STATE OF
NORTH CAROLINA

DEPARTMENT OF CORRECTION
FISCAL CONTROL AUDIT

OFFICE OF THE STATE AUDITOR
BETH A. WOOD, CPA
STATE AUDITOR

DEPARTMENT OF CORRECTION
FISCAL CONTROL AUDIT

STATE OF NORTH CAROLINA

Office of the State Auditor
2 S. Salisbury Street
20601 Mail Service Center
Raleigh, NC 27699-0601
Telephone: (919) 807-7500
Fax: (919) 807-7647
Internet
http://www.ncauditor.net

Beth A. Wood, CPA
State Auditor

AUDITOR’S TRANSMITTAL

February 11, 2010
The Honorable Beverly Eaves Perdue, Governor
The General Assembly of North Carolina
The Honorable Alvin W. Keller, Jr., Secretary, Department of Correction
This report presents the results of our fiscal control audit at the Department of Correction.
Our work was performed by authority of Article 5A of Chapter 147 of the North Carolina
General Statutes and was conducted in accordance with the performance audit standards
contained in Government Auditing Standards, issued by the Comptroller General of the
United States. The objective of a fiscal control audit is to identify improvements needed in
internal control over selected fiscal matters, such as financial accounting and reporting;
compliance with finance-related laws, regulations, and provisions of contracts or grant
agreements; and/or management of financial resources.
The results of our audit disclosed deficiencies in internal control and/or instances of
noncompliance or other matters that are considered reportable under Government Auditing
Standards. These items are described in the Audit Findings and Responses section of this
report.
North Carolina General Statutes require the State Auditor to make audit reports available to
the public. Copies of audit reports issued by the Office of the State Auditor may be obtained
through one of the options listed in the back of this report.

Beth A. Wood, CPA
State Auditor

TABLE OF CONTENTS
PAGE
OBJECTIVES, SCOPE, METHODOLOGY, AND RESULTS ................................................................1
AUDIT FINDINGS AND RESPONSES .............................................................................................5
EXHIBITS:
EXHIBIT A - HOSPITAL PAID CLAIMS ...............................................................................15
EXHIBIT B - OTHER MEDICAL PROVIDER PAID CLAIMS ...................................................16
ORDERING INFORMATION ........................................................................................................19

OBJECTIVES, SCOPE, METHODOLOGY, AND RESULTS

OBJECTIVES, SCOPE, AND METHODOLOGY
As authorized by Article 5A of Chapter 147 of the North Carolina General Statutes, we have
conducted a fiscal control audit at the Department of Correction. There were no special
circumstances that caused us to conduct the audit, but rather it was performed as part of our
effort to periodically examine and report on the financial practices of state agencies and
institutions.
The objective of a fiscal control audit is to identify improvements needed in internal control
over selected fiscal matters, such as financial accounting and reporting; compliance with
finance-related laws, regulations, and provisions of contracts or grant agreements; and/or
management of financial resources. Our audit does not provide a basis for rendering an
opinion on internal control, and consequently, we have not issued such an opinion.
Management is responsible for establishing and maintaining effective internal control.
Internal control is a process designed to provide reasonable assurance that relevant objectives
are achieved. Because of inherent limitations in internal control, errors or fraud may
nevertheless occur and not be detected. Also, projections of any evaluation of internal control
to future periods are subject to the risk that conditions may change or compliance with
policies and procedures may deteriorate.
To accomplish our audit objectives, we gained an understanding of internal control over
matters described below and evaluated the design of the internal control. We then performed
further audit procedures consisting of tests of control effectiveness and/or substantive
procedures that may reveal significant deficiencies in internal control. Specifically, we
performed procedures such as interviewing personnel, observing operations, reviewing
policies, analyzing accounting records, and examining documentation supporting recorded
transactions and balances. Whenever sampling was used, we applied a nonstatistical
approach but chose sample sizes comparable to those that would have been determined
statistically. Our results are reported for our selected sample items and we have chosen not to
project our results to the population as a whole.
As a basis for evaluating internal control, we applied the internal control guidance contained
in Internal Control Integrated Framework, published by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). As discussed in the framework,
internal control consists of five interrelated components, which are (1) control environment,
(2) risk assessment, (3) control activities, (4) information and communication, and
(5) monitoring.
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions

1

OBJECTIVES, SCOPE, METHODOLOGY, AND RESULTS (CONTINUED)

based on our audit objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
Our audit scope covered the period July 1, 2008, through December 31, 2008, and included
selected internal controls in the following organizational units:
Division of Prisons – Health Services
The mission of this unit is to provide access to quality, cost effective healthcare that is
rendered by competent healthcare professionals. This unit is staffed by medical professionals
and is responsible for authorizing medical care for all inmates within the State’s correctional
facilities. It is also responsible for reviewing services provided for medical necessity and
addressing questions related to the appropriateness of billed medical charges.
Division of Departmental Purchasing & Services
This
unit
is
the
centralized
location
for
procurement,
warehousing,
transportation/communications, and leased property acquisition and management for the
Department. It is responsible for negotiating contracts with medical service providers to
ensure that inmates within the State’s correctional facilities receive adequate health services
in accordance with North Carolina General Statute 148-19.
Division of Administration – Controller’s Office
This unit is responsible for the general accounting functions of the Department. The Medical
Claims Management section falls under the direction of the controller’s office and is
responsible for processing claims from providers of medical services to inmates. It is further
responsible for establishing policies and procedures to effectively perform that function.
The Payroll section also falls under the direction of the Controller’s office. This section is
responsible for entering department-specific deductions into the State’s human
resources/payroll system (BEACON) and for the resolution of payroll issues as presented by
employees, BEACON support services, and management.
Division of Administration – Human Resources
This unit is responsible for processing newly hired personnel into the Department and for
other personnel actions, including the input of new personnel into BEACON for payroll
purposes. Five regional processors, under the direction of the departmental personnel
director, do the input of new personnel into the BEACON system.
Division of Administration – Management Information Systems
This unit provides tools to help correction employees manage offenders such as recording
pertinent data about offenders, tracking their movements, and charting their progress in

