DEPARTMENT OF HEALTH AND SOCIAL SERVICES
Division of Long Term Care Residents Protection
3325 Financial Capability Reporting
In compliance with the State's Administrative Procedures Act (APA - Title 29, Chapter 101 of the Delaware Code) and under the authority of Title 29 of the Delaware Code, Section 7903(10), Delaware Health and Social Services (DHSS) / Division of Long Term Care Residents Protection is proposing to create Regulation 3325, Financial Capability Reporting.
Any person who wishes to make written suggestions, compilations of data, testimony, briefs or other written materials concerning the proposed new regulations must submit same to Thomas Murray, Deputy Director, Division of Long Term Care Resident Protection, 3 Mill Road, Suite 308, Wilmington, Delaware 19806 by January 31, 2015.
The action concerning the determination of whether to adopt the proposed regulation will be based upon the results of Department and Division staff analysis and the consideration of the comments and written materials filed by other interested persons.
For some time there have existed various interpretations of the requirement for facilities to submit financial documents to allow staff to effectively assess the financial capability of the facilities. This regulation details the information that must be submitted and the circumstances under which it must be submitted. It will establish consistency in the application of 16 Del.C. §§1104(b)(2) and 1104(e).
Summary of Proposal
This regulation details the level of information that must be provided by the facility under various circumstances. It also details when and in what form the department will require the submission of audited financial statements.
16 Del.C. §1119C, Nursing Facilities and Similar Facilities
29 Del.C. §7903(10), Powers, duties and functions of the Secretary
3325 Financial Capability Reporting
This regulation is promulgated and adopted pursuant to 29 Del.C. §7971(d).
2.1 The purpose of this regulation is to detail the Department of Health and Social Services’ authority to monitor the financial capability of licensed long term care (LTC) providers. It details the level of information that must be provided by the licensee, or potential licensee, under various circumstances. It also defines when and in what form the Department will require the submission of audited financial statements reporting the financial position and the results of operations of facilities by independent certified public accountants.
2.2 Every facility (as defined in 16 Del.C. §1102(4)) licensed to provide care for more than three (3) residents shall be subject to this regulation. Facilities licensed to provide care for 3 or fewer residents shall be required to submit documentation demonstrating financial capability as required by the Department.
2.3 This regulation shall not prohibit, preclude or in any way limit DHSS from ordering, conducting or performing examinations of facilities under the rules and regulations of the Delaware Department of Health and Social Services and the practices and procedures of its regulations.
“Accountant” means a practitioner of accounting or accountancy, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.
An “Affiliate” of, or person “Affiliated” with, means a person that directly/or indirectly; through one or more intermediaries, controls, or is controlled by, or is under common control of the facility specified.
“Audited Financial Report” means and includes those items specified in subsection 7.4 of this regulation.
“Department” means the Delaware Department of Health and Social Services (DHSS)
“Division” means the DHSS Division of Long Term Care Residents Protection (DLTCRP)
“Facility” means a long term care facility as defined in 16 Del.C. §1102(4) and is licensed under 16 Del.C. §1103 to provide care and services to more than three (3) residents.
“Financial Distress” means a finding by the Department following the analysis of an audit, complaint or data indicating that the financial condition of the facility threatens the health or safety of a resident(s) of a facility.
“Generally Accepted Accounting Principles (GAAP)” means those principles that are recognized as the standard framework of guidelines for financial accounting.
“Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants (AICPA) and in all states in which he or she is licensed to practice.
4.1 All annual applications for renewal of a license shall be submitted at least thirty (30) calendar days prior to the expiration date of the license. The application must include a transmittal letter containing:
4.1.1 The type of ownership for the facility as well as senior, subordinate and affiliated organizations, i.e. proprietorship, partnership, corporation, Subchapter S Corporation or Limited Liability Company and;
4.1.2 The place of incorporation/registration: including names and addresses for all persons/entities with a 5% or greater ownership;
4.1.3 Year-end financial statement(s) – balance sheet, income statement, and statement of cash flows for the facility and, if applicable, the controlling organization (most recent year at year-end). If the year-end statement that is provided is three (3) or more months old when it is received by the Department a supplemental statement through the most recent month must be submitted. If the supplemental statement(s) is not prepared by independent accountants, it is to be attested to by the treasurer and a second officer;
4.1.4 A list of officers with addresses;
4.1.5 Organization charts with names and titles (personnel – facility and parent);
4.1.6 Organization chart (corporate structure), delineating senior, subordinate and affiliated organizations, lines of authority/ownership, and homes of record;
4.1.7 Facility address (home of record), all aliases and E.I.N. (employer identification number);
4.1.8 Information on the ownership of the real estate on which the facility is located including: name of the organization, address (home of record), E.I.N and officers (5% or more) or principals;
4.1.9 Name, address (home of record), and E.I.N. of the management entity involved in the operation of the facility, if any;
4.1.10 All items submitted separately must bear the signed certification statement: “I certify, under penalty of perjury, the attached statement is true, complete and correct”;
4.1.11 Information on the controlling organization to include:
126.96.36.199 The most recent year-end financial statements for the controlling organization;
188.8.131.52 The most recent year-end personal financial statements of the proprietors or partners; and
184.108.40.206 The most recent year-end personal financial statement for guarantors of a corporate transaction.
4.2 Any material adverse change to the facility’s financial position must be reported to the Department by the facility in writing within five (5) business days of its occurrence or discovery.
