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When time is money: Reviewing your planning and development service fees

07.26.19

Read this if you are a City/County Administrator, Building Official, Community Development Director, Planning Director, Development Services Manager or work with customers providing a service for a fee.

Planning and development service fees are, for many municipalities, often discussed but rarely changed. There are a number of reasons you might need to consider or defend your fee structure―complaints from developers, rising costs of operation, and changes in code or process are just a few. 

But when is the right time for a formal review of your service fees? There are several key organizational factors that should prompt an in-depth study of your fees, either internally or with the assistance of an objective advisor. It may be time for an update if:

  • You’re considering a new permitting system. New technology may streamline your workflows, simplify processes for your customers, or necessitate changes in your staffing. All of these secondary changes can impact the cost of your services. In addition, if you’re anticipating significant changes to your fee structure or methodology (e.g., moving to full cost recovery), you’ll want to configure your new system to support that going forward.
  • You have an enterprise development fund. Development fees are collected to cover the cost of providing a service. The methodology you use to charge fees should be based on defensible formulas that can withstand the scrutiny of your customers and cover the cost to provide the service. In addition, reserve funds should be adequate to ensure your development service is funded through the completion of the project. 
  • The regulations in your municipality are changing. Perhaps your organization is moving to a unified or form-based code or making changes to the International Building or Fire Codes. Changes in the process and requirements for development may require a reevaluated fee structure.
  • It’s been a while. Even if your organization is not experiencing any significant or sweeping change, small shifts can accumulate over the years, resulting in significant fee adjustments that may be tough for you to implement and for your customers to understand. Periodically reviewing service demand and benchmarking your individual fees against those of neighboring communities can help to avoid sticker shock.

If any of these scenarios sound familiar, you may want to consider a fee review, which may consist of benchmarking against similar jurisdictions. Not sure what level of review your organization needs? Our dedicated government consultants include former planners and community development leaders who have walked in your shoes and can talk through the considerations with you.
 

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  • Kevin Price
    Senior Manager
    Community Development, Government Utilities
    P 207.541.2379

Read this if you are planning for, or are in the process of implementing a new software solution.

User Acceptance Testing (UAT) is more than just another step in the implementation of a software solution. It can verify system functionality, increase the opportunity for a successful project, and create additional training opportunities for your team to adapt to the new software quickly. Independent verification through a structured user acceptance plan is essential for a smooth transition from a development environment to a production environment. 

Verification of functionality

The primary purpose of UAT is to verify that a system is ready to go live. Much of UAT is like performing a pre-flight checklist on an aircraft. Wings... check, engines... check, tires... check. A structured approach to UAT can verify that everything is working prior to rolling out a new software system for everyone to use. 

To hold vendors accountable for their contractual obligations, we recommend an agency test each functional and technical requirement identified in the statement of work portion of their contract. 

It is also recommended that the agency verify the functional and technical requirements that the vendor replied positivity to in the RFP for the system you are implementing. 

Easing the transition to a new software

Operational change management (OCM) is a term that describes a methodology for making the switch to a new software solution. Think of implementing a new software solution like learning a new language. For some employees, the legacy software solution is the only way they know how to do their job. Like learning a new language, changing the way business and learning a new software can be a challenging and scary task. The benefits outweigh the anxiety associated with learning a new language. You can communicate with a broader group of people, and maybe even travel the world! This is also true for learning a new software solution; there are new and exciting ways to perform your job.

Throughout all organizations there will be some employees resistant to change. Getting those employees involved in UAT can help. By involving them in testing the new system and providing feedback prior to implementation, they will feel ownership and be less likely to resist the change. In our experience, some of the most resistant employees, once involved in the process, become the biggest champions of the new system.  

Training and testing for better results

On top of the OCM and verification benefits a structured UAT can accomplish, UAT can be a great training opportunity. An agency needs to be able to perform actions of the tested functionality. For example, if an agency is testing a software’s ability to import a document, then a tester needs to be trained on how to do that task. By performing this task, the tester learns how to login to the software, navigate the software, and perform tasks that the end user will be accomplishing in their daily use of the new software. 

Effective UAT and change management

We have observed agencies that have installed software that was either not fully configured or the final product was not what was expected when the project started. The only way to know that software works how you want is to test it using business-driven scenarios. BerryDunn has developed a UAT process, customizable to each client, which includes a UAT tracking tool. This process and related tool helps to ensure that we inspect each item and develop steps to resolve issues when the software doesn’t function as expected. 

We also incorporate change management into all aspects of a project and find that the UAT process is the optimal time to do so. Following established and proven approaches for change management during UAT is another opportunity to optimize implementation of a new software solution. 

By building a structured approach to UAT, you can enjoy additional benefits, as additional training and OCM benefits can make the difference between forming a positive or a negative reaction to the new software. By conducting a structured and thorough UAT, you can help your users gain confidence in the process, and increase adoption of the new software. 

Please contact the team if you have specific questions relating to your specific needs, or to see how we can help your agency validate the new system’s functionality and reduce resistance to the software. We’re here to help.   
 

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User Acceptance Testing: A plan for successful software implementation

The BerryDunn Recovery Advisory Team has compiled this guide to COVID-19 consulting resources for state and local government agencies and higher education institutions.

We have provided a list of our consulting services related to data analysis, CARES Act funding and procurement, and legislation and policy implementation. Many of these services can be procured via the NASPO ValuePoint Procurement Acquisition Support Services contract.

