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Segmenting accounts receivable reports: How to use your reports to understand where you are

11.28.17

In a previous blog post, “Six Steps to Gain Speed on Collections”, we discussed the importance of regular reviews of long-term care facility financial performance indicators and benchmarks, and suggestions to speed up collections. We also noted that knowledge of your facility’s current payer mix is critical to understanding days in accounts receivable (A/R).

The purpose of a regular A/R review is to facilitate prompt and complete collections by identifying trends and potential system issues and then implementing an action plan. Additionally, an A/R review is used to report on certain regulatory compliance requirements, and could help management identify staff training and development needs. Here are some tips on how to make your review both effective and efficient.

  • Practice professional skepticism. Generate your own A/R reports. While your staff may be competent and trustworthy, it is a good habit to get information directly from your billing system.
     
  • Understand your revenue cycle calendar. A common approach is to generate A/R reports at the end of each month. While you can generate reports at any time, always ask your staff whether all recent cash receipts and adjustments have been posted.
     
  • Know your software. Billing software usually has a few pre-set A/R reports available, and you can customize some of them to simplify your review and analysis. Consult with your IT department or software vendor to gain a better understanding of available report types, parameters, options and limitations. Three frequently-used reports are:

    A/R Transaction Report: This report shows selected transaction details (date, payer, account, transaction type) and can help you understand changes in those parameters. Start with a “summary by type” then drill down to further detail if needed. Run and review this report monthly to identify any unexpected write-offs or adjustments in the prior period.

    A/R Aging Report: This report breaks A/R data into aging buckets (current, 30, 60, 90, etc.). It is used to fine-tune collection efforts and evaluate a bad debt allowance (as older balances are less likely to be collected). Using a higher number of buckets will provide more detailed information, and replacing “age” of accounts with a “month” label will make it easier to see trends in month-to-month changes. Your facility’s payer mix will determine a reasonable “Days in A/R” benchmark. Generally, you should see the most dramatic drop in open accounts within 30 days for Medicare, Medicaid and private payers; and within 60-90 days for other payers. Focus your staff’s attention on balances nearing 300 days, as many insurers have a claim filing limit of one year from the service date. Develop an action plan to follow up within two to three weeks.

    Unbilled Claims Report: This report shows un-submitted claims. Discuss unbilled claims with your staff, understand why they are unbilled to reduce the number of un-submitted claims, and develop an action plan for submission to responsible parties.
     
  • Understand available report formats. Billing software usually offers the option to run reports in different file formats (web, PDF, Excel, etc.). Know your options and select the one you are most comfortable with. We recommend Excel for easy data analysis and trending.
     
  • Segment, segment, segment — and look for trends! Data segmentation and filtering is the best approach to effective and efficient A/R review. At a minimum, you should be separating Medicare A, Medicare B, Medicare Advantage, Medicaid, private pay, pending/presumed Medicaid and any other payers with a particularly high volume of claims. The differences in timing of billing, complexity, compliance requirements, benchmarking and submission of claim methods warrant a separate, more-detailed review of claims. Here are some examples of what to look for.

    Medicare: An open claim will hold payments for all following claims within that stay. Instruct your billing team to ensure claim submission, and review any rejected or suspended claims. Carefully analyze any Medicare credits. Small credit and debit balances may indicate errors in the rate-setting module of your software. Review for rate changes, contractual adjustments and sequestration set up. Review any credit balances over $25 for potential overpayment. These credits have to be corrected in that quarter or listed on your quarterly credit balance report to Medicare. Balances of $160 or more may indicate incorrectly calculated co-pay days, while balances over $200 may indicate billing for an incorrect number of days. Medicare has a one-year limit on submitting claims so act promptly to resolve any balances over 300 days.

    Medicaid: Open balances may indicate eligibility gaps, changes in coverage levels, rate set-up errors or incorrect classification as primary or secondary payer. This payer also has a one-year limit on submitting claims. Again, act promptly to resolve any balances over 300 days.

    Pending/Presumed Medicaid: Medicaid application processing times vary by state. Normally eligibility is determined within a few months at the most. Open claims older than 120 days should be investigated promptly.
     
  • Filter data for the highest and lowest balances. Focus on your five to ten highest balances and work with staff to resolve. Discuss reasons for any credit balances with staff, as regulations often require a prompt refund or claim adjustment. Credit balances could also indicate incorrectly posted payments (to the wrong patient account or service date). Instruct staff to routinely review and resolve credits to prevent collection activities on paid-off accounts. 

Ask questions, follow up and recognize good work. If you notice an improvement in your facility’s A/R report, make sure you recognize team and individual efforts. If improvements are slow to come, discuss obstacles with staff, refine your A/R reporting, and review the plan as needed.

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Read this if you work in senior living. 

We are all pressed for time these days, especially in senior living and long-term care facilities, where the pandemic has taken a toll on the health of our residents, the well-being of our employees, and the state of our finances. Across the nation, losses from patient care have increased significantly from 2016-2020. In the Northeast, losses from patient care increased 17% from 2016-2019, and in the western United States, they increased by 52% from 2016-2019.

