El Dorado County

EL DORADO COUNTY Audit Report CANCER PRESUMPTION– PEACE OFFICERS PROGRAM Chapter 1179, Statutes of 1989 July 1, 2001, through June 30, 2004 J C OHN HIANG California State Controller August 2007 J C OHN HIANG California State Controller August 24, 2007 The Honorable Joe Harn Auditor-Controller El Dorado County County Government Center 360 Fair Lane Placerville, CA 95667 Dear Mr. Harn: The State Controller’s Office audited the costs claimed by El Dorado County for the legislatively mandated Cancer Presumption–Peace Officers Program (Chapter 1179, Statutes of 1989) for the period of July 1, 2001, through June 30, 2004. The county claimed $461,364 for the mandated program. Our audit disclosed that $223,308 is allowable and $238,056 is unallowable. The unallowable costs occurred primarily because the county claimed unallowable costs, misclassified revenues as expenditures, and overstated offsetting revenues. The State made no payment to the county. The State will pay allowable costs claimed that exceed the amount paid, totaling $223,308, contingent upon available appropriations. If you disagree with the audit findings, you may file an Incorrect Reduction Claim (IRC) with the Commission on State Mandates (CSM). The IRC must be filed within three years following the date that we notify you of a claim reduction. You may obtain IRC information at CSM’s Web site, at www.csm.ca.gov (Guidebook link); you may obtain IRC forms by telephone, at (916) 323-3562, or by e-mail, at csminfo@csm.ca.gov. If you have any questions, please contact Jim L. Spano, Chief, Mandated Cost Audits Bureau, at (916) 323-5849. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB/wm cc: Lisa Hoaas, Sr. Risk Management Analyst El Dorado County Todd Jerue, Program Budget Manager Corrections and General Government Department of Finance El Dorado County Cancer Presumption–Peace Officers Program Contents Audit Report Summary............................................................................................................................ 1 Background........................................................................................................................ 1 Objective, Scope, and Methodology................................................................................. 1 Conclusion.......................................................................................................................... 2 Views of Responsible Officials.......................................................................................... 2 Restricted Use.................................................................................................................... 2 Schedule 1—Summary of Program Costs............................................................................ 3 Findings and Recommendations........................................................................................... 5 El Dorado County Cancer Presumption–Peace Officers Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by El Dorado County for the legislatively mandated Cancer Presumption– Peace Officers Program (Chapter 1171, Statutes of 1989) for the period of July 1, 2001, through June 30, 2004. The last day of fieldwork was April 12, 2007. The county claimed $461,364 for the mandated program. Our audit disclosed that $223,308 is allowable and $238,056 is unallowable. The unallowable costs occurred primarily because the county claimed unallowable costs, misclassified revenues as expenditures, and overstated offsetting revenues. The State made no payment to the county. The State will pay allowable costs claimed that exceed the amount paid, totaling $223,308, contingent upon available appropriations. Background Chapter 1171, Statutes of 1989, amended Labor Code section 3212.1 by adding “peace officers, as defined in Penal Code section 830.1 and .2, who are primarily engaged in active law enforcement activities” to the category of public employees that are covered by its provisions. Previously, the provisions only applied to public sector fire fighting personnel. This section states that cancer that has developed or manifested itself in peace officers will be presumed to have arisen out of and in the course of employment, unless other evidence controverts the presumption. The presumption is extended to a peace officer following termination of service for a period of three calendar months for each year of requisite service, but not to exceed 60 months in any circumstance, commencing with the last date actually worked in the specified capacity. On July 23, 1992, the Commission on State Mandates (CSM) determined that Chapter 1171, Statutes of 1989, imposed a state mandate reimbursable under Government Code section 17561. In compliance with Government Code section 17558, the State Controller’s Office issues claiming instructions for each mandate requiring state reimbursement to assist any city, county, school