Background

As explained in Section 4.4 the contract with AIS became the responsibility of the Fire Department starting July 1, 2001. Concurrent with this change was the transfer of responsibility for accounting related to EMS receivables, revenues, and write-offs. Prior to July 1, such responsibilities were shared with San Francisco General Hospital (SFGH). During the course of the audit, the Fire Department provided us with a draft procedure for "SFFD Lockbox System and Internal Control." Other than this draft procedure, the Department lacks written policies and procedures to stipulate responsibilities with regard to accounting for EMS receivables, revenues, and write-offs. Established policies and procedures enhance internal control and reduce the risk of loss due to fraudulent collections or inaccurate accounting.

We believe the three following areas are of primary concern with regard to written policies and procedures: (1) accounting for EMS receivables and revenues (2) the write-off of uncollectible accounts, and (3) the reconciliation of bank records with City accounting records and AIS records.

Accounting for EMS Receivables and Revenues

Accounting for receivables and revenues includes tracking billings and collections and ensuring that they are properly recorded in the City"s accounting records. Prior to July 1, 2001, such responsibilities were split between the Fire Department and SFGH. As of July 1, the Fire Department responsibility for the accounting shifted to the Fire Department.

SFGH and the Fire Department have historically recorded accounts receivables based on a percentage of the value of accounts for EMS service that were classified by AIS as "billable" in the month of service. That is, of the accounts that are billed, 55 percent are accrued as revenue and recognized as receivables every six months. The 55 percent rate was determined based on historical collections. The 55 percent accrual rate is based only on accounts believed to be billable and is used instead of a bad debt allowance account to offset the accounts that are considered uncollectible. As a result, the accounts receivable balance does not include service classified as non-billable and thus understates the level of EMS service provided. We recommend that the Department make a monthly journal entry to accrue revenue and recognize receivables that reflects the total level of service provided during the month, both billable and non-billable. The Department should then make another entry that creates an allowance for bad debts account so that the value of the accounts expected to be uncollectible is reflected in the accounting records. We believe this, combined with timely reconciliation of department accounting records with those of AIS and the bank, is critical to monitoring accounts receivable.

The need for improved monitoring is evident in the fact that the Accounts Receivable balance in the City"s records as June 30, 2001 did not tie to the balance in AIS" records. The City"s records reflected $8,672,500 whereas AIS summary reports reflected $9,145,665. The difference may be due to the nature of the accounting entries the City currently makes (accruing 55 percent of billable accounts whereas AIS reports reflect 100 percent of the billable accounts.) Regardless of the reason, the Department should reconcile the differences and enhance its monitoring of the accounting. Further, the Department should establish written policies and procedures with regard to accounting for EMS revenues (the recording of accounts receivables, revenues, and the monthly reconciling of bank, AIS and City records.)

In tracking revenue collected, the Fire Department should ensure that it receives daily deposit summaries of lockbox receipts directly from the bank. The draft lockbox procedure provided to us indicates that the bank will fax such information daily to EMS Administration. However, during our audit EMS Administration indicated that it received such summaries only from AIS. Receiving the information directly from the bank enhances internal control and reduces the risk of fraudulent collections.

Write-offs of Uncollectible Accounts

The Fire Department and AIS identify two groups of accounts that are uncollectible: (1) billable accounts that AIS is unable to collect and (2) accounts that AIS classifies as non-billable. AIS sends monthly summary reports to EMS Administration that provide data on billable and non-billable accounts. EMS Administration reviews the reports and approves the summary totals of non-billables and certain billables classified as uncollectible. A portion of the billable, uncollectible accounts are transferred to the Bureau of Delinquent Revenue (BDR). The remaining billable and non-billable uncollected accounts remain with AIS.

The determination of which specific accounts are included in the summary total is at the discretion of AIS. We recommend that the Fire Department establish clear, written guidelines for the classification of accounts as uncollectible, consistent with our recommendations in "EMS Billings and Collections" (accounts that remain uncollected after 90 days, etc.). Such guidelines should be incorporated into the Department"s contract with AIS. We further recommend that the Department periodically audit a sample of accounts reported on the monthly summary report to ensure that AIS is categorizing and transferring accounts in accordance with such guidelines. In our audit, we found that while AIS had a stated policy of transferring accounts to BDR at 180 days, actual transfers were not occurring for up to 330 days, in some cases. Timely transfers of such accounts are important for ensuring maximum collections. The recommended periodic audits would help ensure that AIS is complying with the Department"s directive.

Reconciliation of Records

To ensure accurate accounting for receivables and revenues, it is critical that the Fire Department reconcile its accounting records with those of AIS and the bank to which EMS revenues are deposited. Timely reconciliation reduces the risk that errors or fraudulent activity will go undetected. We recommend that the Department ensure that monthly reconciliation occur between: (1) AIS records, (2) bank records, and (3) Department/City accounting records. As explained above, the need for timely reconciliation is evident from the fact that the June 30, 2001 accounts receivable balance reflected in the City"s accounting records did not agree with the balance in the AIS report.

Conclusions

Collecting and accounting for EMS revenues involves several parties within and outside of the Fire Department.

The Fire Department lacks written policies and procedures for: (1) accounting for EMS receivables and revenues (2) the write-off of uncollectible accounts and (3) the reconciliation of bank records with City accounting records and AIS records. As a result, the Department lacks sufficient monitoring and internal control mechanisms in these areas.

The clear delineation of responsibilities enhances the monitoring of AIS billing services as well as assures that actual revenues collected are consistent with accounting records. Such monitoring creates internal controls that reduce the risk of fraudulent collection of accounts and errors in the accounting records.

The lack of sufficient monitoring and internal controls results in the Department losing potential revenue due to undetected fraudulent collection of accounts or inaccurate accounting.

Recommendations

The Fire Chief should adopt written policies and procedures that:

4.5.1 Modify accounting procedures to ensure that both billable and non-billable EMS charges are reflected in the accounts receivable balance. This is consistent with fundamental principles of accounting with regard to recording accounts receivables and revenues. Establish written policies and procedures with regard to such accounting.

4.5.2 Modify accounting procedures to ensure that the revenue recognized is appropriately offset by an allowance account based on the amount the Department expects to collect. This is consistent with fundamental principles of accounting with regard to recording accounts receivables and revenues. Establish written policies and procedures with regard to such accounting.

4.5.3 Ensure that the appropriate segregation of duties exist between staff who make entries in the accounting records.

4.5.4 Ensure that the Department receives daily deposit summaries directly from the bank.

4.5.5 Establish criteria for the classifying accounts as uncollectible and provide for periodic audits of such accounts by the Department.

4.5.6 Conduct monthly reconciliation of accounting records, AIS" records, and bank records to detect and address inconsistencies in a timely manner. Establish written policies and procedures with regard to such reconciliations.

Costs and Benefits

There would be no cost to implement these recommendations. Implementation would enhance internal control and reduce the risk of inaccurate accounting or fraudulent collection of accounts.