A-15-03-13060 - Alternate Format

OFFICE OF
THE INSPECTOR GENERAL

SOCIAL SECURITY ADMINISTRATION

ADMINISTRATIVE COSTS
CLAIMED BY THE SOUTH DAKOTA
DISABILITY DETERMINATION
SERVICES

February 2005

A-15-03-13060

AUDIT REPORT

Mission

We improve SSA programs and operations and protect them against fraud, waste, and abuse by conducting independent and objective audits, evaluations, and investigations. We provide timely, useful, and reliable information and advice to Administration officials, the Congress, and the public.

Authority

The Inspector General Act created independent audit and investigative units, called the Office of Inspector General (OIG). The mission of the OIG, as spelled out in the Act, is to:

Conduct and supervise independent and objective audits and investigations relating to agency programs and operations.
Promote economy, effectiveness, and efficiency within the agency.
Prevent and detect fraud, waste, and abuse in agency programs and operations.
Review and make recommendations regarding existing and proposed legislation and regulations relating to agency programs and operations.
Keep the agency head and the Congress fully and currently informed of problems in agency programs and operations.

To ensure objectivity, the IG Act empowers the IG with:

Independence to determine what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations based on the reviews.

Vision

By conducting independent and objective audits, investigations, and evaluations, we are agents of positive change striving for continuous improvement in the Social Security Administration's programs, operations, and management and in our own office.

MEMORANDUM

Date: February 25, 2005

To: James Everett
Regional Commissioner Denver

From: Inspector General

Subject: Administrative Costs Claimed by the South Dakota Disability Determination Services (A-15-03-13060)

The attached final report presents the results of our audit. Our objectives were to:

determine whether the aggregate of the Social Security Administration (SSA) funds drawn down agreed with total expenditures for Fiscal Years 2000 through 2002;

determine whether costs, claimed by the South Dakota Disability Determination Services on its State Agency Report of Obligations for SSA Disability Programs for the period October 1, 1999 through September 30, 2002, were allowable and properly allocated;

evaluate internal controls over the accounting and reporting of the administrative costs claimed, as well as the draw down of SSA funds; and complete a limited general controls review.

Please provide within 60 days a corrective action plan that addresses each recommendation. If you wish to discuss the final report, please call me or have your staff contact Steve Schaeffer, Assistant Inspector General for Audit, at (410) 965 9700.

Patrick P. O'Carroll, Jr.

Executive Summary
OBJECTIVES

Our objectives were to:

determine whether the aggregate of the Social Security Administration (SSA) funds drawn down agreed with total expenditures for Fiscal Years 2000 through 2002;

determine whether costs, claimed by the South Dakota Disability Determination Services (SD-DDS) on its State Agency Report of Obligations for SSA Disability Programs for the period October 1, 1999 through September 30, 2002, were allowable and properly allocated;

evaluate internal controls over the accounting and reporting of the administrative costs claimed, as well as the draw down of SSA funds; and

complete a limited general controls review.

BACKGROUND

Disability determinations under SSA's Disability Insurance and Supplemental Security Income programs are performed by Disability Determination Services (DDS) in each State in accordance with Federal regulations. Each DDS is responsible for determining claimants' disabilities and ensuring that adequate evidence is available to support its determinations. To assist in making proper disability determinations, each DDS is authorized to purchase medical examinations, x rays, and laboratory tests on a consultative basis to supplement evidence obtained from the claimants' physicians or other treating sources. SSA reimburses DDSs 100 percent of allowable expenditures.

RESULTS OF REVIEW

SD-DDS generally complied with laws, regulations, policies, and procedures governing the recording and reporting of expenditures and obligations. However, we identified three issues related to consultative examinations (CE). Specifically, SD-DDS: (1) paid $158,513 for CE fees in excess of its fee schedule; (2) paid physicians for unbilled services and for preparing narrative reports that should have been included as part of the examination; and (3) did not limit the amount paid for psychiatric examinations. We also identified weaknesses in physical security that risk unauthorized access to sensitive claims system data and/or damage to hardware and software.

CONCLUSIONS AND RECOMMENDATIONS

Our review of administrative costs disclosed that SD-DDS needs to improve its adherence to SSA's policies and procedures for the purchase of CEs. In addition, SD-DDS needs to improve the physical security of its computer room and ensure the safety of its staff. In the body of this report we make several recommendations regarding CE purchase costs, internal controls and systems security.