READ THE GUIDE NOW

We're here to help.
If you have any questions, please contact us at info@berrydunn.com

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COVID-19 consulting resources

Read this if your organization, business, or institution has leases and you’ve been eagerly awaiting and planning for the implementation of the new lease standards.

Ready? Set? Not yet. As we have prepared for and experienced delays related to Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 842, Leases, we thought the time had finally come for implementation. With the challenges that COVID-19 has brought to everyone, the FASB recognizes the significant impact COVID-19 has brought to commercial businesses and not-for-profits and is proposing a one-year delay in implementation, as described in this article posted to the Journal of Accountancy: FASB effective date delay proposals to include private company lease accounting.

But what about lease concessions? We all recognize many lessors are making concessions due to the pandemic. Under current guidance in Topics 840 and 842, changes to lease contracts that were not included in the original lease are generally accounted for as lease modifications and, therefore, a separate contract. This would require remeasurement of the new lease contract and related right-of-use asset. FASB recognized this issue and has published a FASB Staff Questions and Answers (Q&A) Document,  Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. Under this new guidance, if lease concessions are made relating to COVID-19, entities do not need to analyze each contract to determine if a new contract has been entered into, and will have the option to apply, or not to apply, the lease modification provisions of Topics 840 and 842.

Implementation of the lease accounting standard will most likely be delayed for Governmental Accounting Standards Board (GASB) entities as well. On April 15, 2020, the GASB issued an exposure draft that would delay most GASB statements and implementation guides due to be implemented for fiscal years 2019 and later. Most notably, this includes Statement 84, Fiduciary Activities, and Statement 87, Leases. Comments on the proposal will be accepted through April 30, and the board plans to consider a final statement for issuance on May 8. More information may be found in this article from the Journal of Accountancy: GASB proposes postponing effective dates due to pandemic.

More information

Whether you are a FASB or GASB entity, you can expect a delay in the implementation of the lease standard. If you have questions, please contact a member of our financial statement audit team. For other COVID-19 related resources, please refer to BerryDunn’s COVID-19 Resources Page.

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FASB and GASB news: Postponement of the lease accounting standards

More and more emphasis is being put on cybersecurity by companies of all sizes. Whether it’s the news headlines of notable IT incidents, greater emphasis on the value of data, or the monetization of certain types of attacks, an increasing amount of energy and money is going towards security. Security has the attention of leadership and the board and it is not going away. One of the biggest risks to and vulnerabilities of any organization’s security continues to be its people. Innovative approaches and new technology can reduce risk but they still don’t prevent the damage that can be inflicted by an employee simply opening an attachment or following a link. This is more likely to happen than you may think.

Technology also doesn’t prepare a management team for how to handle the IT response, communication effort, and workforce management required during and after an event. Technology doesn’t lessen the operational impact that your organization will feel when, not if, you experience an event.

So let’s examine the human and operational side of cybersecurity. Below are three factors you should address to reduce risk and prepare your organization for an event:

  1. People: Create and maintain a vigilant workforce
    Ask yourself, “How prepared is our workforce when it comes to security threats and protecting our data? How likely would it be for one of our team members to click on a link or open an attachment that appear to be from our CFO? Would our team members look closely enough at the email address and notice that the organization name is different by one letter?”
     

    According to the 2016 Verizon Data Breach Report, 30% of phishing messages were opened by the target across all campaigns and 12% went on to click on the attachment or link.

    Phishing email attacks directed at your company through your team range from very obvious to extremely believable. Some attempts are sent widely and are looking for just one person to click, while others are extremely targeted and deliberate. In either case, it is vital that each employee takes enough time to realize that the email request is unusual. Perhaps there are strange typos in the request or it is odd the CFO is emailing while on vacation. That moment your employees take to pause and decide whether to click on the link/attachment could mean the difference between experiencing an event or not.

    So how do you create and cultivate this type of thought process in your workforce? Lots of education and awareness efforts. This goes beyond just an annual in-service training on HIPAA. It may include education sessions, emails with tips and tricks, posters describing the risk, and also exercises to test your workforce against phishing and security exploits. It also takes leadership embracing security as a strategic imperative and leading the organization to take it seriously. Once you have these efforts in place, you can create culture change to build and maintain an environment where an employee is not embarrassed to check with the CFO’s office to see if they really did send an email from Bora Bora.
  1. Plan: Implement a disaster recovery and incident response plan 
    Through the years, disaster recovery plans have been the usual response. Mostly, the emphasis has been on recovering data after a non-security IT event, often discussed in context of a fire, power loss, or hardware failure. Increasingly, cyber-attacks are creeping into the forefront of planning efforts. The challenge with cyber-events is that they are murkier to understand – and harder for leadership – to assist with.

    It’s easier to understand the concept of a fire destroying your server room and the plan entailing acquiring new equipment, recovering data from backup, restoring operations, having good downtime procedures, and communicating the restoration efforts along the way. What is much more challenging is if the event begins with a suspicion by employees, customers, or vendors who believe their data has been stolen without any conclusive information that your company is the originating point of the data loss. How do you take action if you know very little about the situation? What do you communicate if you are not sure what to say? It is this level of uncertainty that makes it so difficult. Do you have a plan in place for how to respond to an incident? Here are some questions to consider:
     
    1. How will we communicate internally with our staff about the incident?
    2. How will we communicate with our clients? Our patients? Our community?
    3. When should we call our insurance company? Our attorney?
    4. Is reception prepared to describe what is going on if someone visits our office?
    5. Do we have the technical expertise to diagnose the issue?
    6. Do we have set protocols in place for when to bring our systems off-line and are our downtime procedures ready to use?
    7. When the press gets wind of the situation, who will communicate with them and what will we share?
    8. If our telephone system and network is taken offline, how we will we communicate with our leadership team and workforce?

