the importance of sound financial policies and procedures...8/14/2017 1 the importance of sound...

8/14/2017

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The Importance of Sound Financial Policies and Procedures

Presented by Michael HoltonHolton Healthcare Consulting, Inc.Raleigh, [email protected]

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Understand the role of the Chief Financial Officer and Finance Department operation within a health center

Importance of establishing internal controls within the health center operation

Chart of Accounts Discussion

What policies and procedures should be developed to maximize financial effectiveness and assure protection of health center assets

Tailoring Holton Healthcare Consulting’s Policy manual to your health center’s needs.

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Core Requirements:

Maintenance of the Books and Records of the CHC

Ensuring Compliance with all Applicable Laws and Regulations

Stewardship of Assets

Provide Information, Insight and Guidance as a Key Member of theManagement Team in the Strategic Planning Process

Provide Financial Information to the Board in Conjunction With theManagement Team

Role of the Chief Financial Officer

Core Requirements (con’t):

Monitor and Control Billing to Third Parties and Collection Efforts of Receivables◦ Managed Care Contracting

Liaison to External Parties in Regard to Financial Information

Develop and Monitor Budgets (Including Regulatory, Internal Management, and Capital)

Manage Cash Flow

Role of the Chief Financial Officer

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Bookkeeping / Accounting Skills

Preparation of Financial Statements

Third Party Billing and Compliance

Healthcare Operational Expertise

Grants Management and Compliance

Treasury Management (including financing)

Interpersonal, Negotiation, and Supervisory Skills

Knowledge of Information Management

Core Competencies of the Chief Financial Officer

Safeguarding of Assets

Accurate and Timely Preparation of Financial Reports

Efficient Management of Cash Flow

Contain Costs / Maximize Revenue

Interact With Outside Auditors

Comply With Regulatory Requirements

Responsibilities of the Finance Department

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General Accounting (general ledger and journals)

Billing and Collections

Payables and Cash Disbursements

Payroll

Budgeting

Grants Management

Internal and External Reporting

Typical Functions of the Finance Department

Well-Defined Organizational Structure

Complete Accounting Policies and Procedures Manual

Strong Financial Management Systems:

– Tailored to Your Operations

Timely and Accurate Financial Reporting

Continual Reassessment / Re-evaluation

Compliance With Regulatory Requirements

Elements of an Effective Finance Department

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• Detailed Explanation of How to Process Transactions

– Guidance to Staff

• Strong Internal Controls

– Safeguard Assets

– Segregation of Duties

– Accurate Financial Reporting

• Ensure Compliance With Regulatory Requirements

Purpose of Accounting Policy and Procedures Manual

GOALS OF A FINANCIAL SYSTEM

At a minimum, health centers must maintain financial systems which:• provide for internal controls• safeguard assets• ensure stewardship of federal funds• maintain adequate cash flow to support operations• assure access to care, and• maximize revenue from non-federal sources.

Financial systems should be routinely reviewed and updated to assure that the organization remains:

• financially sound• competitive, and• attuned to changes in the local, state and national health care

environment.

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ACCOUNTING AND INTERNAL CONTROLS

• Health centers must have accounting and internal control systemsappropriate to the size and complexity of the organization.

• An accounting system based on Generally Accepted AccountingPrinciples (GAAP) must be in place and be designed to accuratelyreflect the financial performance of the organization.

• A separation of financial functions should be implemented tosafeguard assets.

• A set of routine financial reports must be generated and reviewed byhealth center management and members of the board of directors on aregular basis.

Accounting/Finance policy and procedures manual

Specific policies and procedures governing –◦ Internal controls over financial reporting◦ Federal grant compliance◦ Tax filings and compliance◦ Cost report filings and compliance◦ Coding and billing compliance

Finance Portion of Your Corporate Compliance Program

The specific finance elements of the Corporate Compliance program include:

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I. Financial Accountability & Protection of AssetsII. Chart of Accounts

III. Month-End Close and Accounting Process IV. Cash Disbursements (including petty cash and imprest funds)V. Cash Receipts

VI. Accounts Payable VII. Purchasing

VIII. Payroll IX. Fixed AssetsX. Travel

XI. Prepaids & Accrued LiabilitiesXII. Monitoring and ReportingXII. Fixed Assets

XIII. Billing, Collections and Accounts ReceivableXIV. AuditsXV. Contract Management and Consultants

XVI. Grants ManagementXVII. Tax Compliance

Sections of Accounting Policies and Procedures Manual

• Physical Inventories• Borrowing Policy• Credit Card Usage• In-Kind Contributions and Contributions• Investments• Insurance• Records Retention• False Claims and Whistleblower Policy• Security • Annual Operating Budget• Bank Reconciliations

Accounting Policies and Procedures Manual –Other Sections for Consideration

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When developing the chart of accounts, the health center must understand the specific information needed to be extracted for each financial reporting requirement (e.g., tax, audit, funding agency reports, cost reports, etc.).