SSA COMMENTS

SSA's Denver Regional Office generally agreed with our recommendations.

SOUTH DAKOTA DEPARTMENT OF HUMAN SERVICES COMMENTS

The South Dakota Department of Human Services (SD-DHS) agreed with three of the seven recommendations directed toward the DDS. SD-DHS did not agree with two of our recommendations and did not respond to two recommendations.

OIG RESPONSE

Due to limitations in the data file provided by SD-DDS, we could not substantiate all of SD-DHS' comments. As such, we revised one of our recommendations to have SSA staff work with SD-DHS to determine the validity of the questioned costs and seek reimbursement, if appropriate.

Table of Contents
Page
INTRODUCTION 1
RESULTS OF REVIEW 3
Consultative Examination Payments 3
Payments Allowed 3
Payments for Narrative Reports 4
Maximum Fee Payable 5
Internal Controls 6
General Controls 6
Access to SSA Data 7
Emergency Evacuation Drills 8
CONCLUSIONS AND RECOMMENDATIONS 9

APPENDICES
Appendix A - Acronyms
Appendix B - Scope and Methodology
Appendix C - Agency Comments
Appendix D - South Dakota Department of Human Services Comments
Appendix E - Sampling Methodology
Appendix F - Schedule of Obligations Reported, Questioned, and Allowed
Appendix G - OIG Contacts and Staff Acknowledgments

Introduction
OBJECTIVES

Our objectives were to:

determine whether the aggregate of the Social Security Administration (SSA) funds drawn down agreed with total expenditures for Fiscal Years (FY) 2000 through 2002;

determine whether costs, claimed by the South Dakota Disability Determination Services (SD-DDS) on its State Agency Report of Obligations for SSA Disability Programs (Form SSA-4513) for the period October 1, 1999 through September 30, 2002, were allowable and properly allocated;

evaluate internal controls over the accounting and reporting of the administrative costs claimed, as well as the draw down of SSA funds; and

complete a limited general controls review.

BACKGROUND

The Disability Insurance (DI) program was established in 1956 under Title II of the Social Security Act (Act). The program provides a benefit to wage earners and their families in the event the wage earner becomes disabled. The Supplemental Security Income (SSI) program was created as a result of the Social Security Amendments of 1972 with an effective date of January 1, 1974. SSI (Title XVI of the Act) provides a nationally uniform program of income to financially needy individuals who are aged, blind, and/or disabled.

SSA is primarily responsible for implementing policies governing the development of disability claims under the DI and SSI programs. Disability determinations under both DI and SSI are performed by Disability Determination Services (DDS) in each State, or other responsible jurisdiction, according to Federal regulations. In carrying out its obligation, each DDS is responsible for determining claimants' disabilities and ensuring that adequate evidence is available to support its determinations. To assist in making proper disability determinations, each DDS is authorized to purchase consultative medical examinations, x-rays and laboratory tests to supplement evidence obtained from the claimants' physicians or other treating sources. SSA pays the DDS for 100 percent of allowable expenditures.

Each year, SSA approves a DDS budget. Once approved, the DDS can withdraw Federal funds through the Department of the Treasury's (Treasury) Automated Standard Application for Payments system. Cash drawn from the Treasury to pay for program expenditures is to be drawn according to Federal regulations and in accordance with intergovernmental agreements entered into by Treasury and the States under the authority of the Cash Management Improvement Act. At the end of each fiscal quarter, each DDS submits to SSA a Form SSA-4513 to account for program disbursements and unliquidated obligations.

The South Dakota Department of Human Services (SD-DHS) is the parent agency for the SD-DDS. Parent agencies, such as the SD-DHS, often provide administrative services (such as accounting, purchasing, and personnel) to the State designated DDS.

Results of Review

SD-DDS generally complied with laws, regulations, policies, and procedures governing the recording and reporting of expenditures and obligations. However, we identified three issues related to consultative examinations (CE). Specifically, SD-DDS: (1) paid $158,513 for CE fees in excess of its fee schedule; (2) paid physicians for unbilled services and for preparing narrative reports that should have been included as part of the examination; and (3) did not limit the amount paid for psychiatric examinations. We also identified weaknesses in physical security that risk unauthorized access to sensitive claims system data and/or damage to hardware and software.