2

OBJECTIVES, SCOPE, METHODOLOGY, AND RESULTS (CONCLUDED)

programs and other rehabilitative efforts. For our audit, those tools included the Offender
Population Uniform System and Medical Operations Maintenance System.
During our audit, we considered internal control related to the following accounts and control
objectives:
Contracted Medical/Rehabilitative Services – During the period audited, the Department
reported $44.9 million for contracted medical/rehabilitative services. These expenditures are
incurred and paid by the Department for services provided by either hospitals or other
medical service providers to the inmate population. Such services are considered necessary
for ongoing operations that cannot be provided by the current staff. We examined internal
controls designed to ensure that the Department properly accounted for expenditures and that
purchases were in compliance with state, departmental, and contract requirements.
Personal Services – During the period audited, the Department reported $373 million for
personal services expenditures. These expenditures are incurred and paid by the Department
for services rendered by permanent and temporary employees and their related fringe benefits.
We examined internal controls designed to ensure that the Department properly paid and
accounted for personal services expenditures. We also examined internal controls designed to
ensure compliance with applicable federal, state, and departmental requirements.

RESULTS
The results of our audit disclosed deficiencies in internal control and/or instances of
noncompliance or other matters that are considered reportable under generally accepted
government auditing standards. These items are described in the Audit Findings and
Responses section of this report.

3

[This Page Left Blank Intentionally]

4

AUDIT FINDINGS AND RESPONSES

1.

INADEQUATE PROCEDURES TO CONTAIN INMATE MEDICAL COSTS
The Department does not have internal controls in place to ensure inmate medical costs
are minimized. As a result, there is an increased burden on the Department and the
State’s financial resources to provide medical care to the inmate population. The costs
of inmate medical services exceed $100 million annually and continue to increase.
The Department establishes and maintains contractual relationships with hospitals and
other medical service providers to deliver medical services that the prison institutions are
not equipped to provide to inmates. In addition, for those services requiring special
delegation, the Department attempts to contract with medical service providers through
memoranda of agreement for the performance of those services. Our discussions with
Department staff indicate that the hospitals and medical providers generally dictate the
terms of the agreements; therefore, the terms of the contracts vary widely from contract
to contract and are not always in the best interest of the Department. In addition, some
of the contract terms are vague, such as providers billing for “usual and customary fees”
without an established definition of what is “usual and customary.”
Services are also rendered by medical providers that are not under contract with the
Department. For non-contracted medical services, the Department’s claims examiners
attempt to follow Medicare guidelines when pricing and adjudicating claims. However,
there are no departmental policies and procedures that provide guidance to the examiners
as to how to handle medical claims that deviate from Medicare guidelines. Payments for
non-contracted medical services tend to result in much higher medical costs to the
Department than payments made under service contracts.
The Department, under legislative mandate, conducted a survey to determine how other
states provide for the delivery of inmate healthcare services. The results of that survey
indicated that other states limited costs to:


amounts established in negotiated contracts.



Medicare or Medicaid rates.



rates paid under other programs for indigent care.



discounted insurance provider rates.

Our own research of other states’ practices revealed the following examples of cost
containment measures:

5

AUDIT FINDINGS AND RESPONSES (CONTINUED)


Idaho bases its inmate medical services reimbursement rate on its State Medicaid
reimbursement rates. That limitation applies to all medical care services provided
outside the facility including hospitalization, professional services, medical goods,
and prescription drugs provided to prisoners confined in its correction facilities.



New Hampshire passed 2009 legislation that requires its Department of Correction
to pay hospitals and healthcare facilities 110% of Medicare allowable costs for
outpatient, inpatient, and emergency services, as well as ambulatory and specialty
services.



South Carolina ties inmate hospital reimbursement rates to private insurer rates
and inmate physician costs to approximately 135% of Medicare rates.



The states of Georgia, Virginia, and Tennessee all use third party contractors to
reimburse the majority of medical costs based on negotiated rates.

The Department has also obtained an analysis of its reimbursed costs for selected
medical procedures compared to the average reimbursed costs under various insurance
providers.
The analysis indicated that the Department was incurring higher
reimbursement costs for similar medical procedures than those paid by the insurance
providers.
Based on our limited comparison of claims data, we noted that payments were made for
inmate medical procedures that would not be considered allowable charges under either
the state employee health plan or the Medicaid program. While doing this comparison,
we also noted that multiple rates were applied for the same procedure code. In some
cases, there was a wide range of rates paid for what appeared to be the same medical
procedure.
We also researched existing guidelines for the treatment of prisoners at the federal
government level. United States Code Title 18, Section 4006, as amended by Public Law
109-162, provides that payment for costs incurred for the provision of health care items
and services for individuals in the custody of the United States Marshals Service, the
Federal Bureau of Investigation, and the Department of Homeland Security shall be the
lesser of the amount billed or the Medicare rate.
We examined the 131 largest hospital payments 1 made during the audit period. The
tested transactions accounted for $8.9 million of the $31.5 million in hospitalization
costs paid. These procedures revealed six instances where the hospital provider was
overpaid, resulting in overpayments totaling $170,900. Five errors amounting to
$148,519 were the result of using the incorrect payment methodology in calculating the
reimbursement. In addition, the Department paid one claim using a contract rate that
was higher than the amount billed, with the excess payments totaling $22,381.

