EMERGENCY MEDICAL SERVICES BILLING AUDIT

Transcription

1 EMERGENCY MEDICAL SERVICES BILLING AUDIT Report No. A14-02 April 28, 2015 City of West Palm Beach Internal Auditor s Office Roger Strout, City Internal Auditor, CIA, CRMA, CFE, CICA Connie Tory, Sr. Internal Auditor, CFE, CGAP, CRMA Elena Georgiev, Sr. Internal Auditor, CPA, CGMA Beverly Mahaso, Sr. Internal Auditor, JD, CFE Roseanne Visone, Administrative Assistant

2 The Capital City of the Palm Beaches Internal Auditor s Office P.O. Box 3366 West Palm Beach, Florida Tel: 561/ Fax: 561/ April 28, 2015 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: Emergency Medical Services Billing Audit Dear Audit Committee Members: Attached is the City of West Palm Beach Internal Audit Department's report on Emergency Medical Services Billing. Opportunities for improvement are presented in this report. We thank management and staff of the Fire and Rescue Department, Finance Department and Advanced Data Processing, Inc./Intermedix ( ADPI the external agency hired to conduct billing services) for their cooperation and assistance during this audit. Respectfully Submitted, /s/ Roger Strout City Internal Auditor cc: Jeri Muoio, Mayor Jeff Green, City Administrator Dorritt Miller, Deputy City Administrator Mark Parks, Director of Finance Carlos Cabrera, Fire Chief Barry Atwood, Consultant

3 TABLE OF CONTENTS Background 4 Statement of Objectives 6 Statement of Scope 6 Statement of Methodology 6 Statement of Auditing Standards 7 Audit Conclusions and Opportunities for Improvement Summary 7 Noteworthy Accomplishments 8 Opportunities for Improvement & Management Responses 8 1. Incomplete Records - ADPI Transport Count 8 2. Incomplete Records - The Collection Agency Transport Count 9 3. Transport Mileage Overcharges Timeliness Issue of Data Uploads Timeliness Issue Concerning Penn Credit Receiving Data Incorrect Rate for Death on Arrival (DOA) Transports Monitoring (Repeat Finding) Payment Plan Standard Operating Procedures (SOP) Late Fees Write-Off Process 20 Appendix A 23 Page 3 of 25

4 Background The Fire Rescue Department provides Basic Life Support (BLS), Advanced Life Support 1&2 (ALS) and Specialty Care Transport (SCT) ambulance service within the City of West Palm Beach. The different types of transports are distinguished by the level of care needed, equipment, number of staff, or staff certification. The City Commission established a resolution for the appropriate fees of all emergency medical transportation services (EMS) provided by the Fire Rescue Department. Resolution , effective August 8, 2011, establishes fees to be charged by the City of West Palm Beach Fire Rescue Department for providing emergency medical transport services. The City of West Palm Beach Fire Rescue Department charges for emergency medical services (EMS) relating to patient transports. The City outsourced EMS billing in fiscal year 2010 to Advanced Data Processing, Inc., also known as Intermedix-ADPI ( ADPI ). Based on ADPI provided data, below are the collection rates, both gross and net, for the FY It is important to note that gross collection rates do not account for contractual or statutory allowances required by Medicare and Medicaid programs. To account for these mandatory adjustments, the net collection rate is also indicated below. While there is a large amount of potential revenue, on average the gross collection rate is 37% and the average net collection rate is 50% of billed receivables Collected $ 2,600,606 $ 2,588,921 $ 2,376,256 Gross Billed $ 6,012,580 $ 8,544,116 $ 6,508,934 Adjustments $ 1,242,608 $ 2,374,878 $ 2,035,326 Net Billed $ 4,769,972 $ 6,169,238 $ 4,473,608 Gross Collection Rate 43% 30% 37% Net Collection Rate 55% 42% 53% We reviewed ADPI s contract with the City of West Palm Beach and found that it expired on February 1, We strongly encourage the City to follow the procurement process and go out to bid for EMS billing services. Billing Process The billing process involves the City staff collecting transport and billing information; and, after supervisory review, uploading the data electronically to ADPI. Page 4 of 25

