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HomeMy WebLinkAbout12/01/2014 - Regular Minutes - City Council - Audit Committee 4r1 CITY OF COLLEGE STATION Mayor Home ofTexafAerMUniverfiry® Council members Nancy Berry Steve Aldrich Mayor Pro Tem Karl Mooney Blanche Brick John Nichols City Manager Julie Schultz Kelly Templin James M. Benham Minutes CITY COUNCIL AUDIT COMMITTEE Monday, December 1, 2014 at 4:30 pm City Hall Administrative Conference Room 1101 Texas Avenue College Station, Texas 77840 Audit Committee Members Present: Nancy Berry, Mayor Karl Mooney, Councilmember Steve Aldrich, Councilmember City Staff: Greg Jeffs, Assistant Internal Auditor Kelly Templin, City Manager Chuck Gilman, Assistant City Manager Jeff Capps, Deputy City Manager Carla Robinson, City Attorney Jeff Kersten, Assistant City Manager Tanya McNutt, Deputy City Manager Alison Pond, HR Director Regular Agenda Item No. 1 — Call to Order and Announce a Quorum is Present With a quorum present, the Audit Committee of College Station was called to order by Mayor Nancy Berry at 4:40 p.m. on Monday, December 1, 2014 in the Administrative Conference Room of the City of College Station City Hall, 1101 Texas Avenue, College Station, Texas 77842. Regular Agenda Item No. 2 - Presentation, possible action, and discussion of minutes for the audit committee meeting held on September 15, 2014. MOTION: Upon a motion made by Councilmember Mooney and a second by Councilmember Aldrich, the Audit Committee voted three (3) for and zero (0) opposed, to approve the September 15, 2014 Audit Committee minutes. The motion carried unanimously. Regular Agenda Item No 3 - Presentation, possible action, and discussion regarding the audit of non- payroll related checks issued to employees. Greg Jeffs, Assistant Internal Auditor, presented the results of the audit of non-payroll related checks issued to employees. The audit found no improper transactions; however, the following recommendation was made: 1. The city should avoid mixing employees with regular vendors on the vendor master file. If the city decides to continue to reimburse employees through the accounts payable system, internal controls should be enhanced. A system should be in place to easily identify who is an employee and who is an actual vendor. Also, procedures should be enhanced to ensure that only current employees are active in the system. MOTION: Upon a motion made by Mayor Berry and a second by Councilmember Mooney, the Audit Committee voted three (3) for and zero (0) opposed, to approve the audit recommendations on the non- payroll relate check issued to employees. The motion carried unanimously. Regular Agenda Item No 4 - Presentation, possible action, and discussion regarding the dependent eligibility audit report. Greg Jeffs, Assistant Internal Auditor, presented the results of the dependent eligibility audit report. The following recommendations were made: 1. A comprehensive plan to effectively communicate to city employees dependent eligibility requirements on an ongoing basis should be implemented. During the open enrollment process, the following should occur: (1) clear guidelines identifying who is and who is not eligible should be communicated to employees, (2) employees should be required to annually acknowledge eligibility of each dependent, and (3) enjployees should be informed that they will be subject to disciplinary action, which may include termination, if they are found to knowingly enroll an ineligible dependent. 2. For the 2016 plan year, the City should consider changing its dependent criteria to "children for whom the employee is the legal guardian". 3. For the 2015 plan year, a process for verifying the dependents of employees not included in the scope of the audit should be implemented. This would include dependents of new hires and those who are solely on the City's vision plan. MOTION: Upon a motion made by Mayor Berry and a second by Councilmember Mooney, the Audit Committee voted three (3) for and zero (0) opposed, to approve the audit recommendations on the dependent eligibility audit report. The motion carried unanimously. Regular Agenda Item No. 5 - Presentation, possible action, and discussion regarding the purchasing card receipt verification report. Greg Jeffs, Assistant Internal Auditor, presented results for the purchasing card receipt verification report. The following recommendation was made: 1. Recommended that Finance consider stricter enforcement of the itemized receipt policy. MOTION: Upon a motion made by Councilmember Mooney and a second by Mayor Berry, the Audit Committee voted three (3) for and zero (0) opposed, to approve the audit recommendations on the purchasing card receipt verification report. The motion carried unanimously. Regular Agenda Item No. 6 - Presentation, possible action and discussion regarding future agenda items. Greg Jeffs, Assistant Internal Auditor, presented upcoming audits: 1. Delinquent Accounts Audit 2. Meter Reading of Utilities Audit Regular Agenda Item No. 7 -Adjourn. Hearing no objections, Mayor Berry adjourned the meeting at 5:19 p.m. on Monday, December 1, 