STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER. June 9, 1998

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H. CARL McCALL STATE COMPTROLLER A.E. SMITH STATE OFFICE BUILDING ALBANY, NEW YORK 12236 STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER June 9, 1998 Mr.

1 H. CARL McCALL STATE COMPTROLLER A.E. SMITH STATE OFFICE BUILDING ALBANY, NEW YORK STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER June 9, 1998 Mr. Henry Neal Conolly Executive Director The State Insurance Fund 199 Church Street New York, New York Dear Mr. Conolly: Re: State Insurance Fund Payments Report 97-D-12 According to the State Comptroller's authority as set forth in Section 1, Article V of the State Constitution, and Section 8, Article 2 and Section 111, Article 7 of the State Finance Law, the following summarizes our review of the accuracy of payments processed by the State Insurance Fund (Fund) for the period January 1, 1997 through December 31, A. Background The Fund was established in 1914 to provide New York State employers with a low-cost option for Workers' Compensation Insurance. The Fund is the largest underwriter of Workers' Compensation Insurance in the State, providing coverage for about 45 percent of the State's employers. The Workers' Compensation Law requires employers to provide employees with compensation for lost wages and cover medical expenses when the employee is injured on the job. Workers' Compensation Insurance provides employers with an alternative to direct funding of these expenses. All payments (compensation, medical, claims adjustments, disability benefits and, refunds) are made from the Fund's home office, which is located in New York City. The Fund's district offices, located in Albany, Buffalo, Syracuse, Rochester, Hauppauge, Hempstead and White Plains, process only compensation and medical claims. During the period January 1, 1997 through December 31, 1997 the Fund processed about 3.2 million vouchers totaling about $1.6 billion. The Office of the State Comptroller (OSC) uses on-site staffs to do a continuous preaudit of Fund claims at both the home office and the Albany district office. This includes examining compensation, medical, and disability payments processed on the Fund's automated compensation

2 -2- payment system (COMPPAY), medical payment system (MEDPAY) and disability payment system (DBLPAY), respectively, as well as various other payments that are processed manually. The objectives of our ongoing review are to ensure that payments comply with all applicable New York State rules and regulations and Fund policies and procedures. OSC also ensures that payments are properly authorized, reviewed and approved by appropriate Fund officials. Details concerning the nature and amounts of the exceptions identified during our audits are reported to the Fund on an on-going basis so the Fund can promptly initiate adjustments of potential overpayments and underpayments. Draft copies of this report were provided to Fund officials for review and comment. Their comments are included as Appendix A. B. Results of Audit As discussed below and summarized in the attached exhibits, we examined 23,459 vouchers totaling almost $354 million and found 718 errors. Our findings prevented overpayments totaling $1,042,580 and underpayments totaling $40,434. In addition, 90 vouchers were adjusted so that $447,789 could be paid for outstanding child support. 1. Compensation Payments Workers' Compensation Insurance provides reimbursement to claimants for lost wages resulting from personal injury or death sustained on the job. The Fund processes compensation payment vouchers statewide on the automated COMPPAY system. Source documents are maintained in claim folders in the district office where the claim originated. For the New York City and Albany district offices, where OSC has staff assigned, our audit of compensation payments consists of a full case review of the claim folders. If the payment selected originates in a district offices where no staff are assigned, we examine the claim folder documents on which the current payment is based. These documents are forwarded to OSC by the district offices. A post payment review of the full case folder is subsequently done by us on a sample of these payment vouchers. During the period January 1, 1997 through December 31, 1997, the Fund processed 1,198,823 compensation payment vouchers. We selected a total of 7,989 of such payment vouchers totaling $234,832,261 for audit based on risk, using OSC-designed software embedded in COMPPAY. We found a total of 209 errors, or 2.62 percent, in the vouchers examined. This is slight increase from our prior review period (six months) when the error rate found was 2.49 percent. As a result of our audit, overpayments of $177,950 and underpayments of $27,239 were prevented. In addition to the errors discussed above, 90 vouchers were adjusted so that $447,789 could be withheld from claimants and paid towards their outstanding child support debts. This was the result of a child support initiative we began in May Under this initiative, we originally developed a profile of potential child support debtors. These attributes included living out of state,