5 Collected and Billed per Payer Type Average % Billed by Payer Type Auto Insurance Medicaid Medicare Private Insurance Self Pay/Unknown Work Comp 0% 2% 27% 18% 18% 35% Average Gross Billed vs. Collected* $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 Average Collected Average Gross Billed by Payer Type $0 * Averages were calculated based on 2011 & 2012 transport data. Page 5 of 25

6 This audit was initiated as a result of an annual risk assessment and was included in the Internal Audit Department's FY 2014 Audit Plan. Statement of Objectives The objectives of this audit are to determine: 1) If the City s EMS Billing Department is capturing accurate and complete patient transport and related services information. 2) If the City s EMS Billing Department s claims for patient transport and related services are being billed to Medicare, secondary insurance companies, and the patient in an accurate and timely manner. 3) If the City s EMS Billing Department is following up in a timely manner on any corrections to claims rejected by Medicare and secondary insurance companies. 4) If the City s Billing Department s removal of claims unpaid are supported by adequate and effective collection performance and results. 5) If the City s EMS Billing Department routinely monitors, evaluates, and reports its billing and collection performances and results. 6) If the City s EMS Billing Department has developed and implemented written policies and procedures, and are operating in compliance with City policies and procedures, laws, regulations and/or guidelines. 7) In addition, we will be evaluating the effectiveness of internal controls. Statement of Scope The audit period was FY 2013 (October 1, 2012 through September 30, 2013). However, based on the work performed during the preliminary survey and the assessments of risk, the audit period varied depending on the audit objective. Statement of Methodology We utilized several audit methodologies to achieve the objectives. These methods included but were not limited to: 1) Reviewing the City's Policies and Procedures. 2) Interviewing key employees. 3) Performing walkthroughs and observing the processes or systems and methodology used by the Fire Rescue Department. 4) Examining internal control systems and assessing their effectiveness. Page 6 of 25

7 5) Using data analysis programs and procedures to plan various tests and confirm audit findings and conclusions. 6) Performing other tests consistent with the audit objectives. 7) Drawing conclusions and presenting recommendations based on our observations and the tests performed. Statement of Auditing Standards We conducted this audit in accordance with Generally Accepted Government Auditing Standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Audit Conclusion & Opportunities for Improvement Summary During the scope of the audit, the Fire Rescue Department s responsibilities did not include providing oversight over the EMS billing function. The Fire Rescue Department understood that the Finance Department was performing the majority of the monitoring services. The opportunities for improvement identified in this report are mindful of the Fire Rescue Department s new Fiscal Service Supervisor hired to perform these and other services. Based upon interviews, test work performed, analytics, and the opportunities for improvement noted below, we concluded that: The Fire Rescue Department should provide oversight over the EMS billing function, ensure completeness in the transports received or billed by ADPI, and ensure accuracy in the rate charged for transports. The Fire Rescue Department in conjunction with Finance should ensure that monitoring procedures are developed, written, and implemented to verify ADPI s contract compliance. The development of Standard Operating Procedures would help ensure consistency and provide accountability and clear communication of monitoring responsibility. Monitoring is an important internal control, especially when considering the material revenue source that has been outsourced. The Finance Department should develop write-off procedures for Emergency Medical Services accounts receivables that are uncollectable or considered bad debt. Page 7 of 25