2014. tior 4 Nancy Berry, Mayor ATTEST: Tany.m M utt, eputy City Secretary November 18, 2014 (kr CITY OF COLLEGE STATION Home of Texas AthM University' Honorable Mayor and Members of the Audit Committee: An audit of itemized receipts was selected based on results from the 2015 Non -Payroll Checks Audit in which multiple instances of insufficient documentation such as non -itemized receipts and missing receipts were found. Also, the audit presented us with the opportunity to review implementation of audit recommendations from the 2008 Purchasing Card Audit in which a high number of non -itemized receipts were previously found. The scope of review included all receipt documentation for purchasing card transactions with a post date of October 1, 2013 to September 31, 2014. At the time of the audit, 14,533 transactions occurred within the scope, and a statistical sample of 374 transactions were reviewed. Audit objective: Are city employees providing sufficient documentation to account for business purchases according to the City's purchasing card program policies and procedures? . Audit Results: The City of College Station's current policy for cardholder purchases maintains that an "itemized sales receipt should be retained and must be scanned and attached to the transaction in Paymentnet showing the cardholder purchases." In fiscal year 2014, 336 purchases were submitted with sufficient documentation, and 22 purchases were submitted with insufficient documentation. Table 1 summarizes the results below: Table 1: Statistical sample results Results Category Dollar Amount Occurrences Percentage of occurrences Sufficient Documentation Insufficient Documentation Missing Documentation 57,278.49 336 89.84% 610.63 22 5.88% 1,786.68 16 4.28% Grand Total $ 59,675.80 374 100.00% Based on the results, we found the majority of purchasing card purchases were accompanied by an itemized receipt, and most employees are adhering to current purchasing card policies. However, there were 22 instances of insufficient documentation submission totaling $610.63. The amount of missing documentation totaled $1,786.68. TY ELLIOTT City Internal Auditor telliottna cstx.gov TEL: (979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich City of College Station Page 2 of 3 Since the results on the previous page are based on a statistical sample, we can project our findings onto all 14,533 transactions within fiscal year 2014 using the percentage of occurrences from the sample of 374. The results are summarized in Table 2 below: Table 2: Results for all transactions within fiscal year 2014 Results Category Percentage of occurrences Margin Relevant population of error is between Relevant populations dollar amount is between Sufficient Documentation Insufficient Documentation Missing Documentation 89.84% ±3.02 86.82% - 92.86% $2,074,369 - $2,218,681 5.88% ±2.35 3.53% - 8.23% $84,341 - $196,637 4.28% ±2.02 2.26% - 6.30% $53,998 - $150,524 The population of 14,533 transactions amounted to $2,389,275 of expenditures. We are 95% confident that between 86.82% and 92.86% of transactions have sufficient documentation; therefore, we are 95% confident that between $2,074,369 and $2,218,681 of fiscal year 2014 purchasing card transactions have sufficient documentation. Relevant to insufficient documentation, we are 95% confident that between $84,341 and $196,637 of fiscal year 2014 purchasing card transactions are at risk; therefore, there is a higher risk that these transactions could be for illegitimate business purposes. Relevant to missing documentation, we are 95% confident that between $53,998 and $150,524 of fiscal year 2014 purchasing card transactions have missing documentation; therefore, there is a higher risk that these transactions could be for illegitimate business purposes. yAudit Recommendation: As stated before, current policy dictates that an itemized receipt is required as evidence of a legitimate business purchase. Without an itemized receipt, it is difficult to differentiate between purchasing types. For example, an alcoholic beverage (for which city policy prohibits) could be disguised within a meal transaction if only a non -itemized receipt is submitted. Therefore, we recommend Finance consider stricter enforcement of the policy by requiring employees to reimburse the City when sufficient documentation is not provided. In cases of non -payroll checks, reimbursements of expenditures should be withheld when the same circumstances arise. The risk of implementing such a policy is that it could affect employee morale. An employee may feel they were unjustly dealt with if they indeed made a legitimate purchase on behalf of TY ELLIOTT City Internal Auditor telliott(a cstx.gov TEL: (979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich City of College Station Page 3 of 3 the City, yet they are unable to claim the expense as legitimate because of stricter controls. In this case, city management must weigh the risk of illegitimate business purchases against policy affects on employee morale. Management Response: Staff concurs with the recommendation that stricter enforcement of the