3 -3- frequent address changes, and single, separated or divorced with dependents. When a lump sum settlement (compensation is made in one payment rather continuing bi-weekly payments) payee met this profile, we contacted the Department of Social Services (DSS) to determine whether this person had an income execution(s) for outstanding child support debts filed against them. If so, we held the payment until the proper amount for child support was deducted. This procedure proved to be successful and beginning in July 1997 we expanded it by sending DSS a listing of all compensation and lump sum payments selected for audit (not just those meeting the profile). DSS examines this listing for claimants with active income executions and sends us copies of the active executions. We hold the payments for claimants identified as owing child support and, in order to expedite processing, promptly supply SIF with a copy of the income execution. DSS subsequently forwards the official income execution to SIF so that the funds can be legally withheld and forwarded to the appropriate county s child support office. We realize that identifying child support debt while compensation payments are being prepared is not the most efficient way of accomplishing this activity. Through the cooperation of SIF s Albany and Rochester district offices, we developed a new procedure for identifying child support debtors receiving lump sum payments. At these offices, SIF supplies our audit staff in Albany with a schedule of claimants lump sum settlement hearings. We match this schedule to the DSS statewide listing of child support income execution orders. We inform SIF of those claimants who match the DSS statewide listing. SIF uses this information at the claimant s scheduled hearing to arrange for a deduction from the settlement as part of the final agreement approved by the claimant and the Workers Compensation Board judge. Because we do not have to match these claimants names with DSS at the time the settlement payments are processed, this new procedure is more efficient. Recommendation Implement a policy to provide us with the hearing load sheets from each of the district offices, so that child support determinations can be made at the time of the hearings. 2. Medical Payments Workers' compensation insurance also provides reimbursement for all medical expenses incurred that are directly related to an on the job injury. The Fund processes medical payment vouchers statewide on the automated MEDPAY System. Source documents are maintained in the same claim folders as those holding compensation records, in the district office where the claim originates. As with compensation payments, our audit of medical payments consists of a full case review of the claim folder in the district offices where OSC staff are assigned. Medical payments originating in the other district offices receive a post payment review on a periodic basis.

4 -4- During the period January 1, 1997 through December 31, 1997, the Fund processed 1,750,503 medical payment vouchers. Using variable dollar sampling software embedded in MEDPAY, we selected a total of 11,563 such payment vouchers totaling $43,545,384 for audit. We found a total of 408 errors, or 3.53 percent in the vouchers examined. This error rate is higher than the 3.09 percent error rate we found during our prior (six month) review period. As a result of our audit, overpayments of $44,242 and underpayments of $13,195 were identified. 3. Refunds The Fund manually processes at the home office in New York City various refunds to policyholders. These transactions are to reimburse policyholders for items such as overpaid premiums and prepaid premiums for canceled or terminated policies. In addition, when a group of like employers institute common safety measures that reduce the risk of accident at the work location, they may be entitled to safety group refunds. During the period January 1, 1997 through December 31, 1997, the Fund processed 69,452 refund vouchers. We selected a total of 3,839 such payment vouchers totaling $74,774,651 for audit on a judgmental basis. We found a total of 101 errors, or 2.63 percent in the payment vouchers examined. This error rate is a decrease from the 6.55 percent error rate we found during our prior (six month) audit review. As a result of our audit, overpayments of $820,388 were identified. Major contributors to this report were Jerry Barber, Richard Hill, Martin Nash, Michael Pergament, Patrick J. DeCastro, Aida Solomon, Vincent Altieri, Kitty Cheung, Safwat Fatah, John Lent, Robert Miller, Paul Tannenbaum, Timothy Wolfe, Deborah Oliveri, Sue Ruth and Esperanza Alcantara. We appreciate the cooperation and courtesies extended to our auditors during this review. Yours truly, David R. Hancox Audit Director cc: Robert L. King

5 EXHIBIT A THE STATE INSURANCE FUND AUDIT OF PAYMENTS SUMMARY OF ERRORS IDENTIFIED JANUARY 1, 1997 THROUGH DECEMBER 31, 1997 Vouchers Examined Vouchers Overpyament Underpayment With Voucher Dollar Dollar Type of Payment Number Dollar Value Errors Overpayments Underpayments Error Rate Error Rate Error Rate Compensation - Pre 7,989 $234,832, * $177,950 $27, % 0.08% 0.01% CA/Medical - Pre 11,563 43,545, ,242 13, % 0.10% 0.03% Refunds 3,839 74,774, , % 1.10% 0.00% Disability Benefits , % 0.00% 0.00% Aggregate Trust Fund , % 0.00% 0.00% Total 23,459 $353,651, $1,042,580 $40, % 0.29% 0.01% *Does not include rejections for child support (90 rejections with $447,789)

