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Attachment
General PHIAC Circulars
RECOMMENDATIONS TO COUNCIL ON COOPERS & LYBRAND FINDINGS ARISING FROM REINSURANCE AUDIT
In their findings Coopers & Lybrand commented separately on the verification of data and the date of birth of persons and the retention of records covering both membership and benefits paid.
As these aspects are closely interrelated and can be covered by similar recommendations or solutions these findings have been combined hereunder to provide ease of reference.
MEMBERSHIP RECORDS
1. Verification of dates of birth of persons covered
Problem :
None of the funds take steps to verify dates of birth provided on the membership application. As the majority of reinsurance account benefits are now paid to persons who satisfy the age-based criterion it is essential that the organisations' records contain accurate data on the age of members.
C & L Recommendation :
- Implement verification procedures or, alternatively;
- Ensure DOB details are accurately recorded on system from form; and check that DOB on hospital claim form agrees with DOB on system
2. Difficulty in or inability to locate membership applications
Problem :
Some funds had trouble locating application forms for inspection by auditors.
C & L Recommendation :
- Permit auditors to use circularisation to check details when application forms cannot be located.
- Improve filing and archiving procedures at funds.
3. Retention of membership applications
Problem :
Some funds have a policy whereby membership applications are destroyed after a certain period of time.
C & L Recommendation :
Establish a minimum time limit for retention of records and permit auditors to use circularisation to check details when application forms cannot be located.
BENEFITS PAID
4. Validation of date of birth of claimant
Problem :
Some funds do not verify the date of birth recorded on the hospital claim form against fund membership records.
C & L Recommendation :
Implement procedures to ensure that DOB on hospital claim forms is verified against fund records.
RECOMMENDATION (Findings 1 to 4)
Organisations be given the option of retaining membership application forms for inspection by auditors or utilising a procedure whereby the date of birth of the patient as recorded on claim forms is verified against membership records as part of the benefit processing system i.e. a check using the date as recorded on their own claim form in the case of claims by contributors or as recorded on the hospital claim form in the case of assigned benefits. In addition, auditors to use circularisation of members when application forms cannot be located. Where letters of acceptance are provided, contributors should be asked to check details and notify any mistakes.
5. Retention of hospital/Medicare accounts
Problem :
Some funds do not retain copies of hospital and/or Medicare accounts.
C & L Recommendation :
Retain documents or ensure all relevant details from hospital and/or Medicare accounts are recorded on documents retained by fund.
RECOMMENDATION (Finding No 5)
Organisations be given the option of retaining hospital/Medicare accounts or alternatively making sure that all relevant details that would affect a reinsurance account claim are recorded on those documents retained.
Coopers & Lybrand also commented adversely on the adequacy of the membership and benefits processing systems used by many of the funds.
These findings by the auditors have been combined hereunder for ease of reference.
6. Classification of members as "new" or "existing"
Problem :
The systems operated by some funds are inadequate to accurately classify members as "new" or "existing".
C & L Recommendation :
Funds should implement procedures to ensure systems accurately classify members.
7. Inadequate documentation of changes to membership details
Problem :
Many funds do not maintain adequate documentation to support changes of details such as the number of dependants or the level of insurance cover.
C & L Recommendation :
Ensure such changes are made accurately.
8. Inadequate information on numbers covered
Problem :
Many funds estimate coverage instead of counting number of persons covered.
C & L Recommendation :
Funds should upgrade systems to ensure actual numbers of persons covered under memberships are counted.
9. Inadequate information on age of persons covered
Problem :
In the past some funds have not maintained detailed records of the age of persons covered.
C & L Recommendation :
Funds should upgrade systems to ensure that they can determine the age of each person covered.
10. Control over input of claims details
Problem :
Errors in reinsurance claims can occur at some funds due to mistakes by assessor.
C & L Recommendation :
Eligibility of benefits should be carefully checked, preferably with a review of the accuracy of input to be carried out by another officer or supervisor.
11. Definition of benefits paid
Problem :
A number of funds were claiming as reinsurance benefits for a quarter amounts for which cheques had been drawn during the quarter but not released until after the end of the quarter.
C & L Recommendation :
Such amounts should not be regarded as paid until such time as cheques have been mailed or released.
