COMMUNITY MENTAL HEALTH COMPLIANCE EXAMINATIONS

1. COMMUNITY MENTAL HEALTH COMPLIANCE EXAMINATIONS Presented By: MDCH Office of Audit Contract Management June 1, 2007

2. OUTLINE OF TOPICS • Why Compliance Examinations? • Attestation Standards • Compliance Examination Guide • Contracts, Laws & Regulations • Specified Compliance Requirements • Report Requirements • After Report is Issued

3. Why Compliance Examinations? • Concerns Raised by Industry re: MDCH Audit Process • Prompted Legislative Action • 2004 appropriations Act Section 450

4. 06/07 Contract Requirements • Financial Statement Audit • ComplianceExamination • AICPA’s Statements on Standards for Attestation Engagements (SSAE) 10 AT Section 601 - Compliance Attestation (Examination Engagement) • Compliance Examination Guidelines

5. AICPA Attestation Standards • AT Section 601 – Compliance Attestation – Examination Engagement • NOT an Agreed Upon Procedures Engagement • Examining the entity’s compliance with SPECIFIED REQUIREMENTS

6. Compliance Examination Guidelines • Each Party’s Responsibilities • Examination Requirements • Specified Compliance Requirements • Retention of Working Papers and Records

7. Each Party’s Responsibilities • MDCH • Review and revise guidelines annually • Review report packages • Issue management decision • Monitor PIHPs and CMHSPs and perform supplemental reviews as needed.

8. Each Party’s Responsibilities • CMHSP and PIHP • Maintain internal control • Comply with laws, regs, contracts • Prepare financial statements • Ensure completion of required examination • Take corrective action on findings • Prepare a corrective action plan

9. PIHP Responsibilities for Medicaid Funds • Monitor affiliate CMHSPs’ use of Medicaid funds • Include Medicaid funds contracted out in PIHP Compliance Examination by either: • Requiring the PIHP’s independent auditor to examine the records of the affiliated CMHSP, or • Require the affiliated CMHSPs to contract with an independent auditor to examine compliance issues related to contracts between PIHPs and CMHSPs. • If applicable, review the CMHSP’s examination report and issue a management decision.

10. Examination Requirements • Examination Objective • Express an opinion on compliance based on specified criteria. • Practitioner Requirements • Due care • Proper degree of professional skepticism • Follow paragraphs 40 – 53 from AICPA’s Attestation Standards • Practitioner Report • Standards from AT Section 601 • Supplemental Schedules • Reporting Package – Report + CAP • Report Submission – 9 months • Incomplete or Inadequate Examinations • Management Decision – 6 months

11. Overview of Laws, Regulations, Rules and Contracts • OMB Circular A-87 • Mental Health Code (MHC) • Medicaid Provider Manual • MDCH/PIHP Contract • MDCH/CMHSP Contract

12. Overview of Laws, Regulations, Rules and Contracts • OMB Circular A-87 Establishes principles and standards for determining costs for cost reimbursement contracts • Attachment A General Principles for Determining Allowable Costs • Attachment B Selected Items of Cost • Attachment C State/Local Wide Central Service Cost Allocation Plans • Attachment D Public Assistance Cost Allocation Plans • Attachment E State and Local Indirect Cost Rate Proposals

13. Overview of Laws, Regulations, Rules and Contracts • Mental Health Code Chapter 2 - County Community Mental Health Programs (CMHSP) • 330.1204 Agency, Organization or Authority • 330.1205 Powers of an Authority • 330.1226 Powers of a Board • 330.1226a Special fund account

14. Overview of Laws, Regulations, Rules and Contracts • Mental Health Code Chapter 2 - County Community Mental Health Programs (CMHSP) • 330.1240 expenditures eligible for state financial support • 330.1242 expenditures ineligible for state financial support • 330.1244(d) Audit or cause to be audited expenditure of state funds by CMHSP

15. Overview of Laws, Regulations, Rules and Contracts • Mental Health Code Chapter 3 - State and County Financial Responsibility • 330.1302 Liability of County (10%) • 330.1308 Liability of State (90%) • 330.1309 Liability of State (100%)

16. Overview of Laws, Regulations, Rules and Contracts • Medicaid Provider Manual • The Manual includes policy for all Medicaid-enrolled providers. • PIHPs are one type of provider • Section on Mental Health/Substance Abuse • Covers programs under each waiver • Used with other applicable sections

17. Overview of Laws, Regulations, Rules and Contracts • MDCH/PIHP Contract • Medicaid MH/DD/SA services • Medicaid Federal Regulations apply • Restrictions on use of funds to eligible individuals • Contract allows savings up to 7.5% of authorization