1

See Exhibit A for example analysis of payments to hospital providers

6

AUDIT FINDINGS AND RESPONSES (CONTINUED)

We expanded the procedures to examine payments made to one particular hospital over
an 18-month period from July 2007 through December 2008 and identified payments of
$469,000 in excess of the amount billed because the contract rate was applied. These
excess payments could have been avoided if contracts included a provision similar to the
one in the federal law discussed above to pay the lesser of the amount billed or the stated
rate in the contract.
In our examination of inmate hospital service payments, we noted that on average,
providers were billing the Department at rates that were 467% of the applicable
Medicare/Medicaid reimbursement rates.
Our tests of other medical service
reimbursement rates also indicated that amounts paid by the Department were
consistently greater than what would have been reimbursed to the provider under
Medicare for the same type and units of service.
Recommendation: The Department should implement procedures designed to contain
costs of inmate medical care. The Department worked with the North Carolina General
Assembly during the last session to pass legislation that required providers of medical
services to inmates in the Department’s custody to be paid at rates equal to those paid by
the state employee health plan (the plan). However, this legislation was subsequently
amended to apply only to those providers and medical facilities that participate in the
plan. The impact of the legislation was limited further by an advisory letter from the
North Carolina Attorney General that questioned the enforceability of the latter measure
since inmates are not plan members. The intended result of the legislative acts was a
defined medical reimbursement fee schedule which would assist the Department in its
cost containment measures.
In addition, North Carolina Session Law 2009-575 directs the Department to seek a
contractor to process medical claims on behalf of the Department, provide medical
management services to the Department, and to develop a provider network to serve the
medical needs of inmates. The Department should also consider other common
practices, such as limiting covered services and rates to those allowed under either the
Medicaid or Medicare programs.
Agency Response: The Department of Correction does not object to the Auditor's
findings regarding medical costs. For many years, the Department has worked to
address the inadequate procedures to contain inmate medical costs and the deficiencies in
internal controls over payment of inmate medical claims. In January 2009, the current
administration tried to resolve the medical cost issues by working with the General
Assembly to pass Section 19.20 in SL 2009-451 (S202). This provision, signed by the
Governor on August 7, 2009, required providers and medical facilities that participate in
the State Health Plan to provide health services to DOC inmates at the rates paid by the
Plan's beneficiaries. The bill also required the State Health Plan to assist the Department
in hiring a contractor to process inmate medical claims. The bill therefore compelled
providers to treat inmates, established a fee schedule and authorized the Department to
seek a contractor to process medical claims. However, the provision was subsequently

7

AUDIT FINDINGS AND RESPONSES (CONTINUED)

amended by SL 2009-575 (H836) and lost its ability to successfully address the
processing of inmate medical claims. Without the legislative authority in Section 19.20
in SL 2009-451 to compel medical providers to treat inmates and establish a fee
schedule, medical costs as noted in the auditor's report will continue to escalate. In order
to successfully manage medical costs, the Department must have an established fee
schedule and statutory language that requires medical providers to accept inmates at the
established rates.
The Department recognizes the need to control inmate medical costs. Many of the points
raised in this finding are a result of very complex situations, some of which are not easily
remedied. The Department does not have the legal authority to compel public hospitals
or providers to treat inmates, nor do we have an established fee schedule, such as the
State Health Plan, Medicare or Medicaid. This is first and foremost the major
contributing cause to the problems we face in attempting to control the cost of providing
medical care to our inmates.
Without the authority to compel medical providers to treat inmates, the Department is
forced to negotiate contracts with each provider individually, at rates which are favorable
to the provider. Formerly a few contracts did not specify paying the lower of the billed
amount or the contract rate, and the Department was legally obligated to pay the contract
rate, even when it exceeded the billed amount. Department of Correction Departmental
Purchasing will ensure that future contracts are written to pay the lower of billed or
contract rates.
We concur that multiple rates were applied for the same medical procedure. Rates
frequently differed from one medical vendor to another for the same procedure,
regardless of the existence of a contract. We also concur that terms varied widely from
contract to contract and that contract terms were vague. The Department often had no
recourse but to allow contract changes, and without an established fee schedule, the term
“usual and customary fees” was subject to wide interpretation. The Department’s
current policy is to more clearly define terms such as “usual and customary fees.”
To reiterate the problems faced by the Department, without legislative authority such as
Section 19.20 in SL 2009-451 to compel medical providers to treat our inmates and
without an established fee schedule to impose on our medical providers, costs will
continue to escalate.
2.

DEFICIENCIES IN INTERNAL CONTROL OVER PAYMENT OF INMATE MEDICAL CLAIMS
The Department has not implemented adequate internal control over the payment of
inmate medical claims. As a result, there is an increased risk of error in these payments.
During our audit, we noted the following deficiencies in the design of internal control:

8

AUDIT FINDINGS AND RESPONSES (CONTINUED)


There is a lack of uniform written policies and procedures related to the
adjudication of medical claims by the claims examiners in the Department’s
medical claims management section. While informal guidelines exist for the
processing of medical claims, the allowability and reasonableness of any medical
claim is subject to the discretion of the reviewing claims examiner. Based on our
discussions with Department management, the Director of Medical Claims
Management position is responsible for the development and implementation of
such policies. However, that position has been vacant for an extended period,
including our audit period, resulting in the oversight for the medical claims
processing unit being shifted to the Director of Accounting.



