennine the adequacy of amounts and disclosures included in the Nursing Home Cost Report. We also reviewed, on a test basis, evidence supporting these amounts and disclosures and assessed the accounting principles used and significant estimates made by management. We evaluated the tested transactions and accounts for compliance with cost reporting principles included in the Health Care Financing Administration Provider Reimbursement Manual (HCFA Pub. 15-1) and DMA Policies and Procedures for Nursing Facility Services. The Department of Audits and Accounts is responsible for providing the Department ofMedical Assistance with infonnation regarding the accuracy of cost and patient data for The Oaks Nursing Home, Inc., for the year ended June 30, 1996. If the Department of Medical Assistance implements the recommendations in this report by adjusting the allowable costs and/or patient day statistics used in calculating the provider's billing rate, the provider may appeal to the Department of Medical Assistance for reconsideration of the audit findings. For this reason, we have not included a response from the provider in our report. However, we have discussed the contents of this report with the provider and have considered its responses when preparing the report. In all other respects, this audit was conducted in accordance with generally accepted government auditing standards. 4 Nursing Facilities Services Program FINDINGS AND RECOMMENDATIONS Finding No.1 Incorrect Expense Classifications Documentation examined during the audit showed that some of the expenses were not classified in accordance with the Unifonn Chart of Accounts prescribed by the Department of Medical Assistance for providers participating in the Medicaid Nursing Facilities Services Program. We recommend that the provider implement policies and procedures to ensure that all of its expenses are classified in the appropriate cost centers. We recommend that the Department ofMedical Assistance make the following adjustment to reclassify costs to the appropriate cost centers. (DMA Policies and Procedures, Appendix D) COST CENTER Routine Services Insurance Expense Linens Supplies Special Services Insurance Expense Satellite Television Dietary Insurance Expense Supplies Laundry and Housekeeping Linens Supplies Operation and Maintenance of Plant Insurance Expense Satellite Television $ (1,145) (1,190) 661 $ $ (53) 491 $ (225) (1,807) $ 1,190 1,146 $ (120) (491) (1,674) 438 (2,032) 2,336 (611) 1996 Audit Report: The Oaks Nursing Home, Inc. 5 Administrative and General Insurance Expense Lease Expense Property Taxes Property and Related Expenses Insurance Expense Lease Expense Property Taxes Total Adjustment to Allowable Costs $ 1,253 (955) (233) $ 290 955 233 $ 65 1,478 0 Finding No.2 Lack ofSufficient Documentation Some of the expenses included in allowable costs were not supported by adequate documentary evidence. Federal regulations provide that cost information as developed by the provider must be current, accurate, and in sufficient detail to support payments made for services rendered to beneficiaries. We recommend that the provider implement policies and procedures to ensure that all expenses shown on the cost report are supported by sufficient documentation. We recommend that the Department of Medical Assistance make the following adjustment to remove the undocumented expenses from allowable costs. (HCFA Pub. 15-1 Section 2304) COST CENTER Routine Services Special Services Dietary Operation and Maintenance of Plant Administrative and General $ (537) (25) (105) (56) (133) Total Adjustment to Allowable Costs $===(=8=56~) 6 Nursing Facilities Services Program Finding No.3 Nurse Aide Testing and Training Costs Documentation examined during the audit showed that the provider did not remove nurse aide testing and training costs from allowable costs claimed as required by the Department of Medical Assistance in General Instructions to Cost Report. We recommend that the provider implement policies and procedures to ensure that nurse aide testing and training costs are not included in allowable costs. We recommend that the Department of Medical Assistance make the following adjustment to decrease allowable costs by the amount of nurse aide testing and training costs. (DMA General Instructions to Cost Report) COST CENTER Routine Services Administrative and General $ (5,049) (1,327) Total Adjustment to Allowable Costs $==(=6=,3=76=) Finding No.4 Expense Reimbursements Documentation examined during the audit showed that amounts shown on the cost report as revenues were from sales of materials and/or services, the cost of which were included in allowable costs claimed. Federal regulations provide that amounts received for discounts, allowances, refunds and rebates are not to be considered a form of income but should be used to reduce the specific costs to which they apply. We recommend that the provider implement policies and procedures to ensure that allowable costs claimed are reduced by any expense reimbursements received. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs claimed by expense reimbursements shown as revenues. (HCFA Pub. 15-1 Section 800) COST CENTER Dietary $,====(2=:85=) 1996 Audit Report: The Oaks Nursing Home, Inc. 7 Finding No.5 Fixed Asset Purchases Claimed as Expense Allowable costs claimed included purchases of assets which are considered to be capital additions to property under generally accepted accounting principles. The .Uniform Chart of Accounts issued by DMA provides for inclusion of such assets in property accounts. We recommend that the provider implement policies and procedures to ensure that all purchases of fixed assets are shown on the cost report as capital additions. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs by the amount ofpurchased assets claimed as expense and to increase allowable costs by depreciation allowable. (HCFA Pub. 15-1 Section 108; DMA Policies and Procedures, Appendix D) COST CENTER Operation and Maintenance Cost of Fixed Equipment Administrative and General Cost ofMajor Moveable Equipment Property and Related Expenses Allowable Depreciation Expense $ (1,348) (2,067) 434 Total Adjustment to Allowable Costs $=======(=2,=98=:1=) Finding No.6 Costs Not Related to Patient Care Allowable costs claimed included payments which were not considered to be for patient care operations. Federal regulations provide that costs which are not appropriate or necessary and proper in developing and maintaining the operation of patient care facilities and activities are not allowable in computing allowable costs. We recommend that the provider implement policies and procedures to ensure that expenses claimed in the cost report do not include items not related to patient care. We recommend that the Department of Medical Assistance make the following adjustment to remove the non-patient care expenses from allowable costs. (HCFA Pub.15-1 Sections 2102.1, 2102.3, 2139; DMA Policies and Procedures Section 1002.1(k)) 8 Nursing Facilities Services Program ITEMS Advertising Association Dues (50%) Civic Organization Dues Personal Care Home Expenses Political Contributions COST CENTER Administrative and General Property and Related Expenses Total Adjustment to Allowable Costs $ (350) (527) (160) (2;482) (144) $ (3,663) $ (1,630) (2,033) $ (3,6631 Finding No.7 Excess Compensation Allowable costs claimed included compensation to employees which exceeded DMA maximum limitations. The Department of Medical Assistance annually calculates allowable salary ceilings for various positions as well as maximum fees allowable for medical and corporate directors. We recommend that the provider implement policies and procedures to ensure that compensation to its employees which exceeds the DMA maximum limitations is excluded from allowable costs claimed. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs by the amount of compensation paid in excess of the DMA guidelines, plus related employer's share of payroll taxes. (DMA Compensation Ceilings; HCFA 15-906) 1996 Audit Report: The Oaks Nursing Home, Inc. 9 Position Title Total Compensation Guideline Ceiling Excess Administrator (A) Payroll Taxes $ 55,841 $ 53,473 $ (2,368) 4,172 4,090 (82) $ 60,013 $ 57,563 $ (2,450) (A) Includes amounts paid on behalfof owner/administrator and director's fees. COST CENTER Administrative and General $==(=:2=:,4:::::50:=:) 10 Nursing Facilities Services Program SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS AND PATIENT DAY STATISTICS FINDING NUMBER ALLOWABLE COSTS Routine Services 1 Incorrect Expense Classifications $ 2 Lack of Sufficient Documentation 3 Nurse Aide Testing and Training Costs Special Services 1 Incorrect Expense Classifications $ 2 Lack of Sufficient Documentation Dietary 1 Incorrect Expense Classifications $ 2 Lack of Sufficient Documentation 4 Expense Reimbursements Laundry and Housekeeping 1 Incorrect Expense Classifications Operation and Maintenance ofPlant 1 Incorrect Expense Classifications $ 2 Lack of Sufficient Documentation 5 Fixed Asset Purchases Claimed as Expense (1,674) (537) (5,049) $ 438 (25) (2,032) (l05) (285) (611) (56) (1,348) (7,260) 413 (2,422) 2,336 (2,015) 1996 Audit Report: The Oaks Nursing Home, Inc. 11 FINDING NUMBER ALLOWABLE COSTS Administrative and General 1 Incorrect Expense Classifications $ 65 2 Lack of Sufficient Documentation (133) 3 Nurse Aide Testing and Training Costs (1,327) 5 Fixed Asset Purchases Claimed as Expense (2,067) 6 Costs Not Related to Patient Care (1,630) 7 Excess Compensation (2,450) (7,542) Property and Related Expenses 1 Incorrect Expense Classifications $ 1,478 5 Fixed Asset Purchases Claimed as Expense 434 6 Costs Not Related to Patient Care (2,033) (121) Total Audit Findings Affecting Allowable Costs $======(1=6=,6=11=) 12 Nursing Facilities Services Program SCHEDULE OF ALLOWABLE COSTS AND PATIENT DAY STATISTICS COST REPORT TOTALS FIELD AUDIT FINDINGS AUDITED TOTALS ALLOWABLE COSTS Routine Services $ 507,609 $ (7,260) $ 500,349 Special Services 26,758 413 27,171 Dietary 151,828 (2,422) 149,406 Laundry and Housekeeping 65,543 2,336 67,879 Operation and Maintenance ofPlant 85,904 (2,015) 83,889 Administrative and General 155,665 (7,542) 148,123 Property and Related Expenses 51,397 (121) 51,276 Total Allowable Costs $ 1,044,704 $ (16,611) $ 1,028,093 PATIENT DAY STATISTICS 17,351 17,351