The chart of accounts should also reflect the reporting requirements for internal management reports (e.g., managed care reports, etc.).

The community health center should leave room for expansion for new programs and funding sources when developing their chart of accounts.

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In order to capture the reporting requirements, the chart of accounts must be designed to cover some of the basic items that a CHC may need. These include, but are not limited to:• Account Number and Description• Net Asset Class• Federal Grant Programs• Other Grants and Contracts• Sites• Departments

No specific order within the chart of accounts

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Net Asset Class: This segment is used to track whether grant funds and contributions

are unrestricted, temporarily restricted, or permanently restricted.

Federal Grant Programs: Federal agencies (e.g., BPHC) require CHCs to track the federal

programs that grant funds are supporting. This includes all activities (revenue and expenses) within the scope of the project that are included in the grant application (budget).

GENERAL Ledger

Accounts Receivable

Payroll

Pre-paids

Accounts Payable

Fixed Assets

Cash Receipts

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Further, if the CHC wants to provide reports by site and department then thechart of accounts should be expanded for two more sets of digits.

Category Description Number

Account Name -Grant Revenue -4470Net Asset Class -Unrestricted Net Assets -0Grant -HRSA -1Program -HIV Project -02Site -West Site -04Department -Health Education -165

The chart of accounts should be expanded to look like this:4470 - 0 - 1 - 02 - 04 - 165

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A well designed chart of accounts is only the first step. In order to manage adetailed chart of accounts, your financial accounting system must be powerfulenough to capture the required detail and flexible enough to report on it.

Most good accounting systems provide added reporting flexibility through theeither the Reporting Feature.

Allows the reporting of financial activity for specific grants/programs/sites/departments through the selection of specific combinations or ranges of accountnumbers or segments.

This is only possible if the CHC is properly allocating Revenue and Expenses tothe different reporting segments.

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EXAMPLE OF USE OF SELECTION IN FINANCIAL REPORTING

Grant

State 150K State 180G Denta HIT Totals

Grant Revenue 72,983 98,848 165,655 436,005 773,491

Other Revenue 0 0 0 125,152 125,152

Total Revenue 72,983 98,848 165,655 561,157 898,643

Personnel Expenses 24168 46,676 101,111 233,458 405,413

Professional Fees 22446 28,950 22,001 186,995 260,392

Conference, Trainings, Meetings 13294 29,208 10,153 6,565 59,220

Travel Expenses 872 5,012 8,033 40,258 54,175

Overhead Costs 1612 6,363 15,363 78,991 102,329

Total Expenses 62,392 116,209 156,661 546,267 881,529

Overage (Under Spent) 10,591 (17,361) 8,994 14,890 17,114

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EXAMPLE OF USE OF SELECTION IN FINANCIAL REPORTING

Site One Site Two Central Office TotalsPatient Services & Other Revenue Visits Rate/Visit Net Revenue Visits Rate/Visit Net Revenue Revenue Visits Net Revenue

Medicare 609 83.52 50,864 628 83.52 52,451 1,237 103,314

Medicare Managed Care 517 83.52 43,180 232 83.52 19,377 749 62,556

Medicaid 1,508 99.62 150,227 396 99.62 39,450 1,904 189,676

Medicaid Managed Care 835 99.62 83,183 232 99.62 23,112 1,067 106,295

Private Insurance/Other 729 76.30 55,623 425 76.30 32,428 1,154 88,050

Self-Pay @ 200% or Above 0 58.08 0 0 58.08 0 0 0

Self-Pay Below 200% 2,882 12.00 34,584 1,656 12.00 19,872 4,538 54,456

Federal Grant Funds 1,110,331 1,110,331

Other Revenue 80,777 80,777

Total Revenue 7,080 417,660 3,569 186,688 1,191,108 10,649 1,795,456

Allocation of CO Revenues 882,159 154,475 (1,191,108) (154,474)