The Department’s medical claims management section has to manually enter
claim information into the Medical Operations Management System. This system
assists in the adjudication and payment processes for inmate medical services,
allowable cost determinations, and the application of appropriate reimbursement
rates. Given the volume of transactions, errors are likely to occur in such a highly
manual process.



Two purchasing agents, with input from the Division of Prisons Health Services
section, are responsible for negotiating most of the medical service contracts.
Effective contract negotiation necessitates a thorough understanding of potential
new providers, current market pricing of the services, medical and billing
processes, and specific contract terms and their implications. Consequently, legal
representation and experienced medical claims contract personnel should be
involved in negotiating and drafting contracts.

We examined the 131 largest hospital payments made during the audit period, which
accounted for $8.9 million of the $31.5 million in hospitalization costs paid. We also
examined the largest single payment made to the 56 highest-paid vendors for medical
services 2 other than hospitalization during the audit period. These tested transactions
accounted for $684,000 of the $13.4 million paid for such services. Our procedures
revealed seven instances, totaling $6,615, where the vendor was overpaid. The
overpayments resulted from applying incorrect medical services reimbursement rates.
During these procedures, we also noted the following:

2



Instances where providers continued to be paid despite not meeting the medical
claim form documentation requirements as specified in either their contract
documents or in the Department’s published Medical Claims Management
Bulletins.



Instances where payments were made on claims that did not include valid
diagnosis-related group (DRG) codes or utilization review (UR) authorization
numbers, both requirements in authenticating a medical claim.

See Exhibit B for example analysis of payments for other medical services

9

AUDIT FINDINGS AND RESPONSES (CONTINUED)


Instances where the Department accepted handwritten, black and white printed,
and/or faxed claim forms, although the Medical Claims Management Bulletins
state that only original claim forms will be accepted for processing.



Contracts that had vague and/or ambiguous terms that require interpretation by
the claims examiners who are responsible for making payments in accordance
with the contract terms. In addition, some of the contracts included terms that the
Medical Operations Management System was not set up to address, creating
additional difficulties and interpretations on behalf of the claims examiners as
they processed medical claims. There was also a lack of consistency in the
contract terms for the medical services providers that we reviewed. Some of the
contracts in place exceeded the five-year term limit imposed by the North
Carolina Division of Purchase and Contract.

Recommendation: The Department should examine its current internal control
procedures over inmate medical claims and determine appropriate measures to address
the deficiencies noted above.
Agency Response: The Department recognizes the need to develop written policies and
procedures, which must be in place prior to awarding a contract to a third party
contractor, as directed by House Bill 836. We concur that having written policies and
procedures would have reduced some of the inconsistencies which have occurred.
We concur that the Director of Medical Claims Management position has been vacant
since April of 2008. The Department posted this position, but the hiring process was
suspended. By the time the position was reposted, a hiring freeze prevented the current
administration from filling it.
We concur that the Medical Operations Management System (MOMS) requires manual
entry. The Department does not currently have an automated system for the payment of
medical claims.
Department of Correction Departmental Purchasing recognizes the need for experienced
medical claims personnel and legal representation to be involved in the negotiation of
contracts. They have been involved in an ongoing process of working with Department
Management, Division of Purchase and Contract, the Department of Justice and our own
Department legal staff to pursue this need. Currently Department legal staff is reviewing
all new contracts.
We concur that there were instances where payments were made on claims which did not
include valid diagnosis-related group (DRG) codes or utilization review (UR)
authorization numbers. Certain vendors under contract were paid based on a percentage
of billed charges, and DRG codes or UR codes may not have been required.
We concur that certain contracts exceeded the five-year term imposed by the North
Carolina Division of Purchase and Contract. Often vendors refused to negotiate a new

10

AUDIT FINDINGS AND RESPONSES (CONTINUED)

contract with the Department, or the negotiations occurred during an extended period,
which caused the five-year term limit to be violated.
To reiterate the problems faced by the Department, without legislative authority such as
Section 19.20 in SL 2009-451 to compel medical providers to treat our inmates and
without an established fee schedule to impose on our medical providers, costs will
continue to escalate.
3.

DEFICIENCIES IN THE PERSONNEL AND PAYROLL PROCESSES
We identified deficiencies in the Department’s internal control over the administration of
personnel and payroll processes. As a result, the Department has not complied with state
personnel policies and there is an increased risk that there will be errors in the
compensation paid to employees and in the related accounts on the financial statements.
The Department has employees located throughout the State, and payroll data are
accumulated and summarized in the State’s human resource/payroll system (BEACON).
Those employees that are unable to enter their time directly into BEACON are required
to prepare manual timesheets. We judgmentally selected a sample of 40 employees to
test the Department’s personnel and payroll procedures. Our sample included 18 selfservice employees who entered their own time into the system and 22 employees who
were required to complete manual timesheets that were then entered into BEACON by a
time administrator. Our tests were performed for the period July 1, 2008 through
December 21, 2008 and revealed the deficiencies described below.
Time Records
Manual timesheets were not consistently signed by the employee or approved by the
employee’s supervisor. We noted that timesheets for 10 of the 22 sample employees
requiring timesheets were unsigned by either the employee or the employee’s supervisor
for the time period reviewed.
Employee Compensation
There are several factors that impact the compensation paid to an individual employee.
Position settings/classifications are established within BEACON for each employee that
correlate to particular pay structures. In addition, an employee’s work schedule during
the pay period determines the employee’s eligibility for shift and additional pay
premiums. For the Department, we determined that an employee’s pay amount could be
calculated based on time worked across three different time periods. Regular pay is
calculated based on the calendar dates of the current month. Overtime pay and
“additional” pay are calculated from the 8th of the previous month through the 5th of the
current month. Shift premium pay is calculated from the 25th of the previous month
through the 25th of the current month. We noted that these varying time periods for

