State audit rates VCAD “Fair”

Missouri State Auditor Nicole Galloway, CPA, released the findings of a petition audit of Vernon County Ambulance District on Thursday morning after almost a year of investigation and analysis and three years after former director James McKenzie and office manager Tina Werner were terminated, the result of an Internal Revenue Service tax lien for $213,158 against the district for unpaid payroll taxes from 2013-15.

VCAD filed a civil lawsuit against McKenzie and Werner in May 2016 to recover some of the lost billing revenue. Both individuals were subsequently indicted on federal wire fraud charges in May 2017 and their trial is currently scheduled for September 2018.

Calls for a petition audit of VCAD began in 2016 and were led by area resident Dan Dilly.

“I have no ax to burn – I just want the truth,” Dilly said at a May 2016 gathering of concerned citizens at the Franklin P. Norman Community Center. “We’re not after prosecution, we’re after restitution,”

The petition audit’s supporters gathered 874 valid signatures — at least 863 were required — and the audit was initiated in June 2017.

Staff from the Missouri State Auditors office spent several weeks going through VCAD’s finances, policies and procedures. The audit then underwent several review stages before being presented to the VCAD board for their responses in a closed session meeting. The audit, including responses from VCAD, were released at 10 a.m. Thursday morning.

The petition audit focused on the July 2016 to June 2017 fiscal year. In order to prevent duplication of work already completed, the state auditors reviewed the D.S.W.A. Certified Public Accountant’s audit report for the 2015-16 fiscal year.

In the audit’s introduction, Galloway writes, “The objectives of our audit were to: 1. Evaluate the district’s internal controls over significant management and financial functions. 2. Evaluate the district’s compliance with certain legal provisions. 3. Evaluate the economy and efficiency of certain management practices and procedures, including certain financial transactions.”

She explained the audit was performed, “in accordance with the standards applicable to performance audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.”

The State Auditor’s finding for VCAD’s accounts receivable procedures states, “Controls and procedures over accounts receivables need improvement.”

Following Werner’s termination, VCAD elected to outsource patient billing to a medical billing service, though the audit report cites problems with the contract, billing and write-off procedures.

Old Accounts Receivable

“The district is not pursuing collection of old accounts receivable,” the report reads. “Outstanding balances for trips incurred prior to October 2015, cannot be readily determined because the district did not ensure patient account data was fully restored after the district’s old billing system crashed on December 19, 2014. The district did not have proper backup procedures.”

VCAD’s old billing system shows 876 patient accounts with outstanding balances of approximately $1.2 million as of June 2017 though there are inaccuracies due to the computer crash. Following that crash, very little data — trip logs, insurance settlement records, and deposit records — had been reentered in the system by the time Werner was terminated. In addition, numerous patient bills from 2015 were never entered into the system.

“As a result, old billing system data is inaccurate and district personnel do not use it to monitor or bill unpaid balances or make write-off decisions,” the report reads. “If a patient contacts the district to pay on an old account, the Office Administrator will accept the payment and update the patient’s account in the old billing system at that time.”

New Accounts Receivable

The report cites numerous areas of needed improvement for the newer patient accounts.

“The billing agency contract does not specify requirements for a minimum number of monthly patient billing attempts to collect outstanding balances or procedures for writing off uncollectible accounts,” the report reads.

According to the report, the district makes no further collection efforts after the billing service determines an account to be uncollectible.

The report also cited write off procedures and lacking detail. It details inadequate oversight of write-offs by the board.

For the 2016-17 fiscal year, VCAD wrote off approximately $4.5 million dollars almost half of which — $2.1 million dollars — was contractual-allowances required by Medicare.

The balance consisted of, “unallowable charges for Medicare, Medicaid, and other insurance companies; and balances the billing agency deemed uncollectible and wrote off due to bad addresses, bad debts, bankruptcy, and deceased patients.”

The report finds the district’s write-off policies and discount policies needed to be updated.

The report also identifies conflicts with state statutes in the district’s practice of writing off bills for certain patients such as current employees and their dependents, EMS first responders, board members, firefighters or law enforcement personnel injured in the line of duty. It identifies several conflicts between this practice and current statutes and the state constitution.

The auditor’s recommendations include, “1.1 Establish sufficient procedures to collect accounts receivable. In addition, the Board should update the billing agency contract to clarify billing and collection efforts, timely payment discounts, and procedures for writing off bad debts. The Board should also ensure proper data recovery procedures are in place.