Revenue After Allocation of CO 1,299,819 341,163 1,640,982

Expenses Personnel Costs 475,701 213,810 373,171 1,062,682

Fringe Benefits 122,303 54,971 95,942 273,216

Contract Expenses 54,612 9,566 127,178 191,356

Supplies 36,827 6,562 12,208 55,597

Other Expenses 48,445 48,589 120,998 218,032

Total Operating Expenses 737,888 333,498 729,497 1,800,833

Revenues Over (Under) Expenses 561,931 7,665 729,497 (159,901)

Allocation of Central Office Costs 503,353 226,144 (729,497)

Total Cost of Operations Per Site 1,241,241 559,642 0 1,800,833

Revenues Over (Under) Expenses 58,578 (218,479) (159,851)

After Allocation of CO Costs

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COMMUNITY HEALTH CENTER, INC.

Date_________________

Policy Number 28

Grants Management Policy

Policy: Total additional costs associated with new grants, including estimated indirect costs, must be identified for all grants. Upon grant expiration, all approved matching funding and all positions funded by the grant will end, unless other revenue has been identified. The CHC department receiving the grant is responsible for adhering to all policies and procedures attached to the grant by the grantor and any reference to regulations or rules included in any notice of grant award. All reports CHC is required to submit to the funding agencies, and federal or state governments are to be submitted within the timeframes required by the grant.

Purpose: To establish clear procedures and CHC’s position regarding application, acceptance, budgeting, and administration of grants when CHC is the grantee. CHC desires to obtain grant funding to provide services that the Board of Directors determines beneficial to the patients in CHC’s service area.

Procedures:

Grant Budgeting and Accounting: Each grant will be assigned individual general ledger account number codes to record all fiscal transactions. All individual grant revenues and expenditures must be coded to the assigned account code. Salary and fringe benefit costs incurred by grant support staff must be identified and actual expenditures coded to the grant. Salaries and fringe benefits must be charged to the grant directly through the payroll process. All salary expenditures must be supported by adequate documentation as required by the grantor agency and any regulating documents. Department heads are responsible for maintaining accurate grant budgets and must ensure that grant expenditure and revenue transactions are coded to the appropriate grant code.

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Maintenance of Accounting Records

Record RetentionComputer: At the conclusion of each day, all computerized accounting software modules are backed up to tape by the Information Services Department. The back-up tapes are taken each night off site by the ________ (staff position) to safeguard the health center’s books and records. At month’s end, the modules are copied and stored off-site by the assigned individual.

Tailoring the Manual to Your Needs

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Cash Receipts Mail Receipts are opened by the ______________(staff position) or his/her designee. b. The payments are listed on a Cash Receipts Log and the checks are restrictively

endorsed with a stamp indicating the proper account. c. The Cash Receipts Log and all items listed are copied and provided to the Finance

Department for review, verification, and coding to the proper General ledger account, and to the Billing Department for input of patient account payments on the Patient Accounting System.

e. The Cash Receipts Log and the cash or checks are set up for deposit to the

appropriate bank account according to procedures established by the Controller. 1) The completed deposit is to be reviewed by the ____________ (staff position)

to assure that every check is properly endorsed, and that the total amount of the deposit is correct. Verification shall be noted by initialing the deposit slip in the upper left‐hand corner.

f. The verified deposit is provided to the _______________ (staff position) to take to

the bank. g. The ________________ (staff position) returns the bank deposit ticket receipt(s)

directly to the Finance Department. The Finance Department matches and verifies the deposit ticket receipt(s) to the back‐up documents.


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Drawdowns

CHC receives Federal Grants and directly draws down funds into an established CHC Federal bank account. The drawdowns are made every _______ (payroll, month, etc.) and will be spent within 72 hours after receipt.Cash Disbursements

All funds disbursed will be from CHC’s general operating account with the exception of payroll, which is disbursed out of the separate payroll bank account. All checks drawn by the health center must be signed by the _____________ (officer). If the amount of the check is in excess of $___________, then the __________ (staff position) and/or __________ of the Board of Directors with check signing authority must also sign the check. No signatory shall benefit directly or indirectly or receive any funds as a result of signing a check. Fixed asset expenditures over $_________ must be pre-approved by a vote of the Board of Directors before any purchases can take place.

A voucher or check request is prepared for disbursements paid from the general operating account???


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Petty Cash and Imprest Funds

Petty Cash

The fund will be maintained by the ______(staff position).

All petty cash disbursement vouchers must be approved by the ______ (staff position) in advance of incurring the expense. Only the Controller can approve any deviation from this requirement.