6 THE STATE INSURANCE FUND AUDIT OF PAYMENTS SUMMARY OF ERRORS BY TYPE JANUARY 1, 1997 THROUGH DECEMBER 31, 1997 EXHIBIT B PAGE 1 OF 4 PROCEDURAL ERRORS Refund Procedural Errors Preaudit Medical/ Description Compensation Claim Adj. Refund Disability A.T.F. Total Overpayments Underpayments Duplicate Refund $119,354 $0 Incorrect Amount Refunded $153,663 $0 Zero Balance Account $43,977 $0 Debit Balance Account $71,688 $0 No Final earned Premium $75,096 $0 Last Provisional Not Deducted $77,030 $0 Statement of Account Not Settled $279,580 $0 Refund Policy Number Incorrect $0 $0 Compensation Procedural Errors Insufficient Evidence for First Pymnt $0 $0 Incorrectly Applied AWW Ext Pymnt $0 $0 Incorrectly Applied AWW Info $5,433 $647 Incorrectly Applied Lien Amount $30,119 $5,700 Incorrectly Applied Lien Omitted $18,894 $1,000 Incorrectly Applied Lien Payee $2,545 $0 Documents Not Received $0 $0 Apprortionment Needed $0 $0 Lien Amount Omitted From Award $0 $0 Incorrectly Applied Payment Date $36,034 $18,144 Incorrectly Applied Disability Info $7,258 $0 Incorrectly Applied Info - Benefit Rate $995 $1,077

7 EXHIBIT B PAGE 2 OF 4 Preaudit Medical/ Description Compensation Claim Adj. Refund Disability A.T.F. Total Overpayments Underpayments Incorrectly Applied Extended Pymnt $46,459 $224 Unsubstantiated Address Change $0 $0 Wrong Address Used $0 $0 Previous Rejection not Corrected $0 $0 Incorrect Number of Work Days $0 $0 Child Support Lien Omitted $447,789 $0 Child Support Lien Applied Wrong $14,358 $447 Duplicate Case $11,055 $0 Unsubstantiated Lien Amount $0 $0 Medical Procedural Errors Calculation Error - Wrong Region $4,537 $416 Calculation Error - Wrong Proc Code $1,434 $899 Calculation Error - Multiple Procedures $8,069 $3,632 Calculation Error - Out-of-State Bill $180 $160 Calculation Error - Anesthesia Units $0 $296 Computaional Error - General $10,066 $5,501 Duplicate Medical Bill $8,947 $0 Duplicate Procedure(s) $228 $0 Fee Not in Accordance With Schedule $229 $0 Service Within Surg Follow-Up Period $1,304 $0 Service Rendered Excessive $0 $0 Service Not Reimbursable Under WCL $49 $0 Controverted Claim $1,400 $0

8 EXHIBIT B PAGE 3 OF 4 Preaudit Medical/ Description Compensation Claim Adj. Refund Disability A.T.F. Total Overpayments Underpayments 90% Vermont Hospital Rule $21 $0 SIF Only Partially Liable $938 $0 Bill Must be Prorated $0 $0 Incorrect Mileage $0 $99 Disallowed Pharmacy Payment $0 $0 Surgical Assistant $305 $0 Incorrect Bill Adjustment $144 $694 Sales Tax Not Deducted $132 $0 Late Notice $0 $0 Miscellaneous $1,995 $1,418 Documents Not Received $1,993 $80 Procedural Error - All Payment Types Incorrect Payee $0 $0 Incorrect Address $0 $0 Incorrectly Applied Benefit Rate $0 $0 Rejected Per A&R Request $0 $0 Per Unit Request $0 $0 Prior Payment Not Deducted $0 $0 Miscellaneous Procedural Error $7,071 $0 DATE ENTRY ERRORS $0 $0 Name or Full Address $0 $0 Street Name, Number or P.O. Box $0 $0 Zip Code $0 $0

9 EXHIBIT B PAGE 4 OF 4 Preaudit Medical/ Description Compensation Claim Adj. Refund Disability A.T.F. Total Overpayments Underpayments Lien Amount $0 $0 Miscellaneous Data Entry Error $0 $0 TOTAL REJECTIONS $1,490,369 $40,434 Less Child Support $447,789 $0 TOTAL NET OF CHILD SUPPORT $1,042,580 $40,434

October 30, Ms. Marsha Orndorff Acting Executive Director The State Insurance Fund 199 Church Street New York, New York 10007

October 30, Ms. Marsha Orndorff Acting Executive Director The State Insurance Fund 199 Church Street New York, New York 10007 H. CARL McCALL STATE COMPTROLLER A.E. SMITH STATE OFFICE BUILDING ALBANY, NEW YORK 12236 STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER October 30, 1996 Ms. Marsha Orndorff Acting Executive Director