11

AUDIT FINDINGS AND RESPONSES (CONTINUED)

accumulating an employee’s time worked compounded the difficulty in determining the
accuracy of compensation paid.
All time worked during any of the above time periods must be approved in BEACON by
a supervisor by established BEACON payroll deadlines to be included in an employee’s
monthly paycheck. Any time worked that is not approved by those deadlines will not be
paid until the approval occurs. Our tests of the 40 sample employees included a
recalculation of the monthly pay amounts. The results of our tests were:


We noted that supervisors and time administrators were not adhering to the
established approval deadlines. This impacted the July 2008 pay amount for
18 of our 40 employee sample items.



After making adjustments for the time that was outside the deadlines, we noted
that five employees were paid incorrectly, resulting in a net underpayment of
$1,360.



Five employees worked less than the required hours for the month; however, they
were paid their regular monthly salary because the supervisor did not
appropriately adjust the employee’s hours worked in BEACON.

Payroll Reconciliation
A reconciliation between the North Carolina Accounting System (NCAS) and BEACON
has been performed only once since the Department began using BEACON in
April 2008. At the conclusion of our fieldwork, this reconciliation was incomplete
pending a response from BEACON support services on reconciling items.
The State Personnel Manual sets forth policies related to salary administration.
Additionally, departmental policies address time entry guidelines requiring the timely
approval of time records.
Recommendation: The Department should improve its internal control over the
personnel and payroll processes to address the deficiencies noted above.
Agency Response:
TIME RECORDS
Manual timesheets are being used in some locations as documentation for time
administrators to enter time in the BEACON HR/payroll system where employees do not
have Employee Self Service authority to enter their own time into the system. We
concur that there were some situations where the signatures of the employees and
supervisors were not complete in the sample. The Department has informed the units to
ensure that this documentation is complete prior to filing records.

12

AUDIT FINDINGS AND RESPONSES (CONTINUED)

EMPLOYEE COMPENSATION
Overtime pay and additional pay are not always calculated from the 8th of the previous
month through the 4th of the current month. In the BEACON system it is paid on a
4-week cycle for employees subject to overtime, but covered under the Fair Labor
Standards Act’s 7-K exemption (which allow overtime to be paid at time and a half only
after exceeding 171 hours worked in a 4-week cycle) and is not always calculated on the
same day of the previous month to the current month. For subject employees who are
not covered by the 7-K exemption, overtime is paid based on all hours worked over 40 in
any given week, which have been entered into BEACON, been approved, and completed
time evaluation between payroll cutoff for the previous month and payroll cutoff for the
current month. These dates vary from month to month. Also, the shift premium is not
always paid from the 25th of the previous month until the 25th of the current month.
Shift premium is paid for eligible hours which have been entered, approved and
completed time evaluation between the payroll cutoff for one month through the payroll
cutoff for the succeeding month.
If the review period of this audit captured required adjustments in the July 2008
paychecks, this was only three months after the Department of Correction implemented
BEACON. During this period, the BEACON system required numerous and significant
programming changes to address problems in time reporting and payroll inaccuracies the
Department experienced.
The agency distributes timely communication and instructions to the field in the form of
administrative memorandums reflecting any updates or changes in the system.
PAYROLL RECONCILIATION
Since the date of the audit fieldwork, we have implemented a procedure for monthly
reconciliation of BEACON with NCAS (North Carolina Accounting System). Also, as
of October 9, 2009, the State Controller’s Office has provided State Agencies with a
finance job aid with payroll financial reconciliation guidelines. The DOC Controller’s
Office has always reconciled the State’s CMCS (Cash Management Control System) in
NCAS. BEACON has now been reconciled in NCAS back to November 2008.
4.

INADEQUATE CONTROL OVER USER ACCESS
SYSTEM

TO THE

OFFENDER POPULATION UNIFIED

We identified deficiencies in the Department’s oversight and management of medical
employee access to the Offender Population Unified System.
The Offender Population Unified System tracks an inmate’s entire history from
incarceration to release, including housing, transfers, medical, and disciplinary data. The
system is segmented to account for different activities during an inmate’s term of
incarceration. The medical section uses the system to authorize and track medical

13

AUDIT FINDINGS AND RESPONSES (CONCLUDED)

services provided to an inmate. Improper access could result in the provision of an
unauthorized or unnecessary medical service.
We judgmentally selected four system users from a population of 26 that had the
capability to approve the payment of an inmate medical claim. We noted that access
authorization documentation for one user was dated the same day as our request for the
document. The Security Administrator stated that this individual had been with the
Department and had access to the system dating back to 1988; however, there was no
access approval documentation for that time period.
Maintaining proper access controls over computer systems helps to protect the
confidentiality and integrity of information by preventing alteration, unauthorized use, or
loss of data. Statewide Information Technology Standards specify that system access be
controlled and prescribe procedures such as documented reviews of users’ rights and
immediate termination of access upon leaving employment.
Recommendation: The Department should enhance and enforce prescribed procedures
for documenting security access privileges for the Offender Population Unified System.
Periodic security reviews should be conducted to ensure that access is restricted to
authorized users, and employee user access rights should be systematically evaluated to
ensure privileges granted are appropriate to the necessary job requirements.
Agency Response: We concur that access approval documentation was missing for one
user of the Offender Population Unified System (OPUS); however, this employee was an
authorized user, and his access went back to 1988.
The Department will conduct periodic security reviews to ensure that system access is
restricted to authorized users. We will also verify that access rights are systematically
evaluated to ensure privileges granted are appropriate to the necessary job requirements.