CONSULTATIVE EXAMINATION PAYMENTS

Federal regulations stipulate the rate paid for CEs may not exceed the highest rate paid by Federal or other agencies in the State for the same or similar type of service. In addition, SSA's Program Operations Manual System (POMS) states that the DDS will consider its fee schedule as a maximum payment schedule. We determined only 39 of the 97 CE transactions examined were paid in accordance with the SD-DDS fee schedule. For the remaining 58 transactions, SD-DDS paid an amount in excess of its fee schedule, may have paid for the same services twice, or failed to limit the number of hours that could be billed for performing psychiatric examinations.

PAYMENTS ALLOWED

The SD-DDS fee schedule and South Dakota Administrative Rule 67:16:02 limit the amount paid for CEs. The SD-DDS fee schedule establishes the amount paid for performing CEs. However, South Dakota's Administrative Rule establishes the fees paid by agencies in the State for the same or similar type of service. Physicians were paid in excess of the amount allowed by the SD-DDS fee schedule and Administrative Rule for certain current procedural terminology (CPT) codes. The SD-DDS needs to update its fee schedule to incorporate the higher payment amounts allowed under the Administrative Rule.

CE purchases can be medical examinations, x rays or laboratory procedures. Our analysis of the CE data file showed that CE payments to physicians for medical examinations exceeded the amount allowed by both the SD DDS fee schedule and the South Dakota Administrative Rule.

We analyzed 97 CE sample invoices and found there were 31 instances where physicians were paid in excess of the amount authorized by the SD-DDS fee schedule. We then electronically compared all 16,480 CE transactions for FYs 2000 through 2002 (by CPT Code) to the amounts allowed by the SD-DDS fee schedule and South Dakota Administrative Rule 67:16:02. We identified 2,470 CE payments for medical examinations that exceeded the maximum amount allowable by the fee schedule. The excess payments amounted to $158,513 as follows:

FY CE Transactions
Amount Paid Number of Excessive Payments Amount Overpaid
2000 3,537 $311,237 513 $30,738
2001 6,190 $516,189 1,016 $60,354
2002 6,753 $599,923 941 $67,421
Total 16,480 $1,427,349 2,470 $158,513

SD-DDS did not have the necessary internal controls in place to ensure that its fee schedule and the Administrative Rule were used to limit CE payments.

We contacted the Denver Regional Office (RO) to determine if SSA was aware that payment for the CEs exceeded the SD-DDS fee schedule. The RO advised us that it allowed the payments to exceed the SD-DDS CE fee schedule because it believed the State followed the Administrative Rule. SSA's RO should monitor SD DDS payments for CEs to ensure that payment is in accordance with the fee schedule. The RO should also work with SD DDS to update the fee schedule to reflect the amounts authorized by the South Dakota Administrative Rule.

PAYMENTS FOR NARRATIVE REPORTS

We found that for 27 of the 97 sample CE invoices SD-DDS paid physicians $25 for preparing narrative reports (CPT code 99080). The remaining 70 CE sample invoices contained charges for other consultative services. We determined that the physicians were paid by SD-DDS for the 27 sample CEs for preparing narrative reports which may have already been paid for as part of the CE costs.

Analysis of the invoices showed that in 11 of the 27 cases with narrative reports, the physicians charged for performing a consultation and preparing a narrative report. A consultation is a type of service provided by a physician whose opinion or advice regarding evaluation and/or management of a specific problem is requested by another physician or other appropriate source. The consultant's opinion and any services that were ordered or performed must be documented in the patient's medical record and communicated by written report to the requesting physician or other appropriate source. We believe that physicians may have been overpaid in all 11 instances because the CPT code billed already required that a written report be prepared as part of the service provided. Consequently, the payments for the narrative reports may represent a second payment for the same service.

For the other 16 of the 27 invoices, we determined SD-DDS paid physicians for preparing a narrative report even though the physicians had not billed for them. Specifically, the physicians' invoices did not contain a charge for the narrative report but the SD-DDS payment voucher reflected a payment for their preparation. We determined these 16 payments were unsupported costs and should not have been paid.

