Audit of

Workers’ Compensation Program

October 23, 2014

Report #2014-06

E. Wayne Gent

Superintendent of Schools

School Board Members Audit Committee Members

Chuck Shaw, Chair Noah Silver, CPA, Chair

Frank A. Barbieri, Jr., Esq., Vice Chair David H. Talley, Vice Chair

Marcia Andrews N. Ronald Bennett, CPA

Karen M. Brill Gregory S. Daniel

Jennifer Prior Brown, Esq. Michael Dixon, CPA/PFS

Michael Murgio Richard Roberts, CPA

Debra L. Robinson, M.D. Bill Thrasher, CGFO

Representatives

Frank A. Barbieri, Jr., Esq., School Board Member

E. Wayne Gent, Superintendent of Schools

JulieAnn Rico, Esq., General Counsel

Bobbi Moretto, Principal Representative

Kathryn Gundlach, CTA President

MISSION STATEMENT The School Board of Palm Beach County is committed to providing a world

class education with excellence and equity to empower each student to reach his

or her highest potential with the most effective staff to foster the knowledge,

skills, and ethics required for responsible citizenship and productive careers.

Audit of

Workers’ Compensation Program

Table of Contents

Page

EXECUTIVE SUMMARY i

PURPOSE AND AUTHORITY 1

SCOPE AND METHODOLOGY 1

BACKGROUND 2

CONCLUSIONS

1. Report of TPA’s Internal Control System 4

2. Best Practices Implemented, But Periodic Review and Update of Manual Needed 4

3. Some Sample Medical Bills Not Paid Within 45 Days 5

4. Lack of Monitoring of Recoveries for Penalties and Fines 6

5. No Formal Policy for Uncollectible Accounts Write-Off 7

APPENDIX

Management’s Response 8

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i

Audit of

Workers’ Compensation Program

Executive Summary

The School District is self-insured for workers’ compensation; it contracted with F.A. Richards

& Associates (FARA), a Third Party Claims Administrator (TPA), to administer its workers’

compensation claims during July 1, 1996, through September 30, 2013. FARA was responsible

for claims management and processing.

Pursuant to the 2013-2014 Work Plan for Audits, we have audited the District’s Workers’

Compensation Program. The primary objectives of the audit were to (1) report the TPA’s

internal control system, (2) assess the adequacy of the program’s internal control, (3) assess the

accuracy and timeliness in managing and processing workers’ compensation claims, and (4)

determine the extent of compliance with the TPA Contract provisions. This audit produced the

following major conclusions.

1. Report of TPA’s Internal Control System

FARA engaged an independent CPA firm to examine (1) the description (control objectives)

of its iClaimsExpert Property and Casualty Claims Management Information System for

processing transactions during July 1, 2011, through June 30, 2012, and (2) the suitability of

design and operating effectiveness of controls to achieve the related control objectives stated

in the description.

The independent CPA’s Report concluded that the controls related to the objectives stated in

the description were suitably designed and provided reasonable assurance that the objectives

would be achieved, if the controls operated effectively throughout the period July 1, 2011, to

June 30, 2012.

Management’s Response: Management concurs. (Please see page 8.)

2. Best Practices Implemented, But Periodic Review and Update of Manual Needed

Risk Management has implemented several control procedures and best practices several

years ago to enhance the management of the District’s Workers’ Compensation Program.

Our review and evaluation of the internal control procedures implemented by Risk

Management concluded that the control procedures and best practices adopted by the

department could be more effective if they were codified in the department’s Procedures

Manual. Moreover, we also found that the Workers’ Compensation Program could be

further improved by developing and implementing formal procedures for certain areas, such

as monitoring of penalties and fines, and write-off of uncollectible accounts. We recommend

that Risk Management Department periodically review and update its Procedures Manual to

ensure that the procedures and practices for essential areas are complete.

Management’s Response: Management concurs and will update the procedures manual to

reflect the best practices that we have in place. (Please see page 8.)