14

Hospital Paid Claims

Exhibit A

This Exhibit presents the 20 highest paid hospital inpatient claims that were tested as part of our procedures at the NC Department of Correction.

Hospital
Reference
Hospital A
Hospital A
Hospital A
Hospital A
Hospital B
Hospital A
Hospital C
Hospital B
Hospital D
Hospital E
Hospital F
Hospital A
Hospital B
Hospital G
Hospital B
Hospital A
Hospital H
Hospital B
Hospital A
Hospital A

Total Amount
Billed by the
Hospital for
1
Services
$507,386.13
$248,940.76
$231,311.59
$190,587.22
$199,770.73
$180,644.98
$188,382.71
$163,127.58
$143,507.35
$127,089.20
$126,220.44
$131,411.73
$137,770.14
$242,778.90
$119,303.11
$106,457.00
$124,916.23
$110,096.25
$98,561.02
$97,098.93

Total Amount
Paid by
2
Department
$482,016.82
$236,493.72
$219,746.01
$181,057.86
$179,793.66
$171,612.73
$150,706.16
$146,814.82
$143,507.35
$127,089.20
$126,220.44
$124,841.14
$123,993.13
$114,106.08
$107,372.80
$101,134.15
$99,932.98
$99,086.63
$93,632.97
$92,243.98

Medicare/ Medicaid
3
Reimbursement Rate
$120,451.03
$54,678.32
$50,674.71
$42,425.74
$69,485.62
$42,726.94
$60,668.67
$56,988.33
$33,321.47
$37,829.35
$29,074.14
$29,614.76
$40,287.47
$18,565.50
$43,714.25
$12,640.80
$29,935.90
$49,961.27
$19,487.19
$10,491.16

Percentage of Amount
Applicable
Paid Over
Diagnosis
Medicare/Medicaid
Related Group
4
5
Reimbursement Rate
(DRG)
400%
958
433%
853
434%
225
427%
225
259%
489
402%
225
248%
329
258%
542
431%
565
336%
233
434%
498
422%
335
308%
168
615%
004
246%
076
800%
682
334%
824
198%
423
480%
246
879%
287

DRG Description 6
Other O.R. Procedures for Multiple Significant Trauma w CC
Infectious & Parasitic Diseases w O.R. Procedure w MCC
Cardiac Defib Implant w Cardiac Cath w/o Ami/HF/Shock w/o MCC
Cardiac Defib Implant w Cardiac Cath w/o Ami/HF/Shock w/o MCC
Knee Procedures w/o PDX of Infection w/o CC/MCC
Cardiac Defib Implant w Cardiac Cath w/o Ami/HF/Shock w/o MCC
Major Small & Large Bowel Procedures w MCC
Pathological Fractures & Musculoskeletal & Conn Tissue Malig w MCC
Other Musculoskeletal Sys & Connective Tissue Diagnoses w CC
Coronary Bypass w Cardiac Cath w MCC
Local Excision & Removal Int Fix Devices of Hip & Femur w CC/MCC
Peritoneal Adhesiolysis w MCC
Other Resp System O.R. Procedures w/o CC/MCC
Trach w MV 96+ hrs or PDX Exe Face, Mouth & Neck w/o Major O.R.
Viral Meningitis w/o CC/MCC
Renal Failure w MCC
Lymphoma & Non-Accute Leukemia w Other O.R. Procedures w CC
Other Hepatobiliary or Pancreas O.R. Procedures w MCC
Perc Cardiovasc Proc w Drug-Eluting Stent w MCC or 4+ Vessels/Stents
Circulatory Disorders Except AMI w Card Cath w/o MCC

NOTES:
1

This amount represents the amount billed by the hospital for the dates of service included on the UB-04 Medical Claim Form.

2

The amount paid by the Department.

3

The Medicare rates were provided from the Centers for Medicare & Medicaid (CMS) Prospective Payment System (PPS) Inpatient PC Pricer. The following information was entered to generate the
reimbursement amounts: Provider ID, DRG code (from UB-04), Service Dates (from UB-04), Total Charges Billed by the Provider (from UB-04).
4

Amount (reimbursement amount paid to the vendor by Department) divided by the Medicare/Medicaid Rate.

5

DRG is a system used to classify hospital cases that are expected to use similar hospital resources. They are used to detemine how much Medicare pays the hospital.

6

Description of the DRG code obtained from the Centers for Medicare & Medicaid (CMS) Prospective Payment System (PPS) Inpatient PC Pricer for applicable code. MCC means Major Complicating
Condition; CC means Complicating Condition.

15

Other Medical Provider Paid Claims

Exhibit B

This Exhibit presents the 20 highest other medical provider paid claims, with associated Medicare rates, that were tested as part of our procedures at the
NC Department of Correction.

