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DEPARTMENT-OF AUDITS Medicaid and Local Government Audits
AUDIT REPORT
.
.
FOR THE SIX MONTHS ENDED JUNE 30, 1995 .
.SALEM HOUSING C.ORPORATION
.
. . . . . HOME OFFICE
NURSING FACILITIES SERVICES PROGRAM
TABLE OF CONTENTS
LETTER OF TRANSMITTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FINDINGS AND RECOMMENDATIONS ................... 3 Summary of Audit Findings Affecting Allowable Costs 8 Schedule of Allowable Costs 11 Summary of Allocations to Chain Components . . . . . . . . . . . . . . . . . . . . . . . . . 12
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
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
Telephone (404) 656-2006 Facsimile (404) 656-7535
May 9, 1996
Members of the Board of Medical Assistance, and The Honorable Marge Smith. Commissioner Department ofMedical Assistance 2 Peachtree Street, N.W., Suite 27-100 Atlanta, Georgia 30303
Ladies and Gentlemen:
This report provides the results of our audit of Salem Housing Corporation, a home office with chain components participating in the Nursing Facilities Services Program for the six months ended June 30, 1995. This report is intended to be used solely in connection with the administration ofthe Georgia Department of Medical Assistance Nursing Facilities Services Program and is not to be used or relied upon for any other purpose.
Respectfully Submitted,
~~
Claude L. Vickers State Auditor
CLV/rc/by
1995 Audit Report: Salem Housing Corporation
1
INTRODUCTION
General Information
Salem Housing Corporation filed a Home Office Cost Report with the Georgia Department of Medical Assistance for the six months ended June 30, 1995. The Home Office Cost Report listed three chain components, all of which are nursing homes, one of which is in Georgia. In addition to the audit of the home office cost report, we have completed the audit of the provider cost report filed by Salem Nursing & Rehab Center of Augusta, Inc.
Audit Objectives
The purpose of this audit was to determine whether Salem Housing Corporation maintained adequate documentation to support the allowable costs reported in its Home Office Cost Report for the six months ended June 30, 1995; and to determine whether Salem Housing Corporation 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 Home
Office 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;
2
Scope and Methodology
Nursing Facilities Services Program
determine if allowable costs have been properly
allocated among the components of the chain
organization; and
recommend appropriate action based on the results of
our audit.
To accomplish these objectives, we interviewed home office personnel and examined records and documentation to determine the adequacy ofamounts and disclosures included in the Home Office Cost Report. We performed a limited review of the home office's internal control structure to the extent necessary to plan our audit. 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.
1995 Audit Report: Salem Housing Corporation
3
FINDINGS AND RECOMMENDATIONS
Finding No.1
Costs Applicable to Specific Chain Components
Allowable costs claimed by the home office included expenses applicable to specific chain components. Federal regulations provide that allowable costs incurred for the benefit of, or directly attributable to, a specific provider must be allocated directly to the chain entity for which they were incurred. We recommend that the home office implement policies and procedures to ensure that costs applicable to specific chain components are directly allocated to the individual chain components. We recommend that the Department ofMedical Assistance make the following adjustment to reclassify the costs applicable to a specific chain component from pooled costs to directly allocated costs..
(HCFA Pub. 15-1 Section 2150.3B)
DIRECTLY ALLOCATED COSTS Payroll Taxes Depreciation and Amortization Taxes and Licenses Contracted Services Legal Fees Accounting Fees Dues and Subscriptions Professional Fees
POOLED COSTS Payroll Taxes Depreciation and Amortization Taxes and Licenses Contracted Services Legal Fees Accounting Fees Dues and Subscriptions Professional Fees
$
180
376
860
2,000
500
76,096
80
2 645 $
$
(180)
(376)
(860)
(2,000)
(500)
(76,096)
(80)
(2,645)
82,737 (82,737)
Net Adjustment to Allowable Costs
$
4
Nursing Facilities Services Program
Finding No.2
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 home office 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; DMA Policies and Procedures Section 1002. l(k))
ITEMS Advertising Consulting Fees Expenses of a Related Business
$
(404)
(690)
(1,966)
$==='==3=0~6:!:!:0:::c)
POOLED COSTS Salaries and Wages Payroll Taxes Rental and Leasing Consulting Fees
Total Adjustment to Allowable Costs
$
(1,826)
(140)
(404)
(690)
$==='==3==06~0-)
Finding No. 3
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 home office implement policies and procedures to ensure that costs are recorded in the period in
1995 Audit Report: Salem Housing Corporation
5
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, 1995 Balance Accounts Payable Prepaid Taxes
$
77,686
(4,382)
Total Adjustment to Allowable Costs
$.==::::!::::73====30~4=
POOLED COSTS Payroll Taxes Depreciation and Amortization Legal Fees Accounting Fees Consulting Fees
Total Adjustment to Allowable Costs
$
(4,382)
376
524
76,096
690
$===7~3==30!!::::4=
Finding No.4
Lack ofSufficient Docunientation
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 home office 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)
6
Nursing Facilities Services Program
POOLED COSTS Transportation
Finding No. 5
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 home office 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 ofMedical 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)
Position Title
Total
Guideline
Compensation Ceiling (A)
Excess
Directors (2)
$
2 000 $ J 530 $.====C4::!:::7!::::l:0==)
(A) Ceilings have been adjusted to percentage of full-time, where applicable.
POOLED COSTS Director's Fees
$===='4:!=7::::!!0::c:)
Finding No. 6
Inadequate Internal Controls
Documentation examined during the audit showed that the home office's internal control structure did not include adequate use of budgets, requisitions, purchases and supervisory approval. An inadequate internal control structure increases the risk that
1995 Audit Report: Salem Housing Corporation
7
material misstatements, errors, or irregularities may occur. We recommend that the home office implement policies and procedures to include these internal controls.