8 The Fire Rescue Department should ensure information needed to bill transportees is provided to ADPI. We noted improvement opportunities with regards to ensuring completeness and timeliness. Noteworthy Accomplishments In September 2014, the Fire Rescue Department hired a Fiscal Service Manager whose responsibilities include performing the monitoring issues addressed in this report. We would like to recognize the Fire Rescue Department for having the foresight to identify the need to perform necessary monitoring. Opportunities for Improvement & Management Responses 1) Incomplete Records - Transports ADPI has a lower transport record count than the Fire Rescue Department. Criteria ADPI receives the transports from the Fire Rescue Department with the responsibility of billing transportees or insurance companies. Condition Fire Rescue total transports do not agree with the total transports per ADPI. FY2011 FY2012 FY2013 Total Fire Rescue transports 10,920 11,398 12,058 34,376 ADPI transports 10,666 11,136 9,289 31,091 Difference ,769 3,285 Potential Receivable 1 $190,500 $196,500 $2,076,750 $2,463,750 Potential Revenue (receivable * collection rate) $81,915 $58,950 $768,397 $909,262 The difference of 2,769 transports (or 23% of total transports) was not billed by ADPI. The majority of the 2,769 transports did not receive bills due to a hospital name change that occurred in Potential Receivable is an estimate. We multiplied total transports not included in ADPI s data (the Difference depicted above) by $750 the rate used in 82% of FY 2013 transports (we excluded mileage charges which average $55, or the 18% of transports that are charged a rate of $700). To further test whether the rate of $750 was appropriate we divided total billed $7,028,414 by number of records 9,289 = $756, providing further assurance that the rate used $750 is appropriate. Page 8 of 25

9 Additionally, ADPI staff has the capability to remove claims; however, no claims have been removed per City request. Cause The City is not performing necessary monitoring to ensure that ADPI receives and bills all transport records from the Fire Rescue Department. For various reasons (hospital name change, failure of files to upload from City to ADPI, or run record destination other than a hospital) not all transports were billed by ADPI. Effect For FY 2013, a total of 2,769 transports were not billed by ADPI resulting in estimated unbilled receivables of $2,076,750 and potential uncollected revenue of $768,397 when considering ADPI s 37% gross collection rate. See chart in the above Condition paragraph for the potential revenue impact resulting from not ensuring all transports are received or billed by ADPI. Recommendation We recommend that the City perform necessary monitoring to ensure all transports are received and billed by ADPI. We recommend the City, on a monthly basis, review and reconcile all transports recorded in the Fire Rescue Department to ADPI s system. We further recommend that City staff utilize ADPI s reports to assist with monitoring as well. Management Response Fire Rescue agrees with this finding. On December 8, 2014, WPBFR accepted full responsibilities of oversight of the EMS billing function from the Finance Department. Processes are now in place to verify that ADPI receives and bills all eligible transports. 2) Incomplete Records Sent to Collections We observed discrepancies in the number of records sent to or received by the City s collection agency. Criteria All applicable transport records should be provided to the City s collection agency in a timely manner. Page 9 of 25

10 Condition Penn Credit (collection agency) data reports that 811 records were received with a Date of Service within FY However, ADPI data indicates that 1,102 records (with a Date of Service within FY 2013) were sent to Penn Credit for collection. The 291 record differences represent 26% of the records intended to be sent for collection or over $200,000 in receivables. Cause Neither Penn Credit, ADPI nor the City are performing a review to ensure all records sent to Penn Credit for additional collection efforts are received. Effect By not monitoring the records submitted and received by Penn Credit, the potential exists that not all records are sent or received by Penn Credit for collection. This negatively impacts already low collection rates. Recommendation We recommend additional efforts be made by Penn Credit, ADPI, and the City to ensure that all records are received by Penn Credit. ADPI and the City should receive a confirmation report after records are imported into Penn Credit s system verifying the number of records submitted. We additionally recommend that ADPI provide Fire Rescue Management with documentation to support the number of records provided to Penn Credit, and demonstrate their review of the transmittals for completeness. Management Response Fire Rescue agrees with this finding. WPBFR will coordinate with ADPI and Penn Credit to be notified of the date and number of records exported from ADPI and the date and number of records imported by Penn Credit. WPBFR will also request access to or confirmation of these transmissions by date and number of records. 3) Transport Mileage Overcharges Criteria Resolution No states that a mileage fee may be charged for transportation of patients. Page 10 of 25