Because the claim folders were no longer at the SD-DDS, we were unable to have SD DDS show us what information was in the physicians' narrative reports that were beyond the requirements of a normal consultation report. As a result, we were unable to confirm the appropriateness of the payments. Our analysis of the FYs 2000 through 2002 CE data file showed there were 3,018 payments for narrative reports valued at $75,450.

SSA's Denver RO should:
work with SD-DDS to analyze the narrative report payments to determine if payments were appropriate; and
instruct SD-DDS to cease paying for unbilled services.

MAXIMUM FEE PAYABLE

The SD-DDS needs to modify its current fee schedule to establish maximum fees payable for those CPT codes where payment is based on an hourly rate. For example, CPT codes 96100 and 90830 cover multiple types of mental examinations and psychological testing. The amount of payment to medical providers for this CPT code is determined by multiplying the number of hours billed by a fixed hourly rate. We found 14 instances of CEs using CPT codes 96100 and 90830 in our sample of 97 CE invoices. While the SD-DDS fee schedule set an hourly rate, we found no evidence that SD-DDS limited the number of hours that could be billed. As a result, there was no limit to what the physician could charge for each of the psychiatric examination types. During the audit period, there were 1,968 transactions, valued at $480,495, where payment was based on an hourly rate.

SSA's Disability Determination Services Administrators' Letter No. 501, dated March 12, 1999, provided DDS administrators with informational guidance as to the use of CPT codes using hourly rates. Specifically, Attachment 5, General Guidance for Mental Exams and Psychological Testing, provides an example showing how the DDS can use the Medicare hourly rate fee, such as CPT code 96100, multiplied by a pre determined number of hours to administer each test type, to establish a maximum fee payable for each test.

We contacted SSA's Office of Disability (OD) to determine its basis for establishing the time required to perform the various tests cited in Attachment 5. OD advised us the time allowed to perform these tests was based on the conventional wisdom of the workgroup - consisting of SSA and DDS managers - and confirmed the intent was to assist the DDSs in establishing a maximum fee payable for the various mental examinations and psychological tests.

Our review showed SD-DDS made no attempt to establish a maximum fee payable. Charges for services rendered under CPT code 96100 were determined by multiplying the number of hours billed by a fixed hourly rate of $47.30. This was the hourly rate allowed by both the SD-DDS fee schedule and the State's Administrative Rule.

We believe the lack of a maximum for hours billed may result in unreasonable payments for some CEs. SSA's RO should work with SD-DDS to establish the maximum numbers of hours allowed for performing psychological tests using SSA's Administrators Letter No. 501 as a guide.

INTERNAL CONTROLS

We examined the internal controls to assess whether they safeguarded assets, improved the efficiency and effectiveness of operations, and ensured reliability and completeness of financial information.

We believe SD-DDS needs to initiate corrective action to address the following internal control deficiencies:

Medical Consultants were working without benefit of a signed contract showing terms of employment, rate of pay, and hours to be worked. Medical Consultants recorded their scheduled work hours directly onto a monthly timesheet that was used for billing purposes.

The SD-DDS did not maintain inventory lists as required by Federal regulations. The State is responsible for maintaining all property provided by SSA for performing the disability determination function. The State is required to perform a periodic inventory of SSA distributed equipment. Maintaining such records will facilitate the annual inventories and could help to detect any stolen or misplaced equipment.

SD-DDS needs to implement sufficient controls to ensure that: Medical Consultants are paid only for hours actually worked, individuals with procurement authority are not making unauthorized purchases, and SSA furnished equipment has not been stolen or misplaced.

GENERAL CONTROLS

We performed a limited general control review of the physical security and safety of the SD-DDS and identified several areas where SD-DDS could improve its general controls by following the SSA Disability Determination Services Security Document. Specifically, we found circumstances where unauthorized individuals could gain access to the SD DDS computer room. As a result, sensitive SSA data were subject to possible improper disclosure and hardware and software were subject to deliberate or accidental damage.

We also found that SD-DDS had not held required emergency evacuation drills. We believe it is prudent to protect employees from harm as much as reasonably possible.

ACCESS TO SSA DATA

We identified several security issues relating to the SD-DDS computer room. The computer room security weaknesses included a door that was not routinely locked, the janitorial staff was not supervised by SD-DDS managers, and the computer room was easily identifiable because the outer door had a glass insert. Also, we did not verify the existence or operational status of an intrusion detection device for the computer room.

