Orange County Fire Authority

ORANGE COUNTY FIRE AUTHORITY Audit Report FIREFIGHTER’S CANCER PRESUMPTION PROGRAM Chapter 1568, Statutes of 1982 July 1, 2003, through June 30, 2007 J C OHN HIANG California State Controller April 2009 J C OHN HIANG California State Controller April 28, 2009 Donald W. McKay, Chairman Board of Directors Orange County Fire Authority 1 Fire Authority Road P.O. Box 57115 Irvine, CA 92602-7115 Dear Mr. McKay: The State Controller’s Office audited the costs claimed by the Orange County Fire Authority for the legislatively mandated Firefighter’s Cancer Presumption Program (Chapter 1568, Statutes of 1982) for the period of July 1, 2003, through June 30, 2007. The authority claimed $746,203 ($747,203 less a $1,000 penalty for filing a late claim) for the mandated program. Our audit disclosed that $632,562 is allowable and $113,641 is unallowable. The costs are unallowable because the authority claimed non-mandate-related, overstated, and unsupported costs. The State paid the authority $665,493. The amount paid exceeds allowable costs claimed by $32,931. 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/vb cc: Jim Ruane, Finance Manager/Auditor Orange County Fire Authority Gina Cheung, Accounting Manager Orange County Fire Authority Chris King, Risk Management Analyst Orange County Fire Authority Todd Jerue, Program Budget Manager Corrections and General Government Department of Finance Orange County Fire Authority Firefighter’s Cancer Presumption Program Contents Audit Report Summary............................................................................................................................ 1 Background........................................................................................................................ 1 Objective, Scope, and Methodology................................................................................. 1 Conclusion.......................................................................................................................... 2 Views of Responsible Official........................................................................................... 2 Restricted Use.................................................................................................................... 3 Schedule 1—Summary of Program Costs............................................................................ 4 Findings and Recommendations........................................................................................... 6 Attachment—Authority’s Response to Draft Audit Report Orange County Fire Authority Firefighter’s Cancer Presumption Program Audit Report Summary The State Controller’s Office (SCO) audited the costs claimed by the Orange County Fire Authority for the legislatively mandated Firefighter’s Cancer Presumption Program (Chapter 1568, Statutes of 1982) for the period of July 1, 2003, through June 30, 2007. The authority claimed $746,203 ($747,203 less a $1,000 penalty for filing a late claim) for the mandated program. Our audit disclosed that $632,562 is allowable and $113,641 is unallowable. The costs are unallowable because the authority claimed non-mandate-related, overstated, and unsupported costs. The State paid the authority $665,493. The amount paid exceeds allowable costs claimed by $32,931. Background Labor Code section 3212.1 (added and amended by Chapter 1568, Statutes of 1982) states that cancer that has developed or manifested itself in firefighters 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 firefighter 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 February 23, 1984, the Board of Control, (now the Commission on State Mandates [CSM]) determined that Chapter 1568, Statutes of 1982, imposed a reimbursable mandate under Government Code section 17561. The program’s parameters and guidelines establish the state mandate and define reimbursement criteria. CSM adopted the parameters and guidelines on October 24, 1985, and last amended it on March 26, 1987. In compliance with Government Code section 17558, the SCO issues claiming instructions to assist local agencies and school districts in claiming mandated program reimbursable costs. Objective, Scope, We conducted the audit to determine whether costs claimed represent increased costs resulting from the Firefighter’s Cancer Presumption and Methodology Program for the period of July 1, 2003, through June 30, 2007. 