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Imprest Funds

1. At the start of the day, front office staff is provided with petty cash that includes the approved starting cash

amount of $_________.

2. Front office staff and their supervisor jointly confirm the starting balance in the cash drawer before the

drawer is used. If the cash agrees, the cashier can open the work station for patient visit transactions.

3. At the end of each patient’s visit, the front office staff processes the super‐bill (transaction from provider),

which acts as a provider’s invoice.

4. The front office staff collects any cash and/or check from the patient based on the amount due on the

patient’s account. The front office staff then gives a payment receipt to the patient.

5. At the conclusion of the day, the front office staff reconciles the cash and checks received from patients.

Each super‐bill (transaction) is logged into a Daily Cash Report and provided to the Finance Department.

Copies are also made along with any payment and inserted in an envelope. Any discrepancies are resolved

immediately (written notice explaining the nature and cause of the incident should be attached to the log

sheet).

6. After the reconciliation process is complete, the envelope is secured or deposited by ________ (staff

position).

The ________ (staff position) will reconcile the deposit to the daily cash sheets that were produced by each

front office staff. If all the items agree, the total amount of cash, by payor source, is recorded in a cash receipts

log and the deposit is made.


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Purchasing Purchasing or leasing of most equipment, supplies and services is performed by the ___________ Department through a system that tracks purchase requests and approvals. The ___________ Department pre‐qualifies vendors providing equipment, supplies and services for inclusion into the system by screening them against the names on the Office of the Inspector General’s (OIG) List of Excluded Individuals and Entities, and the General Services Administration’s (GSA) Excluded Parties List System. Vendors who are on these lists or any other government exclusion or debarment list do not qualify as CHC vendors. The ___________ Department reviews the status of each qualified vendor annually. The CEO may waive the bidding requirement if the requesting manager can

demonstrate that only one vendor exists who can meet the need. The manager must

submit a written waiver request and receive written approval by the Controller before

submitting it to the CEO. The CEO must consider each case on its individual merits and

make a decision based upon objective criteria, the needs of the department, best

industry practices, and the best interests of CHC. For orders over $___________, the

Controller must sign off on the Purchase Order.

To protect CHC from liability in the event of an accident, the ___________ Department must obtain certificates of liability insurance in advance from vendors or contractors who come onto CHC property to perform labor or make deliveries. Coverage requirements appear on the vendor copy of a Purchase Order and in RFPs and RFQs for construction or other services. The ___________ Department maintains a system for obtaining the certificates and advising the vendor if certificates of insurance must be renewed. Certificates must be received before work can start and must remain in effect continuously for as long as the vendor has personnel coming onto CHC property.


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Payroll All changes to employee payroll data should be authorized in writing on a Personnel

Action Notification (PAN) form(?). Below is correct?

a. Changes to payroll information should be submitted to the Finance Department

by the Human Resource Department on the PAN.

b. New hires/terminations should be submitted in writing by the Human Resource Department and approved by the CEO.

c. Voluntary deductions should be authorized by the individual employee and entered on the PAN.

d. Pay rate changes should be authorized in writing by the CEO and approved by the Controller in accordance with budget guidelines.

e. A copy of all authorization forms for changes to standing payroll data should be retained in each employee’s personnel file.

????? Personnel files should be kept in a secure locked location and accessed by

_________ personnel only.


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Timekeeping ( Need to complete blanks and identify process)

1. Maintenance of Time Sheets

a. Employees are compensated based on time worked. Time sheets will be completed by employees and signed by their supervisor. Time sheets shall be filed in the ____________ Department.

b. Employees are directed, where feasible and documented, to distribute their time based on their supervisor’s distributed time to various departments, grants and other activities. If supervisor model is not available, employee must distribute time to departments, grants and other activities based on hours actually worked in each area.

c. Direct Deposit is available for all employees and highly encouraged. If chosen by

employees, net payroll will be directly deposited into the employee’s bank account.

2. Overtime Approval

a. All overtime must be approved by department supervisors, evidenced by their

signature/initials on the time sheet.

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1. Reconciliation of Payroll to Supporting Records

a. A reconciliation will be periodically performed on transaction data (time worked) in comparison with the payroll calculation.

Payroll Calculation

1. Time Sheets

a. Time sheets will be completed by employees, approved by their supervisor and checked by _____________ Department for accuracy. All time off requests should match time off shown on the time sheet. Advanced approval for time off must be signed by the supervisor. The ___________ Department will reconcile any discrepancies.

b. Unresolved discrepancies should be brought to the attention of the ___________ Department.

c. The payroll register must be approved by the CFO before the payroll is processed.

