We conducted an audit of the administrative costs claimed
by the Tennessee State Department of Human Services (TNDHS) for
its Disability Determination Services (TNDDS) for the 3-year period
ending September 30, 1995.
BACKGROUND
The Social Security Administration (SSA) pays State agencies
(SA) for 100 percent of allowable expenditures. Each year, SSA
determines the amount of funding authorization. Once approved,
each SA is allowed to withdraw Federal funds through the Payment
Management System (PMS) within the U.S. Department of Health and
Human Services (HHS) to meet immediate program expenses. At the
end of each quarter of the Federal Fiscal Year (FY), each SA submits
to SSA a "State Agency Report of Obligations for SSA Disability
Programs" (Form SSA-4513).
The Disability Insurance (DI) program, established in 1954
under title II of the Social Security Act (the Act), is
designed to provide benefits to disabled wage earners and their
families in the event the family wage earner becomes disabled.
In 1972, the Congress enacted title XVI, the Supplemental Security
Income (SSI) program (Public Law (P.L.) 92-603). Title XVI of the
Act provides a nationally uniform program of income and disability
coverage to financially needy individuals who are aged, blind,
or disabled.
SSA is primarily responsible for implementing the general
policies governing the development of disability claims under the
DI and SSI programs. Disability determinations under both DI and
SSI are performed by an agency in each State in accordance with
Federal regulations. In carrying out its obligation, each SA is
responsible for determining the claimants` disabilities and
ensuring that adequate evidence is available to support its determinations.
To assist in making proper disability determinations, each SA is
authorized to purchase medical examinations, x-ray, and laboratory
tests on a consultative basis to supplement evidence obtained from
the claimants` physicians or other treating sources.
The objectives of our audit were to determine whether:
expenditures and obligations for the period October 1,
1992 through September 30, 1995, were properly authorized, approved,
and disbursed;
the unliquidated obligation balance is correct;
the Federal funds drawn down agree with total expenditures
for FYs 1993 through 1995; and
internal controls over the accounting and reporting of
administrative costs claimed for TNDDS were adequate.
Our methodology included a review of Federal laws, regulations,
and instructions pertaining to administrative costs incurred by
TNDDS and to the draw down of Federal funds. We held discussions
with TNDHS’ internal auditors, State of Tennessee auditors,
and SSA`s Atlanta regional office staff. We also reviewed TNDDS’ general
operating policies and procedures, and maintenance of computer
equipment inventory.
We reviewed internal controls regarding the administration
of disability determination activities and performed an examination
of administrative expenditures (personnel, medical service, and
indirect costs) incurred and claimed by TNDDS for the period October
1, 1992 through September 30, 1995. We reviewed the reconciliation
of official accounting records to administrative costs reported
by TNDDS to SSA on the Form SSA-4513 report for the period October 1,
1992 through September 30, 1995, and compared the amount of Federal
funds drawn for support of program operations to allowable expenditures.
The work was performed at the site of the TNDDS located in
Nashville, Tennessee; at the Office of Audit field office in Birmingham,
Alabama; and SSA Headquarters in Baltimore, Maryland. The field
work was conducted from October 1996 to August 1997.
RESULTS OF REVIEW
TNDDS claimed administrative costs of $79,911,653 for SSA
disability determinations as of June 30, 1996, for the years ended
September 30, 1993, 1994, and 1995. Obligations reported to SSA
should be reduced by $2,012,196 to adjust for overstated disbursements
and unliquidated obligations for 1993, 1994, and 1995. (See Appendices
A, B, and C.) Specifically, we determined that:
MEDICAL SERVICE COSTS OF $425,024 CLAIMED ON FORM SSA-4513
FOR FYs 1993 TO 1995 WERE OVERSTATED
A CONTRACT TO INSTALL COMPUTER EQUIPMENT WAS OVERPAID
BY $18,750
CLAIMED INDIRECT COSTS EXCEEDED AUDITED INDIRECT COSTS
BY $6,372
COMPUTER EQUIPMENT COSTING $17,839 WAS NOT BEING USED
BY TNDDS PERSONNEL
UNLIQUIDATED OBLIGATIONS WERE OVERSTATED BY $1,544,211
INTERNAL CONTROL WEAKNESSES WERE IDENTIFIED IN MEDICAL
SERVICE COSTS, THE MAINTENANCE OF EQUIPMENT INVENTORIES, AND
THE RECORDING AND REPORTING OF TIME AND ATTENDANCE (T & A)
AND OVERTIME (OT)
CONCLUSIONS AND RECOMMENDATIONS
Based on the tests performed and information obtained from
SSA, TNDDS, TNDHS and the State of Tennessee, we recommend that
SSA require TNDDS to:
refund $425,024 with applicable interest for costs claimed
on consultative examination (CE) reimbursements in excess of
the highest Federal or State rates for FYs 1993, 1994, and 1995;
refund $18,750 with applicable interest for costs claimed
in excess of a contract price for FY 1995;
refund $6,372 with applicable interest for unsupported
indirect costs claimed for FY 1993 and periodically review these
obligations to assure that proper balances are reported on Form
SSA-4513;
reimburse SSA $17,839 with applicable interest for the
cost of computer equipment used by TNDHS; and
decrease unliquidated obligations by $1,544,211 for computer
system upgrades not supported by outstanding purchase orders
for FYs 1994 and 1995.
In addition, we have the following internal control recommendations
for TNDDS:
maintain a crosswalk of TNDDS’ CE codes to the American
Medical Association’s (AMA) Physicians’ Current Procedural
Terminology (CPT) manual codes used by Federal and State agencies
that provide similar services. Provide a costing methodology
to enable SSA to determine that TNDDS’ services do not exceed
the highest rate paid by Federal or other agencies in the State
for the same or similar services;
strengthen internal controls over payroll T&A records
to prevent duplicate certifications and the potential for submission
of erroneous T&A records; and
improve internal controls to assure that OT logs and OT
workload reports contain prior approval and certification of
employee OT, evidenced by signatures of supervisory personnel
responsible for the OT.