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3. Some Sample Medical Bills Not Paid Within 45 Days

Florida Statute 440.20, Section 6(b) requires medical bills properly submitted be paid within

45 calendar days after the receipt. However, three (6%) of the 50 sample medical bills were

not paid until 55 to 119 days after receipt, with delays ranging from 10 to 74 days beyond the

statutory requirement. To ensure the full compliance with F.S. 440.20.6(b), medical services

claims should be processed and paid within 45 calendar days.

Management’s Response: Management concurs. For the past few years, the State of

Florida has conducted quarterly audits to ensure bills are paid timely and the TPA has met

the required 95% passing rate each time. We have registered with the State Centralized

Performance System (CPS) on the Division of Workers’ Compensation (DWC) website to

receive copies of email notices in the event there is a future late payment. (Please see page

8.)

4. Lack of Monitoring of Recoveries for Penalties And Fines

The TPA Contract required the District’s Risk Management Department to audit and monitor

the payments of penalties, fines, and overpayments to ensure that (a) payments were

accurately classified, and (b) the District was reimbursed by FARA for penalties incurred due

to actions by FARA’s employees. However, there were no written procedures to address

overpayments, penalties and fines that were partially caused by FARA. Risk Management

should develop and implement procedures to review and monitor the recovery of penalties

and fines that were wholly or partially caused by FARA.

Management’s Response: Management concurs. We will monitor line items for

overpayments, fees, interest and civil penalties to ensure those marked as “outside our

control” by the TPA are classified correctly. Additionally, we will ensure that any

overpayments that are within the TPA’s control are reimbursed timely per our newest

contract requirements, which detail reimbursement requirements. We will codify this

process in our procedures manual. Please note that $521 is a very low percentage of the $9

million of payments processed by the TPA annually. (Please see page 9.)

5. No Formal Policy for Uncollectible Accounts Write-Off

Risk Management did not have formal procedures for writing-off uncollectible accounts. To

ensure proper fiscal accountability, procedures for monitoring accounts receivable and write-

off of uncollectible should be codified in the policies and implemented accordingly through

procedures manual.

Management’s Response: Management concurs. We will develop a policy and write a

procedure for writing off uncollectible accounts. (Please see page 9.)

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M E M O R A N D U M

TO: Honorable Chair and Members of the School Board

E. Wayne Gent, Superintendent of Schools

Chair and Members of the Audit Committee

FROM: Lung Chiu, CPA, Inspector General

DATE: October 23, 2014

SUBJECT: Audit of Workers’ Compensation Program

PURPOSE AND AUTHORITY

Pursuant to the 2013-2014 Work Plan for Audits, we have audited the District’s Workers’

Compensation Program. The primary objectives of the audit were to (1) report the TPA’s

internal control system, (2) assess the adequacy of the program’s internal control, (3) assess the

accuracy and timeliness in managing and processing workers’ compensation claims, and (4)

determine the extent of compliance with the TPA Contract provisions.

SCOPE AND METHODOLOGY

This audit was conducted in accordance with Generally Accepted Government Auditing

Standards. 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 the evidence obtained provides a reasonable basis for our findings

and conclusions based on our audit objectives.

This audit covered the workers’ compensation claims for Fiscal Year 2013 (July 2012 through

June 2013). To accomplish the audit objectives, we performed the following procedures:

Reviewed applicable laws and District’s policies and procedures relative to workers’

compensation.

Researched best practices related to workers’ compensation program.

Interviewed staff of the School District and the vendor, who administered the District’s

Workers’ Compensation Program.

Performed recalculations of employees’ weekly workers’ compensation.

Reviewed audit reports in related area from other local government agencies.

THE SCHOOL DISTRICT OF LUNG CHIU, CIG, CPA SCHOOL BOARD PALM BEACH COUNTY, FLORIDA INSPECTOR GENERAL CHUCK SHAW, CHAIRMAN

FRANK A. BARBIERI, JR, ESQ., VICE CHAIRMAN OFFICE OF INSPECTOR GENERAL MARCIA ANDREWS 3318 FOREST HILL BLVD., C-306 KAREN M. BRILL WEST PALM BEACH, FL 33406 JENNIFER PRIOR BROWN, ESQ. MICHAEL MURGIO (561) 434-7335 FAX: (561) 434-8652 DEBRA L. ROBINSON, M.D. www.palmbeachschools.org E. WAYNE GENT, SUPERINTENDENT

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Examined source documents including paid invoices, risk management policies, and

procedures and training manual.