or special district which incurs increased costs in claiming reimbursable costs. Objective, We conducted the audit to determine whether costs claimed represent increased costs resulting from the Cancer Presumption–Peace Officers Scope, and Program for the period of July 1, 2001, through June 30, 2004. Methodology Our audit scope included, but was not limited to, determining whether costs claimed were supported by appropriate source documents, were not funded by another source, and were not unreasonable and/or excessive. We conducted the audit according to Government Auditing Standards, issued by the Comptroller General of the United States, and under the authority of Government Code sections 12410, 17558.5, and 17561. We did not audit the county’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain -1- El Dorado County Cancer Presumption–Peace Officers Program reasonable assurance that costs claimed were allowable for reimbursement. Accordingly, we examined transactions, on a test basis, to determine whether the costs claimed were supported. We limited our review of the county’s internal controls to gaining an understanding of the transaction flow and claim preparation process as necessary to develop appropriate auditing procedures. Conclusion Our audit disclosed instances of noncompliance with the requirements outlined above. These instances are described in the accompanying Summary of Program Costs (Schedule 1) and in the Findings and Recommendations section of this report. For the audit period, El Dorado County claimed $461,364 for costs of the Cancer Presumption–Peace Officers Program. Our audit disclosed that $223,308 is allowable and $238,056 is unallowable For the fiscal year (FY) 2001-02 claim, the State made no payment to the county. Our audit disclosed that $180,568 is allowable. The State will pay that amount, contingent upon available appropriations. For the FY 2002-03 claim, the State made no payment to the county. Our audit disclosed that $19,532 is allowable. The State will pay that amount, contingent upon available appropriations. For the FY 2003-04 claim, the State made no payment to the county. Our audit disclosed that $23,208 is allowable. The State will pay that amount, contingent upon available appropriations. Views of We issued a draft audit report on July 31, 2007. We contacted Lisa Hoaas, Senrior Risk Management Analyst, by e-mail on August 15, Responsible 2007. Ms. Hoaas did not respond to the draft report. Officials Restricted Use This report is solely for the information and use of El Dorado County, the California Department of Finance, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits -2- El Dorado County Cancer Presumption–Peace Officers Program Schedule 1— Summary of Program Costs July 1, 2001, through June 30, 2004 Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 July 1, 2001, through June 30, 2002 Salaries $ 558 $ 685 $ 127 Finding 3 Benefits 131 160 29 Finding 3 Disability payments 89,448 77,144 (12,304) Finding 2 Services and supplies 497,547 282,742 (214,805) Finding 1 Total direct costs 587,684 360,731 (226,953) Indirect costs 330 405 75 Finding 3 Total program costs 588,014 361,136 (226,878) Reimbursement percentage × 50% × 50% × 50% Total claimed costs $ 294,007 180,568 $ (113,439) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 180,568 July 1, 2002, through June 30, 2003 Salaries $ 423 $ 423 $ — Benefits 113 113 — Services and supplies 210,095 38,362 (171,733) Finding 1 Total direct costs 210,631 38,898 (171,733) Indirect costs 165 165 — Total program costs 210,796 39,063 (171,733) Reimbursement percentage × 50% × 50% × 50% Total claimed costs $ 105,398 19,532 $ (85,866) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 19,532 July 1, 2003, through June 30, 2004 Salaries $ 896 $ 1,085 $ 189 Finding 3 Benefits 282 341 59 Finding 3 Disability payments 86 86 — Services and supplies 546,146 44,527 (501,619) Finding 1 Total direct costs 547,410 46,039 (501,371) Indirect costs 312 377 65 Finding 3 Total direct and indirect costs 547,722 46,416 (501,306) Less offsetting savings/reimbursements (423,804) — 423,804 Finding 4 Total program costs 123,918 46,416 (77,502) Reimbursement percentage × 50% × 50% × 50% Total claimed costs $ 61,959 23,208 $ (38,751) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 23,208 -3- El Dorado County Cancer Presumption–Peace Officers Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed per Audit Adjustment Reference 1 Summary: July 1, 2001, through June 30, 2004 Salaries $ 1,877 $ 2,193 $ 316 Benefits 526 614 88 Disability payments 89,534 77,230 (12,304) Services and supplies 1,253,788 365,631 (888,157) Total direct costs 1,345,725 445,668 (900,057) Indirect costs 807 947 140 Total direct and indirect costs 1,346,532 446,615 (899,917) Less offsetting savings/reimbursements (423,804) — 423,804 Total program costs 922,728 446,615 (476,113) Reimbursement percentage × 