With so many time and financial pressures, why is the development of a labor management program an important investment of your time? Because labor management is important to the financial success of your facility.

Labor management factors to consider:

  • Labor is the largest expense in a facility—between 2016 and 2019 labor-related costs, including contract labor and employee benefits, represented between 48%-53% of the expenses reported on the Medicare cost report 
  • With a growing trend of hiring outsourced therapy, housekeeping, laundry, dietary, and other functions, actual labor related costs could be significantly higher
  • Increased COVID-19 expense may not be fully covered by reimbursement rates
  • Facilities are experiencing increased agency use to fill nursing vacancies, resulting in higher direct labor cost per patient day

The senior living industry is already facing severe nursing shortages and, according to the Bureau of Labor Statistics, at least 2.5 million more workers will be needed by 2030 to care for the so-called “silver tsunami”. Argentum has projected that 1.2 million new workers—mostly Certified Nursing Assistants, aides and Registered Nurses—will be needed in senior living through 2025.

Workforce shortages are not only occurring in nursing departments, but throughout all of our departments, as senior living competes with the retail and hospitality industry to fill ancillary positions.

The benefits of creating a labor management program

The development of a well-executed labor management program may result in:

Clarity on optimal staffing and competency levels in all departments
Labor budgets and schedules adjusted for both census and patient needs can help facilities have the right people in the right place at the right time. Time invested in this initiative improves patient outcomes, staff morale, and your organization’s bottom line. 

Stronger community integration and leadership
Most senior living facility positions are filled by recruiting locally. Understanding local demographic trends and developing a forward-looking strategy for staff acquisition, retention, and development (both personal and professional) may help a facility become an employer of choice and minimize vacancies. 

Achieving community recognition
A labor management program may help your facility better understand your CMS star rating as it relates to staffing, and tailor a response to publicly available ratings. 

Improved regulatory compliance and response to changes in tax and other policy
Many recent laws have varying provisions for organizations based on size, which is measured by number of employees or full-time employee equivalents. Well-structured labor reports may help your organization respond to regulatory changes promptly.

Opportunities for reimbursement optimization
By understanding your labor structure and compensation arrangements, you may be able to increase reimbursement though more accurate cost reporting (such as utilization review reimbursement on the Medicare cost report). Medicaid reimbursement methodologies vary by state. In many cases, correct classification of labor into reimbursable and non-reimbursable departments, as well as allocations between units, may be key. 

Improved bottom line
Understanding and managing labor statistics may help facilities improve their bottom line, both short and long term, by aligning costs and revenue trends.

Labor management is a key tool to drive efficiency and increase quality across all departments in your facility. Building a high-performing workforce culture and implementing labor management tools will help you gain efficiencies, reduce costs, and produce quality outcomes. The stakes are high right now—facilities that can build a strong culture and workforce will be the facilities that are successful in the future.

If you need assistance or have questions about your specific situation, please contact our senior living consulting team. We’re here to help. 

Article
Six steps for a successful labor management program 

Read this if your senior living facility is receiving Medicare payments.

A year ago the senior living industry was challenged with the transition to the Patient-Driven Payment Model (PDPM). In the months leading up to the implementation of PDPM providers prepared for new regulations, conducted employee training, and forecasted financial performance. By all accounts the implementation of PDPM went off with very few glitches. 

That all changed in the beginning of 2020 when the coronavirus (COVID-19) pandemic upended the industry and Medicare occupancy levels diminished. COVID-19 overturned the way providers were providing care at their facilities. Providers have seen a decrease in utilization of therapy services and an increase in medical management cases. Providers anticipated delivering more concurrent physical therapy, which has become impossible with COVID-19. We understand how demanding COVID-19 related change management has been for skilled nursing facilities, and want to help you re-focus your attention on the critical tasks and procedures driving your Medicare reimbursement.

New federal fiscal year, new rates

The Medicare Final Rule for fiscal year 2021 did not contain any major policy changes to PDPM but did contain routine updates to coding and Medicare billing rates effective October 1, 2020. After changing Medicare billing rates, you should test your system by carefully reviewing a remittance advice and the accounts receivable report for October service dates. Look for any balances, big or small, to help ensure billing rates and contractuals are correct for all payers following Medicare rules. Note:

  • Small balances may indicate errors in system configuration, such as PDPM rates, sequestration, or value-based purchasing adjustment.
  • Larger balances may indicate a claim missed in the facility's triple-check meeting and billed at an incorrect PDPM rate. View the FFY2021 Medicare Rate Calculator.
  • Providers should review ICD-10 mappings on an annual basis for new and discontinued ICD-10 codes. 

Medicare Advantage plan enrollment is growing. What does it mean for your facility?

With the continuing growth of Medicare Managed Care/Advantage plans, it is important to review your facility’s contracts. 

