HomeMy Public PortalAboutExhibit MSD 11A18 Corporate Claims Management Inc. March 2010Exhibit MSD 11A18
Metropo
St. Louis
Sewer District
Corporate Claims
Management Inc,
Review
March 26, 2010
t. Louis Sewer District
Table of Contents
Executive Summary 3
Detailed Observations & Recommendations 7
Management Acknowledgement 9
Opportunities for Improvement 10
Appendix:
A - Contents of the Observations & Recommendations 11
Executive Summary
t. Louis Sewer District
Background
The Water Back-up Insurance program covers both (1) System Over Capacity
damage and (2) Blocked Main damage. The System Over Capacity Insurance
Program covers water back-up damage that results from a rain event that
exceeds the capacity of the system. Claims are limited to $2,500 with a $100
deductible for a maximum claim of $2,400. In the case of a Blocked Main, the
Insurance Program covers water back-up claims for basements due to
blockages in the District's main sewer lines. Claims are reimbursed based on
replacement value with no limit. The District is self -insured for workers
compensation and funds those costs through annual appropriations from the
District's general fund. The District maintains reinsurance for workers
compensation liabilities in excess of specified limits up to the statutory limit.
Corporate Claims Management, Inc. (CCMI) provides third party
administrative services, claims handling and reporting services for the
District's water back-up, worker's compensation, general liability, auto,
errors and omissions claims and any other claim against the District,
Board of Trustees, Civil Service Commission, Rate Commission or
District staff.
Audit Objectives & Scope
The objectives of this engagement were to:
• Evaluate CCMI's claims processing activities in relation to its established
policies and procedures. This included, but was not limited to,
determining that there was:
o Timely contact with claimants to begin investigation.
o Adequate documentation of investigation efforts.
o Proper establishment and reporting of reserves to the District.
o Appropriate support for determination of claim settlement
amounts, including proper releases.
o Proper approval of claim amounts paid and that the amounts did
not exceed ordinance limits, where applicable.
• Evaluate CCMI's compliance with general contract terms. This included,
but was not limited to, determining that:
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t. Louis Sewer District
o MSD was notified of reserve changes exceeding established
thresholds.
o Bank account reconciliations were performed by CCMI.
o CCMI provided required benchmarking reports.
o CCMI prepared and submitted required reports to appropriate
regulatory agencies.
• Follow up on prior audit issues to ensure that they are not recurring.
• Other procedures as deemed necessary.
This review was limited to water backup and workers compensation claims and
corresponding control activities during the period July 1, 2008 through
September 30, 2009.
While the primary objectives of this review focused on CCMI's compliance and
effectiveness, if potential opportunities for improvement in MSD's processes
was identified, we reported on these opportunities to management accordingly.
Approach & Methodology
To accomplish the audit objectives, Internal Audit:
• Obtained and reviewed documentation such as contracts, Request for
Proposals (RFP), response to proposal, policies and procedures,
ordinances, and other pertinent documents.
• Conducted testing of claim files on a sample basis to determine overall
compliance with claim processing procedures.
• Conducted testing on a sample basis to determine compliance with any
other key terms of the contracts and RFP.
• Verified, on a sample basis, endorsements of payees or claimants on
cancelled checks.
• Verified, on a sample basis, through confirmation letters that payees or
claimants received payments.
• Developed findings and recommendations, and suggestions in process
improvements as applicable.
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Sample of accounts were as follows:
t. Louis Sewer District
Claim Type
Claims
Paid*
No. of
Claims
Tested**
Claims Tested $
% of
Claims
Paid
System Over Capacity
$5,267,108
5
$11,851
.23%
Blocked Main
$4,756,259
10
$357,667
7.5%
Workers Comp
$1,000,389
5***
$267,526
26.7%
*Claims paid - Checks issued during the period July 1, 2008 through
September 30, 2009.
**Sample size reduced based on reliance on SAS 70 report. See comments
below.
***A Workers Comp claim may consist of a several payments.
Conclusions and Summary of Observations and Recommendations
Overall, CCMI was in compliance with the contract agreement and processed
claims in accordance with its internal procedures. We also obtained reasonable
assurance that water backup and workers comp claim payments issued were
received and cashed/deposited by the intended payee or claimant. Additionally,
CCMI obtained a SAS -70 report as required by the RFP. Statement on Auditing
Standards (SAS) No. 70, Service Organizations, is an auditing standard issued
by the American Institute of Certified Public Accountants (AICPA). Through the
SAS 70 report, service organizations disclose the results of an independent
audit of their control activities and processes, to their customers and their
customers' auditors in a uniform reporting format. The SAS 70 auditor's report
includes the service auditor's opinion on the control activities and processes. As
such we reviewed the SAS -70 report for the period October 1, 2008 to October
1, 2009. The report included no findings that would suggest that CCMI may not
be in compliance with the requirements of the Districts contracts.
We made a recommendation for the following observation, which if
implemented, could assist MSD in strengthening its procedures, improving its
processes and meeting its overall strategic objectives:
1.1 Requirements in the Request for Proposal and TPA Procedures
These items are discussed below in the section, Detailed Observations and
Recommendations. Additional comments are also noted in the section,
Opportunities for Improvement.
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t. Louis Sewer District
Engagement Name: Corporate Claims Management, Inc. Review
Fieldwork Completion Date: February 23, 2010
Audit Reporting Date: March 26, 2010
Initial Inherent Risk: High
Overall Audit Rating: Satisfactory
Issue
Risk
Rating _„
Director
Mgt Response
Action Date
Update its RFP for
specific
requirements.