11 Condition When testing high mileage transports to ensure the accuracy of the transport mileage, we found that for FY2013 a total of twenty six (26) transports had mileage charges that exceeded 50 miles. We pulled a sample of 11 records to test the accuracy of these high mileage transports and found that all of the selected sample transports mileages were inaccurate when compared to mapquest.com 2. The calculated overcharges on the sample exceeded $7,000. Based on these test results we do not believe the remaining 15 transports mileage to be accurate, leading to additional overcharges estimated to exceed $9,000. Cause ADPI s mileage data fields did not accurately interpret mileages input by Fire Rescue staff and Fire Rescue staff relied on ADPI for data quality and integrity checks. Per ADPI policies and procedures a coding application automatically performs numerous data quality and integrity checks ADPI Trip data validation includes mileage outlier identification and fractional mileage accuracy via MapQuest integration. ADPI reported to have identified and corrected 283 records with mileage errors, but was unaware of the systems data field error and had no further explanation for the 26 errors we identified as incorrect. Effect As a result, some of the mileage charges invoiced are inaccurate and transportees are incurring overcharges. Recommendation We recommend that Fire Rescue perform periodic monitoring of ADPI records to ensure data accuracy. Additionally, we recommend ADPI review its current trip data validation methods, in an effort to strengthen its mileage accuracy validation process. Management Response Fire Rescue agrees with this finding. 2 Website that can be used to provide directions and mileage from point A to point B. Page 11 of 25

12 On December 8, 2014, WPBFR accepted full responsibilities of oversight of the EMS billing function from the Finance Department. Processes are now in place to monitor the mileage submitted for each transport and to identify and correct any that appear to be overstated. 4) Timeliness of Data Uploads Criteria The Billing Process currently involves transport data uploads two times each week to ADPI s secure portal. ADPI should receive data in a timely manner for processing and billing purposes. Condition Based on our understanding of the billing process, we believe ADPI should receive the EMS transport data in less than 15 days from the date of service. For testing purposes, we consider transport data that took longer than 15 days for ADPI to upload into their system as being untimely. Days from Date of Service until ADPI Received Data >15days<60days 13% >60days 3% <15days 84% Based on the data received by ADPI, 16% of the FY 2013 data took longer than 15 days to be uploaded in ADPI s database with an account creation date. Page 12 of 25

13 Cause Delay in uploading data could be caused due to the timing of the upload itself or the delay in ADPI s process for transferring data from the server to the billing system. Effect Delays in billing have a direct correlation with timely receipt of payment for services rendered. Recommendation We recommend that the Fire Recue Department work closely with ADPI to ensure the transport data is received in a timely manner. We also recommend that periodic monitoring be performed to further ensure timeliness. Monitoring should always be conducted to ensure transport data timeliness, accuracy, and completeness. Management Response Fire Rescue agrees with this finding. WPBFR does agree that the effect of untimely uploads may cause delays in billing and the necessity to monitor the billing process, however, our records indicate the timeliness of data uploads to ADPI s secure portal to be 100% within 12 days. The delay appears to be the transfer of data from ADPI s server to their internal billing system. WPBFR will work with ADPI to ensure the transport data is processed in a timely manner. 5) Timeliness Issue Timing of Penn Credit Receiving Data Criteria The Penn Credit s Delinquent Account Collection Service Agreement with the City was signed by the Mayor on 7/30/12. The agreement stipulates that delinquent EMS bills will be sent to the Agency once they are more than 90 days past due. All EMS transport records for which the City cannot find an address to send the bill to are to be sent to collections immediately. Condition Penn Credit did not receive transports for services provided during FY 2013 in less than 367 days from when the service was provided. On average it took 467 days for services provided during FY2013 records to be received by Penn Credit. Page 13 of 25

