Audit report, for the year ended June 30, 1998, The South Georgia Methodist Home for the Aging, Inc., Home Office, Nursing Facilities Services Program [June 30, 1998]

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TABLE OF CONTENTS

LETTER OF TRANSMITTAL

i

INTRODUCTION

1

FINDINGS AND RECOMMENDATIONS

6

Summary of Audit Findings Affecting Allowable Costs 10

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

RUSSELL W. HINTON
STATE AUDITOR

DEPARTMENT OF AUDITS AND ACCOUNTS
MEDICAID AND LOCAL GOVERNMENT AUDITS
254 Washington Street, S.w., Suite 322 Atlanta, Georgia 30334-8400
Telephone (404) 656-2006 Facsimile (404) 656-7535
July 19, 1999

MICHAEL A. PLANT
DIRECTOR

Members of the Board of Community Health, and The Honorable Russ Toal, Commissioner Georgia Community Health 2 Peachtree Street, N.W., 40th Floor Atlanta, Georgia 30303
Ladies and Gentlemen:
This report provides the results of our audit of The South Georgia Methodist Home for the Aging, Inc., a home office with chain components participating in the Nursing Facility Services Program for the year ended June 30, 1998. This report is intended to be used solely in connection with the administration ofthe Georgia Department ofMedical Assistance Nursing Facility Services Program and is not to be used or relied upon for any other purpose.
Respectfully Submitted,
~w.4:I~
Russell W. Hinton State Auditor
RWH/mkp/ds

1998 Audit Report: The South Georgia Methodist Home for the Aging, 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 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 Facility 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.
A home office such as The South Georgia Methodist Home for the Aging, Inc., does not provide medical services directly to individuals. Instead, a home office provides a variety ofadministrative and other support services to other organizations. The organizations receiving services from the home office are known as chain components. Because a home office does not provide medical services directly to individuals, Medicaid does not pay a home office directly for the services provided by the home- office. However, a chain component may include the cost of services furnished by its home office in the

2

Nursing Facility Services Program

Home Office Information
Audit Objectives

Nursing Home Cost Report it submits to the Department of Medical Assistance. The costs that an individual chain component may include in its costs report are determined by an allocation ofthe home office's allowable costs shown on the Home Office Cost Report submitted to the Department of Medical Assistance. The Home Office Cost Report includes financial, statistical, and other information. Information included in both the Nursing Home Cost Report and the Home Office 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 and home offices.
The South Georgia MethodistHome for the Aging, Inc., filed a Home Office Cost Report with the Georgia Department of Medical Assistance for the year ended June 30, 1998. The Home Office Cost Report listed five chain components, one ofwhich is a nursing home in Georgia. In addition to the audit ofthe home office cost report, we have completed an audit ofthe provider cost report filed by Magnolia Manor Methodist Nursing Center.
The purpose of this audit was to determine whether The South Georgia Methodist Home for the Aging, Inc., maintained adequate documentation to support the allowable costs reported in its Home Office Cost Report for the year ended June 30, 1998; and to

1998 Audit 'Report: The South Georgia Methodist Home for the Aging, Inc.

3

Scope and Methodology

determine whether The South Georgia Methodist Home for the Aging, Inc., complied with the federal and state laws, regulations, policies and procedures for the Nursing Facility 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 Facility 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 performed a limited review ofthe home office's internal control structure to the extent necessary to plan our audit. We interviewed home office personnel and examined records and documentationto determine the adequacy ofamounts and disclosures included in the Home Office 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

4

Nursing Facility Services Program

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/or Nursing Facility Services.
The Department ofAudits and Accounts is responsible for providing the Department ofMedical Assistance with information regarding the accuracy of cost information for The South Georgia Methodist Home for the Aging, Inc., and the allocation of its costs among its chain components for the year ended June 30, 1998. As a result of our audit, we have recommended that the Department of Medical Assistance make adjustments to the allowable costs claimed by The South Georgia Methodist Home for the Aging, Inc. The allocation of these audit adjustments among the chain components is shown in the Summary of Allocations to Chain Components on page 12. In our separate audits of the chain components, we have recommended that the Department ofMedical Assistance adjust the allowable costs claimed by each chain component for its share of the adjustments to the home office's allowable costs.
Ifthe Department ofMedical Assistance implements the recommendations in this report and the individual chain component audit reports by adjusting the allowable costs used in calculating the billing rate of each individual nursing home provider, that 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 home office in our report. However, we have

1998 Audit Report: The South Georgia Methodist Home for the Aging, Inc.

5

discussed the contents of this report with the home office 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.