We also have the following recommendations to SSA:
review the various components of the Statewide Indirect
Cost Allocation Plan (Cost Allocation Plan) to assure that services
are planned and will be rendered to TNDDS for all categories
of indirect costs and notify HHS of any exceptions prior to final
approval; and
controls over desktop computers, printers, and other equipment
should be monitored as part of its oversight procedures.
AGENCY COMMENTS AND THE OFFICE OF THE INSPECTOR GENERAL (OIG) RESPONSE
An exit conference was held with TNDDS and SSA on November
25, 1997. Subsequently, TNDDS responded with written comments to
our draft findings. Overall, TNDDS did not concur with our findings.
The findings and recommendations as presented consider the comments
and additional information provided by TNDDS. We believe our recommendations
are valid and should be implemented. SSA advised us that it had
no further comments. For a full explanation, see page 15 of this
report. The full text of TNDDS’ comments is shown in Appendix
E.
The DI program was established in 1954 under title
II of the Act. The program is designed to provide benefits
to wage earners and their families in the event the wage earner
becomes disabled. In 1972, the Congress enacted the SSI program
(P.L. 92-603). Title XVI of the Act provides a nationally
uniform program of income to financially needy individuals who
are aged, blind, or disabled.
SSA is primarily responsible for implementing the general
policies governing the development of disability claims under the
DI and SSI programs. Disability determinations under both DI and
SSI are performed by an agency in each State in accordance with
Federal regulations. In carrying out its obligation, each SA is
responsible for determining claimants’ disabilities and ensuring
that adequate evidence is available to support its determinations.
To assist in making proper disability determinations, each SA is
authorized to purchase medical examinations, x-rays, and laboratory
tests on a consultative basis to supplement evidence obtained from
claimants’ physicians or other treating sources. SSA pays
the SA for 100 percent of allowable expenditures. Each year, SSA
determines the amount of funding authorization. Once approved,
each SA is allowed to withdraw Federal funds through HHS’ PMS
to meet immediate program expenses. HHS` Division of Payment
Management is responsible for operating this centralized payment
system.
Cash drawn from the Department of the Treasury (Treasury)
to pay for program expenditures is to be drawn in accordance with
31 Code of Federal Regulation (CFR), Part 205 and, since July 1, 1994,
a Treasury/State agreement under the Cash Management Improvement
Act (CMIA). At the end of each quarter of the Federal FY, each
SA submits to SSA a "State Agency Report of Obligations for
SSA Disability Programs" (Form SSA-4513) to account for program
disbursements and unliquidated obligations. An advance or reimbursement
for costs under the program is subject to the requirements set
forth in the Office of Management and Budget’s (OMB) Circular
A-87, "Cost Principles for State and Local Governments."
TNDDS is a component within the Division of Rehabilitation
Services (DRS) under TNDHS, the parent agency. TNDDS employed approximately
375 people, and for the 3 years audited, had an average annual
budget of $26.7 million. SSA authorized a budget of $79,983,108
for FYs’ 1993 through 1995 disability determinations, the
only Federal program for which TNDDS conducted operations. TNDHS’ Fiscal
Services group performs TNDDS’ primary accounting functions.
Allocation of indirect costs is done according to TNDHS’ indirect
cost agreement approved by HHS.
We audited the costs reported by TNDDS in its Report of Obligations
for SSA Disability Programs (Form SSA-4513) for the period October
1, 1992 through September 30, 1995, as reported to SSA through
June 30, 1996. The purpose of the audit was to determine whether
TNDDS complied with the laws, rules and regulations, and established
policies governing SSA’s DDS program. The audit included a
review of allowed expenditures and the proper balances of unliquidated
obligations. We also reconciled the Federal payments to the allowed
expenditures to determine the final amounts due to or from TNDDS.
TNDDS costs are reported in four categories: personnel, medical,
indirect, and all other costs. We developed sampling plans to test
personnel. Medical expenditures were randomly selected from the
universe. (See Appendix D.) TNDDS’ records were not sufficient
for us to test all maximum allowable charges for CEs claimed as
medical expenditures. However, we were able to test x-ray and lab
fees, and other medical costs. We determined that indirect costs
were claimed in accordance with the Cost Allocation Plan. We judgmentally
selected two cost items reported in the "all other" category
for review. For unliquidated obligations, we reviewed the balances
of all amounts reported.
We obtained sufficient evidence and conducted such tests,
as necessary, to assess TNDDS’ compliance with applicable
laws and regulations relating to the draw down of funds pursuant
to HHS’ PMS regulations, and its accounting for disbursements
and unliquidated obligations pursuant to Treasury regulation 31 CFR
Part 205, the CMIA agreement effective July 1, 1994, OMB Circular A-87,
and SSA’s Program Operations Manual System (POMS). Except
as noted under "RESULTS OF REVIEW," the results of our
tests indicated that, with respect to the items tested, TNDDS complied
in all material respects with Federal cost principles and regulations.
For those items not tested, nothing came to our attention to indicate
that the untested items were not in compliance with applicable
laws and regulations.
Our audit of TNDDS’ administrative costs for FYs 1993
through 1995 was performed in accordance with generally accepted
government auditing standards. The objectives of our audit were
to determine whether:
expenditures and obligations for the period October 1,
1992 through September 30, 1995, were properly authorized, approved,
and disbursed;
unliquidated obligation balances were correct;
Federal funds drawn down agree with total expenditures
for FYs 1993 through 1995; and
internal controls over the accounting and reporting of
administrative costs claimed for TNDDS were adequate.
