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 The State Insurance Fund 199 Church Street New York, New York 10007 Dear Ms. Orndorff: Re: State Insurance Fund Payments Report 96-D-6 Pursuant 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 July 1, 1995 through December 31, 1995. 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, refunds, etc.) 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. Related payments are made from the home office. During the period July 1, 1995 through December 31, 1995, the Fund processed more than 1.1 million vouchers totaling $809 million. The Office of the State Comptroller (OSC) employs on-site staffs to conduct a continuous preaudit of Fund payments at both the home office and the Albany district office. This includes an examination of compensation, medical, and disability payments processed on the Fund's automated Compensation 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. -2- Details concerning the nature and amounts of the exceptions taken 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. B. Results of Audit As discussed below and summarized in the attached exhibits, we examined 19,008 vouchers totaling over $166 million and found 899 errors (4.7 percent of the vouchers examined). Our findings prevented overpayments totaling $794,053 (.48 percent of the dollars examined) and underpayments totaling $26,427 (.02 percent of the dollars examined). 1. Compensation Payments Workers' Compensation Insurance provides reimbursement to claimants for lost wages that result 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 salient 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 conducted by us on a sample of these payment vouchers. During the period July 1, 1995 through December 31, 1995, the Fund processed 188,242 compensation payment vouchers. We selected a total of 5,214 such payment vouchers totalling $95,376,337 for audit based on risk, using OSC-designed software embedded in COMPPAY. We found a total of 171 errors (3.3 percent) in the vouchers examined. This is an increase from our prior review period when the error rate found was 2.5 percent. As a result of our audit, overpayments of $93,441 (.1 percent of the dollars examined) and underpayments of $19,356 (.02 percent of the dollars examined) were prevented. We also performed a post-payment review of the full case folders for 250 compensation payment vouchers processed from April 1, 1994 through June 30, 1995 that were previously approved by OSC using documents forwarded from the district offices. We identified no errors in the vouchers examined. 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

-3- 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. During the period July 1, 1995 through December 31, 1995, the Fund processed 794,601 medical payment vouchers. Using variable dollar selection software embedded in MEDPAY, we selected a total of 8,611 such payment vouchers totaling $25,009,270 for audit. We found a total of 263 errors (3.1 percent) in the vouchers examined. This error rate is consistent with the 3.2 percent error rate we found during our prior review period. As a result of our audit, overpayments of $12,200 (.05 percent of the dollars examined) and underpayments of $7,058 (.03 percent of the dollars examined) were prevented. During the same period, we also conducted a post-payment audit of 455 medical payment vouchers which totaled $505,272 and were processed in the district offices where OSC has no staff assigned. We identified 29 errors (6.4 percent) in the vouchers examined. As a result of our audit, overpayments of $1,980 (.4 percent of the dollars examined) and underpayments of $13 (.003 perent of the dolars examined) were prevented. 3. Other Payments 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 July 1, 1995 through December 31, 1995, the Fund processed 37,364 refund vouchers. We selected a total of 4,302 such payment vouchers totaling $42,482,209 for audit on a judgmental basis. We found a total of 429 errors (10.0 percent) in the payment vouchers examined. As a result of our audit, overpayments of $686,432 (1.6 percent of the dollars examined) were prevented. The Fund also processes Disability Insurance and Aggregate Trust Fund (ATF) payments from the home office. Disability Insurance provides reimbursement for lost wages that result from any non-work related illness or injury that prevents the claimant from working. The Fund processes these payments on the automated DBLPAY System. The ATF is a special account administered by the Fund for the Workers' Compensation Board. In certain instances, an insurance carrier or employer can pay a lump sum equal to the present value of all unpaid death benefits on a compensation claim into this account. The Fund then assumes responsibility for administering all future ATF payments on the claim for as long as the claimant remains alive. During the period July 1, 1995 through December 31, 1995, the Fund processed 19,214 disability payment vouchers and 56,887 ATF payment vouchers that were subject to our preaudit. We

-4- selected a total of 98 disability and 78 ATF payment vouchers for audit, using a variable dollar selection methodology. We found two errors (2.0 percent) in the disability payment vouchers examined and five errors (6.4 percent) in the ATF payment vouchers examined. These errors did not result in any overpayments or underpayments. Major contributors to this report were Jerry Barber, Richard Hill, W. Marty Nash, Mary Thompson, Vincent Altieri, Dennis Aronowitz, Safwat Fatah, Brian Gee, John Lent, Robert Miller, Paul Tannenbaum, Timothy Wolfe, Deborah Oliveri, and Esperanza Alcantara. We appreciate the cooperation and courtesies extended to our auditors during this review. Very truly yours, cc: Patricia Woodworth Robert H. Attmore Deputy Comptroller