Reviewed supporting documentation for sample workers’ compensation claims.

We appreciate the courtesy and cooperation extended to us by staff during the audit. The final

draft report was presented to the Audit Committee at its October 23, 2014, meeting.

BACKGROUND

Workers’ Compensation Insurance

Workers’ compensation insurance program provides protection for employees if they become ill

or injured while working. The insurance covers work related illnesses and injuries such as slips,

falls, and strains occurred in the workplace or job site. Workers injured on the job are entitled to

receiving medical care for their work related injury or illness and may be entitled to receiving

compensation, in cash (indemnity payment) for lost wages, usually until they return to work.

Florida Statutes §440, Workers’ Compensation, defines and governs the employers’

responsibility for workers’ compensation in the State of Florida.

Third Party Claims Administrator (TPA)

The School District is self-insured for workers’ compensation; it contracted with F.A. Richards

& Associates (FARA), a Third Party Claims Administrator (TPA), to administer its workers’

compensation claims during July 1, 1996, through September 30, 2013. FARA was responsible

for claims management and processing.

School District’s New TPA. The District contracts with York Risk Services Group as its TPA

for October 1, 2013, through September 30, 2018. Moreover, FARA was acquired by and

became part of York Risk Services Group in 2011.

Processing of Medical bills

FARA received medical bills at its local office in Boca Raton and at the home office in

Mandeville, Louisiana. Bills received at the Boca Raton office were date-stamped, scanned,

batched and sent by mail to the home office. All mail (including mail from the Boca Raton

Branch) received at the home office were date-stamped. Medical bills were sent to the Bill

Review Section where they were date-stamped again and subsequently distributed to the bill

processors. Bill processors entered bills in the InGenix (a bill review system) where they were

reviewed for compliance with the rules and Florida Workers’ Compensation Health Care

Provider Manual. InGenix generated a daily report after processing the claims and this report

was exported to a claims management system (iClaimsExpert). iClaimsExpert generated

payments and created the Explanation of Bill Review (EOBR) for each bill entered. The

payments and Explanation of Bill Review were exported to a service provider for printing and

mailing of payments. FARA’s bill review department was responsible for providing the

“received and “paid” dates to the State of Florida Workers’ Compensation Division.

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Employee Benefits & Risk Management

The District’s Department of Risk and Benefits Management is responsible for overseeing three

key functional areas: (1) Benefits, (2) Safety & Risk Management, and (3) Wellness. The Safety

& Risk Management Section is responsible for the operation, coordination and oversight of the

District’s safety and workers’ compensation programs. This section also manages the Districts’

liability and automobile insurance, which are also self-insured.

Within the Safety & Risk Management Section, the Claims Unit is responsible for:

Advising school and department personnel on Workers’ Compensation procedures,

claims and benefits.

Selecting external legal counsel to represent the District and assist in making

recommendations for settlement of claims.

Monitoring the TPA and approving fees charged by the TPA.

Reviewing various Workers’ Compensation Reports submitted by the TPA.

Making monthly wire transfer to replenish the Loss Fund Account.

The Safety Unit is responsible for:

Investigating employee and student accidents and making recommendations, if needed,

for corrective actions.

Performing required safety inspections and training on United States Occupational Safety

and Health Administration (OSHA) and other safety standards.

Maintaining liaison with principals and department heads to ensure compliance with

Federal, State and District safety requirements.