To accomplish our objectives, we performed the following:
Reviewed Title 20 CFR sections, POMS, and other instructions
pertaining to administrative costs incurred by TNDDS and the
draw down of Federal funds covered by the CMIA agreement.
Interviewed internal auditors for the State of Tennessee
and SSA`s regional office (RO) staff on the reporting of
costs and RO oversight.
Reviewed SSA and TNDDS’ policies and procedures on
the recording and reporting of expenditures and obligations.
Reviewed the Federal funds drawn down by TNDDS.
Performed an examination of administrative expenditures
(personnel, medical service, indirect, and all other nonpersonnel
costs) incurred and claimed by TNDDS for the period October 1,
1992 through September 30, 1995.
Reviewed the reconciliation of official accounting records
to administrative costs reported by TNDDS to SSA on Form SSA-4513
reports for the period October 1, 1992 through September 30,
1995.
Compared the amount of Federal funds drawn for support
of program operations to the allowable expenditures.
We reviewed the internal controls applicable to the recording
and reporting of funds authorized, expensed, and obligated. We
also reviewed internal controls related to the disbursement of
funds and personnel costs. We found the internal controls were
logical in design except for the weaknesses identified in this
report. Our review of controls included tests of each line item
on Form SSA-4513, including personnel, medical, and indirect costs,
and a limited review of all other costs.
Our work was performed at the site of TNDDS located in Nashville,
Tennessee; the Office of Audit field office in Birmingham, Alabama;
and SSA Headquarters in Baltimore, Maryland. Field work was conducted
from October 1996 through August 1997. (See Appendix G for SSA’s
Organizational Chart.)
Our review of the reconciliation of accounting records to
administrative costs claimed by TNDDS showed that disbursements
and unliquidated obligations were overstated. During FYs 1993 through
1995, TNDDS overstated disbursements by $467,985 and unliquidated
obligations by $1,544,211. As a result, total obligations reported
to SSA by TNDDS for the periods under audit should be reduced by
a total of $2,012,196. (See Appendices A, B, and C.)
We reviewed personnel costs by selecting a sample and reviewing
transactions in accordance with that sample. We also reviewed draw
downs to determine whether the draw downs agreed with the costs
that were claimed. We did not find any questioned costs in either
of these areas.
TNDDS’ costs claimed on Form SSA-4513 should be reduced
by $467,985 for the 3-year audit period, FYs 1993 through 1995.
Cost adjustments occurred in the medical services, indirect costs,
and all other nonpersonnel cost categories. We compared the line
item costs reported on Form SSA-4513 to the audited cost accounting
records for TNDDS.
The audit adjustments between Form SSA-4513 and the audited
cost accounting records are shown below.
In reviewing medical service costs, we selected a sample
of CE fees claimed by TNDDS during our audit period. CEs are ordered
by TNDDS as part of its eligibility determination process. We tested
expenditures for medical examinations, X-rays, and laboratory tests
to confirm that TNDDS’ rates of payment complied with SSA
requirements for the reimbursement of medical and other services.
According to TNDDS personnel, the CE fee schedule was historically
based, in part, on the Medicaid Maximum Price Listing, and, in
part, on a psychological services price list provided by TNDHS’ DRS
which uses usual and customary charges. TNDDS did not use the AMA
CPT codes when requesting CE services. TNDDS created an internal
coding system to expedite purchases of medical services by its
personnel. TNDDS did not crosswalk its CE codes or otherwise maintain
its records in a manner that would enable us to test CE fees for
compliance with SSA regulations. We made several requests for TNDDS’ criteria
for maximum allowable charges. TNDDS used Medicaid as its criteria
for maximum allowable charges for FY 1993. However, TNDDS was unable
to demonstrate the use of maximum allowable charges in its payment
of medical services. For FYs 1994 through-95, TNDDS did not have
criteria for maximum allowable charges. TNDDS personnel stated
they were unable to obtain fee schedules from Medicare, TennCare,
or other organizations that provide medical services. Therefore,
we performed alternative tests.
Title 20 CFR, sections 404.1624 and 416.1024, set forth SSA’s
requirements for the purchase of medical and other services, as
follows:
The State will determine the rates of payment to be
used for purchasing medical or other services necessary to
make determinations of disability. The rates may not exceed
the highest rate paid by Federal or other agencies in the State
for the same or similar type of service. The State will maintain
documentation to support the rates of payment it uses.
SSA’s POMS, section DI 39545.210, states the DDS will
consider its fee schedules as a maximum payment schedule. Authorized
payments will represent the lower of either the provider’s
usual and customary charge or, the maximum allowable charge under
the fee schedule. (Emphasis added.) The rates must be reasonable
and necessary for the administration of the program. POMS, section 39545.410,
states that where possible, the AMA coding system should be used
to identify each procedure in the schedule. In addition, the DDS
should maintain a well-documented methodology for establishing
and updating rates of payment.
Since TNDDS was unable to provide copies of its Medicaid
and Medicare fee schedules, we obtained Medicare fee schedules
for 1993 through1996 and AMA CPT reference books for 1994, 1995,
and 1997 from the Medicare intermediary for the State of Tennessee.
In testing CE fees, we used established Medicaid and/or Medicare
fee schedules and TNDDS’ fee schedules. For FY 1993 and the
first quarter of FY 1994 (ending December 31, 1993), we applied
the greater of 1990 through 1993 Medicaid rates used by TNDDS as
its maximum allowable charges or the Medicare rates to determine
the highest allowable rates of payment. For the remainder of FY
1994 and all of 1995, we used Medicare rates because they represented
the highest rates of reimbursement available after TNDDS terminated
its Medicaid program.