One SD-DDS computer room door opened to non-DDS office space and was kept unlocked. This door's alarm was not activated during working hours. Management indicated the door was kept unlocked because it was to be used as an emergency exit for the State Department of Labor (DOL) computer staff. The unlocked door gives unauthorized individuals open access to the SD-DDS computer room's sensitive data, hardware, and software.

SSA's Disability Determination Services Security Document states, "Access to the computer room should be restricted by management…. The room should be locked at all times." We analyzed the building layout and determined the emergency exit could be relocated to non-DDS space and, thus, maintain the security for the computer room.

Also, the SD-DDS office space was cleaned during non-working hours. According to SD-DDS management, the janitorial supervisor-who was not an SD-DDS employee and was not authorized access to sensitive SSA data himself-disabled the alarm system and was to accompany the workers as they cleaned the office.

SSA's Disability Determination Services Security Document states the office should be cleaned during work hours. If daytime cleaning is not possible, extra care should be taken to ensure sensitive and Privacy Act related documents (e.g. medical reports and folders) are kept secure. These SSA guidelines also state that DDS management should monitor the cleaning of the office space.

Additionally, the primary door to the computer room was not a solid wood core door. It had glass inserts. Individuals passing by could look in the window and identify the room as containing computer data, hardware and software. SSA's Disability Determination Services Security Document requires the computer room door be of solid wood core construction and kept locked at all times.

Lastly, SSA's Disability Determination Services Security Document states the walls of computer rooms should have slab-to-slab construction to prevent unauthorized entry or, as revised in September 2003, the computer room must be made secure by installing chain link fences, heavy wire mesh, or motion sensor devices in the space between the false ceiling and the true ceiling of the facility. The walls of the computer room did not extend beyond the suspended ceiling. Subsequent to our visit, SD-DDS management indicated to us there was an intrusion detection system installed in the ceiling area to detect unauthorized access. However, we did not verify the system's existence or whether it was operational.

We believe the above physical security weaknesses risk unauthorized disclosure of sensitive SSA data as well as the loss of system hardware and software.

SD-DDS needs to improve the security of its computer room and its contents and should follow SSA's Disability Determination Services Security Document. Following the Security Document's guidelines would reduce the risk to sensitive SSA data and computer hardware/software. In addition, the SSA Denver Regional Security Officer should verify the existence and operational status of the intrusion alarm system in the computer room ceiling area.

EMERGENCY EVACUATION DRILLS

SD-DDS had an evacuation plan visibly displayed in the office and emergency evacuation routes were clearly marked. However, SD-DDS had not conducted the required emergency evacuation drills.

SSA's Disability Determination Services Security Document states the evacuation plan should be prominently posted and evacuation drills conducted twice yearly. Even though SD-DDS was only one of the building's tenants and may not have been able to control the frequency of the evacuation drills, we believe it is important to conduct periodic evacuation drills to reduce the possibility of injury or loss of life in the event of a physical disaster.

Subsequent to our visit, SD-DDS management stated that an emergency evacuation drill was held. We did not verify whether the drill was held. We believe the SSA Regional Security Officer should work with SD-DDS to ensure the conduct of future emergency evacuation drills.

Conclusions and Recommendations
Our review of administrative costs disclosed that SD-DDS paid physicians $158,513 in excess of its fee schedule for performing CEs and had not set limits for hourly rate procedures. Physicians were also overpaid an additional $75,450 for narrative reports which described the results of their CEs. We also identified several internal control deficiencies that need to be corrected. In addition, SD-DDS needs to improve the physical security of its office space, especially the computer room.

We recommend SSA's RO:

1. Work with SD-DHS to determine the validity of the questioned CE costs and seek reimbursement of the costs, if appropriate

We recommend SSA instruct SD-DDS to:

2. Develop a fee schedule that reflects the South Dakota Administrative Rules and complies with SSA's POMS limiting physician reimbursement to the amounts shown on its fee schedule.

3. Cease paying for unbilled services and review the practice of paying for narrative reports to ensure such payments are appropriate under SSA's policies.

4. Establish maximum numbers of billing hours allowed for performing psychological examinations using SSA Administrators Letter No. 501 as guidance.

5. Require medical consultants to sign contracts outlining the terms of their employment, rate of pay, and hours to be worked. Also, management needs to ensure the validity of the hours reported on the medical consultant timesheets.