purchasing card itemized receipt process be considered. Staff will review the policy to determine whether the employee should reimburse the City for transactions made on the purchasing card and/or withhold non -payroll check reimbursements when there is insufficient itemized documentation provided. The risks identified in the report will be considered as decisions regarding the p card reimbursement policy are made. TY ELLIOTT City Internal Auditor telliott a(�cstx.gov TEL: (979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich r ., November 17, 2014 CITY OF COLLEGE GI: STATION Home of Texas Ae M University" Honorable Mayor and Members of the Audit Committee: An audit of non -payroll checks made to employees was conducted in accordance with the fiscal year 2015 audit plan. The scope of review included all non -payroll checks made to employees with an invoice date of October 1, 2014 to September 18, 2014. Background: The city issues non -payroll checks to employees for a variety of reasons. Table 1 below shows the reasons checks were issued during fiscal year 2014. Reason Total Amount Percentage Count 28,836 50.8% 188 8,487 14.9% 17 4,281 7.5% 11 2,659 4.7% 6 2,631 4.6% 21 2,196 3.9% 22 1,882 3.3% 3 1,829 3.2% 48 1,666 2.9% 6 775 1.4% 2 581 1.0% 8 465 0.8% 24 271 0.5% 9 232 0.4% 6 56,791 100.0% 371 Mileage Reimbursement Education Reimbursement Lodging Registration Fee Certification/Membership Item Purchases Coaching/Secondary Job Food Airfare Insurance Premium Refund Taxi/shuttle/rental car Parking/tips/tolls Miscellaneous Services Gas Grand Total The vast majority of these non -payroll checks are to reimburse employees who used personal funds for business-related purchases or activities. Generally, the reimbursement process occurs as follows: 1. An employee retains any receipts or other documentation recording the details of the transaction that needs reimbursement. 2. The employee submits the documentation to the supervisor for approval. 3. After approval an employee within the department creates a field purchase order in the financial system for the reimbursement. 4. In the financial system, the supervisor (or a designee) approves the field purchase order. 5. The accounting department reviews the approved field purchase order then issues the reimbursement. TY ELLIOTT City Internal Auditor telliott a(�cstx.gov 979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich Page 2 of 4 Audit Results: In a typical organization, some of the transactions most at risk of being fraudulent are non -payroll checks issued to employees. The city's purchasing card program in combination with effective policies and procedures has significantly lowered this risk. For example, approximately $2,347,000 in purchasing card transactions were made in fiscal year 2014 compared to the $56,791 in checks issued to employees. High levels of reimbursements are not concentrated around any specific employees. We found that only 15 employees had $1,000 or more in reimbursements in fiscal year 2014, and no employee's reimbursements made up more than 5 percent of the total reimbursements. We did find instances where support documentation was insufficient or supervisor review was inadequate. However, this only accounted for $9,584 of the $56,791 in non -payroll checks issued to employees (see Appendix A). All of this points to a very low risk of material fraud within the scope of our review. We did, however, identify one material control deficiency regarding the vendor master file. This and our other findings are discussed in more detail below. Employees as vendors: When employees are to receive non -payroll checks they are set up as vendors in the city's financial system. This set-up opens the city to fraud risk because accounts payable fraud is among the top methods used by individuals to steal money from organizations, and getting on the vendor master file is often the most difficult part of committing the fraud. In the city, this issue is further magnified by the fact that it is often difficult to differentiate employees from actual vendors in the vendor master file. Document submissions: Documentation for reimbursements were found to be sufficient in most cases. In the situations where documentation was insufficient, we found that it was for one of three reasons: (1) documentation was missing, (2) receipts were not itemized, or (3) the form of documentation was deficient. Missing documentation. We found that a total of $51 were reimbursed without supporting documentation. With the exception of one reimbursement that involved a missing meal receipt, it appears that most undocumented reimbursements involved parking/tips/tolls. Currently, employees may be reimbursed up to $10 for parking/tips/tolls without receipts. However, in these instances employees were reimbursed for more than $10 on parking/tips/tolls without receipts. Non -itemized receipts. When employee reimbursements are based on non -itemized receipts, it becomes easier for employees to receive reimbursements for inappropriate purchases since the inappropriate purchases can be hidden among appropriate purchases. We found 12 