Contributed June 5, 2001 by Peggy Prentice (PeggyP@co.hernando.fl.us) Hernando County Clerk of Circuit Court Audit Services Department Audit of Risk Management AUDIT PROGRAM A. PRELIMINARY 1. Become familiar with Risk Management's demographics. 2. Interview the Finance Director to obtain an understanding of how the Finance Department interacts with the Risk Management Department and if the Finance Director has any significant financial concerns with Risk Management. 3. Conduct an Entrance Conference. 4. Complete and submit Conflict of Interest Statements 5. Prepare Purpose & Scope and obtain the Clerk's approval. 6. Prepare an Audit Program and obtain the Clerk's approval. 7. Create a Time Budget and obtain the Clerk's approval. 8. Prepare Index B. AUDIT WORK 1. Evaluate the adequacy of written instruction manuals and cross training. a. Determine if the Risk Management Department has adequate and complete written instructions and/or written operational policies and procedures (i.e., claims administration, database, insurance management, loss control, contract administration). b. Interview key employees to determine if cross training is adequate and complete. 2. Appraise internal controls over the general insurance carrier selection process. a. Obtain an understanding of the process in which general insurance carriers are selected (i.e., is there an insurance committee, are insurance premiums bid out, and who makes what level of decisions). b. Interview staff and review selection process records to determine if carrier premiums are appraised regularly. c. Interview staff and review selection process records to determine if Risk Management requires a minimum acceptable rating (i.e., from an established independent rating service) of insurance companies doing business with the County. d. Interview staff and review selection process records to determine if the authorities for approving a carrier are adequate. e. Survey other Florida local governments to obtain an understanding of their insurance selection process (i.e., an insurance counsel, self-insured, insurance broker, bidding process). 3. Evaluate the system for insuring assets. a. Flow chart the system of acquiring vs. insuring assets using information obtained by interviewing key employees. b. Obtain a list of County owned assets (i.e., autos, large equipment, office equipment, buildings, etc.) from the Finance Department or from other County department's as appropriate. From this list, select a sample of assets for testing. c. Trace the sampled assets to the corresponding insurance policy. d. Trace the asset's insurance coverage to the asset's value listed on the Finance Department's balance sheet and/or an actuary's report or a specialists' report. e. Review a sample of I-1, I-2 and Asset Inventory sheets/forms and determine if these sheets/forms are processed timely. f. Determine if asset lists sent to departments for verification were approved by and/or responded to by the appropriate level of management and returned to Risk Management for processing. g. Determine if the system for recording and maintaining a list of insured assets and their insurance coverage is efficient. h. Determine if there is a check and balance procedure between the Finance Department and the Risk Management Department that ensures that County assets are insured. i. Compare the asset insurance coverages on Hernando County's FY 2000/01 CAFR to the insurance coverages listed for the same fiscal year for similar size Florida local governments. Determine if Hernando County's insurance coverages are comparable. If not comparable, ascertain why. 4. Evaluate the system of insuring liabilities. a. Flow chart the system of insuring liabilities using information obtained by interviewing key employees. b. Obtain an understanding of how liability coverage is determined (i.e., deductibles, what is insured and what isn't, the amount of insurance coverage per claim) and approved. c. Request from Risk Management FY 1999/00 and FY 2000/01 Summary of Claims reports. d. Review the summary of claims reports for patterns of similar claims or lack of multiple claims or small amounts. Determine if the insurance coverage or lack of coverage (i.e., deductibles, coverage amounts, frequency of occurrences, and the cost of insuring these liabilities) makes sense. e. Analyze the summary of claims reports for patterns. Determine if adequate corrective action, when applicable, was taken to minimize the County's future liability in these areas. f. As a method of identifying weaknesses in the insurance coverages, review the "unfiled claims" file to determine if coverages appear to be adequate. g. Compare the liability insurance coverages on Hernando County's FY 2000/01 CAFR to the insurance coverages listed for the same fiscal year for similar size Florida local governments. Determine if Hernando County's insurance coverages are comparable. If not comparable, interview key employees to determine why. 5. Appraise claims processing, authorities, and history of expenditure records and controls. a. Obtain an understanding of how insurance claims are processed. b. Select a sample of insurance claims for testing. c. To determine if claims are processed timely, compare the date of the incident to the date of the accident or incident report and the date of the accident or incident report to the date the claim was processed by Risk Management. d. Review the claims and the corresponding accident or incident reports to determine if they were approved by the appropriate authorities. e. Determine if departments are required to submit in writing the amount of the total loss claimed and how the amount was arrived at for comparison to the miscellaneous bills submitted. f. Review the claim files to determine if Risk Management has adequate controls to ensure that property loss transactions are properly supported and documented (i.e., are document verification of claim amounts with the claimants). g. Determine if Risk Management periodically reconciles general ledger entries (for claim expenditures) to supporting documentation such as a monthly verification of revenue and disbursements. h. Determine if the system for recording, expending, and monitoring claims is efficient. 6. Overall, provide management with system/processing recommendations for enhancing the Department's operational and internal control structure and efficiency and effectiveness, as applicable. C. REVIEW AND REPORT 1. Review workpapers 2. Draft report 3. Provide draft to Clerk and incorporate her comments. 4. Conduct an Exit Conference. 5. Revise report and workpapers, as appropriate, incorporating management perspectives. 6. Provide final draft to Clerk and incorporate her comments. 7. Issue final report. 8. Transfer all computer files relating to the audit to the master (read-only) file. Transfer workpaper package to storage. 9. Prepare the report for the web site. E-mail the report file to MIS requesting that the report be added to ASD's web page. 10. Send Customer Satisfaction Survey.