Report 2001-113 Summary - December 2001
Department of Veterans Affairs:
Weak Management and Poor Internal Controls Have Prevented the Department From Establishing an Effective Cash Collection System
Our review of the Department of Veterans Affairs' (department) cash management for itself and its three homes for veterans revealed that:
- Since the Department of Health Services decertified the department's Barstow home, the department estimates that this home lost $5.7 million in federal and state funds through June 2001.
- Despite its cash flow difficulties, the department has not taken full advantage of all cash sources available to it, and has been slow to bill a substantial number of Medicare claims.
- The department lacks an understanding of the data in its system, in addition to adequate tools and resources, to allow it to effectively manage the fiscal operations of its veterans homes.
- The department's August 2001 report of its cash flow needs for fiscal year 2001-02 does not meet the requirements in the Legislature's request, and its December report may also be insufficient.
RESULTS IN BRIEF
The Department of Veterans Affairs (department) has poorly managed its cash and that of its three veterans homes, and it has failed to pursue some reimbursements to which it is entitled. Most funding for the department's homes comes from the State's General Fund, but additional financial support comes from the U.S. Department of Veterans Affairs, from fees paid by residents of the homes, and from reimbursements paid by Medicare, the California Medical Assistance Program (Medi-Cal), and secondary insurance providers. The department's substandard level of care of residents prompted the Department of Health Services (Health Services) to withdraw in July 2000 the certification for the Veterans Home of California, Barstow (Barstow home), one of the department's homes that provides health care services to eligible veterans. This decertification prevented the Barstow home from qualifying for federal payments for its daily care of residents and for Medicare and Medi-Cal reimbursements. The department estimates that it lost $5.7 million in federal and state funds from June 2000 to June 2001 because the Barstow home had become ineligible for reimbursements. Despite this loss of funds, the department has not reduced the level of services at its homes because it has obtained additional appropriations from the General Fund to replace the lost reimbursements.
Even though its cash flow from reimbursements has decreased, the department does not take full advantage of all cash sources available, and its inadequate implementation and use of its billing management information system (information system) have caused additional losses of money. For example, billing errors and inadequate documentation may be costing the department additional reimbursements for the services that its homes supply to veterans. The department has further compounded its cash flow difficulties by failing to submit promptly its claims for certain reimbursements. We noted that the department failed to bill Medicare until June 2001 for outpatient services that one of the homes furnished between August 2000 and June 2001, because, in part, its employees did not understand how the policy changes made by the federal government would affect the department's billing procedures. We did not find this 10-month delay to be reasonable, because the department had sufficient notice of the federal government's planned policy revisions to begin making changes to its billing system.
Not only does department staff neglect or delay billing for certain reimbursements, but it also lacks sufficient knowledge of the data in the department's information system. Staff's problems with obtaining accurate data from this information system have caused the department to overestimate the total reimbursements that it believes it can recover. In July 2001 the department retained a consultant to assist in billing outstanding charges, estimating that the consultant could recover up to $6 million. However, as of September 30, 2001, the department's consultant has been able to recover only between $350,000 to $450,000.
Our audit also revealed that the department lacks the tools and resources to manage effectively the fiscal operations of its veterans homes. Specifically, the department does not prepare accurate management reports, and department management appears not to use many of the tools and reports available in its information system. The homes are not using 35 of the 76 information system modules purchased by the department for its three homes, including a cost accounting module that would give the department a valuable budgeting and tracking tool. The department estimates that in fiscal year 2001-02, it will pay yearly maintenance fees of $81,000 to $251,000 per home for the information system, even though the homes are using only 41 of the system's modules.
Additionally, the department conducts extremely limited reviews of its internal controls. In fact, the department has not conducted a formal evaluation of its internal controls since 1994. According to our own limited review of the department's operations, the department exhibits to some degree most of the warning signs that appear on the State Administrative Manual's list characterizing poor maintenance of an internal control system. For example, the department does not keep current its policies and procedures manuals, and it does not produce accurate operational reports it could use as management tools.
The department may have aggravated its problems in collecting reimbursements because it has missed training opportunities and because both the department and the homes have used training funds ineffectively. The lack of training has caused an absence of billing expertise and knowledge at the department. Because staff does not have the necessary skills for billing backlogged claims, the department hired consultants to assist with this task. The department signed a contract agreeing to pay consultants up to $400,000 to assist the department in billing outstanding claims for services provided from October 1999 to June 2001, and it has budgeted another $810,000 for fiscal year 2001-02. Finally, this insufficient training, together with poor management and a lack of sponsorship by executive management, has contributed to deficiencies and errors in the department's information system, resulting in a system that does not perform as it should.
The department has tried to correct its cash flow problems, but these attempts have been largely unsuccessful. It has requested loans from the General Fund to cover timing differences resulting from delays in the department's receipt of federal funds or reimbursements. However, these loans do not solve the underlying cause of the timing differences, which occur primarily when the department delays preparing and submitting bills to Medicare and Medi-Cal. The department also attempted to control its cash flow by limiting expenditures, but expenditures at two of the three homes, as well as at department headquarters in Sacramento, actually increased after the department implemented the cost-cutting measures. In fact, the cost for consultants has risen significantly because the department has increased its use of consultants hired to help overcome its poor billing practices. Decreased reimbursements and the department's lack of success in decreasing expenditures have not led to lower levels of care in the department's homes because the department has obtained additional money from the General Fund, but this is money that the State could potentially use for other purposes.
The Legislature asked the department to provide a report as of August 31, 2001, that details the department's cash flow needs for fiscal year 2001-02. In addition, the Legislature directed the department to submit for comparative and analytic purposes another report on December 31, 2001, and a third report on February 28, 2002. However, the department's August report does not meet the requirements contained in the Legislature's request, and its December report may have limited use for the Legislature.
To ensure that it can bill for all the services provided by its three homes, the department should do the following:
- Continue to seek recertification for its Barstow home so that this home can bill for Medicare and Medi-Cal reimbursements.
- Notify Health Services when the department believes that the Barstow home is ready for a new survey by Health Services.
- Follow up on claims submitted to secondary insurance providers to make certain that it has received reimbursements, and submit claims to secondary insurers that it has not billed in the past.
To verify whether consultants who assist with delayed billing are a cost-effective solution to some of its cash flow problems, the department should use the results of its current contractor as the basis to analyze the costs and benefits of continuing to hire these consultants. The department should also determine whether the additional collections of federal reimbursements and payments from Medicare and Medi-Cal will adequately cover the consultants' costs.
To establish adequate tools and resources for controlling its fiscal operations, the department should take these steps:
- Develop periodic management reports, such as aging reports of accounts receivable, and regularly reconcile these reports with the department's accounting records so that the department can evaluate its cash flow and that of all three homes. These reports should cover reimbursements, accounts receivable, and unbilled claims.
- Review regularly its internal controls to ensure that the department fulfills its mission and that it maintains proper control over assets, liabilities, reimbursements, and expenditures.
- Provide training opportunities for department employees, particularly reimbursement staff, to inform them of current developments in Medicare regulations and policies.
To improve its process for estimating future cash flow, the department should continue to prepare the same types of detailed supporting schedules and management analyses that it currently needs to include in its December 2001 and February 2002 reports to the Legislature.
The department concurs with our findings and recommendations. It believes the report provides additional guidance to consider as the department corrects some long-standing procedural shortfalls in its operations. In addition, the department stated that it has been working to improve all areas of the organization to standardize procedures and policies, ensure routine audits and reviews, and quantify all areas of operations, especially reimbursement and cash flow.