6. Take appropriate steps to improve the internal controls over inventory.

7. Comply with SSA's Disability Determination Services Security Document for computer room access by: moving the DOL emergency exit to non-SD-DDS space and locking the door between DOL and SD DDS; cleaning the office during work hours or in the presence of DDS management; and installing a windowless door to the computer room.

We also recommend the Denver Regional Security Officer verify:

8. SD-DDS has a functioning intrusion detection system for the computer room and evacuation drills are performed on a regular basis.

SSA COMMENTS

The Denver RO generally agreed with our recommendations. However, in commenting on recommendations 1 and 2, it stated most of the fees on the schedule were for x rays, laboratory studies, etc. performed by hospitals, and suggested we refer to South Dakota Administrative Rule 67:16:03. In commenting on recommendation 3, the RO stated the DDS had a $10.70 limit on reports with a CPT code of 99080; however, with a "22" indicator, the allowable fee increased to $25.00. The RO stated it appears that the "22" indicator was not considered during our review. See Appendix C for the full text of SSA's comments.

STATE AGENCY COMMENTS

SD-DHS agreed with three of the seven recommendations directed toward the DDS; did not address two recommendations; and disagreed with recommendations 1 and 3. Specifically, the SD-DHS stated that:

During the audit period, SD-DDS reimbursed providers using two different fee schedules and the Office of the Inspector General did not consider South Dakota Administrative Rule 67:16:03, which authorizes payment for examinations and services performed in hospitals based on a percentage of the amount billed.

The DDS did not pay more than the vendor billed or more than the billed CPT code allowed. The DDS split the amount billed between the exam and CPT code 99080. The DDS ceased this practice, now pays CPT code 99080 only when billed, and is reviewing the practice of paying for CPT code 99080.

Payment for CPT code 90801 was based on a fee equal to $75.60 per unit.
SD-DHS believes the DDS interpreted and paid for this CPT code correctly.

SD-DHS' response did not address recommendations 2 and 4. SD-DHS generally agreed with recommendations 5, 6 and 7. The full text of the SD-DHS' comments is included in Appendix D.

OIG RESPONSE

Due to limitations in the data file provided by SD-DDS, we could not substantiate SD DHS' comments regarding Administrative Rule 67:16:03. As such, we are revising recommendation 1 to have SSA's RO determine the validity of the questioned costs and seek reimbursement of the costs, if appropriate.

With regard to recommendation 3, SD-DHS responded that if the hard vouchers were checked, the provider billing forms included with the voucher would show a 2-digit indicator of "22" which would increase the allowable payment to $25.00. We re examined the provider billing forms and payment vouchers for CPT code 99080 and determined that 10 of 11 billing forms in our sample did not contain indicator codes even though SD DDS staff had added a "22" indicator to the payment vouchers. Further, the fee schedule did not show an increase in the amount allowed when an indicator code was applied. In fact, analysis of the electronic CE data file showed the SD-DDS paid $25.00 for each of the 3,018 narrative reports, but there were no "22" indicators on the electronic file.

We found no evidence to support SD-DHS' contention the DDS split the amount billed between the examination and CPT code 99080. We determined the DDS paid the maximum amount allowed for each examination plus an additional $25.00 for the narrative report. For example, a physician billed $243.00 for an office consultation under CPT code 99245. He was paid $132.50, the maximum amount allowable for CPT code 99245 per the fee schedule and was paid $25.00 for a narrative report under CPT code 99080. We continue to believe the DDS is paying for narrative reports already required as part of the consultative examination, and believe the DDS will confirm this when it reviews its practices for paying for this CPT code.

Appendices

Appendix A
Acronyms
Act Social Security Act
CE Consultative Examinations
C.F.R. Code of Federal Regulations
CPT Current Procedural Terminology
DDS Disability Determination Services
DI Disability Insurance
DOL Department of Labor
FY Fiscal Year
OD Office of Disability
OIG Office of the Inspector General
POMS Program Operations Manual System
SD-DDS South Dakota Disability Determination Services
SD-DHS South Dakota Department of Human Services
SSA Social Security Administration
SSA-4513 State Agency Report of Obligations for SSA Disability Programs
SSI Supplemental Security Income
RO Regional Office
Treasury Department of the Treasury
U.S.C. United States Code

Appendix B
Scope and Methodology

We obtained evidence to evaluate the appropriateness of recorded financial transactions under the provisions of Office of Management and Budget Circular A-87, Cost Principles for State, Local and Indian Tribal Governments.