By starting to ask these questions, you can ascertain how ready you may, or may not be, for a cyber-attack when it comes.

  1. Practice: Prepare your team with table top exercises  
    Given the complexity and diversity of the threats people are encountering today, no single written plan can account for all of the possible combinations of cyber-attacks. A plan can give guidance, set communication protocols, and structure your approach to your response. But by conducting exercises against hypothetical situations, you can test your plan, identify weaknesses in the plan, and also provide your leadership team with insight and experience – before it counts.

    A table top exercise entails one team member (perhaps from IT or from an outside firm) coming up with a hypothetical situation and a series of facts and clues about the situation that are given to your leadership team over time. Your team then implements the existing plans to respond to the incident and make decisions. There are no right or wrong answers in this scenario. Rather, the goal is to practice the decision-making and response process to determine where improvements are needed.

    Maybe you run an exercise and realize that you have not communicated to your staff that no mention of the event should be shared by employees on social media. Maybe the exercise makes you realize that the network administrator who is on vacation at the time is the only one who knows how to log onto the firewall. You might identify specific gaps that are lacking in your cybersecurity coverage. There is much to learn that can help you prepare for the real thing.

As you know, there are many different threats and risks facing organizations. Some are from inside an organization while others come from outside. Simply throwing additional technology at the problem will not sufficiently address the risks. While your people continue to be one of the biggest threats, they can also be one of your biggest assets, in both preventing issues from occurring and then responding quickly and appropriately when they do. Remember focus on your People, Your Plan, and Your Practice.

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The three P's of improving your company's cybersecurity soft skills

The COVID-19 emergency has caused CMS (Centers for Medicare & Medicaid Services) to expand eligibility for expedited payments to Medicare providers and suppliers for the duration of the public health emergency.

Accelerated payments have been available to providers/suppliers in the past due to a disruption in claims submission or claims processing, mainly due to natural disasters. Because of the COVID-19 public health emergency, CMS has expanded the accelerated payment program to provide necessary funds to eligible providers/suppliers who submit a request to their Medicare Administrative Contractor (MAC) and meet the required qualifications.

Eligibility requirements―Providers/suppliers who:

  1. Have billed Medicare for claims within 180 days immediately prior to the date of signature on the provider’s/supplier’s request form,
  2. Are not in bankruptcy,
  3. Are not under active medical review or program integrity investigation, and
  4. Do not have any outstanding delinquent Medicare overpayments.

Amount of payment:
Eligible providers/suppliers will request a specific amount for an accelerated payment. Most providers can request up to 100% of the Medicare payment amount for a three-month period. Inpatient acute care hospitals and certain other hospitals can request up to 100% of the Medicare payment amount for a six-month period. Critical access hospitals (CAHs) can request up to 125% of the Medicare payment for a six-month period.

Processing time:
CMS has indicated that MACs will work to review and issue payment within seven calendar days of receiving the request.

Repayment, recoupment, and reconciliation:
Repayment of the accelerated payment begins 120 days after the date of the issuance of the payment.

  • Inpatient acute care hospitals, certain other hospitals, and CAHs have up to one year from the payment date to repay the balance.
  • All other Part A providers and Part B suppliers will have 210 days from the payment date to repay the balance.
  • Providers/suppliers should continue to submit claims as usual after the issuance of the accelerated payment, but recoupment will not begin for 120 days. Full payment will be made on claims during the 120-day period. At the end of the 120-day period, the recoupment process automatically begins. Every claim submitted will be offset from the new claims to repay the accelerated payment. No payment will be made on newly submitted claims and repayment will begin.
  • The majority of hospitals will have up to one year from the date of the accelerated payment to repay the balance. One year after the accelerated payment is made, the MAC will check to determine if there is a remaining balance. If there is an un-recouped balance, the MAC will send a request for repayment which is to be made by direct payment. Part A and Part B providers not subject to the one-year recoupment plan will have up to 210 days for the reconciliation process to begin.
  • For Part A providers who receive Periodic Interim Payments, the accelerated payment reconciliation process will happen at the final cost report process (180 days after the fiscal period closes).

Application:
The MAC for Jurisdiction 6 and Jurisdiction K is NGS (National Government Services). The NGS application for accelerated payment can be found here.

The NGS Hotline telephone number is 1.888.802.3898. Per NGSMedicare.com, representatives are available Monday through Friday during regular business hours.

The MAC will review the application to ensure the eligibility requirements are met. The provider/supplier will be notified of approval or denial by mail or email. If the request is approved, the MAC will issue the accelerated payment within seven calendar days from the request.

Tips for filing the Request for Accelerated/Advance Payment:
The key to determining whether a provider should apply under Part A or Part B is the Medicare Identification number. For hospitals, the majority of funding would originate under Part A based on the CMS Certification Number (CCN) also known as the Provider Transaction Access Number (PTAN). As an example, Maine hospitals have CCN / PTAN numbers that use the following numbering convention "20-XXXX". Part B requests would originate when the provider differs from this convention. In short, everything reported on a cost report or Provider Statistical and Reimbursement report  (PS&R) would fall under Part A for the purpose of this funding. 
 
