DE.PARTMENTOFAUDIl'S AND Aceo. uNTS .' '." ' ., "., - . , . ' '" ,',' .-'.,',' '., - . . Medicaid and Local Government Audits TABLE OF CONTENTS LETTER OF TRANSMITTAL i INTRODUCTION 1 FINDINGS AND RECOMMENDATIONS 4 Summary of Audit Findings Affecting Allowable Costs and Patient Day Statistics 11 Schedule of Allowable Costs and Patient Day Statistics 13 Report Prepared By: State ofGeorgia Department ofAudits and Accounts Medicaid and Local Government Audits Division 254 Washington Street, S. w., 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 December 17, 1997 Members of the Board of Medical Assistance, and The Honorable Dr. William R. Taylor, 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 Royal Elaine Nursing Facility, provider number 00142843A, 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/dc/bw Claude L. Vickers State Auditor 1996 Audit Report: The Royal Elaine Nursing Facility 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 of Georgia 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 of Medical 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 Royal Elaine Nursing Facility, a 116-bed long-term health care facility located in LaGrange, Georgia, is a provider enrolled in the Georgia Medicaid Nursing Facilities Services Program. The facility provides both skilled and intermediate care services to resident 2 Nursing Facilities Services Program patients. The facility was operated as a freestanding nursing home by Georgia Health Care, Inc., for the year ended June 30, 1996. Audit Objectives The purpose of this audit was to determine whether The Royal Elaine Nursing Facility 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 Royal Elaine Nursing Facility 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 Royal Elaine Nursing Facility 3 Scope and Methodology To accomplish these objectives, we performed 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 determine 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 information regarding the accuracy of cost and patient data for The Royal Elaine Nursing Facility 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 Uniform 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 of Medical Assistance make the following adjustment to reclassify costs to the appropriate cost centers. (DMA Policies and Procedures, Appendix D) COST CENTER Routine Services Contracted Services Lab Certification Fee Liability Insurance Expense Supplies Special Services Cable Television Expense Dietary Liability Insurance Expense Supplies Laundry and Housekeeping Liability Insurance Expense Supplies Operation and Maintenance of Plant Lease Expense Liability Insurance Expense Maintenance Expense Utilities Expense $ 160 (100) (270) (1,995) $ $ (48) 377 $ (68) (184) $ (5,752) (8) 159 47 (2,205) 185 329 (252) (5,554) 1996 Audit Report: The Royal Elaine Nursing Facility 5 Administrative and General Cable Television Expense Contracted Services Lab Certification Fee Lease Expense Liability Insurance Expense Maintenance Expense Supplies Utilities Expense Property and Related Expenses Lease Expense Liability Insurance Expense Total Adjustment to Allowable Costs $ (185) (160) 100 (789) 8,904 (159) 1,802 (47) $ 6,541 (8,510) $ 9,466 (1,969) 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 Laundry and Housekeeping Operation and Maintenance of Plant Administrative and General Property and Related Expenses $ (355) (324) (1,472) (1,117) (415) (3,837) (348) Total Adjustment to Allowable Costs $==~(=7,8=68=) 6 Nursing Facilities Services Program Finding No.3 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 2102.3, 2102.1, 2106.1, 2122.2; DMA Policies and Procedures Sections 902,1002.1(k ITEMS Advertising Alcoholic Beverages Non-Employee Expense Penalties and Late Fees Personal Expenses Personal Use of Vehicle Prescription Drugs Related Facility Expense VA Patients' Expense $ (137) (268) (150) (2,513) (2,294) (8,327) (73) (490) (1,695) $ 05,947) COST CENTER Routine Services Special Services Dietary Operation and Maintenance of Plant Administrative and General Property and Related Expenses Total Adjustment to Allowable Costs $ (1,695) (73) (371) (2,408) (6,786) (4,614) (15,947) 1996 Audit Report: The Royal Elaine Nursing Facility 7 Finding No.4 Accrual Basis ofAccounting Documentation examined during the audit showed that amounts recorded for certain expenses did not reflect actual amounts incurred for the period under review. Federal regulations provide that expenditures ... are recorded in the period in which they are incurred, regardless of when they are paid. We recommend that the provider implement policies and procedures to ensure that costs are recorded in the period in which they are incurred. We recommend that the Department of Medical Assistance make the following adjustment to increase allowable costs claimed for expenses applicable to the year under review. (HCFA Pub. 15-1 Section 2302.1) Adjustments to Balance Sheet Accounts: Allowable Costs June 30, 1996 Balance Accrued Wages Prepaid Insurance $ 3,933 672 Total Adjustment to Allowable Costs 4,605 COST CENTER Routine Services Dietary Laundry and Housekeeping Operation and Maintenance of Plant Administrative and General Total Adjustment to Allowable Costs $ 2,358 269 368 (12) 1,622 4,605 Finding No.5 Allocation ofIndirect Expenses to Non-Patient Care Areas The provider uses a portion of its building for purposes which are not related to patient care. Indirect expenses related to the non-patient care use of the building are 8 Nursing Facilities Services Program calculated on Schedule B-5 of the cost report. Documentation examined