Inspecting and approving all school playgrounds

Workers’ Compensation Claims

During July 2008 through June 2013, FARA received a total of 13,095 accident/injury claims

from District employees. Net loss incurred for claims was $26,133,764. Annual claims and loss

incurred is shown in the table below:

Fiscal

Year Indemnity Medical Allocated Recovered

Net loss

Incurred

Total

claims

08/09 $855,622.18 $3,461,773.92 $1,049,414.21 ($17,000.00) $5,349,810.31 2,604

09/10 $1,200,296.08 $6,230,489.81 $812,601.66 ($23,579.38) $8,219,808.17 2,672

10/11 $377,573.46 $2,883,872.89 $492,839.21 ($500.00) $3,753,785.56 2,634

11/12 $386,569.59 $3,528,757.38 $484,391.32 ($10,267.82) $4,389,450.47 2,567

12/13 $523,960.87 $3,397,707.93 $499,392.53 ($151.50) $4,420,909.83 2,618

Total $26,133,764.34 13,095

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CONCLUSIONS

1. Report of TPA’s Internal Control System

FARA engaged an independent CPA firm to examine (1) the description (control objectives)

of its iClaimsExpert Property and Casualty Claims Management Information System

implemented by FARA for processing transactions during July 1, 2011, through June 30,

2012, and (2) the suitability of design and operating effectiveness of controls to achieve the

related control objectives stated in the description.

We have reviewed the independent CPA’s Report. The Report concluded that FARA’s

description fairly presents the claims management information system that was designed and

implemented throughout the period July 1, 2011, to June 30, 2012. The Report also noted

that the controls related to the objectives stated in the description were suitably designed and

provided reasonable assurance that the objectives would be achieved, if the controls operated

effectively throughout the period July 1, 2011, to June 30, 2012, and user entities.

Management’s Response: Management concurs. (Please see page 8.)

2. Best Practices Implemented, But Periodic Review and Update of Manual Needed

The Department of Risk and Benefits Management has implemented the following control

procedures and best practices several years ago to enhance the management of the District’s

Workers’ Compensation Program:

Reviewing and monitoring of quarterly reports submitted by the TPA for

overpayments of workers’ compensation.

Established a “Risk Alert” process with the TPA where the adjusters would notify

the District of exceptions found during the claim process where corrective actions

were needed.

Since 2009, the department’s safety technicians have been investigating all

catastrophic accidents and other claims that were questionable as to causation.

Since October 2013, the department’s safety technicians are required to complete the

Accident Investigation From for every lost time claim.

The above should help (a) ensure that overpayments, if any, are timely recouped from the

recipients, (b) prevent potential fraudulent claims, and (c) ensure that appropriate corrective

actions have been taken to address the deficiencies and prevent similar accidents from

recurring in the future.

However, our review and evaluation of the internal control procedures documented in the

Risk Management’s Procedures Manual revealed that the above control procedures and best

practices had not been codified in the Procedures Manual as of June 30, 2014.

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Moreover, we also found that formal procedures have not been developed for some of the

essential areas for administering the Workers’ Compensation Program. Areas with missing

procedures included (a) the monitoring of penalties and fines and (b) write-off of

uncollectible and accounts receivable. (Please see conclusions 4 and 5.)

Recommendations

Risk Management should periodically review and update the Procedures Manual to ensure

that all the essential areas for administering the Workers’ Compensation Program are

complete and up-to-date.

Management’s Response: Management concurs and will update the procedures manual to

reflect the best practices that we have in place. (Please see page 8.)

3. Some Sample Medical Bills Not Paid Within 45 Days

Florida Statute 440.20, Section 6(b), requires that,

“…. all medical, hospital, pharmacy, or dental bills properly submitted by the

provider, except for bills that are disallowed or denied by the carrier or its

authorized vendor in accordance with the department rule, are timely paid

within 45 calendar days after the carrier’s receipt of the bill.”

The review of 50 sample medical bills found that three (6%) claims were not processed

timely, with delays ranging from 10 to 74 days.