When funding is approved, the requested amount is compared to a database with amounts calculated by Medicare and provides funding at the lessor of the two amounts. The current form allows the provider to request the maximum payment amount as calculated by CMS or a lesser specified amount.
 
A representative from National Government Services indicated the preference was to receive one request for Part A per hospital. The form provides for attachment of a listing of multiple PTAN and NPI numbers that fall under the organization.

Interest after recoupment period:
On Monday, April 6, 2020, the American Hospital Association (AHA) wrote a letter to the Department of Health and Human Services and CMS requesting the interest rate applied to the repayment of the accelerated/advanced payments be waived or substantially reduced. AHA received clarification from CMS that any remaining balance at the end of the recoupment period is subject to interest. Currently that interest rate is set at 10.25% or the “prevailing rate set by the Treasury Department”. Without relief from CMS, interest will accrue as of the 31st day after the hospital has received a demand letter for the repayment of the remaining balance. The hospital does have 30 days to pay the balance without incurring interest.  

We are here to help
If you have questions or need more information about your specific situation, please contact the hospital consulting team. We’re here to help.

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Medicare Accelerated Payment Program

CARES Act update:

As anticipated, the House of Representatives approved the CARES Act on March 27, 2020, and the President has signed the measure. The provisions highlighted in our prior summary remain intact in the final measure. 

So…how are the emergency relief funds in the legislation accessed by healthcare providers?

  • Public Health & Social Services Emergency Fund (PHSSEF): The guidance on how hospitals will access the $100 billion in PHSSEF funds to offset “COVID-19 related expenses and lost revenue” is expected to be released shortly. Keep an eye on this space for further updates as information becomes available.
  • Medicare Advanced Lump Sum or Periodic Interim Payments: Application is made through the Fiscal Intermediary (FI). It should be noted that healthcare organizations do not qualify if they are in bankruptcy, under active medical review or program integrity investigation, or have outstanding, delinquent Medicare overpayments.
  • SBA Paycheck Protection Program (PPP): This application process begins with your local lender. Do not hesitate—contact your lender immediately as it is anticipated that application volume will be tremendous. For more specifics on this program compiled by BerryDunn experts, visit our blog.

We will continue to provide updates as more information becomes available. In the meantime, please feel free to contact the hospital consulting team. Despite the current circumstances we remain available to support your needs. 


On March 25, 2020 the US Senate unanimously approved the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act (The “Act”). The White House has signaled that it will sign the measure as approved by the Senate. 

Major provisions of the proposed legislation include:

  • $100 billion for hospital “COVID-19 related expenses and lost revenue”
  • $275 million for rural hospitals, telehealth, poison control centers, and HIV/AIDS programs
  • $250 million for hospital capacity expansion and response
  • $150 million for modifications of existing hospital, nursing home, and “domiciliary facilities” undertaken as part of COVID-19 response

The CARES Act also includes the following targeted relief and payment modifications under the Medicare and Medicaid programs:

  • The Medicare 2% sequester will be suspended from May 1, 2020 through December 31, 2020. 
  • “Through the duration of the COVID-19 emergency period”, the Act will increase by 20% hospital payments for the treatment of patients admitted with COVID-19. The add-on applies to hospitals paid through the Inpatient Prospective Payment System.
  • $4 billion in scheduled cuts to Medicaid Disproportionate Share Hospital payments will be further delayed from May 22, 2020 to November 30, 2020.
  • Certain hospitals, including those designated as rural or frontier, have the option to request up to a six month advanced lump sum or periodic interim payments from Medicare. The payments will:
    1. Be based upon net payments represented by unbilled discharges or unpaid bills,
    2. Equal up to 100% of prior period payments, 125% for Critical Access Hospitals
    3. In terms of paying down the “no interest loans”, hospitals will be given a four month grace period to begin making payments and at least 12 months to fully liquidate the obligation.

Non-financing provisions contained in the Act that will impact hospital operations include:

  • Providing acute care hospitals the option to transfer patients out of their facilities and into alternative care settings to "prioritize resources needed to treat COVID-19 cases." That flexibility will come through the waiver of the Inpatient Rehabilitation Facility (IRF) three-hour rule, which requires patients to need at least three hours of intensive rehabilitation at least five days per week to be admitted to an IRF.
  • Allowing Long-Term Care Hospitals (LTCH) to maintain their designation even if more than 50% of their cases are less intensive and would temporarily pause LTCH site-neutral payments.
  • Suspending scheduled Medicare payment cuts for durable medical equipment during the length of the COVID-19 emergency period, to help patients transition from hospital to home.
  • Disallow Medicare beneficiary cost-sharing payments for any COVID-19 vaccine.
  • Ensuring that uninsured individuals could receive free COVID-19 tests "and related service" through any state Medicaid program that elects to enroll them.