EXHIBIT A THE STATE INSURANCE FUND AUDIT OF PAYMENTS SUMMARY OF ERRORS IDENTIFIED JULY 1, 1995 THROUGH DECEMBER 31, 1995 Vouchers Examined Vouchers with Errors Overpayments Underpayments Type of Payment Number Dollar Value / % $ / % $ / % Compensation - Pre 5,214 $95,376,337 171 3.3% $93,441 0.1% $19,356 0.02% Compensation - Post 250 $2,266,335 0 0.0% $0 0.0% $0 0.0% CA / Medical - Pre 8,611 $25,009,270 263 3.1% $12,200 0.05% $7,058 0.03% CA / medical - Post 455 $505,272 29 6.4% $1,980 0.4% $13 0.003% Refunds 4,302 $42,482,209 429 10.0% $686,432 1.6% $0 0.0% Disability Benefits 98 $266,026 2 2.0% $0 0.0% $0 0.0% Aggregate Trust Fund 78 $659,769 5 6.4% $0 0.0% $0 0.0% Total 19,008 $166,565,218 899 4.7% $794,053 0.48% $26,427 0.02%

THE STATE INSURANCE FUND AUDIT OF PAYMENTS SUMMARY OF ERRORS BY ERROR TYPE JULY 1, 1995 THROUGH DECEMBER 31, 1995 EXHIBIT B Preaudit Post Audit Medical/ Medical/ Description Compensation Claim Adj. Claim Adj. Refund Disability A.T.F. Total Overpayments Underpayments PROCEDURAL ERRORS Refund Procedural Errors Duplicate Refund 0 0 0 351 0 0 351 $677,131 $0 Refund Policy Number Incorrect 0 0 0 49 0 0 49 $9,301 $0 Compensation Procedural Errors Insufficient Evidence for First Pymnt 1 0 0 0 0 0 1 $33 $0 Incorrectly Applied AWW Info 1 0 0 0 0 0 1 $0 $1,807 Incorrectly Applied Lien Amount 17 0 0 0 0 0 17 $6,103 $4,755 Incorrectly Applied Lien Payee 5 0 0 0 0 0 5 $7,445 $0 Lien Amount Omitted From Award 23 0 0 0 0 0 23 $27,781 $3,356 Incorrectly Applied Payment Date 8 0 0 0 0 0 8 $29,767 $8,265 Incorrectly Applied Disability Info 4 0 0 0 0 0 4 $7,994 $0 Incorrectly Applied Extended Pymnt 1 0 0 0 0 0 1 $0 $0 Unsubstantiated Address Change 1 0 0 0 0 0 1 $0 $0 Unsubstantiated Lien Amount 1 0 0 0 0 0 1 $40 $0 Medical Prodedural Errors Calculation Error - Wrong Region 0 9 1 0 0 0 10 $945 $18 Calculation Error - Wrong Proc Code 0 14 2 0 0 0 16 $1,900 $618 Calculation Error - Multiple Procedures 0 30 4 0 0 0 34 $2,956 $1,952 Calculation Error - Out-of-State Bill 0 16 0 0 0 0 16 $2,717 $2,676 Calculation Error - Anesthesia Units 0 8 0 0 0 0 8 $100 $411 Duplicate Medical Bill 0 1 0 0 0 0 1 $50 $0 Duplicate Procedure(s) 0 5 0 0 0 0 5 $521 $0 Fee Not in Accordance With Schedule 0 3 2 0 0 0 5 $883 $0 Service Within Surg Follow-Up Period 0 1 0 0 0 0 1 $53 $0 Service Rendered Excessive 0 5 0 0 0 0 5 $163 $0 Service Not Reimbursable Under WCL 0 1 4 0 0 0 5 $726 $0 Controverted Claim 0 3 0 0 0 0 3 $0 $0 90% Vermont Hospital Rule 0 3 0 0 0 0 3 $481 $336 SIF Only Partially Liable 0 1 0 0 0 0 1 $0 $0 Incorrect Mileage 0 4 0 0 0 0 4 $462 $258 Disallowed Pharmacy Payment 0 1 0 0 0 0 1 $92 $0 Late Notice 0 40 0 0 0 0 40 $0 $0 Documents Not Received 0 22 0 0 0 0 22 $411 $0 Procedural Error - All Payment Types Incorrect Payee 2 0 0 0 0 0 2 $3,306 $0 Incorrect Address 3 0 1 0 0 0 4 $485 $0 Incorrectly Applied Benefit Rate 8 0 0 0 0 1 9 $8,275 $1,174 Rejected Per A&R Request 46 0 0 0 0 3 49 $0 $0 Prior Payment Not Deducted 5 0 0 0 0 0 5 $1,901 $0 Miscellaneous Procedural Error 21 55 2 29 1 1 109 $2,031 $801 DATA ENTRY ERRORS Name or Full Address 5 41 13 0 1 0 60 $0 $0 Street Name, Number or P.O. Box 15 0 0 0 0 0 15 $0 $0 Zip Code 1 0 0 0 0 0 1 $0 $0 Lien Amount 1 0 0 0 0 0 1 $0 $0 Miscellaneous Data Entry Error 2 0 0 0 0 0 2 $0 $0 TOTAL 171 263 29 429 2 5 899 $794,053 $26,427