Effective January 1, 1994, Tennessee adopted a statewide
managed care program known as TennCare. All medical fees under
the new program were negotiated on a provider-by-provider basis.
These changes eliminated TNDDS’ use of the Medicaid price
list as its maximum allowable charge for rates of payment to be
used in purchasing medical or other services. The Tennessee Bureau
of Medicaid confirmed the State of Tennessee terminated its Medicaid
program on December 31, 1993.
We requested the assistance of TNDDS personnel in matching
its CE codes to established AMA CPT codes to assure the comparison
of similar medical services in our testing. After consultation
with TennCare personnel, most of the remaining coding discrepancies
were resolved. We also contacted CIGNA Medicare of Tennessee and
the Health Care Financing Administration to resolve other questioned
codes.
We selected a simple random sample of 200 CEs purchased by
TNDDS for each year under audit. (See Appendix D.) We matched TNDDS’ CE
codes to AMA CPT codes. After determining the equivalent AMA CPT
codes, we calculated the differences between established Medicaid/Medicare
fee schedules and TNDDS’ fee schedules. The resulting variances
were applied to the actual number of procedures paid by TNDDS for
each year under audit. We determined TNDDS was not in compliance
with 20 CFR 404 and 416 due to its failure to apply maximum allowable
charges in FY 1993 and its lack thereof for FYs 1994 and 1995.
TNDDS’ psychological fees were based on the usual and
customary charges of TNDHS’ DRS whereas AMA CPT codes were
based on an hourly rate. We accepted the conversion of customary
charges to hourly rates based on information provided by TNDDS
and other professionals. Based on our review, we concluded that
the amounts paid for psychological fees did not exceed the highest
rates paid by Federal or other agencies in the State for the same
or similar services.
As an additional comment, a third-party medical professional
contacted by us observed, after reviewing TNDDS’ psychological
descriptions and codes, that, in the absence of any reporting of
time spent by the CE providers, the extent of testing and quality
of services provided to patients was a serious concern. SSA may
wish to study the impact of this on disability determinations.
We also tested TNDDS’ laboratory, x-ray, and other medical
costs. In testing x-rays, we selected CPT codes that represented
the types of x-rays performed and number of views taken. X-rays
listed in the Medicare fee schedules contained three codes: an
overall code, a technical component modifier, and a professional
component (–26) modifier. The Medicaid Maximum Price Listing
provided by TNDDS did not use the same modifiers. The modifiers
allow for separate billing of the two x-ray components: the technical
(filmtaking) component and the professional (interpretation) component.
The maximum allowable charge on the Medicare schedules for the
5-digit overall code includes filmtaking and interpretation
but also allows for separate billing of the components using the
modifiers. In all instances, we used the overall code (inclusive
of the two components) as the maximum fee allowed.
We also used Deficit Reduction Act of 1984 (DEFRA) legislation
in applying maximum price caps of 80 percent and 62 percent to
x-ray and blood test codes. Applying the maximum allowable charges
for labs, x-rays, and other medical costs for each FY resulted
in total overpayments of $425,024, as shown below:
Labs
X-rays
Other
Medical Costs
Total
FY 1993
$1,516
$ 83,872
$ 8,857
$ 94,245
FY 1994
$3,516
$158,136
$ 28,828
$ 190,480
FY 1995
$2,172
$104,880
$ 33,247
$ 140,299
Totals
$ 7,204
$ 346,888
$ 70,932
$ 425,024
Results of our analyses for the 3-year audit period show
that TNDDS’ CE costs exceeded the highest allowable rates
by a total of $425,024 and should be refunded to SSA with applicable
interest. TNDDS’ practice of using an internal procedural
coding system that does not readily translate to the AMA CPT coding
system and its lack of and/or failure to apply maximum allowable
charges were the primary reasons for the CE overcharges. TNDDS
should be required to maintain a crosswalk of its CE codes to AMA
CPT codes used by Federal and State agencies that provide similar
services. TNDDS should also provide a costing methodology to enable
SSA to determine that TNDDS’ services do not exceed the highest
rate paid by Federal or other agencies in the State for the same
or similar services.
On March 31, 1994, TNDDS was funded by SSA to upgrade its
AS/400 minicomputer, undertake software conversion, site preparation,
and training. On May 16, 1994, TNDDS entered into a sole source,
proprietary contract with VERSA, with headquarters in Toronto,
Canada, in the amount of $300,000, for the purpose of converting
present software in preparation for examiner workstations.
We reviewed five invoices and disbursement records totaling
$318,750 in payment to VERSA under contract number FA-4-11091-4-00.
Contract sections B.2., B.3., and B.7. provide:
Section B.2.: The Compensation set forth in Section B.1.
shall constitute the entire compensation due the Contractor for
the Service and all the Contractor’s obligations hereunder
regardless of the difficulty, materials or equipment required.
Section B.3.: The Compensation set forth in Section B.1.
is firm for the duration of the Contract and is not subject to
escalation for any reason, unless amended.
Section B.7.: In no event shall the maximum liability to
the STATE under this contract exceed Three Hundred Thousand Dollars
($300,000).
The only contract amendment, signed by TNDHS on April 26,
1995, extended the contract period for deliverables through December
29, 1995. The amendment stipulated the State would have no obligation
for services not performed in accordance with the accompanying
schedule. No other amendments were provided by TNDDS or acknowledged
by the vendor. VERSA confirmed the $18,750 payment related to the
referenced contract. In the absence of an amendment modifying the
contract price, TNDDS violated the contract provisions and the
excess payment of $18,750 should be refunded to SSA with applicable
interest.
We reviewed TNDDS’ controls over computer equipment
by selecting three locations in which to trace inventory logs to
the physical equipment. The review disclosed several instances
in which equipment was assigned outside TNDDS or to the wrong person,
unassigned, or not listed on the inventory.