Other emergency-period provisions that directly affect other entities but have implications for hospitals:

  • Affording $150 billion to states, territories, and tribal governments to cover their costs for responding to the coronavirus public health emergency.
  • Physician assistants, nurse practitioners, and other professionals will be allowed to order home health services for Medicare beneficiaries, to increase "beneficiary access to care in the safety of their home."
  • Requiring HHS to clarify guidance encouraging the use of telecommunications systems, including remote patient monitoring, for home health services.
  • Allowing qualified providers to use telehealth technologies to fulfill the hospice face-to-face recertification requirement.
  • Eliminating the requirement that a nephrologist conduct some of the required periodic evaluations of a home-dialysis patient face-to-face.
  • Allowing federally qualified health centers and rural health clinics to serve as a distant site for telehealth consultations.
  • Eliminating the telehealth requirement that physicians or other professionals have treated a patient in the past three years.
  • Allowing high-deductible health plans with a health savings account (HSA) to cover telehealth services before a patient reaches the deductible.
  • Allowing patients to use HSA and flexible spending accounts to buy over-the-counter medical products without a prescription.

For more information
If you have questions or need more information about your specific situation, please contact the hospital consulting team. We’re here to help. 
 

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CARES Act provides hospitals with emergency funding and policy wins

Editor’s note: Please read this if you are a not-for-profit board member, CFO, or any other decision maker within a not-for-profit.

In a time where not-for-profit (NFP) organizations struggle with limited resources and a small back office, it is important not to overlook internal audit procedures. Over the years, internal audit departments have been one of the first to be cut when budgets are tight. However, limited resources make these procedures all the more important in safeguarding the organization’s assets. Taking the time to perform strategic internal audit procedures can identify fraud, promote ethical behavior, help to monitor compliance, and identify inefficiencies. All of these lead to a more sustainable, ethical, and efficient organization. 

Internal audit approaches

The internal audit function can take on many different forms, depending on the size of the organization. There are options between the dedicated internal audit department and doing nothing whatsoever. For example:

  • A hybrid approach, where specific procedures are performed by an internal team, with other procedures outsourced. 
  • An ad hoc approach, where the board or management directs the work of a staff member.

The hybrid approach will allow the organization to hire specialists for more technical tasks, such as an in-depth financial analysis or IT risk assessment. It also recognizes internal staff may be best suited to handle certain internal audit functions within their scope of work or breadth of knowledge. This may add costs but allows you to perform these functions otherwise outside of your capacity without adding significant burden to staff. 

The ad hoc approach allows you to begin the work of internal audit, even on a small scale, without the startup time required in outsourcing the work. This approach utilizes internal staff for all functions directed by the board or management. This leads to the ad-hoc approach being more budget friendly as external consultants don’t need to be hired, though you will have to be wary of over burdening your staff.

With proper objectivity and oversight, you can perform these functions internally. To bring the process to your organization, first find a champion for the project (CFO, controller, compliance officer, etc.) to free up staff time and resources in order to perform these tasks and to see the work through to the end. Other steps to take include:

  1. Get the audit/finance committee on board to help communicate the value of the internal audit and review results of the work
  2. Identify specific times of year when these processes are less intrusive and won’t tax staff 
  3. Get involved in the risk management process to help identify where internal audit can best address the most significant risks at the organization
  4. Leverage others who have had success with these processes to improve process and implementation
  5. Create a timeline and maintain accountability for reporting and follow up of corrective actions

Once you have taken these steps, the next thing to look at (for your internal audit process) is a thoughtful and thorough risk assessment. This is key, as the risk assessment will help guide and focus the internal audit work of the organization in regard to what functions to prioritize. Even a targeted risk assessment can help, and an organization of any size can walk through a few transaction cycles (gift receipts or payroll, for example) and identify a step or two in the process that can be strengthened to prevent fraud, waste, and abuse.  

Here are a few examples of internal audit projects we have helped clients with:

  • Payroll analysis—in-depth process mapping of the payroll cycle to identify areas for improvement
  • Health and education facilities performance audit—analysis of various program policies and procedures to optimize for compliance
  • Agreed upon procedures engagement—contract and invoice/timesheet information review to ensure proper contractor selection and compliant billing and invoicing procedures 

Internal audits for companies of all sizes

Regardless of size, your organization can benefit from internal audit functions. Embracing internal audit will help increase organizational resilience and the ability to adapt to change, whether your organization performs internal audit functions internally, outsources them, or a combination of the two. For more information about how your company can benefit from an internal audit, or if you have questions, contact us

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Internal audit potential for not-for-profit organizations

Editor’s note: Read this if you are a Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Chief Information Officer, or Controller.

Last month, the Office of the Comptroller of the Currency (OCC) issued its Semiannual Risk Perspective for Fall 2019. The report addresses key issues facing banks and focuses on those that pose threats to their safety and soundness. According to the report:

  • Bank financial performance is strong due to a favorable credit environment and the longest economic expansion in U.S. history.
  • Capital levels have reached historical highs.
  • Return on equity was above its 2006 pre-crisis level for the first time at 12.7%.
  • Net income grew 8.22% from the same period a year ago; however, net interest income grew only 4%, as loan growth is below historical averages and an increasing number of banks are facing a flat or declining net interest margin.
  • There is continued weakness in residential and commercial real estate loan growth.
  • Delinquent and nonperforming loans remain below their long-term averages.


Banks can thrive even with economic uncertainty

While these trends indicate that 2019 was by and large an excellent year, banks cannot afford to be complacent, as 2019 also saw increasing risks to the industry. For instance, in 2019 there was much discussion of the future cessation of the London InterBank Offer Rate (LIBOR). The OCC has indicated it will increase its regulatory oversight regarding the anticipated cessation, to ensure banks assess their exposure to LIBOR and are appropriately planning their transition from the widely used benchmark rate. The Financial Accounting Standards Board (FASB) is also working on a project to address accounting issues that could arise from the transition from LIBOR.