  • Most Medicare Advantage programs have adopted PDPM, but have differing requirements for pre-authorizations and payment rates, so be sure you understand how each of these contracts reimburses your facility
  • If there are new Medicare Advantage plans in your area, evaluate the need to negotiate a contract to admit patients covered by the new plan. 
  • Update the list of plans your facility contracts with:
     
    • Carefully review contract rates and request rate changes if the payor does not follow the Medicare fee schedule. 
    • To avoid denied claims, update contact information and understand preauthorization requirements and any patient status updates. Distribute the updated list to your admissions and case management teams.

Check on your MDS coordinator

  • With the COVID-related shift in responsibilities, we see an increase in MDS position turnover. We recommend reviewing or developing a backup for your MDS coordinator, as completion of MDS is critical for billing and regulatory compliance. 
  • If your facility has limited resources for backup, evaluate sub-contracting options or reach out to your state’s Health Care Association for available resources. 

Update your consolidated billing resources

Consolidated billing errors could result in significant reductions of your bottom line. CMS updates guidance on consolidated billing regularly. We recommend checking the CMS listing and ensuring your admissions, clinical, and medical records teams use up-to-date information for admission decisions and coordination of care with external health care providers. Get more information.

COVID-19 impact

  • CMS provided a number of flexibilities to help facilities with COVID-related care. Please note, a number of these provisions are temporary, and are only effective during the state of emergency. We recommend at least a monthly review of regulatory guidance to help ensure compliance. Get more information.
  • While the COVID-19 diagnosis and codes were not specifically incorporated into PDPM in the 2021 final rule, be sure to appropriately code isolation stays in the nursing component, and document additional costs of testing, PPE, and labor, as well as support of skilled status need to protect against audit risk.

Have questions? Our Senior Living revenue cycle team is here to help. 

Article
Patient Driven Payment Model―A year later

Follow these six steps to help your senior living organization improve cash flow, decrease days in accounts receivable, and reduce write offs.

From regulatory and reimbursement rule changes to new software and staff turnover, senior living facilities deal with a variety of issues that can result in eroding margins. Monitoring days in accounts receivable and creeping increases in bad debt should be part of a regular review of your facility’s financial indicators.

Here are six steps you and your organization can take to make your review more efficient and potentially improve your bottom line:

Step 1: Understand your facility’s current payer mix.

Understanding your payer mix and various billing requirements and reimbursement schedules will help you set reasonable goals and make an accurate cash flow forecast. For example, government payers often have a two-week reimbursement turn-around for a clean claim, while commercial insurance reimbursement may take up to 90 days. Discovering what actions you can take to keep the payment process as short as possible can lessen your average days in accounts receivable and improve cash flow.

Step 2: Gain clarity on your facility’s billing calendar.

Using data from Step 1, review (or develop) your team’s billing calendar. The faster you send a complete and accurate bill, the sooner you will receive payment.

Have a candid discussion with your billers and work on removing (or at least reducing) existing or perceived barriers to producing timely and accurate bills. Facilities frequently find opportunities for cash flow optimization by communicating their expectations for vendors and care partners. For example, some facilities rely on their vendors to provide billing logs for therapy and ancillary services in order to finalize Resource Utilization Groups (RUGs) and bill Medicare and advantage plans. Delayed medical supply and pharmacy invoices frequently hold up private pay billing. Working with vendors to shorten turnaround time is critical to receiving faster payments.

Interdependencies and areas outside the billers’ control can also negatively influence revenue cycle and contribute to payment delays. Nursing and therapy department schedules, documentation, and the clinical team’s understanding of the principles of reimbursement all play significant roles in timeliness and accuracy of Minimum Data Sets (MDSs) — a key component of Medicare and Medicaid billing. Review these interdependencies for internal holdups and shorten time to get claims produced.

Step 3: Review billing practices.

Observe your staff and monitor the billing logs and insurance claim acceptance reports to locate and review rejected invoices. Since rejected claims are not accepted into the insurer’s system, they will never be reflected as denied on remittance advice documents. Review of submitted claims for rejections is also important as frequently billing software marks claims as billed after a claim is generated. Instruct billers to review rejections immediately after submitting the bill, so rework, resubmission, and payment are timely.

Encourage your billers to generate pull communications (using available reporting tools on insurance portals) to review claim status and resolve any unpaid or suspended claims. This is usually a quicker process than waiting for a push communication (remittance advice) to identify unpaid claims.

Step 4: Review how your facility receives payments.

Challenge any delays in depositing money. Many insurance companies offer payment via ACH transfer. Discuss remote check deposit solutions with your financial institution to eliminate delays. If the facility acts as a representative payee for residents, make sure social security checks are directly deposited to the appropriate account. If you use a separate non-operating account to receive residents’ pensions, consider same day bill pay transfer to the operating account.

Step 5: Review industry benchmarks.

This is critical to understanding where your facility stands and seeing where you can make improvements. BerryDunn’s database of SNF Medicare cost reports filed for FY 2015 - 2018 shows:

Skilled Nursing Facilities: Days in Accounts Receivable

Step 6: Celebrate successes!

Clearly some facilities are doing it very well, while some need to take corrective action. This information can also help you set reasonable goals overall (see Step 1) as well as payer-specific reimbursement goals that make sense for your facility. Review them with the revenue cycle team and question any significant variances; challenge staff to both identify reasons for variances and propose remedial action. Helping your staff see the big picture and understanding how they play a role in achieving department and company goals are critical to sustaining lasting change AND constant improvement.