non -itemized receipts that were reimbursed for a total of $260. On a related note, we found requests for mileage reimbursements, totaling $576, which did not state the destinations of each trip. Like non -itemized receipts, this deficiency makes it difficult to determine whether all of the trips were appropriate. TY ELLIOTT City Internal Auditor telliottCa,cstx.pov TEL: (979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich Page 3 of 4 Deficient documentation. We found twenty-five instances, totaling $3,078, where supporting documentation was included, but a receipt was not included. While some documentation is better than nothing, receipts are preferable because receipts show how much money was actually spent regardless of any discounts or other changes that may occur after invoicing but before actual payment. Supervisor approvals: Before an employee can be reimbursed, that employee's supervisor should be reviewing the reimbursement request to ensure that amounts are reasonable and that the item being reimbursed for is appropriate. In our review of reimbursements, we found that all reimbursement amounts appeared reasonable, but that the city is inconsistent in determining the types of purchases that are appropriate for reimbursement. Additionally, we found some lapses in the controls on who and when approvals may be made, as well as the forms that are used for reimbursement. Departmental inconsistency. We found that departments are not consistent with each other on what can be reimbursed. For example some departments will only reimburse for meetings mandatory to the job. Other departments will reimburse for non -mandatory meetings, so long as there is some relationship to the city or job. In total, at least $3,522 were reimbursed that would not have been reimbursed by some departments. In order to ensure consistency throughout the city, the city may want to update written policies to go into greater detail regarding the types of purchases and activities that may be reimbursed. Who may approve. We found sixteen instances, totaling $2,863, lacking a proper supervisory signature accompanying the documentation. Twelve lacked a signature, two were signed by the payee, and two were signed by a subordinate. However, it should be noted that while the signatures may have been insufficient, thirteen of these sixteen reimbursements were approved by a proper supervisor within the financial system. Therefore only $373 completely lacked proper supervisor approval. We do not believe any of these reimbursements to be illegitimate, nevertheless, these reimbursements should not have been paid until after proper supervisory approval was obtained. Some of these deficient approvals may be caused by a lack of understanding regarding who may approve reimbursements. All checks to employees should be approved by the employee's supervisor. Department directors should have their checks approved by the City Manager's Office. The city manager, city internal auditor, city attorney, and city secretary should have their reimbursements approved by the mayor. When to approve. We found four instances, totaling $594, where the reimbursement was approved before the transaction occurred. The fact that some supervisors are preapproving but not post - approving runs the risk that employees could add inappropriate items for reimbursement after the supervisor approves. Approval forms. The city use two standard reimbursement forms: one for travel expenses, the other for educational reimbursements. Additionally, there are a variety of department -specific reimbursement forms. It appears that the lack of a standard reimbursement form for non -travel, non -education has occasionally led to departments using inadequate reimbursement forms, or none at all. It is noteworthy that many of the reimbursements lacking approval signatures also lacked a reimbursement form. Therefore, the city may want to consider developing a third catch-all reimbursement form, and then requiring all reimbursement requests include a standard reimbursement form. TY ELLIOTT City Internal Auditor telliottna,cstx.gov TEL: (979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich Page 4 of 4 Missing file: There is one instance where the payment file was missing from the records and therefore the documentation could not be reviewed. This missing file documented a $126 payment. 