To which the Board replied, “The district’s account is reviewed by the billing service for likelihood of collection, including availability of insurance, credit rating and income, using proprietary software and information services. No account is ever charged off without Board approval. In addition to billing services, Specialized Billing and Collection Services of Texas provides the services of a traditional collection agency, including letters and phone calls to debtors and implementation of payment plans. Specialized Billing and Collection Services of Texas has given us a draft of written policies on write-offs for the district and legal counsel to review for their approval. The district is researching data recovery procedures above our on-site backup, off-site backup and Cloud backup systems we currently have.

The auditor’s recommendations include, “1.2 Update the district’s policy to clarify who is authorized to approve write-offs and ensure all write-offs are verified by an independent person. The Board should periodically review detailed accounts receivable records and take action to collect on accounts the billing agency is no longer pursuing, and ensure reasons for write-offs are allowable according to the policy. In addition, the Board should ensure sufficient documentation of factors considered prior to approving write-offs is retained.

To which the Board replied, “In the future, the district will generate a periodic report of accounts that Specialized Billing and Collections of Texas deems uncollectible and will review and authorize cessation of active collection efforts on accounts that the Board agrees are uncollectible. These will be decided according to factors that will be stated in the policies that are being discussed and developed by Specialized Billing and Collections of Texas, the district, and our legal counsel.

The auditor’s recommendations include, “1.3 Reevaluate agency administrative write-offs outlined in district policy and consult with legal counsel to determine legality.

To which the Board replied, “The district will consult with legal counsel and review this policy.

The auditor’s recommendations include, “1.4 Ensure monthly reconciliations of amounts billed to amounts collected and delinquent accounts are performed.”

To which the Board replied, “The district will require Specialized Billing to provide the information necessary for periodic review and reconciliation.”

Accounting Controls and Procedures

“Supervisory reviews over certain accounting functions and records need improvement,” the report reads.

Despite policy changes following the events of October 2015, the report states, “To reduce the risk of loss, theft, or misuse of funds going undetected, the district should ensure documented independent or supervisory reviews of detailed accounts receivable reports and accounting records are performed.”

The report suggests the district issue receipts for all payments though the bulk of patient accounts are paid through the billing service, some are still received locally.

“As a result of these multiple receipting methods, there is not a complete initial record of receipts to reconcile to postings in the accounting system, billing records, and deposits,” the report reads. “In addition, the composition of receipts cannot be compared to the composition of deposits. … Failure to implement adequate receipting, recording, and depositing procedures increases the risk that loss, theft, or misuse of monies will occur and go undetected. To reduce this risk, procedures should be established to ensure all monies received are properly receipted, recorded, and deposited intact.”

The report states that as of June 2017, improvements to internal controls were needed.

The auditor’s recommendations include, “2.1 Ensure documented independent or supervisory reviews of detailed accounts receivable reports and accounting records are performed. In addition, the Board should formally approve procedural changes and incorporate them into district policy.”

To which the Board replied, “A list of each day’s deposits will be reviewed and approved and initialed by the Director daily. A daily report of “Transactions by Account” will be reviewed and initialed by the Director and retained in the district records. Accounts receivable reports will be printed as required, reviewed, and initialed by the Director. Procedural changes will be formally approved by the Board and incorporated into district policy.”

The auditor’s recommendations include, “2.2 Ensure official pre-numbered receipt slips are issued for all monies received and all receipts are posted to the accounting system timely and deposited intact. Require batch receipts be date stamped and the numerical sequence accounted for properly. In addition, the Board should ensure documented independent reconciliations of the composition of receipts to the composition of deposits are performed.”

To which the Board replied, “The district will commence using a receipt book containing numbered receipts bearing the district’s printed name. The Director will review the cash receipts daily to ensure that all cash and checks received are included in deposits. Batch receipts will be dated by date received. All receipts will be entered into the accounting system in a timely manner.”

The auditor’s recommendations include, “2.3 Implement procedures to reconcile detailed receipt reports from both billing systems to accounting and deposit records. Any errors should be investigated and promptly resolved.”

To which the Board replied, “The district will implement a procedure to compare billing and collection reports with financial reports which are generated from the district’s accounting system. Any errors will be investigated and corrected.”

The auditor’s recommendations include, “2.4 Restrictively endorse checks and money orders immediately upon receipt.”

To which the Board replied, “In the future, checks will be stamped “for deposit only” and endorsed upon receipt.”

The conclusion of this story will appear in the Tuesday, June 19, edition of the Nevada Daily Mail