Change, even if it brings intrinsic rewards (like decreased days in accounts receivable, increased margin to facilitate growth), can be difficult. Acknowledge that changing processes can be tough and people may have to do things differently or learn new skills to meet the facility’s goal. By celebrating the improvements — even little ones — like putting new processes in place, you encourage and engage people to take ownership of the process. Celebrating the wins helps create advocates and lets your team know you appreciate their work. 

To learn more, contact one of our revenue cycle specialists.

Article
Six steps to gain speed on collections

Cost increases and labor issues have contributed to the rise of outsourcing as an option for senior living and health care providers.  While outsourcing of all types is a growing trend — from the C-suite to food service, it is a decision that should be considered carefully, as lack of planning could result in significant long-lasting financial, public relations and personnel losses. Let’s examine the outsourcing of billing services and collections.

If you are concerned with efficiencies and focusing on your core business needs — nursing care and rehabilitation — then your facility owners and management may have or are currently considering outsourcing one or both end stages of the revenue cycle.

There are some compelling reasons to outsource.

When choosing to outsource, your facility can reduce or even eliminate the challenge of keeping up with increasing complexities of medical billing, staff development and retraining, software costs, and workforce challenges. Smaller facilities can mitigate billing office resource shortages caused by staff vacations, medical leaves and turnover via outsourcing portions of their revenue cycle processes.

Because of a variety of software options, extensive coding and evolving reimbursement policies, professional billing and collection companies may be more efficient, delivering a stronger cash flow by reducing the rate of denied or rejected claims and assuring accurate coding. As facilities normally pay either a “per claim” fee or a percentage of their patient service revenue for this service, the facility’s cost fluctuates with changes in census or payer mix. Facilities may serve their customers better by decreasing insurance denials and reducing balance transfers to patients.

Outsourcing may help organizations to focus on their core business: senior living services.

Your facility should assess your organization’s readiness, fit and contract limitations prior to outsourcing. Here are some things to consider.

1. Be accountable. It is your facility’s ultimate responsibility to comply with all applicable rules and regulations, including HIPAA. And while signing a business associate agreement is a step in right direction, it may not guarantee peace of mind.

  • Ask a potential vendor about data transmission, storage, sharing, access and destruction policies, as well as processes designed to monitor compliance. Question any recent breaches or unauthorized access incidents — how were they handled? As HIPAA non-compliance and unauthorized access to protected health information (PHI) may result in financial penalties and bad publicity, you should evaluate the need to consult with an expert.
  • Ensure the vendor knows your state’s facility licensing regulations. For example, some states prohibit charging patients or residents any collection fees. Some states or payers require refunds for any overpayments to within certain defined periods. A good vendor will meet your state’s regulations. Ask to review their standard collection forms and collection procedures and protect your organization from unexpected non-compliance tags. 

2. Communicate. Discuss what information they require, when, in what format, and how they will make corrections. In-house billing staff can normally access a resident’s medical file, whether electronic or paper, or inquire with the facility operations team regarding a particular claim. This is not the case with an external vendor. 

  • To outsource effectively, you need to designate an in-house position to respond to missing information requests promptly. Facilities operating on web-based medical records software should evaluate the risks of granting a billing vendor even limited access to residents’ electronic medical files.
  • Review contract terms for any up charges assessed by the vendor if your facility can’t respond to information requests in a timely fashion. 

3. Understand and agree upon the scope of the contract. Contract scope misunderstanding can have long-lasting financial implications for the facility, and result in increased bad debt. Your management team should compile a list of assumptions and agreement terms not stated clearly in the contract, and address them in a meeting before accepting the terms. At a minimum, get answers to these questions:

  • Is the vendor submitting bills for all types of payers, levels of care and billing forms, including private, private long-term care insurance, adult day and outpatient, or only certain electronic claims?
  • Is the vendor responsible for notifying your organization of any delays with claim processing, payer requests for supporting medical records and any other identified administrative requests and rejections? If so, how fast and in what format?
  • Is the vendor responsible for assisting with regulatory compliance reporting, such as required data for a cost report preparation, audit, etc.?
  • What minimum quality assurance steps does the vendor apply when generating and processing claims, and how do they remedy identified issues?
  • Is the vendor only submitting bills or are they also working on collections?
  • Is the facility or a vendor responding to resident requests for additional information or questions about the billing statements?

4. Maintain alignment with the organization’s philosophy and vision. As with any other area of operations you consider outsourcing, outsourcing billing and collections requires careful examination of its impact on customer service and community relations. If a vendor produces co-pay and private pay invoices or statements, will you have control over the format and presentation of these mailings? If a vendor is engaged to perform collections follow up, your management team needs to understand collections procedures and methods used and ensure they are a good fit with your mission.

5. Set goals and benchmarks. Your management should analyze days in accounts receivable, accounts receivable aging trends, and cash as a percent of net revenue monthly, and then meet with the vendor promptly to understand the causes of any undesired trends and work on remedial plan. 