14 ADPI did not receive a formal collection policy and procedure from the City. communication received from the Finance Director provided ADPI guidance on what criteria to consider when writing-off accounts and sending them to the collection agency. The directives were not consistent with Penn Credit s Agreement with the City stipulating the timing of turning over accounts. Cause The Fire Rescue Department sends all records to ADPI, the EMS billing vendor. Records that do not have a billing address associated with it are sent to ADPI with the understanding that ADPI will attempt to obtain the necessary addresses. The Fire Rescue Department has not included the Penn Credit contracted language regarding the timing of turning over records in their daily operating policies and procedures, nor have the requirements been communicated to ADPI. The contract between the City and ADPI indicates accounts are eligible for advance collection activity after 12 months. Effect Conflicting directives as to when and to whom transport data is provided causes confusion and possible delays in collections. Recommendation We recommend management communicate to ADPI the collection criteria stipulated in Penn Credits agreement with the City to address the timeliness of providing transport data to Penn Credit. Additionally, we recommend management review performance periodically to ensure delinquent accounts are provided to Penn Credit within the agreed upon time frame. We also recommend that management request ADPI provide monthly reports indicating the number of records received without billing addresses that ADPI was able to successfully bill. Depending on the outcome of that review, we recommend management consider investing in staff training to obtain needed addresses for billing and consider providing Penn Credit with only the transports for which the staff are unable to locate a billing address. Management Response Fire Rescue agrees with this finding. The timeliness issue is confusing since the agreements between the City and ADPI and the City and Penn Credit conflict with each other. The ADPI agreement states to turn over accounts for which no collection has been made after 12 months and the Penn Credit agreement states Page 14 of 25

15 delinquent EMS bills will be sent to Penn Credit at more than 90 days past due. WPBFR will recommend an amendment to the Penn Credit agreement to bring it in line with the terms of the ADPI agreement. 6) Incorrect Rate for Death on Arrival (DOA) Incidents Criteria City Commission Resolution No states that responses to patients that are DOA should be charged $340 for emergency medical services. Condition ADPI data did not include the correct rate of $340 for DOA incidents. Many DOA incidents were not uploaded for billing into ADPI s system. During FY 2013, an estimated 151 DOA incidents were not billed by ADPI. Prior to using ADPI services, the City billed for DOA incidents as stipulated in the Resolution. However, since ADPI took over billing services hundreds of DOA incidents have not been billed. Additionally, we were informed that Medicare pays for DOA incidents when proper rules are met. Cause Due to a historically low collection rate and the exclusion of a hospital as the transport destination, DOA incidents were not billed by ADPI. Per ADPI, DOA incidents failed to meet data upload requirements, however ADPI did communicate this to the Fire Rescue Department. Effect Potential undercharges could result for incidents that are coded as DOA or unbilled incidents when payment is available. Recommendation We recommend the City provide greater oversight in ensuring the correct rate is charged for transport service provided. We recommend management communicate the fees established in Resolution No to the billing vendor. Additionally, we recommend that DOA incident billing be resumed. Page 15 of 25

16 Management Response Fire Rescue agrees with this finding. The City s comprehensive fee schedule was provided to ADPI on 01/16/15 and the billing for eligible DOA s has resumed. Processes are in place to ensure the correct rate is being charged. 7) Monitoring (Repeat Finding) Criteria It is a Best Practice to monitor vendors performing an outsourced service, especially when considering the large amount of revenue available. Condition The City does not practice ongoing monitoring to ensure that ADPI: Receives and bills every patient transport; Generates bills timely; Prepares accurate bills; Properly credits patient s accounts; Follows-up on past due or underpaid accounts; Investigates undeliverable bills; Provides HIPAA Privacy Notices with initial bills; Charges the City accurately. We recognize that the Finance Department has experienced a reduction in personnel responsible for the monitoring responsibilities addressed in this report. However, due to lack of documentation, we were unable to test whether monitoring actions were performed. Furthermore, the large work load of the responsible personnel provided additional reservation that all necessary monitoring was being completed. Cause Anytime services are outsourced, monitoring procedures need to be developed, written, and implemented to verify the firm provides the services as contracted. Effect The City assigned control over a $6 million annual billing process without implementing basic internal controls except for cash receipts. Further, no methods to track or assess the efficiency, Page 16 of 25