4 Audit Recommendation: Although there were a few instances where documentation and approval procedures could have been done better, the $9,584 at risk is not a material amount. The cost of ensuring that fraud risk is completely reduced almost always outweighs the benefit. Therefore, we found that the city's policies and procedures regarding employee reimbursements to be sufficient. However, the city should avoid mixing employees with regular vendors on the vendor master file. Some employers accomplish this by reimbursing employees through the payroll system. If the city decides to continue to reimburse employees through the accounts payable system, internal controls should be enhanced. A system should be in place to easily identify who is an employee and who is an actual vendor. Also, procedures should be enhanced to ensure that only current employees are active in the system. Management Response: Management concurs with the recommendation. As the new ERP system continues to be implemented we will determine what options may be available to reimburse employees through the payroll system rather than the Accounts Payable System. Management has put a process in place to ensure that employees are inactivated in the accounts payable system when they terminate employment with the City. Appendix A: Audit Results Level of Risk Area of risk Amount Amount overlap Total Risk High Missing Files $ 125.77 $ - Missing Documentation $ 51.25 $- $ 177.02 Insufficient Supervisor Approval $ 372.54 $ $ 549.56 Insufficient Approval Documentation $ 2,490.34 $ 20.00 $ 3,019.90 Non -itemized Receipts $ 260.09 $- $ 3,279.99 Preapproval Only $ 593.54 $ 10.00 $ 3,863.53 Deficient Documentation $ 3,078.00 $ 735.00 $ 6,206.53 Low Department Inconsistency $ 3,522.53 $ 144.66 $ 9,584.40 Total at Risk: $ 9,584.40 TY ELLIOTT City Internal Auditor telliott cstx.gov TEL: (979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich November 3, 2014 4-ier CITY OF COLLEGE STATION Nome of Texas Ad M University' Honorable Mayor and Members of the Audit Committee: An audit of eligible dependents on the City's health benefit plans was conducted in accordance with the fiscal year 2014 audit plan. The audit was completed by HMS Employer Solutions. The scope of review included employee dependents enrolled in the City's Blue Cross Blue Shield (BCBS) health care plans as of August 12, 2014. At the time of the audit, there were 415 employees with 935 dependents within the scope.' Background: Dependent eligibility audits usually consist of a third -party vendor asking employees to provide documentation that proves their relationship to the dependents enrolled on their employer's health benefit plan. Once documentation has been received, the vendor verifies that the relationship meets the definitions of eligible dependents under plan guidelines. Nationally reported average health care costs for each dependent range from $2,000 to 3,500 each year. The typical ineligible rate for dependents audited ranges between 3% and 12%. Therefore, these audits can yield significant savings. The City has two self-funded health care plans for employees and their dependents, a high deductible health care plan (HDHP) and a preferred provider organization (PPO) plan, both managed by BCBS. Because these plans are self-funded, the City can choose to be more generous than what is required by federal statutes in determining who to cover. Currently, covered dependents under both plans are as follows: (1) an employee's spouse, (2) a child' of an employee who is under the age of 26, or (3) a grandchild who is an employee's dependent for federal income tax purposes at the time application for coverage of the child is made. ,< Audit Results: Employees voluntarily removed 10 dependents from the City's health care plans. Employees did not submit documentation for 19 dependents and submitted insufficient documentation for 15 dependents. Table 1, below summarizes these results. Table 1: HMS Dependent Eligibility Audit Results Result Category Dependents Percentage Verified Voluntary Removal No Documentation Insufficient Documentation Removed from Scope' Total Dependents 879 94.0% 10 1.1% 19 2.0% 15 1.6% 12 1.3% 935 100% ' Not included in the scope were dependents only enrolled in the City's vision plan. 2 A child means the employee's (a) natural child; or (b) legally adopted child; or (c) stepchild; or (d) an eligible foster child; or (e) grandchild that is a dependent for federal tax purposes; or (f) dependent child by legal guardianship based on IRS tax rules. 3 During the audit several employees were terminated, resulting in 12 dependents being removed from the scope. TY ELLIOTT City Internal Auditor telliott a(�cstx.gov 979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich Page 2 of 3 Audit Impact: There were 44 dependents identified for removal from the City's health care plans by HMS, and they reported that the City would realize an annual savings of $154,000 per year due to the audit. However, these savings make the following two assumptions: (1) these dependents would remain on the plan in perpetuity if the audit was not conducted and (2) an average annual cost per dependent of $3,500 a year. However, it is difficult to determine how many of these dependents would have been removed voluntarily during open enrollment if employees were not asked to provide supporting documentation. In addition, as noted earlier, reported average health care costs per dependent range from $2,000 to 3,500 each year. Some employees' family situations were complex; therefore, providing adequate documentation demonstrating dependent eligibility in a timely manner proved difficult. I fully expect that some of these employees will be able to submit the required documentation for their dependents during open enrollment in November. In addition, there were some dependents that will age out of the