6. Understand your organization’s reasons for outsourcing. If your facility struggles with completing resident pre-admission screening, obtaining prior authorizations, or staying on top of Medicaid applications and recertifications — stop. Outsourcing is very unlikely to remedy these situations and could even make them worse. We recommend seeking the assistance of an experienced revenue cycle or process improvement consultant before outsourcing any portion of the billing and collections process.

The BerryDunn Senior Living team welcomes your feedback, and is always one phone call or email away, should your organization need to take a deeper look at revenue cycle and process improvement opportunities.

Article
Can outsourcing increase revenues and reduce cycle time? Yes, if it's the right fit

Read this if you are a plan sponsor of employee benefit plans.

This article is the seventh in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with Employee Retirement Income Security Act (ERISA) requirements. You can read the previous articles here.

The COVID-19 pandemic has challenged individuals and organizations to continue operating during a time where face-to-face interaction may not be plausible, and access to organizational resources may be restricted. However, life has not stopped, and participants in your employee benefit plan may continue to make important decisions based on their financial needs. 

To help you prepare for a potential IRS examination, we’ve listed some requirements for participants to receive Required Minimum Distributions (RMD), hardship distributions, and coronavirus-related distributions, recommendations of actions you can perform, and documentation to retain as added internal controls. 

Required Minimum Distributions

Recently, the IRS issued a memo regarding missing participants, beneficiaries, and RMDs for 403(b) plans. If an employee benefit plan is subject to the RMD rules of Code Section 401(a)(9), then distributions of a participant’s accrued benefits must commence April 1 of the calendar year following the later of 1) the participant attaining age 70½ or 2) the participant’s severance from employment. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, RMDs was temporarily waived for retirement plans for 2020. This change applied to defined contribution plans, such as 401(k), 403(b), 457(b) plans and IRAs. 

In addition, RMDs were waived for IRA owners who turned 70½ in 2019 and were required to take an RMD by April 1, 2020 and have not yet done so. Do note the waiver will not alter a participant’s required beginning date for purposes of applying the minimum distribution rules in future periods. Although you may be applying this waiver during 2020, it is important you prepare to make RMDs once the waiver period ends by verifying participants eligible to receive RMDs are not “missing.”

There are instances in which plans have been unable to make distributions to a terminated participant due to an inability to locate the participant. In this situation, the responsible plan fiduciary should take the following actions in applying the RMD rules:

  1. Search the plan and any related plan, sponsor and publicly available records and/or directories for alternative contact information;
  2. Use any of the following search methods to locate the participant: a commercial locator service, a credit reporting agency, or a proprietary internet search tool for locating individuals; and
  3. Attempt to initiate contact via certified mail sent to the participant’s last known mailing address, and/or through any other appropriate means for any known address(es) or contact information, including email addresses and telephone numbers.

If the plan is selected for audit by the IRS and the above actions have been taken and documented by the plan, the IRS instructs employee plan examiners not to challenge the plan for violation of the RMD rules. If the plan is unable to demonstrate that the above actions have been taken, the employee plan examiners may challenge the plan for violation of the RMD rules.

We typically recommend management review plan records to determine which participants have attained age 70½. Based on the guidelines outlined above, we recommend plans document the actions they have taken to contact these participants and/or their beneficiaries.

Hardship distribution rules

A common issue we identify during our employee benefit plan audits is that the rules for hardship distributions are not always followed by the plan sponsor. If the plan allows hardship withdrawals, they should only be provided if (1) the withdrawal is due to an immediate and heavy financial need, (2) the withdrawal must be necessary to satisfy the need (you have no other funds or ways to meet the need), and (3) the withdrawal must not exceed the amount needed. You may have noted we did not add the plan participant must have first obtained all distribution or nontaxable loans available under the plan to the list of requirements above. This is due to the recently enacted Bipartisan Budget Act of 2018 (the Act), which removed the requirement to obtain available plan loans prior to requesting a hardship. Thus, the removal of this requirement may increase the number of eligible participants to receive hardship withdrawals, if the three requirements noted are satisfied. The plan sponsor should maintain documentation the requirements for the hardship withdrawal have been met before issuing the hardship withdrawal.

The IRS considers the following as acceptable reasons for a hardship withdrawal:

  1. Un-reimbursed medical expenses for the employee, the employee’s spouse, dependents or beneficiary.
  2. Purchase of an employee's principal residence.
  3. Payment of college tuition and related educational costs such as room and board for the next 12 months for the employee, the employee’s spouse, dependents, beneficiary, or children who are no longer dependents.
  4. Payments necessary to prevent eviction of the employee from his/her home, or foreclosure on the mortgage of the principal residence.
  5. For funeral expenses for the employee, the employee’s spouse, children, dependents or beneficiary.
  6. Certain expenses for the repair of damage to the employee's principal residence.
  7. Expenses and losses incurred by the employee as a result of a disaster declared by the Federal Emergency Management Agency (FEMA), provided that the employee’s principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the disaster.