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Fixed Assets CHC maintains property records to account for and safeguard assets and document the

calculation of depreciation. CHC maintains an excel spreadsheet (__________ fixed asset software) that records fixed assets by description and documents the date purchased, useful life, cost of asset where it is located within CHC, and the federal reversionary interest.

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Travel It is the policy of CHC to provide reimbursement for pre‐approved travel‐related

expenses, including transportation, hotels, and food. These expenses must be related to business activities of the health center, and must be pre‐approved by the ___________________.

For out‐of‐area travel, the health center will reimburse all pre‐approved travel‐

related costs of hotel accommodations, transportation to and from the destination, including airline, train or bus tickets, taxicab fares, etc. Employees traveling on CHC business will be entitled to travel advances, which must be subtracted from travel reimbursement forms when submitted. Employees must submit requests for reimbursement for non‐local travel expenses within 60 days from the last day of travel, or the employee will not be eligible for travel expense reimbursement. No travel advances will be allowed when employees have outstanding travel reports or if they have not reconciled a previous advance. CHC will only reimburse for pre‐approved out‐of‐area travel, and requires that the employee exercise reasonable judgment with meals and lodging expenses. Only coach seats for airline and train trips will be reimbursed.

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Out‐of‐area travel requires completion of a Travel Advance Request form (need

to develop) for approval of the trip, and a Travel Reimbursement Request form

(need to develop), in order to receive reimbursement for travel expenditures.

The forms must be completed and approved by the employee’s supervisor and

submitted to the CONTROLLER.

The following fields must be completed on the Travel Reimbursement Request form: a. Employee’s name b. Date of the submission c. Destination d. Purpose of the travel e. Date of departure and the date of return, including days of the week f. Transportation modes and costs g. Lodging h. Other: Identify all other expenses incurred and purpose i. Total amount to be reimbursed j. The employee to be reimbursed must sign and date the form as indicated k. The employee’s supervisor must sign and date the form as indicated l. Submit the form to _______________ (manager) for obtaining the final

authorizations.

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Bank Reconciliations The ________ (position) shall receive and open bank statements directly from the bank(s) and hold them until all reconciliations are completed.

Bank reconciliations will be performed by the CFO or designee using the accounting system and all reports attached to bank statements.

Bank reconciliations and proposed adjustments to general ledger cash balances and cash detail files must be approved monthly by the CFO.

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Insurance Annually, the CEO will present to the Board of Directors an "Insurance Summary" of the insurance coverage's obtained for CHC. The "insurance summary" will include details of each insurance policy providing the type of insurance coverage, the level of coverage, the subject areas, the premiums, and any significant exclusions from coverage.

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Loan Policy Borrowing funds will be from sources of least cost and where terms of loan

covenants, agreements, and commitments are reasonable as determined by CHC’s Board of Directors. Borrowing may not exceed the loan limit of $____ set by Board resolution.

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Debit/Credit Card Usage CHC will maintain a ________ credit card in the name of the CEO, and debit

cards in the names of ___________. These cards are solely for use in CHC‐related business and may only be utilized with the express permission of the CEO.

The use of the ______ debit/credit card is solely under the direction of the CEO or some other position?, and is maintained in the CEO's possession at all times. Debit/Credit card statements will be reconciled monthly by the ___________

(staff position)

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Management must realize that financial policies and procedures establish the infrastructure that can help to assure sound financial outcomes

Management needs Board “sign-off” on Policy – may mean approval is received in “parts” until all P&Ps are in-place

Management sets the tone, so all (CEO with final say-so) must agree

Management must monitor and oversee activities to assure staff is executing based on the written guidance

Management should:

Develop and maintain a policies and procedures manual that is implemented with staff guidance and direction as follows:

◦ Revise job descriptions, as appropriate Assigns responsibility and establishes accountability for following all

policies and completing procedures as described in the P&Ps

◦ Educate and train ALL staff about newly defined policies, procedures, job functions, and regulatory changes

◦ Monitor staff adherence to newly defined policies and procedures

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Management should: Periodically review policies and procedures manual to be

certain that it is actually what is being done

Must monitor staff for adherence to current policies and procedures, and by delivery site

Work with audit firm and HRSA reviewers to be certain that the policies and procedures in-place are what is needed to provide for sound internal controls and operational processes.

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www.holtonhealthcare.com

Mike Holton919-800-9639

[email protected]

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