during the audit showed that certain corrections were necessary to amounts reported on Schedule B-5 as allowable costs and square footage. These findings required the recalculation of Schedule B-5. A copy of this recalculation has been furnished to the provider. We recommend that the provider implement policies and procedures to ensure that all information used to allocate indirect expenses to non-patient care areas is correct. We recommend that the Department of Medical Assistance make the following adjustment to decrease allowable costs for the net effect of the recalculation. (HCFA Pub. 15-1 Section 2102.3; General Instructions to the Cost Report) COST CENTER Laundry and Housekeeping Operation and Maintenance of Plant Property and Related Expenses $ (1,236) (1,048) (482) Total Adjustment to Allowable Costs $====(=2,=76=6=) Finding No.6 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) 1996 Audit Report: The Royal Elaine Nursing Facility 9 COST CENTER Operation and Maintenance of Plant Cost of Fixed Equipment Property and Related Expenses Allowable Depreciation Expense Total Adjustment to Allowable Costs $ (4,946) 247 (4,699) Finding No.7 Cost Report Adjustment Reversal An adjustment was made during cost report preparation to remove non allowable advertising from reimbursable costs. Documentation examined during the audit showed that a portion of these costs was allowable. We recommend that the provider implement policies and procedures to ensure that adjustments made during cost report preparation are accurate. We recommend that the Department of Medical Assistance make the following adjustment to reverse a portion of the provider adjustment. (HCFA Pub. 15-1 Section 2304) COST CENTER Administrative and General $==::::=::2::,:6:3=1== Finding No.8 Prior Year Audit Adjustments Documentation examined during the audit showed that adjustments made to the prior year allowable costs that affected current year costs were not reflected in the cost report for the period under review. We recommend that the provider implement policies and procedures to ensure that adjustments made to prior year allowable costs are considered in preparing future year cost reports. We recommend that the Department of Medical Assistance make the following adjustment to increase allowable costs for the effect ofthose prior year audit adjustments. 10 Nursing Facilities Services Program ITEMS Depreciation Expense - Asset Capitalized in Prior Year Audit COST CENTER Property and Related Expenses $======2=,4=0=1= $======2=,4=0=1= Finding No.9 Excess Vehicles Documentation examined during the audit showed that expenses were claimed for three vehicles for the year under review. DMA guidelines allow a maximum of two vehicles for nursing homes of the size operated by the provider. We recommend that the provider implement policies and procedures to ensure that any costs incurred operating vehicles in excess of the maximum number allowable are excluded from reimbursable costs claimed. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs claimed for the insurance expense ofvehicles operated in excess ofthe maximum number allowable. (DMA Vehicle Guidelines) COST CENTER Property and Related Expenses $======(8=2=2=) 1996 Audit Report: The Royal Elaine Nursing Facility 11 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 Costs Not Related to Patient Care 4 Accrual Basis of Accounting $ (2,205) (355) (1,695) 2,358 $ Special Services 1 Incorrect Expense Classifications 2 Lack of Sufficient Documentation 3 Costs Not Related to Patient Care $ 185 (324) (73) Dietary 1 Incorrect Expense Classifications 2 Lack of Sufficient Documentation 3 Costs Not Related to Patient Care 4 Accrual Basis of Accounting $ 329 (1,472) (371) 269 Laundry and Housekeepin~ 1 Incorrect Expense Classifications $ (252) 2 Lack of Sufficient Documentation (1,117) 4 Accrual Basis of Accounting 368 5 Allocation ofIndirect Expenses to Non-Patient Care Areas (1,236) (1,897) (212) (1,245) (2,237) 12 Nursing Facilities Services Program FINDING NUMBER ALLOWABLE COSTS Operation and Maintenance ofPlant 1 Incorrect Expense Classifications $ (5,554) 2 Lack of Sufficient Documentation (415) 3 Costs Not Related to Patient Care (2,408) 4 Accrual Basis of Accounting (12) 5 Allocation of Indirect Expenses to Non-Patient Care Areas (1,048) 6 Fixed Asset Purchases Claimed as Expense (4,946) Administrative and General 1 Incorrect Expense Classifications 2 Lack of Sufficient Documentation 3 Costs Not Related to Patient Care 4 Accrual Basis of Accounting 7 Cost Report Adjustment Reversal $ 9,466 (3,837) (6,786) 1,622 2,631 Property and Related Expenses 1 Incorrect Expense Classifications $ (1,969) 2 Lack of Sufficient Documentation (348) 3 Costs Not Related to Patient Care (4,614) 5 Allocation ofIndirect Expenses to Non-Patient Care Areas (482) 6 Fixed Asset Purchases Claimed as Expense 247 8 Prior Year Audit Adjustments 2,401 9 Excess Vehicles (822) Total Audit Findings Affecting Allowable Costs $ (14,383) 3,096 (5,587) (22,465) 1996 Audit Report: The Royal Elaine Nursing Facility 13 SCHEDULE OF ALLOWABLE COSTS AND PATIENT DAY STATISTICS ALLOWABLE COSTS COST REPORT TOTALS FIELD AUDIT FINDINGS AUDITED TOTALS Routine Services $ 1,213,459 $ (1,897) $ 1,211,562 Special Services 54,270 (212) 54,058 Dietary 367,867 (1,245) 366,622 Laundry and Housekeeping 261,250 (2,237) 259,013 Operation and Maintenance of Plant 233,958 (14,383) 219,575 Administrative and General 308,586 3,096 311,682 Property and Related Expenses 106,745 (5,587) 101,158 Total Allowable Costs $ 2,546,135 $ (22,465) $ 2,523,670 PATIENT DAY STATISTICS 41,415 41,415