Department of Economic Security Division of Developmental Disabilities ALTCS Contract June 30, 2005 Highlights-Financial

Office Of The Auditor General

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Department ofEconomic SecurityDivision of DevelopmentalDisabilities ALTCS ContractREPORTAbout the ALTCS ContractHIGHLIGHTSFINANCIAL STATEMENT AUDITSubject Balance Sheet The Department of Economic Security, June 30, 2005 (In Millions) The Department of Economic Division of Developmental Disabilities Security issues financial (DDD) contracts with AHCCCS to provide Assets: statements annually for the Division Cash and investments held by long-term medical and healthcareof Developmental Disabilities State Treasurer $80.3 services to the developmentally disabled Due from other state funds 3.3 Arizona Long-Term Care SystemTotal assets $83.6 under the ALTCS program. Such services(ALTCS) Contract. The Division isLiabilities and Fund Balance: responsible for preparing the include the following: Accrued administrative and payroll costs $ 3.4 financial statements, maintaining Accrued medical and healthcare claims 54.9 strong internal controls, and Due to other state funds 1.2 • Home- and community-basedTotal liabilities 59.5 demonstrating compliance with its services, including state- and vendor- Unreserved fund balance 24.1 contractual arrangements with theTotal liabilities and fund balance $83.6 operated group homes and home-Arizona Health Care Costbased services provided whereContainment System (AHCCCS).Statement of Revenues, Expenditures, and enrollees live.As auditors, our job is to determine Changes in Fund Balance • Acute care inpatient ...

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• Langue: English

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REPORT HIGHLIGHTS FINANCIAL STATEMENT AUDIT

About the ALTCS Contrac

Department of Economic Security Division of Developmental Disabilities ALTCS Contract

Subject Balance Sheet The Department of Economic Security, June 30, 2005 (In Millions) The Department of Economic Division of Developmental Disabilities Security issues financial (DDD) contracts with AHCCCS to provide Assets: statements annually for the Division Cash and investments held by longterm medical and healthcare of Developmental Disabilities State Treasurer$80.3 services to the developmentally disabled 3.3Due from other state funds Arizona LongTerm Care System Total assets$83.6 (ALTCS) Contract. The Division is under the ALTCS program. Such services Liabilities and Fund Balance: responsible for preparing the include the following: Accrued administrative and payroll costs$ 3.4 financial statements, maintaining Accrued medical and healthcare claims54.9 strong internal controls, and Due to other state funds1.2  Homeand communitybased Total liabilities59.5 demonstrating compliance with its services, including state and vendor Unreserved fund balance24.1 contractual arrangements with the Total liabilities and fund balance$83.6 operated group homes and home Arizona Health Care Cost based services provided where Containment System (AHCCCS). Statement of Revenues, Expenditures, and enrollees live. As auditors, our job is to determine Changes in Fund Balance  Acutecare inpatient and outpatient whether the Division has met its Year Ended June 30, 2005 responsibilities. services. (In Millions)  Institutionalcare, such as skilled Revenues: Our Conclusion nursing, and intermediate care in Capitation $574.3 institutional settings. Other 15.1 The information in the financial 589.4Total revenues  Othercare, including ventilator statements was fairly stated in all Expenditures: dependent services. Health and welfare: material respects, and the financial Aid to individuals499.4 statements can be relied upon. Allocated administrative expenditures26.9 Our audit also determined that the During the year, the ALTCS Contract Case management27.3 internal control system was spent $499.4 million to provide medical Professional and outside services8.0 Premium tax11.9 adequate, and the Division and healthcare services to its enrollees. Total expenditures573.5 substantially complied with These costs were reported as aid to 15.9Excess of revenues over expenditures AHCCCS contract requirements. Other financing uses: individuals’ expenditures in the financial However, we made a Transfers to other state funds(4.2) statements and represented over 87 Net change in fund balance11.7 recommendation in our Fund balance—beginning12.4 management letter for improving percent of total ALTCS Contract Fund balance—ending$ 24.1 the Division’s internal controls over expenditures of $573.5 million. financial reporting and compliance ALTCS Contract Medical and Healthcare with AHCCCS’ accounting and The tables and figure to the right Expenditures by Type of Care reporting requirements. (In Millions) summarize the Contract’s Balance $13.2 Sheet and Statement of Revenues, $21.4 Expenditures, and Changes in Fund Balance, and a breakdown of the $76.4 ALTCS Contract’s medical and healthcare expenditures by type of 2005 $388.4 medical and healthcare services provided. Year Ended June 30, 2005 Other Institutionalcare Acutecare Homeand community based serv ices

Fund Balance Increases for the ALTCS Contrac

During the year, the ALTCS Contract’s fund balance increased by $11.7 million. The increase was primarily attributable to average monthly membership of the Contract’s enrollees increasing approximately 7.4 percent from the prior year. This increase in membership was responsible for most of the increase in revenues and expenditures of 16 percent and 14 percent, respectively. In addition, revenues also increased because the capitation rate per member per month increased 6.9 percent.

Change in Fund Balance (In Millions) Fund balance, July 1, 2004 Excess of revenues over expenditures Transfers to other state funds Fund balance, June 30, 2005

Division Needs To Accurately Record and Report Financial Information

The Division’s management is responsible for preparing accurate financial statements, demonstrating compliance with AHCCCS’ accounting and reporting requirements, and reporting accurate information to AHCCCS and the public. However, these objectives were not fully achieved, as the financial statements and supplementary schedules contained numerous errors. For example, management’s accounting estimates for incurred but not reported claims payable were overstated by approximately $943,000. Ultimately, the Division adjusted its financial statements and supplementary schedules for all significant errors that the auditors noted.

$12.4 15.9  (4.2) $24.1

This is the third year this finding has been reported.

To help ensure that the Division’s management achieves these objectives, it should establish procedures to ensure the following:

 Implementprior audit recommendations.

 Allfinancial transactions are accurately recorded and classified in the Division’s accounting records.

 Allaccounting estimates reported in the financial statements are prepared in accordance with AHCCCS’ requirements.

TOOBTAIN MOREINFORMATION

A copy of the full report can be obtained by calling (602)5530333

or by visiting our Web site at: www.azauditor.gov

Contact person for this report: Doug Haywood

REPORT HIGHLIGHTS FINANCIAL STATEMENT AUDIT

Year Ended June 30, 2005

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