plan by January 2015. As a result, a more conservative estimate of the number of dependents that will be removed from the plan as a result of the audit is 31 rather than 44. I also decided to use a more conservative estimate of $2,750 annual cost per dependent in calculating potential savings rather than the $3,500 figure HMS used—resulting in 2015 potential savings of $85,250. If we reduce this amount by HMS's fee of $18,000, the estimated savings for 2015 would be $67,250. Table 2 below compares the adjustments I made to the savings calculations put forth by HMS. Table 2: 2015 Potential Saving Resulting from the Audit Result Category Voluntary Removal No Documentation Insufficient Documentation Total Dependents Savings Identified by HMS Dependents Removed Savings More Likely Dependents Removed Savings 9 $ 24,750 17 $ 46,750 5 $ 13,750 31 $ 85,250 10 19 15 44 $ 35,000 $ 66,500 $ 52,500 $ 154,000 Audit Recommendations: Based on (1) the results of the audit conducted by HMS and (2) a review of current city policies, procedures, and processes; Human Resources (HR) should consider the following recommendations: 1. A comprehensive plan to effectively communicate to city employees dependent eligibility requirements on an ongoing basis should be implemented. During the open enrollment process, the following should occur: (1) clear guidelines identifying who is and who is not eligible should be communicated to employees, (2) employees should be required to annually acknowledge eligibility of each dependent, and (3) employees should be informed that they will be subject to disciplinary action, which may include termination, if they are found to knowingly enroll an ineligible dependent. TY ELLIOTT City Internal Auditor telliottCa�cstx.gov TEL (979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich • Page 3 of 3 Management Response: Management is in agreement with this recommendation. Human Resources has already modified the communications for new employees and for any employees adding dependents, to include the requirement for certifying dependent eligibility before being added to the City's Health Plan. 2. For the 2016 plan year, the City should consider changing its dependent criteria to "children for whom the employee is the legal guardian". The greatest population of employees that would be affected by this change would be grandparents who would be required to seek legal guardianship in order to continue to cover their grandkids. Other dependents such as step children may also be affected by this change. For example, step children of an employee that live in another state and do not rely upon the employee for primary support can be covered under current plan rules. Management Response: Management will take this into consideration. Current Health Plan policy, and other organizational practices, both locally and nationally include alternative legal documents for consideration. There is agreement that documentation should be required. 3. For the 2015 plan year, a process for verifying the dependents of employees not included in the scope of the audit should be implemented. This would include dependents of new hires and those who are solely on the City's vision plan. The process utilized by HMS should be considered in guiding HR in the creation of this process. However, HR may not need to retain verification documents in order for the process to be adequate. For example, employees could be required to present acceptable documents evidencing dependent eligibility to HR. HR would then examine the documents to determine whether the documents reasonably appear to be genuine and record the document information on an eligibility form to be retained in the employee's file. Management Response: Management is in agreement with this recommendation, and this practice is already in place. The HMS report and management's responses to the audit recommendations are attached. I look forward to discussing this work during our audit committee meeting scheduled for November 17, 2014. If you have any questions prior to then, don't hesitate to contact me. Sincerely, Ty Elliott City Internal Auditor TY ELLIOTT City Internal Auditor telliott(a�cstx.gov TEL: (979) 764-6269 CITY INTERNAL AUDITOR'S OFFICE 300 Krenek Tap College Station, TX 77840 AUDIT COMMITTEE Mayor Nancy Berry Mayor Pro Tem Karl Mooney Councilmember Steve Aldrich Ohms Employer Solutions Dependent Eligibility Audit Final Report prepared by HMS City of College Station October 2014 CITY OF COLLEGE STATION Home ofTxasAcrM University' Contents EXECUTIVE SUMMARY SLIDE 3 PROGRAM TIMELINE & MILESTONES SLIDE 4 COMMUNICATION DETAILS SLIDE 5 PROGRAM RESULTS SLIDES 6-1 1 FINAL RECOMMENDATIONS SLIDES 12-13 FEEDBACK SLIDE 14 Attachment A DEFINITIONS & DOCUMENT REQUIREMENTS COMMUNICATION OVERVIEW Executive Summary HMS Employer Solutions completed a comprehensive dependent verification program of 415 employees with 935 dependents enrolled in the City of College Station medical and dental plans. The objective of the program was to ensure that all dependents enrolled in the plans meet the definition of an eligible dependent by requiring