TNDHS Office Services staff, not TNDDS personnel, were using
four desktop computers and two laser printers purchased by SSA
for $17,839. Costs associated with TNDHS’ Office Services
are allocated based on TNDDS’ average filled positions. Cost
centers allocated to TNDDS are as follows: Office Services Administration
(cc125), Printing (cc126), Procurement (cc127), Central Supply
(cc128), and Lease Management (cc133). During the audit period,
these cost centers allocated costs to TNDDS. Therefore, we consider
the use of TNDDS equipment duplicative of costs claimed through
the Cost Allocation Plan.
In addition, we tested inventory controls and visually inspected
5 of 12 IBM ThinkPad notebook computers. The remaining seven notebook
computers could not be verified. The notebooks were stored in a
locked cabinet, but the key could not be found. We were told that
all the notebooks had been signed out, but no log was produced,
and no internal control procedures were provided. TNDDS later produced
a sign-out sheet for the 12 notebooks that we tested for accuracy.
Computer assignments could not be determined. For example, one
person had possession of a notebook still assigned to another employee.
The person with the notebook had not signed the inventory control
sheet. Another employee had a notebook at his home since November
1996. TNDDS’ record was inadequate and poorly maintained.
TNDDS remedied the situation by establishing a formal inventory
log book for the notebook computers which contains the employee’s
name, date the equipment is signed out, and expected and actual
return dates. A second inventory check verified or accounted for
all 12 notebooks. We did not test any changes TNDDS made to inventory
controls over the desktop computers, printers, and other equipment.
These controls should be monitored by SSA as part of its oversight
procedures.
We have also determined there is a difference of $6,372 between
the audited and claimed indirect costs under the Cost Allocation
Plan in accounts 345.01, and 345.17, statewide parent and departmental
allocations, and space allocations, respectively. Total indirect
costs billed by the State of Tennessee to TNDDS were $1,916,628.
Total costs claimed on Form SSA-4513 for FY 1993 were $1,923,000.
Since no unliquidated obligations exist, TNDDS should reimburse
SSA the difference of $6,372 and adjust the account balances to
their proper amounts. SSA should periodically review the Cost Allocation
Plan with TNDDS to assure that indirect costs reflect the proper
charges and types of services rendered to TNDDS.
Unliquidated obligations are cost commitments for orders
placed, contracts awarded, and services received that have not
been paid. Our review showed that TNDDS costs reported on Form
SSA-4513 as of June 30, 1996, were overstated by $1,544,211 for
unliquidated obligations that were no longer needed. We found controls
were inadequate to detect the overstatement. TNDDS did not follow
procedures for the approval and monitoring of unliquidated obligations.
The errors occurred in the line item category as follows:
UNLIQUIDATED
OBLIGATIONS FOR FYs 1994 – 1995
FORM SSA-4513 LINE ITEMS
FORM SSA-4513
COST CLAIMED
AUDITED COST
ACCOUNTING RECORDS
AUDIT ADJUSTMENT
ALL OTHER NONPERSONNEL
COST
$11,416,051
$9,871,840
$1,544,211
TOTAL
UNLIQUIDATED OBLIGATIONS
$11,416,051
$9,871,840
$1,544,211
We reviewed the unliquidated obligation line item - All Other
Nonpersonnel Costs for FYs 1994-1995. TNDDS obligated $527,476
and $1,016,735 in FY 1994 and 1995, respectively, to buy electronic
data processing equipment (EDP) for the intelligent work station/local
area network (IWS/LAN) approved by SSA. We obtained copies of purchase
orders and interviewed TNDDS systems personnel and TNDHS purchasing
personnel. We determined that no EDP equipment purchases remained
outstanding.
TNDDS and TNDHS are responsible for ensuring obligations
are proper. POMS, section DI 39506.809, states that obligations
should be supported by a valid purchase order or other binding
agreement for the purchase of supplies, equipment, and other contractual
services.
POMS, section DI 39506.812, states that valid unliquidated
obligations should be supported by documents and records describing
the nature of obligations and supporting amounts recorded. POMS
further provides that SAs should review unliquidated obligations
at least once each month and cancel those no longer valid. However,
we found that neither TNDHS nor TNDDS reviews unliquidated obligations
as a monthly routine. Controls over the monitoring of unliquidated
obligations should be improved so that funds obligated but no longer
needed can be reduced.
OMB Circular A-123 defines management controls as the organization,
policies, and procedures used to reasonably ensure that: (i) programs
achieve their intended results, (ii) resources are used consistent
with agency mission; (iii) programs and resources are protected
from waste, fraud, and mismanagement; (iv) laws and regulations
are followed; and (v) reliable and timely information is obtained,
maintained, reported and used for decision-making.
The American Institute of Certified Public Accountants’ Statements
on Auditing Standards, No. 1, section 110, states management is
responsible for adopting sound accounting policies and establishing
and maintaining an internal control structure that will, among
other things, record, process, summarize, and report financial
data that is consistent with management’s assertions embodied
in the financial statements.
TNDDS had personnel service costs of $40.7 million, during
the 3-year audit period. We reviewed T&A records for 37 of
45 employees in our sample (8 records could not be found).
We verified the missing employee records by other means. T&A
records require certification of accuracy by three different signatories:
the timekeeper, employee, and his/her supervisor. For 15 of the
37 employee records reviewed, 2 of the 3 signatures were the
same. In some instances, the employee was also his/her own timekeeper,
and in others, the supervisor was also the timekeeper or had signed
for the employee. These duplications occurred on 41 percent of
T&A records reviewed.
OMB Circular A-123 states key duties such as authorizing,
approving, recording transactions, . . . shall be assigned to separate
individuals to minimize the risk of loss to the Government. TNDDS
did not follow procedures for the separation of payroll recordkeeping
functions to ensure the accuracy and reliability of payroll records.