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 this performance audit under the authority of Government Code sections 12410, 17558.5, and 17561. We did not audit the authority’s financial statements. We conducted the audit in accordance with generally accepted government auditing standards. Those standards -1- Orange County Fire Authority Firefighter’s Cancer Presumption Program require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We limited our review of the authority’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, the Orange County Fire Authority claimed $746,203 ($747,203 less a $1,000 penalty for filing a late claim) for costs of the Firefighter’s Cancer Presumption Program. Our audit disclosed that $632,562 is allowable and $113,641 is unallowable. For the fiscal year (FY) 2003-04 claim, the State made no payment to the authority. Our audit disclosed that $51,352 is allowable. The State will pay that amount, contingent upon available appropriations. For the FY 2004-05 claim, the State paid the authority $143,116. Our audit disclosed that $87,129 is allowable. The State will offset $55,987 from other mandated program payments due the authority. Alternatively, the authority may remit this amount to the State. For the FY 2005-06 claim, the State paid the authority $273,917. Our audit disclosed that $263,484 is allowable. The State will offset $10,433 from other mandated program payments due the authority. Alternatively, the authority may remit this amount to the State. For the FY 2006-07 claim, the State paid the authority $248,460. Our audit disclosed that $230,597 is allowable. The State will offset $17,863 from other mandated program payments due the authority. Alternatively, the authority may remit this amount to the State. Views of We issued a draft audit report on March 12, 2009. Jim Ruane, Finance Manager/Auditor, responded by letter dated March 23, 2009 Responsible (Attachment), agreeing with the audit results. This final audit report Official includes the authority’s response. -2- Orange County Fire Authority Firefighter’s Cancer Presumption Program Restricted Use This report is solely for the information and use of the Orange County Fire Authority, 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 April 28, 2009 -3- Orange County Fire Authority Firefighter’s Cancer Presumption Program Schedule 1— Summary of Program Costs July 1, 2003, through June 30, 2007 Actual Costs Allowable Audit Cost Elements Claimed 1 per Audit Adjustment Reference 2 July 1, 2003, through June 30, 2004 Direct costs: Administrative costs $ 56,948 $ 38,187 $ (18,761) Finding 1 Disability benefit costs 106,473 66,517 (39,956) Finding 2 Total direct costs 163,421 104,704 (58,717) Reimbursable percentage × 50% × 50% × 50% Reimbursable costs 81,710 52,352 (29,358) Less late filing penalty (1,000) (1,000) — Total program costs $ 80,710 51,352 $ (29,358) Less amount paid by the State — Allowable costs claimed in excess of (less than) amount paid $ 51,352 July 1, 2004, through June 30, 2005 Direct costs: Administrative costs $ 130,078 $ 61,695 $ (68,383) Finding 1 Disability benefit costs 156,154 112,564 (43,590) Finding 2 Total direct costs 286,232 174,259 (111,973) Reimbursable percentage × 50% × 50% × 50% Total program costs $ 143,116 87,129 $ (55,987) Less amount paid by the State (143,116) Allowable costs claimed in excess of (less than) amount paid $ (55,987) July 1, 2005, through June 30, 2006 Direct costs: Administrative costs $ 68,558 $ 47,692 $ (20,866) Finding 1 Disability benefit costs 479,277 479,277 — Total direct costs 547,835 526,969 (20,866) Reimbursable percentage × 50% × 50% × 50% Total program costs $ 273,917 263,484 $ (10,433) Less amount paid by the State (273,917) Allowable costs claimed in excess of (less than) amount paid $ (10,433) July 1, 2006, through June 30, 2007 Direct costs: Administrative costs $ 77,405 $ 54,919 $ (22,486) Finding 1 Disability benefit costs 419,515 406,274 (13,241) Finding 2 Total direct costs 496,920 461,193 (35,727) Reimbursable percentage × 50% × 50% × 50% Total program costs $ 248,460 230,597 $ (17,863) Less amount paid by the State (248,460) Allowable costs claimed in excess of (less than) amount paid $ (17,863) -4- Orange County Fire Authority Firefighter’s Cancer Presumption Program Schedule 1 (continued) Actual Costs Allowable Audit Cost Elements Claimed 1 per Audit Adjustment Reference 2 Summary: July 1, 2003, through June 30, 2007 Direct costs: Administrative costs $ 332,989 $ 202,493 $ (130,496) Disability benefit costs 1,161,419 1,064,632 (96,787) Total direct costs 1,494,408 1,267,125 (227,283) Reimbursable percentage × 50% × 50% × 50% Reimbursable costs 747,203 633,562 (113,641) Less late filing penalty (1,000) (1,000) — Total program costs $ 746,203 632,562 $ (113,641) Less amount paid by the State (665,493) Allowable costs claimed in excess of (less than) amount paid $ (32,931) _________________________ 1 Actual costs claimed shown agree with the authority’s claim. Calculations may differ slightly because of rounding differences. 