50% × 50% × 50% Total claimed costs $ 461,364 223,308 $ (238,056) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 223,308 _________________________ 1 See the Findings and Recommendations section. -4- El Dorado County Cancer Presumption–Peace Officers Program Findings and Recommendations FINDING 1— The county claimed $1,253,788 for services and supplies during the audit period. Service and supply costs totaling $888,157 were unallowable Overstated services because the county inadvertently claimed insurance reimbursement and supplies costs payments of $423,805 as expenditures, claimed $350,919 for medical and benefit expenses that are covered by the county’s excess insurance policy, claimed $111,574 for excess insurance premiums that cover all county employees instead of just those who are cancer patients, and claimed $1,859 for Workers’ Compensation administration fees that were not properly supported. Unallowable costs occurred for the following reasons. • The county included reimbursement payments from its General Reinsurance (Excess Insurance) carrier in the amount of $423,805 during the audit period ($84,688 for FY 2001-02 and $339,117 for FY 2003-04) as claimed expenditures, in error. The error occurred due to a posting error made within the county’s expenditure ledger; as a result, the revenues were mistakenly posted as expenditures. Accordingly, we adjusted allowable services and supplies for FY 2001-02 and FY 2003-04 to correct for these posting errors. • The county had an excess insurance policy in force during the audit period that pays the county for medical expenses that exceed $250,000 for an individual employee. We noted that one employee’s expenses exceeded the $250,000 amount by $350,919 during the audit period ($129,655 for FY 2001-02, which includes $11,581 in expenditures carried over from FY 2000-01, $130,951 for FY 2002-03, and $90,313 for FY 2003-04). The excess is unallowable. • The county overstated its per-claimant costs incurred for Workers’ Compensation administration fees by $1,859 during the audit period ($462, $696, and $701 for FY 2001-02 through FY 2003-04, respectively). The county’s contract with the administrator included a monthly fee for services rendered. The county prepared an “SB 90 Calculation Sheet” that estimated the percentage breakdown of the monthly administrative fee billing between “medical only claims” (15%), “indemnity claims” (25%), and “legal claims” (60%). The county then multiplied the total number of open claims by the percentages above to determine the number of claims within each category. The county then divided the total annual cost for the administration fees only by the number of calculated “legal claims to determine the per monthly cost per claimant.” However, the county provided no corroborating evidence to support the percentage of allocations made between the various types of claims administered. The county did have sufficient documentation to support dividing the total amount of annual administration fees by the total number of Workers’ Compensation claims administered, regardless of type, to determine the per monthly cost per claimant. Using this approach, monthly per-claimant costs changed from $67.46 to $48.24 for FY 2001-02, from $62.88 to $43.57 for FY 2002-03, and from $58.08 to $41.15 for FY 2003-04. -5- El Dorado County Cancer Presumption–Peace Officers Program • The county claimed unallowable costs associated with excess insurance premiums in the amount of $111,574 during the audit period ($40,086 for FY 2002-03 and $71,488 for FY 2003-04). We determined that the county calculated the premium amount per cancer patient by using the identical procedure described above (dividing the total annual premium by the number of “legal claims”). However, excess insurance coverage applies to all county employees and the premium amount should be allocated accordingly. Using this approach, allowable costs for excess insurance premiums changed from $1,123 to $9.58 per month per employee for FY 2002-03 and from $1,570 to $15 per month per employee for FY 2003-04. The county did not claim excess insurance premium costs for FY 2001-02. Government Code section 17514 defines “costs mandated by the state” as any increased costs that a local agency is required to incur. The county is not required to incur costs over $250,000 for any individual claimant because its excess insurance carrier reimburses those costs. Parameters and Guidelines identifies reimbursable costs as all actual costs attributable to cancer-related ailments, as specified by Labor Code section 3212.1. In addition, Parameters and Guidelines states: Cancer that has developed or manifested itself in peace officers will be presumed to have arisen out of and in the course of employment, unless the presumption is controverted by other evidence. The presumption is extended to a peace officer following termination of service for a period of three