18. Overview of Laws, Regulations, Rules and Contracts • MDCH/PIHP Contract • PEPM capitation payment of Medicaid • Federal Waivers 1915 (b), 1915 (b)3 and 1915 (c) • State plan • B3 waiver • Habilitation Supports c Waiver

19. Overview of Laws, Regulations, Rules and Contracts • MDCH/PIHP Contract • Sec 5 Observance of federal, state and local laws • Sec 6.4.2 Subcontracting • Sec 6.6 Financial Management System • Sec 7.0 Contract Financing • Sec 7.7.1 Risk Corridor • Sec 7.7.2 Savings and Reinvestment • Sec 7.8 Finance Planning, Reporting and Settlement • Sec 9.3 Reviews and audits

20. Overview of Laws, Regulations, Rules and Contracts • MDCH/PIHP Contract attachments • P 6.4.1.1 Procurement Technical Requirement • P 7.0.1 MDCH Funding • P 7.7.4.1 Internal Service Fund Technical Requirement • P 7.8.1 Financial Reporting Forms and Instructions • P 9.3.2.1 MDCH Audit Report and Appeal Process

21. Overview of Laws, Regulations, Rules and Contracts • MDCH/CMHSP Contract • Contract with MDCH to provide MH and DD services • General Fund General Purpose funds (GF) paid as formula funds • Grants and other agreements paid under the specific terms • Under MHC Sec. 226(2)(b) may carry forward up to 5% of authorization

22. Overview of Laws, Regulations, Rules and Contracts • MDCH/CMHSP Contract • Sec 5 Observance of federal, state and local laws • Sec 6.4.1 Provider Contracts • Sec 6.6 Financial Management System • Sec 7.0 Contract Financing • Sec 7.1 Local Obligation Revenue Sources

23. Overview of Laws, Regulations, Rules and Contracts • MDCH/CMHSP Contract • Sec 7.4 MDCH Funding • Sec 7.7.1 Savings Carry Forward – 5% of GF under MHC 330.1226(2)(c) • Sec 7.8 Finance Planning, Reporting and Settlement • Sec 9.4 Reviews and audits

24. Overview of Laws, Regulations, Rules and Contracts • MDCH/CMHSP Contract attachments • C 7.0.1 MDCH Funding • C 7.7.4.1 Internal Service Fund Technical Requirement • C 7.8.1 Financial Reporting Forms and Instructions • C 9.3.2.1 MDCH Audit Report and Appeal Process

25. Specified Compliance Requirements • FSR Reconciliation • Expenditure Reporting • Rate Setting and Ability to Pay • Consumer Fund Review • Revenue Reporting • Procurement • Internal Service Fund (ISF) • Medicaid Savings and General Fund Carryforward • Match Requirement • Service Documentation

26. FSR Reconciliation to General ledger • Audit Trail Sufficient to support an opinion • Disclose all adjustments to amounts • Document all allocation methods and amounts • Identify Revenue and expenses in the FSR • Provide ability to apply financial findings to FSR • CMHSP or PIHP should prepare the reconciliation for the CPA • If not clear then adverse opinion

27. Expenditure Reporting • CPA must determine if expenditures on FSR comply with: • OMB Circular A-87 • Mental Health Code • Contract provisions • Specific items listed on Page 10 of Guidelines • CMHSP and PIHP should: • Review OMB Circular A-87, Mental Health Code and contract provisions with focus on compliance • Note any possible compliance issues to the CPA for their review • Don’t wait for the CPA to find the issue • CPA may want a detailed management representation letter

28. Expenditure Reporting • Assignment of Cost to Medicaid or GF is Key • Auditor should review method and application • Section 460 Cost Allocation Plans and Reports • The Section 460 Cost Allocation Plan and report is a good source for information on method and application • 460 Cost allocation plan defines assignment and allocation methods • 460 Cost plan must comply with OMB Circular A-87 • 460 cost allocation report should reconcile to the FSR

29. Expenditure Reporting • MDCH plans to include a specific review requirement of 460 Cost plan and report in the next compliance examination guidelines • CPA reporting on the allocation plans compliance with OMB Circular A-87 • CPA opinion on the 460 Cost allocation reports compliance with the submitted plan

30. Specified Compliance Requirements • Expenditure Reporting • Rate Setting and Ability to Pay • Service Documentation • Consumer Fund Review

31. Expenditure Reporting A-87 Guidelines

32. A-87 Cost Principles • Be necessary and reasonable • Be allocable to the grant under the provision • Be authorized or not prohibited under state or local laws • Conform to the limitations in the circular • Be consistent with policies and regulations and procedures that apply to Federal awards • Be accorded consistent treatment • Comply with GAAP • Not included as cost for another Federal award • Be net of applicable credits • Be adequately documented