employees to provide documentation to verify eligibility. Dependent Status Details 4.7% 1.3% ■ Verified Dependents ti Client Update 94.0% Removed Dependents Return on Investment $17,066 $136,934 M Investment M Total Annualized Savings Less Investment Over the course of the program, 4.7% of the dependents were recommended for removal because they did not meet the eligibility guidelines, or did not provide appropriate documentation to verify eligibility. This represents theoretical savings due to cost avoidance of $154,000 and an ROI of 802% for the project. L Program Timeline & Milestones Planning Phase Verification Phase 7/24/2014 — 9/02/2014 9/03/2014 — 10/01/2014 Verification Communication Mailed 9/03/2014 Milestones by Phase Final Notice of Adverse Action Letter 9/24/2014 Grace Period 10/02/2014 — 10/08/2014 Verification Deadline 10/01/2014 Planning Phase — July 24, 2014 - September 2, 2014 ■ Determine details for audit using Project Workbook ■ Transmit data files ■ Approve audit population ■ Outline communication plan and finalize communications ■ Finalize websites (employer and employee) Verification Phase — September 3, 2014 - October 1, 2014 ■ Determine ongoing status report frequency ■ Set dates for term file transmission and processing ■ Finalize details for close out/appeals Grace Period — October 2, 2014 - October 8, 2014 ■ Determine date for final drop files ■ Implement defined close out process Final Deadline 10/08/2014 Audit Closed 1 Ongoing Implementation Communication Details Communication Volume Verification Letter 1 Final Notice Custom Response Postcard 415 Emails Letters 0 100 200 300 400 500 Over the course of the program 1,097 communications were sent to City of College Station employees, generating a 99.5% response rate. Program Results The initial data included 415 employees with 935 dependents. The statistics presented in the following sections are calculated based on this population. Demographics ■ Spouse ® Child rgi Disabled Dependent Program Results — Response Rate Overall Response Rate 5.3% 0.5% Complete Response 93.7% Partial Response No Response Total Response Rate Trends 100.0% 95.0% 90.0% 85.0% Response Rate College Station % Results ■ Government % Results N Overall % Results The overall response rate of the program was 99.5%. This represents employees who fully complied and also who partially complied with the audit process. City of College Station's total response exceeded those in the same industry and was higher than overall audit results. 93.7% (389 employees) fully completed the audit process. 5.3% (24 employees) responded to the program but did not provide complete documentation. 0.5% (2 employees) failed to respond to the program. Program Results — Response Rate Response % by Communication Custom Response Final Notice Verification 1 35. 33.0 35.1% of employees who received a Custom Communication Letter 6 .2% successfully completed the process. 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 95.8% of employees successfully completed the program at their first attempt of submitting documents to HMS. Complete Response by Submission 100.0% 50.0% //z- 15% 22% 4.2% 0.0% r 95.8%% 85% 78% Multiple Attempt First Time Attempt Completes Complete College Station Results Government Results Overall Average Results Program Results — Term Statistics 80.0% 60.0% 40.0% 20.0% 0.0% Termination by Relationship 70.5% 29.5% Spouse Child Removal % by Type 4% ■ Voluntary Removal ri No Response Removal Total Ineligible Dependents: 44 Voluntary Terms: 10 Insufficient Term: 32 No Response Term: 2 ■ Insufficient Doc Removal 70.5% of the removed dependents were categorized as children. Program Results -- Term Statistics $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 so Savings by Termination Type $112,000 $35,000 $7,000 Voluntary Removal Insufficient Doc Removal No Response Removal Total Savings: $154,000 Voluntary Term Savings: $35,000 Insufficient Term Savings: $112,000 No Response Term Savings: $7,000 10 Program Results — Customer Service Electronic vs. Manual Submission 100.0% 50.0% 0.0% 89.2% 68% 32% 10.8% Electronic Submissions Mail Submissions ■ College Station % Results ■ Overall Average Total documents processed: 1,078 Electronic submissions were higher than mail submissions and were higher than average. Total service activities: 1,219 Inbound Service Activities Total Email Inquries Total Mobile Login Total Portal Login Total IVR Inquiries Total Inbound Calls 17 119 1 7 171 0 200 400 600 800 Final Recommendations Ongoing Dependent Verification Programs We recommend that the City of College Station continue verifying all newly enrolled dependents. HMS offers a host of ongoing services and will partner with the City of College Station to facilitate a program to meet your needs and reduce your exposure of enrolling and paying claims on ineligible dependents. Sample of HMS Ongoing Programs: Scheduled Ongoing Verification - Similar timeline and process as a comprehensive program, frequency is dependent on the volume of new enrollees and/or the City of College Station's needs. Annual Spousal Verification - Annual verification of