TNDDS should strengthen internal controls over payroll T&A
records to prevent duplicate certifications and the potential for
submission of erroneous T&A records.
We selected employee OT for review because TNDDS’ OT
usage, though not extreme, totaled more than 75,000 hours, or the
equivalent of 38 staff positions, over the 3-year audit period.
TNDDS’ OT expense totaled $1.1 million for the audit period.
A comparison of personnel service costs among the eight states
in the southeastern region disclosed that TNDDS had the second
highest costs in FYs 1993 and 1994, behind Georgia. TNDDS
had the highest costs for FY 1995, as Georgia dropped to second
place. TNDDS’ FY 1995 obligations per case (i.e., total obligations ¸ total
claims processed) were highest at $311, followed by Georgia with
$301. The average for the remaining six states was $254. TNDDS’ obligations
per case were 22 percent higher than the average. In contrast,
TNDDS’ production ranked fourth and fifth in the region during
the audit period.
SSA’s POMS DI 39518.015 states DDS management has a
responsibility to establish payment procedures for OT worked by
employees of the disability unit such as disability examiners,
clerical personnel, and medical consultants. For all direct and
indirect personnel services and related employee costs, DDSs are
required to maintain records that support payroll expenditures
and related services rendered by officers or employees of the agency,
reflect that OT expense was necessary and properly approved, and
demonstrate applicable personnel rules and regulations were observed.
POMS also states while OT may be necessary to provide the productive
capacity to cope with variations and peaks in workload levels,
OT should be used only where it would be consistent with efficient
economical administration and that necessary controls applicable
to OT work must be maintained in State agencies.
We analyzed OT from the statistical sample of employees drawn
for the purpose of testing payroll costs. We determined that 93.5
hours of OT were recorded during the sampled pay periods, with
one employee accounting for the majority of OT hours. OT was recorded
for this employee every month during the 3-year audit period, except
October 1993 when OT could not be earned due to budget constraints.
Analysis of this clerical supervisor’s use of OT disclosed
that the employee routinely worked 11 to 14 hour days and was among
the last TNDDS employees to leave the building. OT for this and
several other clerical supervisors was 37 percent to 56 percent
above the normal 1,950 hour work year. TNDDS did not require these
supervisors to use a sign-in/sign-out log for OT.
TNDDS provided excerpts of departmental OT procedures for
1993 through 1994. Copies of signature logs received at the conclusion
of field work were generally outside the audit period. OT hours
for selected employees with high OT were independently verified
through inspection of sign-in logs maintained by building security.
Two clerical supervisors routinely left 4 to 5 hours after the
supervisor who certified their time cards. OT logs and workload
reports contained insufficient evidence of supervisory signatures
and approval. While these examples appeared to be aberrant situations
compared to all other employees, TNDDS should improve internal
controls to assure that OT logs and workload reports contain prior
approval and certification of all employee OT, evidenced by signatures
of supervisory personnel responsible for the OT.
TNDDS’ Indirect Costs for Internal Audit Are Not
Allocable
Single Audits conducted by the Division of State Audit for
State FYs 1994 and 1995 contained findings that TNDHS’ internal
audit function was ineffective and understaffed. State Audit Reports
disclosed that, in both periods, TNDHS’ internal audit section
did not have sufficient personnel to meet the needs of the department.
The FY 1994 report noted that TNDHS’ internal audit section
had no more than four auditors, two of whom performed audits solely
of Child and Adult Care Food Program recipients. The FY 1995 report
noted TNDHS’ internal audit function was understaffed and
due to the lack of personnel, planned audits and reviews were not
completed.
TNDHS internal auditors attending the October 1996 entrance
conference stated they had not performed any internal reviews for
TNDDS during our 3-year audit period. TNDDS incurred internal audit
charges of $21,769 for FYs 1993 through 1995 under indirect cost
allotment code 345.01, cost center 104. TNDDS was reimbursed by
SSA for 100 percent of the quarterly charges, as shown below.
Quarter Ended:
Indirect cost charged:
December 31, 1992
$1,040
March 31, 1993
1,749
June 30, 1993
1,948
September 30, 1993
1,837
$ 6,574
(FY 1993)
December 31, 1993
$1,733
March 31, 1994
2,047
June 30, 1994
2,126
September 30, 1994
2,080
$ 7,986
(FY 1994)
December 31, 1994
$1,984
March 31, 1995
1,195
June 30, 1995
1,719
September 30, 1995
2,311
$ 7,209
(FY 1995)
Total Indirect Cost
$21,769
Based on the Single Audit Reports of the State Audit Division
and statements of the TNDHS auditors, TNDDS incurred costs for
which no services or benefits were received.
Since indirect costs were reviewed on a selective basis,
we were unable to determine the extent of SSA reimbursements to
TNDDS for services not rendered by the State of Tennessee. SSA
needs to take a more active role in the development and acceptance
of the Cost Allocation Plan. SSA should review the various components
of the Cost Allocation Plan to assure that services are planned
and will be rendered to TNDDS for all categories of indirect costs.
SSA should notify HHS of any exceptions prior to final approval.
Based on information obtained from SSA, TNDDS, TNDHS, and
the State of Tennessee, and the tests performed, we recommend that
SSA require TNDDS to:
1. Refund $425,024 with applicable interest
for the costs claimed on CE reimbursements in excess of the highest
Federal or State rates for FYs 1993, 1994, and 1995.
2. Refund $18,750 with applicable interest
for costs claimed in excess of a contract price for FY 1995.
3. Refund $6,372 with applicable interest for
unsupported indirect costs claimed for FY 1993 and to periodically
review these obligations to assure that proper balances are reported
on Form SSA-4513.