And, although 2019 continued the longest economic expansion in US history, economic uncertainty exists due to, in part, the US-China trade conflict and ongoing Brexit discussions. This economic uncertainty has caused volatility in the interest rate environment. Aside from the yield curve inverting in 2019, banks also saw the Federal Funds target rate increase 25 basis points prior to decreasing 50 basis points. Given the typically asset-sensitive nature of banks’ balance sheets, the current interest rate environment will also put pressure on net interest margins. The current volatility of interest rates has caused the OCC to conclude interest rate risk is currently at heightened levels. 

Net interest income continues to be the most significant driver of net revenues for community banks, comprising nearly 80% of net revenues. With a difficult interest rate environment and lackluster loan growth in residential and commercial real estate, banks may face a difficult path ahead. Banks should tread cautiously, especially if this uncertainty persists. Asset-liability management will need be a significant focus (more than usual) as banks try to position themselves to not only maintain profitability through this uncertainty, but also come out stronger than before. Specifically, if lower rates persist, asset growth will need be a priority over deposit growth to maintain profitability at lower net interest margins. If loan growth continues to wane, this will prove to be difficult.

Innovations to compete with new lending sources

Adding to the list of threats to performance is the increasing amount of alternative financial resources available to borrowers. Banks have traditionally been the only source of credit for borrowers. However, technology has rapidly changed that landscape. Person-to-person (P2P) lending (also known as crowd lending, or social lending), allows people to borrow funds directly from another person, cutting out traditional lending sources (banks). Additionally, blockchain technology, if the hype is accurate, has the potential to eliminate the need of a financial intermediary altogether. 

Banks are adapting to this competition and to customers looking for more convenience and alternative services by offering new, unique services that differentiate themselves from others and provide added value to the customer. Banks have delivered through remote deposit, ATMs, and interactive teller machines (ITMs). Banks will need to continue to adopt innovative services to remain competitive. 

For instance, banks could offer video conferencing services, in which customers could have a live conversation with a bank representative through their smartphone. This convenience would allow a customer to conduct a transaction, such as apply for a loan, from the convenience of their home, while still maintaining human interaction throughout the transaction. Such a service would help banks compete with digital channels offered by non-banks, such as Quicken Loans, which is now the largest mortgage originator in the United States.

Strategies to protect against technological risks

These services all require the use of existing and new technologies, which have caused banks to hold more personally identifiable information (PII) digitally across an increasing number of digital platforms. As noted by the OCC, this digital exposure has created persistent cybersecurity risks for banks. Adopting a robust cybersecurity framework is no longer an option. 

Banks should bring cybersecurity to the forefront of their strategic planning. Any strategic plan must consider cybersecurity implications, as a single disaster can be detrimental to a bank’s reputation. And, given this rapidly changing environment, the cybersecurity conversation must be ongoing through relevant bank committees and the board of directors.

Furthermore, these technological solutions require partnerships with businesses that banks would not traditionally partner with. Financial technology (fintech) companies don’t just pose as a competitor to traditional banks. Many fintech companies are offering their technological solutions to traditional banks. However, outsourcing technological solutions to fintech companies and other businesses does not relieve a bank from performing its own due diligence and ensuring those companies meet the bank’s standards. 

Banks should evaluate potential vendors to ensure they comply with the bank’s vendor management policy. Since environments are constantly changing, this evaluation should be ongoing. Many vendors now provide System and Organization Controls (SOC) reports which detail the control environment at the vendor and involve independent third-party testing of those controls that exist at the vendor. SOC reports can provide a useful starting point for evaluating a vendor’s ongoing compliance with the bank’s vendor management policy. However, it is not a substitute for ongoing communication with a vendor.

There is no doubt 2019 was a successful year for banks. But past performance is not a guarantee of future success. Banks face many challenges, risks, and uncertainties, of which only a few have been outlined above. The current landscape may be challenging but it is also filled with opportunity. Banks should consider expanding their services, adopting new technologies, and partnering with other companies to leverage their strengths. Doing so should help position themselves for an exciting decade ahead.

If you have specific concerns about challenges facing your institution, please contact the team

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Banking and finance: 2020 challenges and what to do to overcome them

Read this if you are a state Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, State Procurement Officer, or work in a State Medicaid Program Integrity Unit.

The Centers for Medicare & Medicaid Services (CMS) issued a Payment Error Rate Measurement (PERM) Final Rule on July 5, 2017, that made several changes to the PERM requirements. One important change was the updates to the Medicaid Eligibility Quality Control (MEQC) requirement. 

The Final Rule restructures the MEQC program into a pilot program that requires states to conduct eligibility reviews during the two years between PERM cycles. CMS has also introduced the potential for imposing disallowances or reductions in federal funding percentage (FFP) as a result of PERM eligibility error rates that do not meet the national standard. One measure states can use to lessen the chance of this happening is by successfully carrying out the requirements of the MEQC pilot. 