Finding No. 7
Inadequate Segregation ofDuties
Documentation examined during the audit showed that accounting duties and responsibilities were not segregated between different employees. This lack of segregation of duties increases the risk that material misstatements, errors, or irregularities may occur. We recommend that the home office implement policies and procedures to properly segregate accounting duties and responsibilities among its employees.
Finding No. 8
Incorrect Allocation Methodology
Documentation examined during the audit showed that the components of this chain organization were comparable inpatient health care facilities. This documentation also showed that pooled home office costs were allocated among the chain components on the basis of total costs of each component. Federal regulations provide that components of such chain organizations will share in the pooled costs in the same proportion that the total inpatient days of each component bear to the total inpatient days ofall the facilities in the chain. We recommend that the home office implement policies and procedures to ensure that pooled home office costs are properly allocated to all components of the chain.
(HCFA Pub. 15-1 Section 2 l 50.3D2a)
8
Nursing Facilities Services Program
SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS
FINDING NUMBER
DIRECTLY ALLOCATED COSTS
Payroll Taxes
1
Costs Applicable to Specific Chain Components
$
Depreciation and Amortization
1
Costs Applicable to Specific Chain Components
Taxes and Licenses
1
Costs Applicable to Specific Chain Components
Contracted Services
1
Costs Applicable to Specific Chain Components
Legal Fees
1
Costs Applicable to Specific Chain Components
Accounting Fees
1
Costs Applicable to Specific Chain Components
Dues and Subscriptions
1
Costs Applicable to Specific Chain Components
180 376 860 2,000 500 76,096 80
1995 Audit Report: Salem Housing Corporation
9
FINDING NUMBER
DIRECTLY ALLOCATED COSTS
Professional Fees
I
Costs Applicable to Specific Chain Components
2 645
Total Audit Findings Affecting Directly Allocated Costs $=~8~22::!:::7~37=
POOLED COSTS
Salaries and Wages
2
Costs Not Related to Patient Care
Payroll Taxes
I
Costs Applicable to Specific Chain Components $
2
Costs Not Related to Patient Care
3
Accrual Basis of Accounting
Depreciation and Amortization
I
Costs Applicable to Specific Chain Components $
3
Accrual Basis of Accounting
Rental and Leasing
2
Costs Not Related to Patient Care
Taxes and Licenses
1
Costs Applicable to Specific Chain Components
$
(180) (140) (4,382)
(376) 376
(1,826)
(4,702) 0
(404) (860)
10
Nursing Facilities Services Program
FINDING NUMBER
POOLED COSTS
Contracted Services
I
Costs Applicable to Specific Chain Components
Legal Fees
I
Costs Applicable to Specific Chain Components $
3
Accrual Basis of Accounting
Accounting Fees
I
Costs Applicable to Specific Chain Components $
3
Accrual Basis of Accounting
Transportation
4
Lack of Sufficient Documentation
Director's Fees
5
Excess Compensation
Dues and Subscriptions
I
Costs Applicable to Specific Chain Components
Professional Fees
I
Costs Applicable to Specific Chain Components
Consulting Fees
2
Costs Not Related to Patient Care
$
3
Accrual Basis of Accounting
Net Audit Findings Affecting Pooled Costs
(500) 524 (76,096) 76 096
(690) 690
$
(2,000) 24
0 (257) (470) (80) (2,645)
0 (] 3 22Q)
1995 Audit Report: Salem Housing Corporation
11
SCHEDULE OF ALLOWABLE COSTS
DIRECTLY ALLOCATED COSTS Payroll Taxes Depreciation and Amortization Taxes and Licenses Contracted Services Legal Fees Accounting Fees Dues and Subscriptions Professional Fees
Total Directly Allocated Costs
COST REPORT TOTALS
AUDIT FINDINGS
AUDITED TOTALS
$
0 $
180 $
180
376
376
860
860
2,000
2,000
500
500
76,096
76,096
80
80
2 645
2 645
$
$
82131 $
82131
POOLED COSTS Salaries and Wages Payroll Taxes Depreciation and Amortization Rental and Leasing Communications Repairs and Maintenance Taxes and Licenses Contracted Services Supplies and Postage Legal Fees Accounting Fees Transportation Directors' Fees Dues and Subscriptions Miscellaneous. Professional Fees Consulting Fees
Total Pooled Costs
$
39,673 $
(1,826) $
37,847
7,627
(4,702)
2,925
0
0
1,304
(404)
900
2,935
2,935
174
174
860
(860)
0
2,000
(2,000)
0
22
22
24
24
0
0
724
(257)
467
2,750
(470)
2,280
80
(80)
0
1,194
1,194
5,593
(2,645)
2,948
0
0
$
64 236 $ (] 3 22Q) $
5Q 116
12
Nursing Facilities Services Program
SUMMARY OF ALLOCATIONS TO CHAIN COMPONENTS
ALLOCATION OF ADWSTMENTS TO:
DIRECTLY ALLOCATED
COSTS
POOLED COSTS:
ALLOCATION ADMINISTRATIVE
ST ATISTICS(l)
EXPENSES
GEORGIA NURSING HOMES
Salem Nursing & Rehab Center
of Augusta, Inc.
$
TOTAL OTHER COMPONENTS
24,212 $ 58,525
2,051 $ (2,051)
(10,257) (2,963)
TOTAL ALLOCATION
$
82,737 $
0 $
{13,220}
(1) Adjustments were made to the pooled cost allocation statistics shown on the cost report filed by the home office. The amounts in this column reflect the the reallocation of the as-filed home office costs.