Additionally, upon
selection of the
TPA, the District
should request the
TPA tailor its
procedures to
ensure it's the
procedures
address any
specific needs or
requirements of
MSD deriving from
the RFP.
Low
Vicki Taylor -
Edwards
Management agrees with
the audit recommendation
and will modify the
Request for Proposal
(RFP).
3-1-2010
Internal Audit gratefully acknowledges the cooperation of the Human
Resources Department, Risk Management Section, and Accounting during this
audit. Internal Audit was not restricted from access to information to complete
the audit. Access to all departmental records and personnel were provided by
Management as requested.
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t. Louis Sewer District
DETAILED OBSERVATIONS AND RECOMMENDATIONS
1.1 Requirements in the Request for Proposal and TPA Procedures
Observation/Finding:
The complete contract between the District and CCMI is comprised of the
Contract, Request for proposal (RFP) and the CCMI proposal. Additionally,
CCMI's procedures are currently documented their Claim File Expectation (CFE)
procedures, which defines how they will manage the claims.
We noted that specific documentation required to be obtained and retained in
the CCMI files or certain procedures to be performed by CCMI, was not
documented in either the RFP, CCMI proposal, contract or CFE.
Some specific examples are:
• CCMI submits a "pricing report" to the District for workers compensation
medical bills. The purpose of the pricing report is to verify that the District
pays the industry standard for such medical bills and not pay in excess of
the industry standard. The pricing report is submitted to the District by
CCMI as support for workers compensation payments. Neither the contract
documents nor the CFE indicated that this is a required procedure and does
not require the reports to be included in the claim files.
• The Workers Compensation process requires that physicians who examine
District employees for workers compensation claims be pre -approved by the
District. This procedure is not documented in the contract documents
between CCMI and the District.
• System Over Capacity and Blocked Main claims require that the customer
prepare a listing of items lost or damaged, this procedure is not
documented in the contract documents between the District and CCMI.
The above items are some examples we observed. There may be other items
that should be specifically addressed in the contract documents and/or CFE.
Risk Rating / Exposure: Low
Recommendation:
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t. Louis Sewer District
To ensure all expectations of the District are clearly communicated to the TPA,
we recommend the District update its RFP for specific requirements.
Additionally, upon selection of the TPA, the District should request the TPA
tailor its procedures to ensure it's the procedures address any specific needs or
requirements of MSD deriving from the RFP.
Manager / Response with implementation date:
Management agrees with the audit recommendation and will modify the
Request for Proposal (RFP).
Tentative implementation date:
March 1, 2010
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It. Louis Sewer District
Management Acknowledgement
I have reviewed the report including management responses. I agree with the
observations and recommendations, unless otherwise indicated, and will take
the appropriate measures and responsibility for implementing the corrective
actions with the specified timeframes.
Process owner's signature Is/
Vicki Taylor -Edwards, Director of Human Resources
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Opportunities for Improvement
t. Louis Sewer District
The following are suggested opportunities for improvement in the management
of the water backup and workers compensation claims process that the Human
Resource Department should consider but need not respond to in this audit
report. While these suggested changes could improve or enhance the
Division's system of internal controls or operational efficiency, their impact is
lower than the recommendations noted above.
• Sewer Separation Program (SSP) - Since the District's Risk Management
will notify CCMI to disallow claims of customers who refused remedies
under the SSP, consider formalizing this in the District Responsibilities
section of the RFP. In the Firm Responsibilities section of the REP, consider
including any specific actions required by the TPA in these instances. For
instance, the TPA is required to send a letter to the claimant notifying them
that the claim will be disallowed and the reason. If a TPA has access to this
portion of the MSD system, can require that they review for potential
customers meeting the criteria (similar to the RFP Section 4.2.2 that they
access the District's internal billing system to review accounts for any
outstanding account balances before making payment).
• RFP section 4.2.4 requires the TPA to notify MSD by email of any reserve
changes in excess of $10,000. Per our discussion, this is satisfied via the
report writer feature which allows the District to write (retrieve) the reports
on its own. As a result, no emails are sent. Also, CCMI provides hard copy
reports during the quarterly meeting. MSD may want to consider whether
this requirement in the RFP is still necessary or may revise to allow for
other alternatives of satisfying the objective.
• RFP section 4.2.17 requires the TPA to complete the annual Self -Insurer's
Statement of Outstanding Losses (WC -83) and annual report of losses for
the NCCI modification factor. However, the responsibility for actual
submittal of the documents to the respective regulatory agencies is not
addressed in the RFP. Our understanding is that these documents are then
submitted to MSD for review, sign -off and filing. MSD may want to consider
clearly noting this in the RFP.
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It. Louis Sewer District
Appendix A —
Contents of the Observations & Recommendations
The following is an overview of the content for the observations and
recommendations contained in this report.
• Observation: Presentation of key operational and/or service issue.
• Exposure & Risk Rating: Assessment of the issue implications and value
assignment of likelihood and impact of the identified issue / risk: The three
categories are as follows:
High: Observations that pose a significant risk to the District
Moderate: Observations that pose a moderate risk to the District
Low: Observations that pose a minor risk to the District
• Recommendation: Suggestions to assist management in formulating an
action plan to address the issue / risk.
• Management Response: To be submitted to Internal Audit Services within
10 business days of receipt of final draft report by assigned stakeholders.
Internal Audit will present this information to the District's Audit Committee
until the issue / risk is resolved or sufficiently mitigated.
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