RECOMMENDATION (Findings 6 to 11)
Organisations must :
- Implement procedures to ensure systems accurately classify members as either new or existing as defined in the reinsurance principles ;
- Operate systems which provide for the notification of changes to membership details (excluding changes of address) in writing with adequate control over the accurate amendment of records and archival of the details in accordance with the system used;
- Upgrade systems to ensure :
- actual numbers of persons covered under memberships are counted; and
- the age of each person covered can be determined ;
- Ensure that their benefit processing system encompasses an automatic allocation of benefits between ordinary and reinsurance accounts. In cases where computer-based benefits processing is not used or the allocation is not automated, the reinsurance decisions made by the assessor must be subject to verification by another officer or supervisor ; and
- Regard benefits that have been processed during a quarter as paid only when the relevant cheques have been released within the earliest practical time after processing e.g. one or two days. In cases where cheques have been drawn during the quarter but deliberately held for a period which extends past the end of the quarter those benefits will be regarded as benefits paid in the latter quarter.
Coopers & Lybrand also made recommendations in relation to the need for a uniform policy on retention of records and maintenance of an audit trail. They commented on problems associated with an inconsistency in the counting of group membership in arrears prior to changes to the reinsurance principles in July 1990.
12. Retention of records
Problem :
PHIAC needs to determine an appropriate minimum retention period for the maintenance of membership applications and claims documentation.
C & L Recommendation :
The period for retention of membership records should be retained until such time as the membership is terminated and for a specified period thereafter, say three years. Claim forms and supporting documentation should be retained for a minimum of say three years from the end of the quarter in which they are processed. The actual period to be dependent on the interval determined for the PHIAC audit program. Consideration should be given, where appropriate, for the use of optical scanning or microfiche.
RECOMMENDATION
Require organisations to maintain membership application forms for a minimum period of three years after the end of the financial year in which the member joined the fund and claims documentation for a similar period after the end of the financial year in which the claims were paid. Organisations may wish to determine longer retention periods for other purposes e.g. adjustments due to workers compensation cases.
13. Maintenance of audit trail
Problem :
Some funds do not maintain membership or benefit records in a form which could readily be audited or could not reconcile those records to figures reported on PHIAC 1 returns.
C & L Recommendation :
The reinsurance principles should provide specific details of records to be maintained so that membership and benefits records reported on the PHIAC 1 returns can be verified. This would include :
- Computer files or manual listings to support all membership information as at the beginning and end of each quarter including :
- details of date paid to
- designation as New or Existing
- age of persons covered
- Computer files or transactions listings to substantiate all benefits transactions (ordinary and reinsurance) for the quarter, including adjustments to benefits paid in previous quarters.
- Detailed reconciliations between the records described above and the amounts included in the PHIAC 1 return.
RECOMMENDATION
Require organisations to maintain an audit trail of the type recommended by C & L for a period of three years after the end of the financial year in which the figures were reported on PHIAC 1 returns. Expand Recommendation (c) to incorporate a specific requirement that organisations must not only reconcile benefit records to data reported on the PHIAC 1 return but also to their ledgers.
It would not be necessary to request the Minister to amend the reinsurance principles to give effect to the recommendation. The reinsurance principles currently specify ...."organisations are required to maintain accurate membership records in a format which allows the Council to arrange for the audit of the records and reconcile the membership details on the quarterly returns ....".
14. Group membership in arrears
Problem :
The audit revealed some inconsistency in interpretation of the way group members are counted.
C & L Recommendation :
Changes to principles in July 1990 will reduce size of problem.
PHIAC comment :
The changes to the reinsurance principles from 30 September 1990 provide that all contributors, whether in arrears for any period or not, must be included in the membership count except for any person who pays on an individual basis and his payments are more than two months, or any longer period that may be provided in the rules of the organisation, in arrears. In the case of a person who pays through a group arrangement, a contributor may be excluded where his/her paid-to date is more than two months (or a longer period depending on the rules of the organisation) in arrears of the paid-to date for the group generally. In addition, for group contributors to be excluded they must be notified in writing that they are no longer members.
Other problems not specifically covered by Coopers & Lybrand report
Problem :
Some funds are holding their books open for lengthy periods after the end of the quarter which may affect the reporting of benefits and membership for the period.
PHIAC comment :
The reinsurance principles determined under sub-section 73BC(5B) of the Act specify that organisations shall, within one month after the end of a quarter, provide a statement of benefits paid during the quarter and details of the members enrolled at the end of the period.
RECOMMENDATION
Notify organisations that their membership and benefit records must be closed off as soon as practicable after the last day of the quarter and the membership reported must reflect the information available to the fund at the end of the period e.g. funds must not re-assess their end of period membership with the benefit of information on financial status obtained after the end of the quarter.