4. Reimburse SSA $17,839 with applicable interest
for cost of computer equipment used by TNDHS.
5. Decrease unliquidated obligations by $1,544,211
for computer system upgrades not supported by outstanding purchase
orders for FYs 1994 and 1995.
In addition, we have the following internal control recommendations
for TNDDS:
6. Maintain a crosswalk of TNDDS’ CE codes
to AMA CPT codes used by Federal and State agencies that provide
similar services. Provide a costing methodology to enable SSA
to determine that TNDDS’ services do not exceed the highest
rate paid by Federal or other agencies in the State for the same
or similar services.
7. Strengthen internal controls over payroll
T&A records to prevent duplicate certifications and the potential
for submission of erroneous T&A records.
8. Improve internal controls to assure that
OT logs and OT workload reports contain written approval and
certification of employee OT, evidenced by signatures of supervisory
personnel responsible for the OT.
We also have the following recommendations to SSA:
9. Review the various components of the Cost
Allocation Plan to assure that services are planned and will
be rendered to TNDDS for all categories of indirect costs and
notify HHS of any exceptions prior to final approval.
10. Controls over desktop computers, printers, and other
equipment should be monitored as part of its oversight procedures.
An exit conference was held with TNDDS and SSA on November
25, 1997. Subsequently, TNDDS responded with written comments to
our draft findings. Overall, TNDDS did not concur with our findings.
The findings and recommendations as presented consider the comments
and additional information provided by TNDDS. We believe our recommendations
are valid and should be implemented. SSA advised us that it had
no further comments. See below for a full explanation. The full
text of TNDDS’ comments is shown in Appendix E.
FINDING 1 – MEDICAL SERVICE COSTS
TNDDS’ COMMENTS
TNDDS did not concur that the costs for laboratory, x-ray
services, and other medical costs exceeded the highest rate paid
by Federal or other agencies in the State for the same or similar
type of service. TNDDS responded that the OIG had failed to include
the fee for interpretation as part of the necessary costs in most
of the laboratory, x-ray, and other medical cost rates cited in
the fee schedules. TNDDS also stated it has an adequate crosswalk
system to AMA CPT manual codes but will undertake further efforts
to clarify this as an aid for an audit trail.
OIG RESPONSE
While TNDDS is correct in stating that certain fees are separated
into a technical (filmtaking) component and a professional (interpretation)
component by code, there is also a 5-digit overall code that includes
filmtaking and interpretation. In all instances,
we used the overall code as the maximum fee allowed. TNDDS also
contended type of service (TOS) codes 3 and 5 on the Medicaid Maximum
Price Listing represented the filmtaking and interpretation fees.
However, TOS codes represent the location of the service or type
of service provider. Code 3 indicates medical services and code
5 indicates a hospital-based provider.
Information obtained from the Tennessee Bureau of Medicaid
concerning x-ray and blood test codes revealed maximum price caps
of 80 percent and 62 percent, due to DEFRA legislation. The Tennessee
Bureau of Medicaid also advised us that TNDDS’ use of an interpretation
fee equal to 33 percent of filmtaking charges was unique to
the DDS and not a customary billing methodology under Medicaid.
We used the DEFRA price caps to determine total CE overcharges
for FY 1993 and the first quarter of 1994. Similar changes were
made to exam codes and the hearing evaluation code based on information
obtained from TNDDS and other third parties.
FINDING 2 – UNLIQUIDATED OBLIGATIONS
TNDDS’ COMMENTS
TNDDS did not concur. TNDDS responded that the original correspondence
from SSA’s regional office in Atlanta on this issue could
not be retrieved. In telephone conversations between TNDDS and
the Atlanta SSA regional office, an agreement was made to obligate
funds to the Tennessee Department of Finance and Administration
to complete the reconfiguration of TNDDS’ occupied space.
TNDDS also stated that during the post-audit quarter ending
September 30, 1996, the FY 1994 unliquidated obligation of $527,476
was liquidated in the amount of $140,760 and the remaining unexpended
funds of $386,716 would be closed out on a final Form SSA-4513.
The FY 1995 unliquidated obligation of $1,016,735 has been partially
liquidated in the amount of $58,308, leaving a balance of $958,427,
with invoices for upgrades continuing to be received.
OIG RESPONSE
Our audit disclosed that TNDDS reported outstanding obligations
of $527,476 and $1,016,735 in FYs 1994 and 1995, respectively,
to buy EDP equipment for the IWS/LAN approved by SSA.
Copies of purchase orders and interviews with TNDDS systems
personnel and TNDHS purchasing personnel confirmed that no EDP
equipment purchases remained outstanding. TNDDS did not provide
evidence that the $140,760 and $58,308, subsequently liquidated,
were obligated by valid purchase orders or binding agreements prior
to the end of its respective FY. Therefore, TNDDS has not provided
any documentary evidence indicating that the reported $1,544,211
unliquidated balance was for valid obligations recorded prior to
the close of the FY. We affirm our recommendation that unliquidated
obligations be decreased in the amount unsupported by purchase
orders outstanding.
FINDING 3 – ALL OTHER NONPERSONNEL COSTS
TNDDS’ COMMENTS
TNDDS did not concur with three issues relating to all other
personnel costs.
First, TNDDS believed that the $18,750 paid to VERSA Management
Systems Incorporated (VERSA) was not part of its $300,000 contract
but was contracted for separately.
Second, TNDDS believed that equipment used by TNDHS personnel,
valued at $17,839, was used to provide services to TNDDS. TNDDS
believed that these costs were not duplicative of costs contained
in its Cost Allocation Plan.
Finally, TNDDS stated that its records supported costs amounting
to $6,372, because the amounts reported on Form SSA-4513 match
its schedule of indirect costs. The schedule agrees with the billings
from Fiscal Services staff who calculate the indirect costs.