What states should know―important points to keep in mind regarding MEQC reviews:

  • Each state must have a team in place to conduct MEQC reviews. The individuals responsible for the MEQC reviews and associated activities must be separate from the state agencies and personnel responsible for Medicaid and Children’s Health Insurance Program (CHIP) policy and operations, including eligibility determinations.
  • States can apply for federal funding to help cover the costs of the MEQC activities. CMS encourages states to partner with a contractor in conducting the MEQC reviews.
  • The deadline to submit the state planning document to CMS is November 1 following the end of your state’s PERM cycle. If you are a Cycle 2 state, your MEQC planning document is due by November 1, 2019. 
  • If you are a Cycle 1 state, you are (or should be) currently undergoing the MEQC reviews.
  • There are minimum sample size requirements for the MEQC review period: 400 negative cases and 400 active cases (consisting of both Medicaid and CHIP cases) over a period of 12 months.
  • Upon conclusion of all MEQC reviews, states must submit a final findings report along with a corrective action plan that addresses all error findings identified during the MEQC review period.

CMS encourages states to utilize federal funding to carry out and fulfill MEQC requirements. BerryDunn has staff with experience in preparing Advanced Planning Documents (APD) and can assist your state in submitting an APD request to CMS for these MEQC activities. 

Check out the previously released blog, “PERM: Prepared or Not Prepared?” and stay tuned for upcoming blogs about specific PERM topics, including the financial impacts of PERM, and how each review phase will affect your state.   

For questions or to find out more, contact the team

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PERM: Does MEQC affect states?

Federal contractors with the Centers for Medicare & Medicaid Services (CMS) have begun performing Payment Error Rate Measurement (PERM) reviews under the Final Rule issued in July 2017—a rule that many states may not realize could negatively impact their Medicaid budgets.

PERM is a complex process—states must focus on several activities over a recurring three-year period of time—and states may not have the resources needed to make PERM requirements a priority. However, with the Final Rule, this PERM eligibility review could have financial implications. 

After freezing the eligibility measurement for four years while undergoing pilot review, CMS has established new requirements for the eligibility review component and made significant changes to the data processing and medical record review components. As part of the Final Rule, CMS may implement reductions in the amount of federal funding provided to a state’s Medicaid and Children’s Health Insurance Program (CHIP) programs based on the error rates identified from the eligibility reviews. 

Since the issuance of the Final Rule in July 2017, Cycle 1 states are the first group of states to undergo a PERM cycle, including reviews of the data processing, medical record, and eligibility components. These states are wrapping up the final review activities, and Cycle 2 states are in the early stages of their PERM reviews.

How can your state prepare?

Whether your state is a Cycle 1, Cycle 2, or Cycle 3 state, there are multiple activities your Medicaid departments should engage in throughout each three-year period of time during and between PERM cycles: 

  • Analyzing prior errors cited or known issues, along with the root cause of the error
  • Identifying remedies to reduce future errors
  • Preparing and submitting required questionnaires and documents to the federal contractors for an upcoming review cycle
  • Assisting federal contractors with current reviews and findings
  • Preparing for and undergoing Medicaid Eligibility Quality Control (MEQC) planning and required reviews
  • Corrective action planning

Is your state ready?

We’ve compiled a few basic questions to gauge your state’s readiness for the PERM review cycle:

  • Do you have measures in place to ensure all eligibility factors under review are identifiable and that all federal and state regulations are being met? The eligibility review contractor (ERC) will reestablish eligibility for all beneficiaries sampled for review. This process involves confirming all verification requirements are in the case file, income requirements are met, placement in an accurate eligibility category has taken place, and the timeframe for processing all determinations meets federal and state regulations. 
  • Do you have up-to-date policy and procedures in place for determining and processing Medicaid or CHIP eligibility of an individual? Ensuring eligibility policies and procedures meet federal requirements is just as important as ensuring the processing of applications, including both system and manual actions, meet the regulations. 
  • Do you have up-to-date policy, procedures, and system requirements in place to ensure accurate processing of all Medicaid/CHIP claims? Reviewers will confirm the accuracy of all claim payments based on state and federal regulations. Errors are often cited due to the claims processing system allowing claims to pay that do not meet regulations.
  • Do you have a dedicated team in place to address all PERM requirements to ensure a successful review cycle? This includes staff to answer questions, address review findings, and respond to requests for additional information. During a review cycle, the federal contractors will cite errors based on their best understanding of policies and/or ability to locate required documentation. Responding to requests for information or reviewing and responding to findings in a timely manner should be a priority to ensure accurate findings. 
  • Have you communicated all PERM requirements and updates to policy changes to all Medicaid/CHIP providers? Providers play two integral roles in the success of a PERM review cycle. Providers must understand all claims submission requirements in order to accurately submit claims. Additionally, the medical record review component relies on providers responding to the request for the medical records on a sampled claim. Failure to respond will result in an error. Therefore, states must maintain communication with providers to stress the importance of responding to these requests.
  • Have you begun planning for the MEQC requirement? Following basic requirements identified by CMS during your state’s MEQC period, your state must submit a case planning document to CMS for approval prior to the MEQC review period. After the MEQC review, your state should be prepared to issue findings reports, including a corrective action plan as it relates to MEQC findings.

Need help piloting your state’s PERM review process?

BerryDunn has subject matter experts experienced in conducting PERM reviews, including a thorough understanding of all three PERM review components—eligibility, data processing, and medical record reviews. 

We would love to work with your state to see that measures are in place that will help ensure the lowest possible improper payment error rate. Stay tuned for upcoming blogs where we will discuss other PERM topics, including MEQC requirements, the financial impacts of PERM, and additional details related to each phase of PERM. For questions or to find out more, please email me
 

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PERM: Prepared or not prepared?

Because we’ve been through this process many times, we’ve learned a few lessons and determined some best practices. Here are some tips to help you promote a positive post go-live experience.