2 See the Findings and Recommendations section. -5- Orange County Fire Authority Firefighter’s Cancer Presumption Program Findings and Recommendations FINDING 1— The authority claimed unallowable administrative costs totaling $130,496. The costs are unallowable for the following reasons: Unallowable administrative costs • The authority claimed non-mandate-related costs totaling $51,477. The authority claimed total costs applicable to claimants who had both mandate-related and non-mandate-related ailments. The unallowable costs are attributable to the non-mandate-related ailments. • In its fiscal year (FY) 2004-05 claim, the authority claimed unallowable costs totaling $37,471 attributable to payments it made pursuant to Labor Code section 4850. For one claimant, the authority claimed costs that it claimed previously in FY 2002-03. For a second claimant, the authority claimed costs that exceeded the costs supported by its payment history documentation. • For the audit period, the authority claimed unsupported administrative costs totaling $41,548. The unsupported costs are attributable to the authority’s third-party administrator (TPA). The TPA administered the authority’s worker’s compensation claims. The TPA did not maintain contemporaneous time records that support the actual time spent on mandate-related claims. For each fiscal year, the authority calculated a ratio of mandate- related cases administered versus total workers’ compensation indemnity cases open at fiscal year-end. To claim mandate-related TPA costs, the authority applied this ratio to the total TPA costs that it paid for the fiscal year. However, the authority’s methodology does not properly allocate TPA costs to the mandated program. In addition, for each fiscal year, the authority identified a number of mandate- related cases that did not agree with its supporting documentation. The authority’s methodology is inaccurate because the number of indemnity cases open at fiscal year-end does not accurately represent the total number of cases that the TPA administered during the fiscal year. It excludes cases that the authority identifies as “medical-only.” It also excludes any cases that were opened and closed during the same fiscal year. We used the authority’s Public Self Insurers Annual Reports to calculate the total number of cases that the TPA administered each fiscal year. We totaled the number of cases open at the beginning of each fiscal year and the number of cases reported during the fiscal year. In addition, we calculated the number of mandate-related cases based on the authority’s mandated program claims, its Public Self Insurers Annual Reports, and cases identified by the authority’s TPA. -6- Orange County Fire Authority Firefighter’s Cancer Presumption Program The program’s parameters and guidelines specify that the authority may claim actual costs related to claimants’ cancer-related ailments. They also state, “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 adjustment: Fiscal Year 2003-04 2004-05 2005-06 2006-07 Total Non-mandate-related costs $ (19,758) $ (17,911) $ (4,881) $ (8,927) $ (51,477) Labor Code §4850 payments — (37,471) — — (37,471) TPA administrative costs 997 (13,001) (15,985) (13,559) (41,548) Total $ (18,761) $ (68,383) $ (20,866) $ (22,486) $ (130,496) Recommendation We recommend that the authority claim only those costs that are properly supported and reimbursable under the mandated program. Specifically, we recommend that the authority: • Claim only mandate-related costs (i.e., those costs attributable to cancer ailments), and • Claim only those costs that are supported by its accounting records and other source documentation. Authority’s Response The authority agreed with the audit finding. FINDING 2— The authority claimed unallowable disability benefit costs totaling $96,787. The costs are unallowable the following reasons: Unallowable disability benefit costs • The authority claimed non-mandate-related costs totaling $94,849. The authority claimed total costs applicable to claimants who had both mandate-related and non-mandate-related ailments. The unallowable costs are attributable to the non-mandate-related ailments. • The authority claimed unsupported costs totaling $1,938. In FY 2004-05, the authority claimed costs exceeding the costs that its expenditure ledger supported for one claimant. In FY 2006-07, the authority did not provide source documentation to support one invoice that it claimed. The program’s parameters and guidelines specify that the authority may claim actual costs related to claimants’ cancer-related ailments. They also state, “All costs claimed must be traceable to source documents or worksheets that show evidence of and the validity of such costs.” -7- Orange County Fire Authority Firefighter’s Cancer Presumption Program The following table summarizes the audit adjustment: Fiscal Year 2003-04 2004-05 2005-06 2006-07 Total Non-mandate-related costs $ (39,956) $ (42,552) $ — $ (12,341) $ (94,849) Unsupported costs — (1,038) — (900) (1,938) Total $ (39,956) $ (43,590) $ — $ (13,241) $ (96,787) Recommendation We recommend that the authority claim only those costs that are properly supported and reimbursable under the mandated program. Specifically, we recommend that the authority: • Claim only mandate-related costs (i.e., those costs attributable to cancer ailments), and • Claim only those costs that are supported by its accounting records and other source documentation. Authority’s Response The authority agreed with the audit finding. -8- Orange County Fire Authority Firefighter’s Cancer Presumption Program Attachment— Authority’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S09-MCC-013