OIG RESPONSE
We examined invoices and disbursement records to VERSA totaling
$318,750 in payment under contract number FA-4-11091-4-00 for the
conversion of software in preparation for examiner workstations.
Contrary to TNDDS’ comments, VERSA confirmed that the FY 1995
payment of $18,750 related to the referenced contract. In the absence
of an amendment modifying the $300,000 contract price, TNDDS violated
contract provisions prohibiting escalation and should be required
to refund the excess payment to SSA with applicable interest.
With respect to the second issue, TNDHS Office Services staff
not TNDDS personnel were using four desktop computers and two laser
printers purchased by SSA for $17,839. During the 3-year audit
period, these office services were also allocated to the TNDDS
through the TNDHS Cost Allocation Plan. No evidence was presented
to show that TNDHS’ Office Service costs dedicated to TNDDS
were more than the costs included in the Cost Allocation Plan.
Since office services are included in the Cost Allocation Plan,
we recommend that TNDDS reimburse SSA for the cost of the computers
plus applicable interest.
Finally, our review disclosed that claimed indirect costs
under the Cost Allocation Plan exceeded audited costs by $6,372.
Total indirect costs billed by the State of Tennessee to TNDDS
in FY 1993 were $1,916,628. Total costs claimed by TNDDS on the
Form SSA-4513 were $1,923,000. Information provided by TNDDS Fiscal
Services staff at the close of our field work contained no evidence
or explanation for the unlocated variance, and TNDDS has not provided
any evidence since that time. Since no unliquidated obligations
exist, TNDDS should reimburse SSA the difference of $6,372 and
adjust the account balances to their proper amounts.
FINDING 4 – INTERNAL CONTROL ISSUES AT TNDDS
TNDDS’ COMMENTS
TNDDS partially concurred with this finding. TNDDS responded
that for the audit period, some leave and attendance records could
not be retrieved due to several moves resulting from space reconfiguration
and employee transfers. Other records may have been purged in keeping
with State government time frames for retention of files. TNDDS
noted efforts have been initiated to improve internal controls
over attendance records.
OIG RESPONSE
We reviewed T&A records for 37 of 45 employees in our
sample. Although the TNDDS provided a general explanation for the
loss of records POMS governs record retention in TNDDS’ operations.
POMS, sections DI 39509.001 and DI 39509.005, require all financial
records and supporting documents to be retained for a period of
3 years with the qualification that financial records and supporting
documents will be retained until resolution of Federal audit findings.
We recommend TNDDS strengthen internal controls to ensure proper
certification and prior approval of employee payroll and OT records.
Population: The total number of consultative exams (CE) encumbered
and paid during any Federal fiscal year (FY) by the Tennessee Disability
Determination Services (TNDDS) and submitted for reimbursement to
the Social Security Administration (SSA). Our population consisted
of 117,317 CE transactions paid and reimbursed by SSA for the
audit period (52,031 for FY 1993, 64,841 for FY 1994, and 60,445
for FY 1995).
Sample Size: A sample size of 600 was used because of an
expected high error rate. The 600 sample size consists of 200
items for each FY under review (1993 through 1995).
Sample Selection: A simple random sample was used.
Characteristics: An error would be a CE claim with a fee
charge that is in excess of Medicaid/Medicare maximum charges for
reimbursement.
Calculation Methodology: From the sample of CE claims, we
developed a crosswalk to the American Medical Association’s
Physician’s Current Procedural Terminology (CPT) codes. The
crosswalk codes were determined in conjunction with TNDDS personnel
and other medical service providers. For x-rays, we selected CPT
codes that represented the types of x-rays performed and the number
of views taken. We then matched the identified CPT codes with the
Medicaid/Medicare fee schedules. Certain procedures, like x-rays,
are a combination of a professional component (interpretation) and
a technical component (filmtaking). When the professional component
is reported separately, the service may be identified by adding the
modifier ‘–26’ to the usual 5-digit procedure number.
The technical component (TC)’ modifier used in the Medicare
fee schedules denotes the technical component. The Medicare fee schedules
list three codes: a 5-digit procedure code; a 5-digit procedure code
with ‘TC’ modifier; and a 5-digit code with ‘–26’ modifier.
The maximum allowable charge on the Medicare schedules for the 5-digit
procedure code are inclusive of interpretation and filmtaking but
allow for separate billing of the two components. For our audit,
we used the overall 5-digit procedure code (inclusive of both filmtaking
and interpretation), without modifiers, as the maximum fee allowed.
We applied our crosswalk to the files obtained from TNDDS representing
CE reimbursements for the years under audit. We calculated the variance
between established Medicaid/Medicare fee schedules and TNDDS’ fee
schedules. The variances calculated were multiplied by the actual
number of procedures paid by TNDDS for each year under audit and
totaled to arrive at the overcharges. TNDDS codes that could not
be crosswalked to CPT codes were excluded from our calculations.
Results: Calculated CE overpayments amounted to: $94,244.76
for FY 1993; $190,479.88 for FY 1994; and $140,299.45 for FY
1995. Total overpayments amount to $425,024.09, as follows:
This audit report was prepared by the Office of Audit,
Eastern Program Audit Group in Baltimore,
under the direction of Gary Kramer, Director. Audit staff included:
Albert Darago, Acting Director
Betty Alexander, Deputy Director
Lance Chilcoat, Acting Team Leader
Robert Daniels, Jr., Auditor-in-Charge
Glenn Lee, Auditor
Reginald Palmore, Auditor
For additional copies of this report, please contact the
Office of the Inspector General’s Public Affairs Specialist
at (410) 966-9135.
Refer to Common Identification Number A-04-96-54001.
www.socialsecurity.gov