Check # Amount (A)

Check Date

Service

Date

(B)

Invoice Receipt

Date

(A – B)

# of Days for Payment

0113735 $5,880 8/20/2012 6/1-4/2012 6/26/2012 55 (10 days late)

0113772 64 8/27/2012 4/3/2012 4/30/2012 119 (74 days late)

1150518 1,595 4/2/2013 12/12/2012 12/12/2012 * 111 (66 days late)

* Invoice was not date-stamped.

Recommendation

To ensure the full compliance with F.S. 440.20.6(b), medical services claims should be

processed and paid within 45 calendar days by the TPA.

Management’s Response: Management concurs. For the past few years, the State of

Florida has conducted quarterly audits to ensure bills are paid timely and the TPA has met

the required 95% passing rate each time. We have registered with the State Centralized

Performance System (CPS) on the Division of Workers’ Compensation (DWC) website to

receive copies of email notices in the event there is a future late payment. (Please see page

8.)

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4. Lack of Monitoring of Recoveries for Penalties And Fines

Risk Management Did Not Review Penalties and Fines. During July 2012 through June

2013, a total of $3,069.93 in penalties, fines, and interest was paid to claimants due to

adjuster’s errors, late reporting, or misinformation.

Nature of Penalty Number of Payments Total

Outside our control – paid under indemnity 3 $1,831.84

Within our control – paid under indemnity 3 521.11

Employee Interest 11 716.98

Total $3,069.93

Section 9.6K of the Invitation to Negotiate (ITN No. 08C-006N), states that,

“Overpayments, fees, interest and civil penalties required due to late payments or

adjuster mishandling are to be paid by the claims administrator unless the error

is solely caused by later reporting or misreporting of information from the

District. Any payments made by the claims administrator will be returned to the

District within 60 days. The District’s Risk Management Department will

perform the audits and monitor such activity.”

However, our review found that Risk Management did not audit and monitor these activities

as required. As a result, there was no assurance that penalties incurred were accurately

classified. In addition, the District was not reimbursed the $521.11 penalty that was

attributable to the actions of FARA’s employees.

No Procedures for Handling Disputed Accounts. For each overpayment on the Notice of

Action/Change Form (DWC-4) submitted to the School District, the established procedure

required FARA to identify the reasons, whether the overpayment was caused by the District

or FARA. However, there were no written procedures to address these overpayments,

penalties and fines that were partially caused by FARA, the claim administrator.

Recommendations

Risk Management Department should:

Monitor the line items for overpayments, fees, interest, and civil penalties, especially

for penalties that were classified as “outside our control.”

Establish formal procedures to recoup the amounts due the District for penalties and

fines caused by the TPA’s employees.

Include procedures in future TPA’s contract to address overpayments, penalties, and

fines that were partially caused by the TPA.

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Management’s Response: Management concurs. We will monitor line items for

overpayments, fees, interest and civil penalties to ensure those marked as “outside our

control” by the TPA are classified correctly. Additionally, we will ensure that any

overpayments that are within the TPA’s control are reimbursed timely per our newest

contract requirements, which detail reimbursement requirements. We will codify this

process in our procedures manual. Please note that $521 is a very low percentage of the $9

million of payments processed by the TPA annually. (Please see page 9.)

5. No Formal Policy for Uncollectible Accounts Write-Off

Sound business practices call for accounts receivable be monitored, reviewed, aged, and

written off when all attempts to collect the receivables are exhausted, and management

deems the accounts uncollectible. Amounts to be written off should be adequately

documented, and justification be reviewed and approved by supervisor. Procedures for

write-off should be codified in the policies, and implemented through procedures manual.

The review of Risk Management’s overpayment listing disclosed that, during Fiscal Year

2013, a total of $2,722.16 in overpayments due from five employees and five former

employees were written-off, in absence of a written policy for uncollectible accounts.

Recommendation

Procedures for write-off of uncollectible accounts should be developed and included in the

policies and procedures manual. Such procedures should include the criteria for the write-

offs, with supervisor review and approval.

Management’s Response: Management concurs. We will develop a policy and write a

procedure for writing off uncollectible accounts. (Please see page 9.)

– End of Report –

Appendix

Management’s Response

8

Appendix

Management’s Response

9