1

2

3

4

5

Other Provider
Reference
Other Provider JJ
Other Provider JJ
Other Provider JJ
Other Provider JJ
Other Provider JJ
Other Provider B
Other Provider B
Other Provider B
Other Provider L
Other Provider L
Other Provider L
Other Provider L
Other Provider L
Other Provider L
Other Provider X
Other Provider X
Other Provider X
Other Provider X
Other Provider X
Other Provider X
Other Provider DD

6 Other Provider G
Other Provider G
7 Other Provider T
Other Provider T
Other Provider T
Other Provider T
Other Provider T
Other Provider T

Amount Billed Total Amount
Paid 2
by the Provider 1
$182.00
$182.00
$622.00
$622.00
$5,945.00
$5,945.00
$300.00
$303.00
$10,340.00
$10,340.00
$16,576.00
$12,432.00
$1,674.00
$837.00
$4,365.00
$2,182.50
$6,063.00
$6,063.00
$6,063.00
$3,031.50
$3,575.00
$1,787.50
$3,556.00
$1,778.00
$2,293.00
$1,146.50
$1,095.00
$1,095.00
$3,946.00
$2,450.65
$4,000.00
$1,177.19
$4,302.00
$1,001.18
$4,485.00
$1,233.95
$1,500.00
$655.70
$500.00
$500.00
$17,283.67
$9,631.19

$4,748.00
$2,656.00
$300.00
$6,000.00
$188.00
$100.00
$66.00
$106.00

$6,409.80
$2,390.40
$99.36
$5,694.00
$62.79
$28.05
$21.82
$35.21

Payment
Under
Medicare 3
$86.08
$148.90
$2,355.86
$73.22
$4,122.45
$727.00
$210.53
$150.71
$181.75
$181.75
$150.71
$2,014.37
$207.38
$198.45
$1,361.47
$654.00
$556.22
$685.53
$364.28
$0.00
CMS PPS
Inpatient Pricer
Rate: $5837.09
$833.75
$262.47
$33.12
$3,833.60
$62.79
$17.28
$21.82
$35.21

Applicable CPT® or
HCPCS (five digit
code) and Modifiers
Codes (two digit code)
4

99214/25
96413
J9035
96417
J9001
35474
35493
36247
35474
35474/59, 51
36247/51
34201/51
37205/51
37206
22612
22630/51
63042/51
22840
22851
20936
DRG 292

CPT®/HCPCS Code Description 5
Office/outpatient visit, est
Chemo, iv infusion, 1 hr
Bevacizumab injection (drug)
Chemo iv infus each addl seq
Doxorubican hcl liposome injection (drug)
Repair arterial blockage
Atherectomy, percutaneous
Place catheter in artery
Repair arterial blockage
Repair arterial blockage
Place catheter in artery
Removal of artery clot
Transcath iv stent, percut
Transcath iv stent/perc addl
Lumbar spine fusion
Lumbar spine fusion
Laminotomy, single lumbar
Insert spine fixation device
Apply spine prosth device
Local bone graft
Heart Failure & Shock w CC; Diseases &
Disorders of the Circulatory System

67312/50
67332
96415
J9263
96411
J9190
90766
90767

Revise two eye muscles
Rerevise eye muscles add-on
Chemo, iv infusion, addl hr
Oxaliplatin (drug)
Chemo, iv push, addl drug
Fluorouracil injection (drug)
Ther/proph/dg iv inf, add-on
Tx/proph/dg addl seq iv inf

16

Days or Units of
Service 6
1
1
41
1
10
2
1
1
1
1
1
2
1
1
1
1
1
1
1
1
N/A

1
1
3
400
1
10
1
1

Other Medical Provider Paid Claims

Exhibit B

This Exhibit presents the 20 highest other medical provider paid claims, with associated Medicare rates, that were tested as part of our procedures at the
NC Department of Correction.

8

9

10

11
12
13

Other Provider
Reference
Other Provider YY
Other Provider YY
Other Provider YY
Other Provider YY
Other Provider YY
Other Provider YY
Other Provider QQ
Other Provider QQ
Other Provider QQ
Other Provider QQ
Other Provider QQ
Other Provider QQ
Other Provider BB
Other Provider BB
Other Provider BB
Other Provider BB
Other Provider BB
Other Provider BB
Other Provider F
Other Provider O
Other Provider O
Other Provider K

14 Other Provider C
15 Other Provider P
Other Provider P
Other Provider P
Other Provider P
Other Provider P
Other Provider P

Amount Billed Total Amount
Paid 2
by the Provider 1
$3,425.18
$2,671.64
$312.31
$243.60
$294.40
$377.44
$419.37
$327.11
$493.96
$385.29
$1,221.64
$952.88
$1,900.00
$1,900.00
$1,200.00
$1,200.00
$867.00
$867.00
$500.00
$500.00
$135.00
$135.00
$120.00
$120.00
$27.00
$7.75
$26.00
$3.84
$2.00
$2.00
$6,840.00
$4,320.72
$48.00
$17.41
$318.00
$240.92
$4,759.00
$4,521.05
$7,826.00
$3,371.85
$3,947.00
$1,071.36
$4,662.00
$4,195.80