33. Other General Guidelines • All reported expenditures must be traceable to the agency’s general ledger • Reimbursement to subcontractors must be supported by valid contracts and adequate supporting documentation on costs and services • Cost must be allocated to programs in accordance with the relative benefits received • Distributions of salaries and wages for employees that work on multiple activities must be supported by personnel activity reports

34. Guidelines for Subcontracts • Contracts should be reviewed to determine if any are related parties • If related party contracts exist, they should receive careful scrutiny to ensure the reasonableness criteria of A-87 is met. • If the subcontracts are on a net cost basis, cost must be verified for existence and appropriate supporting documentation • If the subcontract is for inpatient services, the Medicaid rates can not exceed those paid to other consumers

35. Selected Items of Cost • The A-87 circular has forty-two items of selected cost for which it has special instructions and guidelines.

36. Selected Items Reviewed with CPAs • Bad Debts • Compensation for Personal Services • Legal Costs • Depreciation and Use Allowances • Donations • Entertainment • Fines and Penalties • Goods and Services for Personal Use • Interest Expense • Lobbying • Memberships, Subscriptions, and Professional Activity • Professional Service Cost

37. Advertising and Public Relations • Advertising only allowed for: >Recruitment of Personnel >Procurement of Goods and Services >Disposal of scrap and surplus materials >Specifically required by Federal award Public Relations only allowed for: >Specifically required for Federal award >Notices required by Federal award

38. Advertising and Public Relations • Not allowed for: • Costs of meetings, conventions and other events related to other activities of the governmental unit including: • Costs of displays and exhibits • Costs of meeting rooms in conjunction with meetings and etc. • Salaries and Wages of employees engaged in these meetings • Cost of promotional items – gifts and souvenirs • Costs to specifically promote the governmental unit

39. Alcoholic Beverages • Not Allowed

40. Fringe Benefits • Allowed for: • Cost of leave • Employee insurance • Pensions • Unemployment benefit plans • Other reasonable benefits • Should have written plans/policies • Cash or accrual basis as long as consistent

41. Types of Leave • Accrual basis may be only used for which a liability as defined by GAAP exists when the leave is earned. • Should be the lesser of the amount accrued or funded

42. Pensions and Post Retirements Benefits • If pay as you go – allowed limited to actual payments • Actuarial cost-based method recognized by GAAP are allowable for a given fiscal year if they are funded for that year within six months after the end of the year • Can’t do both • Unfunded liability at time of conversion to accrual basis may be written off over several years in accordance with GAAP

43. Contingency Provisions • Contributions to a contingency reserve for events the occurrence of which cannot be foretold with certainty as to time, intensity, or with an assurance of their happening are unallowable • Does not include pension plans and self-insurance reserves which have actuarial determinations

44. Capital Expenditures • Unallowable as direct charges, except where approved in advance by the awarding agency • Capital expenditure for equipment threshold is $5,000 • Depreciation and use charges are allowed • Purchases can’t be split to avoid capitalization rules

45. Fund Raising and Investment Management Costs • Not allowed with the exception of management fees for investments covering pensions and self-insured funds

46. Rental Costs • Rents allowed that are reasonable based on current markets • Rents under a “sale and lease back” are allowed only to the amount that would be allowed had the governmental unit continued to own the property • Rental costs under leases which are required to be treated as capital leases under GAAP are allowable only to the extent had the governmental agency purchased the property • Rents under “less-than-arms-length” leases are allowable only up to the amount that would be allowed had the property vested in the governmental unit • Less than arms length – is one under which one party to the lease agreement is able to control or substantially influence the actions of the other.

47. Rate Setting • The CMHSP and its contracted providers bill and collect fees for mental health services they provide. The charges for the services are to be based on the program’s cost. • Costs billed to the agency should be net of all reimbursement sources • Consumers should be completing an ability to pay application/form (Mental Health Code – Section 828 and Medicaid Provider Manual – Beneficiary Eligibility – Section 12.2.C) • The agency should have an adequate collection of receivables

48. Rates • The rates should include an allocation of administrative overhead. • Rates should approximate Medicaid rates • Rates should be updated annually • Rates should be the same for Medicaid as general consumers or less

49. Personal Care (Model Payments) • The audit must determine if services are adequately documented according to contractual (Attachment 6.8.2.4) and Code provisions • Obtain • Personal Care Plan of Service • Personal Care Service Log • Model Payment Authorization

50. Personal Care (Model Payments) • Consumer to be eligible • Must be covered by Medicaid • Requires personal care assistance • Lives in a non-specialized Adult Foster Care Home • The Adult Foster Care home has a license • Formal screening by CMH