Prior to the enactment of the Act, once a hardship withdrawal was taken, the plan participant would not be allowed to contribute to the plan for six months following the withdrawal. The Act repealed the six-month suspension of elective deferrals, thus plan participants are allowed to continue making contributions to the plan in the pay period following the hardship withdrawal. Prior to the Act we had seen instances where the plan participant was allowed to continue making contributions after the hardship withdrawal was taken. Now we would expect participants who received a hardship distribution to continue making elective deferrals following receipt of the distribution.

Coronavirus-related distributions

Under section 2202 of the CARES Act, qualified participants who are diagnosed with coronavirus, whose spouse or dependent is diagnosed with coronavirus, or who experience adverse financial consequences due to certain virus-related events including quarantine, furlough, or layoff, having hours reduced, or losing child care, are eligible to receive a coronavirus-related distribution. 

Distributions are considered coronavirus-related distributions if the participant or his/her spouse or dependent has experienced adverse effects noted above due to the coronavirus, the distributions do not exceed $100,000 in the aggregate, and the distributions were taken on or after January 1, 2020 and on or before December 30, 2020.  Such distributions are not subject to the 10% penalty tax under Internal Revenue Code (IRC) § 72(t), and participants have the option of including their distributions in income ratably over a three year period, or the entire amount, starting in the year the distribution was received. Such distributions are exempt from the IRC § 402(f) notice requirement, which explains rollover rules, as well as the effects of rolling a distribution to a qualifying IRA and the effects of not rolling it over. Also, participants can be exempt from owing federal taxes by repaying the coronavirus-related distribution. 

Participants receiving this distribution have a three-year window, starting on the distribution date, to contribute up to the full amount of the distribution to an eligible retirement plan as if the contribution were a timely rollover of an eligible rollover distribution. So, if a participant were to include the distribution amount ratably over the three-year period (2020 – 2022), and the full amount of the distribution was repaid to an eligible retirement plan in 2022, the participant may file amended federal income tax returns for 2020 and 2021 to claim a refund for taxes paid on the income included from the distributions, and the participant will not be required to include any amount in income in 2022. We recommend the plan sponsor maintain documentation supporting the participant was eligible to receive the coronavirus-related distribution. 

There is much uncertainty due to the current status of the COVID-19 pandemic, and this has forced many of our clients to review and alter their control environments to maintain effective operations. With this uncertainty comes changes to guidance and treatment of plan transactions. We have provided our current understanding of the guidance the IRS has provided for the treatment surrounding distributions, specifically RMDs, hardship distributions, and coronavirus-related distributions. If you and your team have any additional questions which may be specific to your organization or plan, an expert from our Employee Benefits Audit team will be gladly willing to assist you. 
 

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Defined contribution plan distributions: Considerations and recommendations

Read this if you are working with an auditor.

The standard report an auditor issues on an entity’s financial statements was created in 1988, and has only had minor tweaking since. Amazing when we think about how the world has changed since 1988! Back then:

  • The World Wide Web hadn’t been invented
  • The Simpsons wasn’t yet on TV, and neither was Seinfeld
  • The Berlin Wall was still standing
  • The Single Audit Act celebrated its fourth birthday

The Auditing Standards Board (ASB), an independent board of the American Institute of CPAs (AICPA) that establishes auditing rules for not-for-profit organizations (as well as private company and federal, state, and local governmental entities) has decided it was high time to revisit the auditor’s report, and update it to provide additional information about the audit process that stakeholders have been requesting.

In addition to serving as BerryDunn’s quality assurance principal for the past 23 years, I’ve been serving on the ASB since January 2017, and as chair since May 2020. (And thanks to the pandemic our meetings during my tenure as chair have been conducted from my dining room table.)  We thought you might be interested in a high-level overview of the coming changes to the auditor’s report, which will be effective starting with calendar 2021 audits, from an insider’s perspective.

So what’s changing?

The most significant changes you’ll be seeing, based on feedback from various users of auditor’s reports, are:

  1. Opinion first
    The opinion in an audit report is the auditor’s conclusion as to whether the financial statements are in accordance with the applicable accounting standards, in all material respects. People told us this is the most important part of the report, so we’ve moved it to the first section of the report.
  2. Auditor’s ethical responsibilities
    We’ve pointed out that an auditor is required to be independent of the organization being audited, and to meet certain other ethical responsibilities in the conduct of the audit.
  3. “Going concern” responsibilities
    We describe management’s responsibility, under U.S. generally accepted accounting principles, and the auditor’s responsibility, under the auditing rules, for determining whether “substantial doubt” exists about the organization’s ability to continue in existence for at least one year following the date the financial statements are approved for issuance.
  4. Emphasis on professional judgment and professional skepticism
    We explain how an audit requires the auditor to exercise professional judgment (for example, regarding how much testing to perform), and to maintain professional skepticism, i.e., a questioning mind that is alert to the possibility the financial statements may be materially misstated, whether due to error or fraud.
  5. Communications with the board of directors
    We point out that the auditor is required to communicate certain matters to the board, such as difficulties encountered during the audit, material adjustments identified during the audit process, and which areas the auditor treated as “significant risks” in planning and performing the audit.
  6. Responsibility related to the “annual report”
    If the organization issues an “annual report” containing or referring to the audited financial statements, we explain the auditor is required to review it for consistency with the financial statements, and for any known misstatements of fact.
  7. Discussion of “key audit matters”
    While not required, your organization may request the auditor to discuss how certain “key audit matters” (those most significant to the audit) were addressed as part of the audit process. These are similar to the “critical audit matters” publicly traded company auditor’s reports are now required to include.