calendar months for each year of requisite service, but not to exceed sixty (60) months in any circumstance, commencing with the last date actually worked in the specified capacity. Parameters and Guidelines states: For auditing purposes, all costs claimed must be traceable to source documents or worksheets that show evidence of and the validity of such costs. The following table summarizes the audit adjustments. Fiscal Year 2001-02 2002-03 2003-04 Total Medical expenses $ (129,655) $ (130,951) $ (90,313) $ (350,919) Revenues misclassified (84,688) — (339,117) (423,805) Administration fees (462) (696) (701) (1,859) Excess insurance — (40,086) (71,488) (111,574) Audit adjustment $ (214,805) $ (171,733) $ (501,619) $ (888,157) Recommendation We recommend that the county ensure that all claimed costs are properly supported and reimbursable under the mandated program. Specifically, the county should ensure that claims only mandate-reimbursable costs and that it supports claim costs. SCO’s Comment The county did not respond to the finding; the finding and recommendation remain unchanged. -6- El Dorado County Cancer Presumption–Peace Officers Program FINDING 2— The county claimed unallowable costs because the county overstated disability payments by $12,304 for FY 2001-02. The county claimed Overstated disability 100% of disability payments made to a claimant, although a portion of payment costs the benefits relate to a prior injury that occurred before the claimant was diagnosed with cancer. Based on the court’s stipulation award, 22.5% of the disability payment relates to the prior injury. However, the county claimed 100% ($54,683) of the disability payments made to this claimant. Accordingly, we noted an audit adjustment of $12,304 (22.5% of $54,683). Parameters and Guidelines states: For auditing purposes, all costs claimed must be traceable to source documents or worksheets that show evidence of and the validity of such costs. Recommendation We recommend that the county ensure that claimed costs include only eligible costs, are based on actual costs, and are properly supported. SCO’s Comment The county did not respond to the finding; the finding and recommendation remain unchanged. FINDING 3— Salary and benefit costs totaling $404 were underclaimed during the audit period because the county understated productive hourly rates for Understated FY 2001-02 and FY 2003-04. Related indirect costs based on the indirect productive hourly cost rates claimed totaled $140. The understatement occurred because the rates county used budgeted salary and benefit amounts instead of actual amounts to calculate productive hourly rates. As a result, we adjusted claimed salary, benefit, and related indirect costs as follows: Fiscal Year 2001-02 2003-04 Total Salaries $ 127 $ 189 $ 316 Benefits 29 59 88 Subtotal 159 248 404 Indirect costs 75 65 140 Audit adjustment $ 231 $ 313 $ 544 Parameters and Guidelines states: For auditing purposes, all costs claimed must be traceable to source documents or worksheets that show evidence of and the validity of such costs. -7- El Dorado County Cancer Presumption–Peace Officers Program Recommendation We recommend the county to establish and implement procedures to ensure that claimed costs include only eligible costs, are based on actual costs, and are properly supported. SCO’s Comment The county did not respond to the finding; the finding and recommendation remain unchanged. FINDING 4— The county overstated offsetting savings/reimbursements by $423,804 during the audit period. The county claimed offsetting savings/ Overstated offsetting reimbursements attributable to non-reimbursable expenses. savings/reimbursements The county offset its claim for FY 2003-04 for reimbursement payments that it received from its excess insurance carrier of $84,688 in FY 2001-02 and $339,117 in FY 2003-04. These payments were reimbursements for medical payments related to cancer patients that exceeded the $250,000 limit established within the county’s insurance contract. These receipts are attributable to non-reimbursable costs. We identified unallowable costs recoverable from outside insurance in Finding 1. Therefore, the associated savings/reimbursements is also unallowable. Parameters and Guidelines states that reimbursement for this mandate received from any source shall be identified and deducted from the claim. However, excess insurance payments are not applicable to reimbursable mandated costs; therefore, those reimbursements are unallowable for mandated program claiming purposes. Recommendation We recommend that the county identify and deduct from its claims only those offsetting savings/reimbursements that are attributable to costs reimbursable under the mandated program. SCO’s Comment The county did not respond to the finding; the finding and recommendation, with minor edits, remain unchanged. -8- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S06-MCC-004