The South Dakota Department of Human Services (SD-DHS) reported $7,938,868 in administrative costs for South Dakota Disability Determination Services (SD-DDS) operations for the period October 1, 1999 through September 30, 2002. To meet our objective, we:

reviewed applicable Federal regulations and pertinent parts of SSA's Program Operations Manual System, section DI 39500, DDS Fiscal and Administrative Management, and other instructions pertaining to administrative costs incurred by SD-DDS and the draw down of SSA funds;

interviewed SD-DHS and SD-DDS staff;

documented our understanding of the SD-DHS' and SD-DDS' systems of internal controls over the accounting and reporting of administrative costs;

evaluated and tested internal controls regarding accounting and financial reporting and cash management activities, as well as the draw down of SSA funds;

traced the administrative expenditures SD-DHS reported on its Forms SSA-4513 to its accounting records;

analyzed SD-DHS' draw downs of SSA funds and reconciled them with reported expenditures;

reviewed the South Dakota Department of Legislative Audit's Single Audit reports and related working papers;

conducted a physical inventory of computer equipment SSA provided to
SD-DDS during our audit period;

examined, on a limited basis, the physical security and environmental safety of SD DDS;

sampled 10 of 28 employees from one pay period to trace through the accounting records, agreed the hours worked to the timesheets, and recalculated pay;

conducted analysis of consultative examination payments by comparing them to the SD-DDS fee schedules and supporting documentation;

recalculated indirect costs and determined whether such costs were computed in

sampled 50 all other nonpersonnel transactions per year from the 1,019 transactions for FY 2000; 938 for FY 2001; and 1,059 for FY 2002 and traced the sampled transactions to supporting documentation.

We determined the computerized data used in this report was sufficiently reliable, given the audit objectives and intended use of the data, and should not lead to incorrect or unintentional conclusions. Our testing of the data reliability included tracing individual transactions to the source documents, recalculating totals and other tests we deemed necessary.

We performed work at the SD-DHS and SD-Department of Legislative Audits in Pierre, South Dakota and SD-DDS in Sioux Falls, South Dakota. We conducted our audit from July 2003 through March 2004. Our audit was completed in accordance with generally accepted government auditing standards.

Appendix C
Agency Comments

SSA provided the following comments on the recommendations.

Recommendation 1: Reimburse SSA $158,513 paid in excess of the SD-DDS and Administrative Rule fee schedules.

The audit considered South Dakota Administrative Rule 67:16:02 but failed to consider Rule 67:16:03. This rule covers payment for outpatient services for x-rays and laboratory procedures. All x-rays, speech evaluations, pulmonary studies, stress tests, etc. are conducted at hospitals and are paid under Rule 67:16:03. These consultative examination and procedure fees should be reevaluated to insure that the guides of this rule are followed also. We expect the State to go into more detail on this subject in their comments.

Recommendation 2: Develop a fee schedule that reflects the South Dakota Administrative Rules and complies with SSA's POMS limiting physician reimbursement to the amounts shown on its fee schedule.

We concur that the DDS should develop a fee schedule that reflects Rules 67:16:02 and they should also include Rule 67:16:03. The fee schedule should also comply with Chapter 20 of the Code of Federal Regulations (CFR) paragraph 404.1624. We have not stressed the necessity of the DDS budget officer visiting the DDS and Fiscal Department to discuss CE and MER costs, CE reviews, and other issues. Trips by the budget officer to discuss budgetary issues will be placed higher on the travel agenda in future fiscal years.

Recommendation 3: Cease paying for unbilled services and review the practice of paying for narrative reports to ensure such payments are appropriate under SSA's policies and pay SSA $75,450 for overpayment on reports.

The DDS has a $10.70 limit on reports with a current procedural terminology (CPT) code of 99080 but with a 22 indicator, the fee increases to $25.00. It appears that the 22 indicator was not considered in the review of these exams. The State will provide more detail on correct charges in this area.

Recommendation 4: Establish maximum numbers of billing hours allowed for performing psychological examinations using SSA Administrators Letter No. 501 as guidance.