Yes, this means the auditor’s report will be longer; however, stakeholders told us inclusion of this information will make it more informative, and useful, for them.

Uniform Guidance standards also changing

Is your organization required to have a compliance audit under the federal Uniform Guidance standards? That report is also changing to reflect the items listed above to the extent they’re relevant.

What should you do?

Some actions to consider as you get ready for the first audit to which the new report applies (calendar 2021, or fiscal years ending in 2022) include:

  1. Ask your auditor what your organization’s auditor’s report will look like
    Your auditor can provide examples of auditor’s reports under the new rules, or even draft a pro forma auditor’s report for your organization (subject, of course, to the results of the audit).
  2. Outline and communicate your process for developing your annual report
    If your organization prepares an annual report, it will be important to coordinate its timing with that of the issuance of the auditor’s report, due to the auditor’s new reporting responsibility related to the annual report.
  3. Discuss with your board whether you would like the auditor to include a discussion of “key audit matters” in the auditor’s report
    While not required for not-for-profits, some organizations may decide to request the auditor include a discussion of such matters in the report, from the standpoint of transparency “best practices.”

If you have any questions about the new auditor’s report or your specific situation, please contact us. We’re here to help.
 

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A new auditor's report: Seven changes to know

Read this if you are a plan sponsor of employee benefit plans.

This article is the sixth in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with Employee Retirement Income Security Act (ERISA) requirements. You can read the previous articles here.

Plan sponsors have a fiduciary responsibility to provide oversight over the operations of employee benefit plans. This oversight involves a multitude of varying responsibilities. Failure to provide sufficient oversight can lead to non-compliance with rules and regulations. However, even if plan sponsors are providing sufficient oversight, lack of documentation of the oversight is arguably equally as severe as no oversight at all. Here are some common fiduciary responsibilities and how you should document them. 

Review of the report on service organization’s controls

Most employee benefit plans have outsourced a significant portion of the plan’s processes, and the internal controls surrounding those processes, to a service organization. Regardless of how certain plan-related processes are performed—internally or outsourced—the plan sponsor has a fiduciary responsibility to monitor the internal controls in place surrounding significant processes and to determine if these controls are suitably designed and effective. The most commonly outsourced processes of an employee benefit plan are the administration, including recordkeeping of the plan, through a third-party administrator; payroll processing; and actuarial calculations, if applicable to the plan.

When plan processes are outsourced to service organizations, generally the most efficient way to obtain an understanding of the outsourced controls is to obtain a report on controls issued by the service organization’s auditor. You should request the service organization’s latest System and Organization Controls Report (SOC 1 report). The SOC 1 report should be based on the Statement on Standards for Attestation Engagements No. 18, Reporting on the Controls at a Service Organization, frequently known as SSAE 18.

Plan sponsors should perform a documented review of the SOC 1 report for each of the plan’s service organizations. The documented review should most notably include discussion of any exceptions noted within the service auditor’s testing performed, identification of subservice organizations and consideration if subservice organization SOC 1 reports need to be obtained, and assessment of the complementary user entity controls outlined in the SOC 1 report. The complementary user entity controls are internal control activities that should be in place at the plan sponsor to provide reasonable assurance that the controls tested at the service organization provide the necessary level of internal control over the plan’s financial statements. Contact a BerryDunn professional to obtain our SOC report review template to assist in documenting your review.

Documentation of the plan within minutes

To provide general plan oversight, plan sponsors should have a group charged with the governance of the plan. This group should meet on a routine basis to review various aspects of the plan’s operations. Minutes of these meetings should contain evidence that certain matters that would be of interest to the Department of Labor (DOL) were discussed.

We recommend minutes of meetings document the following:

  • Investment performance—The plan sponsor has a fiduciary responsibility to ensure the investments offered by the plan are meeting certain performance expectations. Investment statements and the plan’s investment policy should be reviewed on a regular basis with documentation of this review retained in minutes of meetings. Any conclusions reached about the need to change investments or put an investment on a “watch-list” should also be documented in the minutes, including any additional steps that need to be taken.
  • SOC 1 report review—As noted above, the plan sponsor has a fiduciary duty to ensure all third-party service organizations utilized by the plan have suitably designed and effective internal controls. Plan sponsors should perform a documented review of the SOC 1 report for each of the plan’s service organizations. The results of these reviews should then be reported at plan oversight meetings with any subsequent actions or conclusions documented in the minutes to these meetings.
  • Reasonableness of fees—The DOL requires plan fiduciaries to determine if the fees charged under covered service provider agreements are reasonable in relation to the services provided. To determine the reasonableness of fees, the plan may (1) hire a consultant, (2) monitor industry trends regarding fees, (3) consult with peer companies, (4) use a benchmarking service, or (5) conduct a request for proposal. Failure to determine the reasonableness of the fees charged can result in a prohibited transaction. When doing such a review, the fiduciaries of the plan should document in the minutes the steps taken and conclusions reached.
  • Overall review of the plan—Plan sponsors have a fiduciary responsibility to review the activity of the plan as well as participant balances. We recommend plan sponsors implement and document monitoring procedures over the activities of the plan and participant balances. This review could be incorporated into documented self-testing procedures, by haphazardly selecting a sample of participants each quarter and reviewing their account activity and participant balances. The results of such self-testing should then be reported at plan oversight meetings with any subsequent actions or conclusions documented in the minutes to these meetings. Reach out to a BerryDunn professional to obtain our participant change review workbook to assist in performing this self-testing.