$3,671.64
$46.00
$483.00
$1,644.00
$1,362.00
$1,075.00
$548.00

$3,671.64
$34.50
$362.25
$1,233.00
$1,021.50
$806.25
$411.00

Payment
Under
Medicare 3
$3,425.18
$312.31
$377.44
$419.37
$493.96
$610.82
$847.95
$184.78
$151.79
$109.20
$44.21
$62.52
$4.43
$1.86
$1.26
$2,468.98
$0.00
$137.67
$159.31
$1,348.74
$428.55
$807.66

$2,039.80
$8.44
$84.96
$142.17
$290.93
$130.85
$46.63

Applicable CPT® or
HCPCS (five digit
code) and Modifiers
Codes (two digit code)
L5321/RT
L5624
L5631
L5650
L5671
L5673
33249
33218
93641/26
33241
99251
99238/24
81000
J1580
J1170
52648
A4550
64430
52224
27138
27507/51
00630

CPT®/HCPCS Code Description 5
AK open end SACH
Test socket above knee
AK/knee disartic acrylic soc
Tot contact ak/knee disart s
BK/AK locking mechanism
Socket insert w lock mech
Eltrd/insert pace-defib
Repair lead pace-defib, one
Electrophysiology evaluation
Remove pulse generator
Inpatient consultation
Hospital discharge day
Laboratory services
Garamycin gentamicin injection (drug)
Hydromorphone injection (drug)
Laser surgery of prostate
Surgical/injection tray
N block inj, pudendal
Cystoscopy and treatment
Revise hip joint replacement
Treatment of thigh fracture
Anesthesia

Days or Units of
Service 6
1
1
1
1
1
2
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
Anesthesia time:
510 minutes

90945
71010/26
75790/26
36870
35476/51
36558/59
36145/51

Dialysis, one evaluation
Chest x-ray
Visualize A-V shunt
Percut thrombect av fistula
Repair venous blockage
Insert tunneled cv cath
Artery to vein shunt

31
1
1
1
1
1
1

4

17

Other Medical Provider Paid Claims

Exhibit B

This Exhibit presents the 20 highest other medical provider paid claims, with associated Medicare rates, that were tested as part of our procedures at the
NC Department of Correction.

16

17

18
19

20

Other Provider
Reference
Other Provider EE
Other Provider EE
Other Provider EE
Other Provider U
Other Provider U
Other Provider U
Other Provider U
Other Provider U
Other Provider LL
Other Provider PP
Other Provider PP
Other Provider PP
Other Provider Y

Amount Billed Total Amount
Paid 2
by the Provider 1
$3,000.00
$3,000.00
$180.00
$180.00
$180.00
$180.00
$250.00
$187.13
$85.00
$56.64
$85.00
$56.64
$85.00
$56.64
$4,950.00
$2,649.50
$2,600.00
$2,730.00
$4,121.00
$1,441.52
$2,785.00
$688.91
$120.00
$46.24
$2,490.00
$1,992.00

Payment
Under
Medicare 3
$771.07
$20.25
$21.74
$113.41
$34.33
$34.33
$34.33
$1,605.76
$1,015.79
$847.95
$405.24
$27.20
$576.90

Applicable CPT® or
HCPCS (five digit
code) and Modifiers
Codes (two digit code)
4

92980/LC
93539
93540
99222
99231
99231
99231/57
35081
21470
33249
33244
71090/26
00770/QK

CPT®/HCPCS Code Description 5
Insert intracoronary stent
Injection, cardiac cath
Injection, cardiac cath
Initial hospital care
Subsequent hospital care
Subsequent hospital care
Subsequent hospital care
Repair defect of artery
Treat lower jaw fracture
Eltrd/insert pace-defib
Remove eltrd, transven
X-ray & pacemaker insertion
Anesthesia

Days or Units of
Service 6
1
1
1
1
1
1
1
1
1
1
1
1
Anesthesia time:
221 min.

NOTES:
1

The total amount billed to Department by the provider on the CMS-1500 Medical Claim Form.

2

The amount paid by Department to the provider for each CPT®/HCPCS service code billed on the CMS-1500 Medical Claim Form.

3

The fee schedule reimbursement rate for the CPT® codes billed by the provider. These amounts were obtained from the various fee schedules available on the Centers
for Medicare and Medicaid (CMS) website. The type of medical service provided and the dates of service dictates which fee schedule was used. We calculated the
amounts that the provider would have been reimbursed under Medicare for the same type and units of service as submitted on the CMS-1500 Medical Claim form.

4

CPT® means Common Procedural Terminology and is a set of codes, established and maintained by the American Medical Association, intended to describe
procedures and services performed by physicians and other health care providers. HCPCS means Healthcare Common Procedure Coding System and is a standarized
system, established and maintained by the Centers for Medicare and Medicaid (CMS), that classifies similar medical products and services that are not included in the
CPT® coding system for the purpose of efficient claims processing. Modifiers provide the means by which a physician may indicate that a service or procedure has been
performed, or has been altered by some specific circumstances, but not changed in its definition or code.

5

CPT®/HCPCS Code Description obtained from the applicable fee schedule.

6

The number of days or units of service that were rendered as documented on the CMS-1500 Medical Claim Form for each CPT®/HCPCS.

18

ORDERING INFORMATION

Audit reports issued by the Office of the State Auditor can be obtained from the web site at
www.ncauditor.net. Also, parties may register on the web site to receive automatic email
notification whenever reports of interest are issued. Otherwise, copies of audit reports may be
obtained by contacting the:
Office of the State Auditor
State of North Carolina
2 South Salisbury Street
20601 Mail Service Center
Raleigh, North Carolina 27699-0601
Telephone:

919/807-7500

Facsimile:

919/807-7647

19