17 performance, progress, and quality of services provided by the vendor were developed and implemented. Recommendation We recommend the Finance Department, in conjunction with Fire Rescue Department; implement monitoring controls and procedures over the performance of ADPI. Management Response Finance agrees with the finding. The Finance Department will work in conjunction with the Fire Rescue Department to implement monitoring controls and procedures over the performance of ADPI. 8) Payment Plans Criteria It is a best practice, to analyze collection history and customize collection actions to help ensure successful collections from all payees whether insurance companies, government programs, or self-paying individuals. Condition Estimated collections for transportees that pay out of pocket is as low as 5%. For FY 2013, the actual collection percentage was as low as 3% for primary payer type coded as Self Pay. Of the $1,716,180 only $49,845 has been collected. We noted that for FY 2013, eighty-one (81) accounts were enrolled in a payment plan. Of the 81 accounts 17 were Self Pay Payer Type. This indicates for FY 2013, of the 2,289 accounts classified as Self Pay only 17 or 0.7% of all Self Pays are enrolled in a payment plan. We noted a total of 25 of the 81 payment plan accounts had Medicare insurance. Medicare pays 80% of an allowable amount that is less than the City s charge. The remaining 20% portion of the Medicare allowable amount is left up to the transportee or secondary insurance. During FY 2013, the City transported a total of 3,848 patients with Medicare insurance. Page 17 of 25

18 Cause The City has not been successful in customizing a significant number of collection efforts to help maximize revenue collection from Self Pay transportees. Effect Not customizing collection efforts for Self Pay transportees and without promoting the payment plan option will typically result in increased amounts sent to the City s collection agency. During 2013, out of the $1,716,180 in charges for Self Pay transportees, $967,056 were sent to the City s collection agency by ADPI. Recommendation We recommend that the City discuss with ADPI the possibility of implementing a more customized collection effort (per payer type) that promotes the enrollment in payment plans. We also recommend that the option of a monthly payment plan be added to all invoices for transport services. Please see the attached Appendix A Copy of invoice sent to Self-Pay transportees. Management Response Finance agrees with the finding. The Finance Department in conjunction with the WPBFR department will talk to the vendor to determine the best approaches to offering payment plans that will increase collection success. 9) Standard Operating Procedures (SOP) The Fire Rescue Department should strengthen the internal control environment by drafting or revising their Standard Operating Procedures (SOPs) to better address the newly tasked monitoring responsibilities of the Fire Rescue Fiscal Services Supervisor. Criteria Best Practice: Standard Operating Procedures are what organizations use to create consistency when a process is performed. The approved procedure is documented in a format that is easy to follow and reduces the chance of errors. The principle behind it is to enhance consistency, reduce defects through human errors and improve communication, as well as provide documentation for training others who may be assigned these tasks in the future. Page 18 of 25

19 Condition The Finance Department and the Fire Rescue Department have not established clear SOPs outlining what tasks are to be performed, how, and by whom. The Finance Department and the Fire Rescue Department were not aware of what monitoring tasks were being performed or by whom. ADPI was not provided with a write-off policy that agrees with Penn Credit s contract. Transport fees established per City resolution were not always honored or clearly communicated. Cause Staff turnover results in reprioritized tasks which often supersede the development of appropriate SOPs. Effect Poorly written and outdated SOPs are not sufficiently descriptive, do not always describe current operations, or facilitate employee s best performance. Poorly written and outdated SOPs could result in process errors and inconsistent actions. Recommendation We recommend that the Fire Rescue Department establish well-written SOPs for the EMS Billing Monitoring function. Well-written SOPs facilitate training and cross-training by providing step-by-step instructions and serving as a reference, resource or guide for staff. Employees can teach and support one another if they have documentation available that describes exactly how a task should be done. We recommend that the Fire Rescue Department collaborate and communicate with the Finance Department when developing the SOPs to ensure that there is a clear understanding of roles and responsibilities. Management Response Fire Rescue agrees with this finding. WPBFR will establish written procedures for the monitoring function of EMS billing and will coordinate with the Finance Department during this process. Page 19 of 25