spousal relationships will help ensure only dependents in an active relationship with your employee remain on plan. Point of Enrollment Verification - "Audit as you enroll" approach which enables the City of College Station to send HMS data at the point of enrollment. The electronic process is expedited to help you eliminate costs associated with ineligible dependents. L El 1 Other Services Claim Audit Programs We offer several different approaches for claims auditing services to ensure that claims are being processed according to plan guidelines. Our most popular claim audit approaches and other services are described below. For more information, please contact our team. Random Sample Audit - Compliance: This approach can be utilized whenever compliance and due diligence, not overpayment recovery, are the primary objectives. The random audit reviews a sample of claims allowed by the carrier selected on a stratified basis. The results would be statistically valid and could be extrapolated across the entire population of claims. Comprehensive Audit - Overpayment Recovery & Compliance: The comprehensive audit focuses primarily on overpayment recovery but also achieves objectives related to compliance and due diligence with the comprehensive audit of 100% of all claims using a three-tier process. Hybrid Audit Approach: The Hybrid approach is a combination of random and comprehensive audits using both a statistical view of payment accuracy and the ability to seek the recovery of overpayments, though on a smaller scale than what could be done with a comprehensive audit. Feed back We value your partnership in completing a successful Dependent Verification Program. One of our core competencies is focused on continuous process improvement. We would appreciate any feedback you are willing to share to assist us in our efforts. Overall Experience How would you describe your overall experience? Did you find your involvement to be more or Tess than you originally planned? Did the overall project results meet your expectations? Lessons Learned If you could change anything about the audit process or communications, what would it be? Was there anything that surprised you during the course of the program? What advice would you give someone preparing to start a Dependent Verification audit? Additionally, a short survey will be sent to you in a few weeks. Please provide us with your feedback so that we may continue to improve our services. 14 Attachment A Dependent Definitions & Document Requirements The eligibility definition was determined by the Summary Plan Description (SPD) supplied by the City of College Station. The plan definitions were used to determine documentation requirements to ensure that each dependent both originally met and continues to meet the eligibility rules defined by the plan. Spouse inition of an eligible depend:,.. Copy of a current financial or Copy of Marriage AND residential document listing Certificate the spouse as proof of current relationship status Your spouse Children Your child under the age of 26 Copy of child's birth certificate confirming the parent/child relationship Disabled Dependents Your child of any age who is medically certified as disabled and dependent on the parent for support and maintenance. Copy of child's birth certificate confirming the parent/child relationship AND A copy of the front page of Your most recently filed federal tax return claiming this child as a dependent A child is defined as your natural child; stepchild; legally adopted child or child placed with you for adoption; an eligible foster child; a child for whom you or your spouse has been appointed the legal guardian, or a child for whom you are required to provide health insurance by a Qualified Medical Child Support Order. Note for a stepchild: If you are covering a stepchild you must also provide documentation of your current relationship to your spouse as requested above. Communication Overview Verification Communication The verification communication was mailed to all employees with enrolled dependents providing information regarding the program. This communication listed enrolled dependents and the documents required to validate eligibility. As an employee responded to the program and supplied documentation, each piece of documentation was reviewed against the audit guidelines. y Complete Postcards: mailed to employees who provided all necessary documentation. Custom Response Communications: mailed to employees who responded to the program, but did not provide complete documentation. This letter detailed the documents received and ones still outstanding for each dependent. ➢ Termination Confirmations: Voluntary termination confirmations were mailed to employees who requested that dependents be removed from coverage due to ineligibility. Final Notice of Adverse Action The final notice of adverse action was sent to employees that had either not responded or partially responded to the audit. This communication outlines the consequences for failing to fully comply with the audit, appeals information and extends the deadline for providing documentation. 4 .1