The road to go-live is paved with good intentions. When an organization identifies a need to procure a new or upgraded system, that road can be long. It requires extensive planning, building a business case, defining requirements, procuring the system, testing it, and implementing it. Not to mention preparing your team to start using it. You’ve worked really hard to get to this point, and it feels like you’re about to cross the finish line. Well, grab some Gatorade because you’re not quite there yet. Post go-live is your cool-down, and it’s an important part of the race.

Preparation is key.
If you haven’t built a go-live plan into your overall implementation plan, you may see stress levels rise significantly in the days and weeks leading up to go-live. Like a runner prepares for a big race, a project lead must adequately prepare the team to begin using the new system, while still handling unexpected obstacles.  While there are many questions you should ask as you prepare to go live, you need to gain buy-in on the plan from the beginning and manage it to ensure follow-through.

Have your contract and deliverables handy.
Your system vendor implementation team will look to hand you off to their support team soon after go-live. It is crucial that you review all of the deliverables outlined in your contract to ensure all of the agreed-upon functionality is up and running, and all contracted deliverables have been provided and approved. Don’t transition to support until you’ve had enough time to see the system through significant processes (e.g. payroll, month-end close). In the period immediately after go-live, the vendor implementation team is your best resource to help address these issues, so it’s a good idea to have easy access to them.

Encourage use and feedback.
Functional leads and project champions need to continue communications past go-live to encourage use and provide a mechanism for addressing feedback. Employing change management best practices will go a long way in ensuring you use the system properly — and to its best capabilities.

Plan ahead for expanded use and future issues. 
Because a system implementation can be extremely resource-intensive, it is common to suppress or forgo functionality to implement at a later date (e.g., citizen and vendor self-service). In addition, we sometimes see issues arise during significant operational milestones (e.g., renewal processing, year-end close). Have a plan in place to decide how you will address known and unknown issues that arise.

While there is no silver bullet to solve all of the potential go-live woes, you can promote a smooth transition from a legacy system to a new system by implementing these tips. The time you spend up front will help offset many headaches down the road, promote end-user engagement, and ensure you’re getting the most from your investment.

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We're live! Now what?

Online banking? Check.
Online shopping? You bet.
Online permit application submittal? What? Actually, yes.


As Americans are becoming more and more accustomed to performing everyday functions online, local governments are evolving and keeping up with the times. This online evolution is coming in the form of implementing modern enterprise applications with electronic workflow and a public-facing portal that allows residents to apply for permits, submit documentation, pay for, and collaborate with local government staff to perform a variety of processes.

One area of recent focus is the online submittal and routing of electronic planning and permit applications, and supporting plans and drawings. This effort is often driven by a desire to expand e-government offerings available to the public, while also realizing internal efficiencies through electronic workflow and simultaneous review, and a reduction in paper usage.

If you were to take a tour of most City or County Building, Planning, or Development Departments, in many instances you would see bins containing rolls of large (24”x36”) scale drawings that support planning (e.g., subdivision, rezoning, etc.) or permit (e.g., new family residential dwelling, accessory building, etc.) documents. With local government agencies receiving hundreds of paper applications each year, the internal driver for moving to an electronic submittal and review environment is evident. Additionally, when it is understood that the applicant develops these documents in a Computer Aided Design (CAD) system prior to printing, and are also required to submit applications in-person during business hours, the need for simplified online processes is even more pressing.

On the surface, moving to an electronic application submittal and review platform may appear pretty straightforward. However, like any major process and technology change there are several major considerations. Here are three that each agency should look at prior to starting an electronic application submittal and review project.

  1. Change to Current Business Processes
    Current processes related to application submittal, completeness review, routing to reviewers, consolidation of review comments, and return of comments and mark-ups to applicants are paper intensive.
    • Are current processes designed around paper submittals?
    • Will reviews be simultaneous or sequential? Should this change?
    • How will electronic copies be distributed to reviewers? How about third-party reviewers?
    • How will comments be consolidated and returned to the applicant?
    • Will plans be submitted online and/or in person via USB/CD?
  2. Change to Current Policies
    Current policies are most likely based on a paper plan set being received, routed, and archived. It is very likely that these policies will require updating with a change to electronic submittal and review.
    • Will plans be required to be submitted electronically? For some case types?
    • Will a hard copy plan set still be required?
    • How will final plans be archived?
    • Will an additional fee be charged to offset equipment and hardware costs?
    • Will the fee schedule incentivize electronic submittals?
    • Will staff be required to perform their mark-ups electronically?
  3. Change to Technology Tools
    Drafting tables, light tables, red pens, and rulers are common tools used to support a paper-based environment. Electronic submittal and review will require a different set of tools.
    • Does your current planning/permitting system have the tools to support an electronic workflow?
    • What software and hardware tools will staff use to complete their review?
    • Will all reviewers be required to complete their reviews electronically?
    • How will revised plans be provided to an applicant (e.g., portal, email, etc.)?
    • How will signatures and stamps be applied to electronic plans?
    • How will resubmittals and multiple versions of plans be managed?

Transitioning to an electronic plan submittal and review environment may seem overwhelming, but when done correctly the benefits can be significant. BerryDunn can assist with answering questions related to transitioning to an electronic plan submittal and review environment. Get more information on how BerryDunn can help your agency navigate this here.

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Moving to electronic plan submittal and review: Three things to consider