6

Nursing Facility Services Program

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 of Medical 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)

ALLOWABLE COSTS Directly Allocated Costs Salaries Employee Insurance Other Employee Benefits Taxes and Licenses Legal Expense Travel and Entertainment Miscellaneous Expense Pooled Administrative Expenses Salaries Employee Insurance Other Employee Benefits Taxes and Licenses Legal Expense Travel and Entertainment Miscellaneous Expense
Net Adjustment to Allowable Costs

$ 46,925 10,023 11,438 211 65 173 2,714 $
$ (46,925) (10,023) (11,438) (211) (65) (173) (2,714)
$

71,549
(71,549)
o

1998 Audit Report: The South Georgia Methodi~t Home for the Aging, Inc.

7

Finding No.2

Home Office Costs Paid by Chain Components

Allowable costs claimed by a component of the home office included amounts incurred for the benefit of the entire chain. 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; however, federal regulations also provide that allowable costs that have not been directly assigned to specific chain components must be allocated among the providers on a basis to equitably allocate the costs over the chain components or activities receiving the benefits of the costs. We recommend that the home office and its chain components implement policies and procedures to ensure that costs incurred for the benefit of the entire chain are included in home office allowable costs rather than in a chain component's allowable costs. We recommend that the Department of Medical Assistance make the following adjustment to increase allowable costs for expenses paid by a chain component which benefited the entire chain.
(HCFA Pub. 15-1 Section2150.3)

ALLOWABLE COSTS Functionally Allocated Costs Pooled Administrative Expenses

$

56,643

23,256

Total Adjustment to Allowable Costs

79899

Finding No.3

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 home office implement policies and procedures to ensure that all expenses shown on the cost report are supported by sufficient documentation. We recommend that

8

Nursing Facility Services Program

the Department ofMedical Assistance make the following adjustment to remove the undocumented expenses from allowable costs.
(HCFA Pub. 15-1 Section 2304)

ALLOWABLE COSTS Pooled Administrative Expenses

$,==~(=92=6=4)=

Finding No.4

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 ofMedical Assistance make the following adjustment to remove the non-patient care expenses from allowable costs.
(HCFA Pub. 15-1 Sections 2102.3; DMA Policies arid Procedures Sections 1002.1(k

ITEMS Charitable Event Expense Civic Club Dues Non-Employee Travel Expense Unnecessary Travel Expense

$

(316)

(605)

(4,669)

(2,598)

$

(8 188)

ALLOWABLE COSTS Pooled Administrative Expenses

$

(8 188)

1998 Audit Report: The South Georgia Methodist Home for the Aging, Inc.

9

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 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 ofpayroll taxes. (DMACompensation Ceilings; HCFA 15-906)

Position Title

Total

Guideline

Compensation Ceiling

Excess

ChiefExecutive Officer

$

Payroll Taxes

ChiefFinancial Officer

Payroll Taxes

Office Manager

Payroll Taxes

Executive Secretary

Payroll Taxes

Human Resource Director

Payroll Taxes

82,693 $ 5,254
60,154 4,601 30,981 2,370 25,192 1,927 30,686 2,347

78,778 $ 5,197
24,514 1,875
24,514 1,875
24,514 1,875
24,514 1,875

(3,915) (57)
(35,640) (2,726) (6,467)
(495) (678) (52) (6,172) (472)

$

246205 $ 189531 $

(56674)

ALLOWABLE COSTS Pooled Administrative Expense

$

(56674)

10

Nursing Facility Services Program

SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS

FINDING
NUMBER

ALLOWABLE COSTS

. Directlv Allocated Costs

1

Costs Applicable to Specific Chain Components

. Functionallv Allocated Costs

$

71,549

2

Home Office Costs Paid By Chain Components

56,643

Pooled Administrative Expenses

1

Costs Applicable to Specific Chain Components $ (71,549)

2

Home Office Costs Paid By Chain Components

23,256

3

Lack of Sufficient Documentation

(9,264)

4

Costs Not Related to Patient Care

(8,188)

5

Excess Compensation

(56,674)

(122,419)

Total Audit Findings Affecting Allowable Costs

$==5~ 773~

1998 Audit Report: The South Georgia Methodist Home for the Aging, Inc.

11

SCHEDULE OF ALLOWABLE COSTS

Directly Allocated Costs Functionally Allocated Costs
Pooled Costs Administrative Expenses
Total Allowable Costs

COST REPORT TOTALS

FIELD AUDIT FINDINGS

AUDITED TOTALS

$

0 $ 71,549 $ 71,549

23,600

56,643

80,243

481,487

(122,419)

359,068

$ 505087 $

5773 $ 510860

~ ~
SUMMARY OF ALLOCATIONS TO CHAIN COMPONENTS

ALLOCATION OF:

ADJUSTMENTS TO:

DIRECTLY ALLOCATED
COSTS

FUNCTIONALLY ALLOCATED COSTS

POOLED COSTS:

ALLOCATION STATISTICS(l)

ADMINISTRATIVE EXPENSES

Magnolia Manor Nursing Center $

58,363 $

s 48,037

s (1,189)

(64,164)

TOTAL OTHER COMPONENTS

13,186

8,606

1,189

(58,255)

TOTAL ALLOCATION

$

71,549 $

s 56,643

$

(122,419)

(I) 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 reallocation of the as-filed home office costs.

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1998 Audit Report: Appling Nursing Home

13

SCHEDULE OF ALLOWABLE COSTS AND PATIENT DAY STATISTICS

ALLOWABLE COSTS Routine Services

COST REPORT TOTALS

FIELD AUDIT FINDINGS

AUDITED TOTALS

$

408,163

$ 408,163

Special Services

88,848 $

(17,350)

71,498

Dietary

173,586

9,007

182,593

Laundry and Housekeeping

129,288

628

129,916

Operation and Maintenance of Plant

121,344

(710)

120,634

Administrative and General

77,649

973

78,622

Property and Related Expenses

51,400

51,400

Total Allowable Costs

$ 1,050,278 $

(7,452) $ 1,042,826

PATIENT DAY STATISTICS

11,209

(22)

11,187