Retention of salary reduction agreements

During our audits of employee benefit plans, we often note that employee deferrals are not consistently supported by salary reduction agreements or other forms maintained in employees’ personnel files. Many third-party administrators allow participants to make changes to their elective deferral rates directly through the third-party administrators without the involvement of the plan sponsor.

We often recommend that you maintain all changes to employee elective deferral rates in employees’ personnel files using salary reduction agreements. We also recommend that employees’ elections to not participate in the plan be documented in their personnel file. If employees can elect to change their deferral rates directly with the third-party administrator, we typically recommend that management print support from the third-party administrator’s online portal as documentation to support the change in the employee’s deferral rate and retain this support in the employees’ personnel file. However, if the third-party administrator’s online portal provides adequate history of deferral election changes, the plan sponsor may be able to rely on this portal for documentation retention. In these instances, the plan auditor should request a deferral feedback report directly from the third-party administrator.  

Monitoring of inactive accounts

Inactive accounts should be monitored by the plan sponsor for unusual activity or excessive fees that may be posted to these accounts. To the extent that inactive accounts have not exceeded $5,000, consideration should be given to cashing out the accounts if allowed by the plan document. Plan sponsors should, on a periodic basis, review the accounts of inactive participants or those who have been separated from service to ascertain whether the changes and charges to those accounts appear reasonable.

Plan sponsors have many documentation responsibilities. This list is not meant to be all-inclusive. And, the facts and circumstances of each employee benefit plan will change the applicability of these items. However, this list should be used as a tool to help plan sponsors perform a deep dive of their current plan documentation processes. And, hopefully, a result of this deep dive will be a robust documentation process that deliberately documents all major decisions and review functions related to the plan.

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Plan documentation: Another key to successful oversight

Read this if your facility or organization has received Provider Relief Funds.

The rules over the use of the HHS Provider Relief Funds (PRF) have been in a constant state of flux and interpretation since the funds started to show up in your bank accounts back in April. Here is a summary of where we are as of June 14, 2021 on HHS’ reporting requirements. Key highlights:

These requirements apply to:

  • PRF General and Targeted Distributions
  • the Skilled Nursing Facilities (SNF) and Nursing Home Infection Control Distribution
  • and exclude:
    • the Rural Health Clinic COVID-19 Testing Program
    • claims reimbursements from HRSA COVID-19 Uninsured Program and the HRSA COVID-19 Coverage Assistance Fund (CAF)

This notice supersedes the January 15, 2021 reporting requirements.
Deadline for Use of Funds:

Payment Received Period

Deadline to Use Funds

Reporting Time Period

Period 1

4/10/20-6/30/20

6/30/21

7/1/21-9/30/21

Period 2

7/1/20-12/31/20

12/31/21

1/1/22-3/31/22

Period 3

1/1/21-6/30/21

6/30/22

7/1/22-9/30/22

Period 4

7/1/21-12/31/21

12/31/22

1/1/21-3/31/23

Recipients who received one or more payments exceeding $10,000 in the aggregate during each Payment Received Period above (rather than the previous $10,000 cumulative across all PRF payments) are subject to the above reporting requirements 

Responsibility for reporting:

  • The Reporting Entity is the entity that registers its Tax Identification Number (TIN) and reports payments received by that TIN and its subsidiary TINs.
  • For Targeted Distributions, the Reporting Entity is always the original recipient; a parent entity cannot report on the subsidiary’s behalf and regardless of transfer of payment.

Steps for reporting use of funds:

  1. Interest earned on PRF payments
  2. Other assistance received
  3. Use of SNF and Nursing Home Control Distribution Payments if applicable (any interest earned reported here instead), with expenses by CY quarter
  4. Use of General and Other Targeted Distribution Payments, with expenses by CY quarter
  5. Net unreimbursed expenses attributable to Coronavirus, net after other assistance and PRF payments by quarter
  6. Lost revenues reimbursement (not applicable to PRF recipients that received only SNF and Nursing Home Infection Control Distribution payments)

PORTAL WILL OPEN ON JULY 1, 2021!

Access the full update from HHS: Provider Post-Payment Notice of Reporting Requirements.

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Provider Relief Funds: HHS Post-Payment Notice of Reporting Requirements