20 10) Late Fees Criteria The City Commission established by Resolution No , the appropriate fees for providing emergency medical services within the City. A monthly Past Due Account fee of $3.00 per month was determined to be charged for accounts over four months past due, which does not include accounts for which payments have been made in prior months. Condition The EMS billing process is not following the directive of the City Commission established in the Emergency Medical Service fee resolution. Cause ADPI has not received direction from the City to impose late fees on patient accounts. Effect Late fees provide an incentive for timely payment. Based on our testing of FY 2013 ADPI transport data, an additional $20,000 in late fees should be charged in addition to what is currently billed. Recommendation We recommend that the City direct ADPI to follow the directive of the City Commission approved resolution and implement charging and collecting late fees for past due accounts. Management Response Fire Rescue agrees with this finding. WPBFR will take the necessary corrective action. 11) Write-off process (Repeat Finding Report #A14-01) The Finance Department has not written-off uncollectible accounts in the General Fund since FY Page 20 of 25

21 Criteria It is a best practice to periodically write-off bad debts, that is, declaring invoices to be noncollectible and removing them from the accounts receivable account and reducing the allowance for uncollectible accounts. Condition With the exception of the enterprise funds (utilities etc.) which are written-off monthly, the general fund has not written off uncollectible balances since Cause The Finance Department does not consider writing-off Accounts Receivables as a priority function since there is no consequence to the financial position. However, the Finance Department will start writing-off old balances during down time. Effect The allowance for uncollectible accounts is meant to provide a conservative estimate of the amount of monies the City anticipates being uncollectible. This amount should be adjusted and necessary write-offs should be performed once further knowledge is gained substantiating the unlikelihood of collection. Without performing these periodic adjustments, the allowance for uncollectible accounts (which is a percentage of aged accounts) will not accurately reflect what has become uncollectible in the past year, but instead represents what has become uncollectible over many years. Recommendation We recommend that the Finance Department perform periodic write-offs of accounts that are uncollectible; in order to more clearly represent the financial position of the City. We recommend the Finance Department work with the City Attorney s Office to clarify the applicability of the statute of limitations. Once clarified, the Finance Department should then create its write-off procedures accordingly. The procedures should reflect actual practices and should cite the criteria used in deciding whether to write-off accounts. To ensure consistency and no discrimination, the same procedures and criteria should be used for all patients when making the determination to write-off a balance to bad debt. While the allowance balance is a conservative estimate, it could possibly be misleading to stakeholders since it does not clearly reflect the amounts the City believed to be highly unlikely revenue within the last year and the City may no longer be pursuing collection efforts. Page 21 of 25

22 We recognize that the Finance Department is utilizing the Allowance Method, and writing-off a bad account does not affect the income statement because the write-off is covered under the earlier adjusting entries for estimated bad debt expense. The entry to write-off bad debt accounts affects only the balance sheet accounts. Additionally, the CAFR does include notes that provide additional information clarifying the composition of the allowance for uncollectible accounts. We additionally recommend the Finance Department document their write-off process in a revised standard operating procedure. Management Response Finance agrees with the finding. The process for writing-off balances has been implemented. We receive an end of month report from ADPI every month. Part of the report is a summary of changes to the Accounts Payable from the last month-end to the current month-end. It includes the amount billed for the month as well as refunds, adjustments and write offs. For months in which accounts have been sent to the collection agency, there is a line captioned, "sent to collections" and a total amount deducted from the beginning AR balance. The last line of the report is the month-end total. The City adjusts its year end accounts receivable balance to the ADPI ending Accounts Receivable balance. In doing so, we write off the balances sent to the collection agency. Page 22 of 25

23 APPENDIX A Page 23 of 25

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