5.1 All applications for a license for a new facility or for a change of ownership for an existing facility shall include with the application a transmittal letter to include all the items listed in subsection 4.1 except 4.1.3 and;
5.2 Transaction Documents to include:
5.2.1 Sale/Purchase Agreement
5.2.2 Closing Statement
5.2.3 Notes (must include all terms and conditions, including but not limited to balance, payment amount, payment period, interest rate and mandated ratios)
5.2.4 Mortgages (see 5.2.3)
5.2.5 Leases (Complete)
5.3 Financial Documents to include:
5.3.1 Projected statement of Revenue and Expenses for thirty-six (36) months;
5.3.2 Projected statement of Revenue and Expenses converted to cash flow (for 36 months);
5.3.3 Beginning Pro Forma Balance Sheet. (end of first, second and third years);
5.3.4 Ending Pro Forma Balance Sheets (end of year, second and third years);
5.3.5 Any newly established Facility without a parent, or any new or newly owned facility with a newly established parent without a financial history of at least thirty-six (36) months will provide evidence of capital availability equal to four (4) months of anticipated facility expenses as evidenced on the pro forma profit and loss statement. Said capital availability shall be maintained at a local financial institution for the first twenty-four (24) months of operation of the facility;
5.3.6 A letter from the facility instructing the local financial institution to notify DHSS immediately if the agreed upon balance is not maintained;
5.3.7 Information on the controlling organization to include:
220.127.116.11 The most recent three (3) years of audited year-end financial statements for the controlling organization;
18.104.22.168 The most recent three (3) years of audited personal financial statements for the proprietors or partners;
22.214.171.124 The most recent three (3) years of audited personal financial statements for guarantors of a corporate transaction;
5.3.8 The Department reserves the right to require the submission of additional information upon initial review; and
5.3.9 Additional materials which will facilitate analysis are encouraged.
5.4 Effective upon the date of purchase or change of ownership the facility will provide monthly financial information to DHSS as required. All in-house prepared financial information is to include the following certification signed by the Chief Financial Officer: “All financial information provided herewith is certified to be true and correct to the best of my knowledge and belief, under penalty of perjury.” The information will include:
5.4.1 Balance sheet;
5.4.2 Profit/Loss statement;
5.4.3 Statement of cash flow; and
5.4.4 Current resident census.
5.5 Any material adverse change to the facility’s cash flow or financial position must be reported to the Department by the facility in writing within five (5) business days of its occurrence or discovery.
6.1 Every facility that receives, holds or disburses funds belonging to the residents shall maintain and retain the below listed documentation. The documentation must be provided to DHSS upon request.
6.1.1 Copy of the current Surety Bond covering Resident Trust Funds.
6.1.2 Copies of appropriate account statements for the Fund (bank statements) for the most recent month.
6.1.3 Copies of ledger account records for each resident having funds in the account corresponding to the most recent account statement.
6.1.4 If reconciliations are performed, copies of the statement of reconciliation for the appropriate month.
6.1.5 A record of all residents discharged from the facility during the previous twelve (12) months. For each discharged resident the facility shall document the following:
126.96.36.199 Date of departure;
188.8.131.52 Reason for departure;
184.108.40.206 Resident balance in trust fund at date of departure;
220.127.116.11 Date and disposition of resident funds.
7.1 When the Department determines that financial conditions exist which threaten the health or safety of a resident(s) in a facility, the Department may require the facility to submit certified in-house financial statements within 15 days of request and audited financial information prepared by an Independent Certified Public Accountant within 60 days, which may be extended by the Department upon written request.
7.2 Conditions which may prompt the Department to require audited financial disclosure include but are not limited to:
7.2.1 Substandard Quality of Care that is linked to an adverse financial condition.
7.2.2 A material adverse change to the facility’s financial position.
7.2.3 Facility/Equipment maintenance inadequacies that are linked to an adverse financial condition.
7.2.4 Repeated or frequent payroll interruptions or shortages.
7.2.5 Confirmed delinquencies on invoices from suppliers or attendant court actions.
7.2.6 Personnel shortages (understaffing and /or under-qualification of staff) that are linked to an adverse financial condition.
7.2.7 Delinquent tax payments.
7.2.8 Bankruptcy, reorganization or closure.
7.3 Audits may be transmitted to the Department by electronic means. An original, bound, signed audit, prepared by an independent certified public accountant, must be forwarded to the Departments.
7.4 Contents of an Audited Financial Report:
7.4.1 The audited financial report shall indicate the current financial position of the facility and the results of its operations, cash flows and changes in capital. The report shall conform to GAAP practices. It shall include:
18.104.22.168 Report of independent certified public accountant;
22.214.171.124 Balance sheet reporting assets, liabilities, and capital;
126.96.36.199 Statement of operations;
188.8.131.52 Statement of cash flows;
184.108.40.206 Statement of changes in capital; and
220.127.116.11 Notes to financial statements. These notes shall be those required by GAAP.
8.1 In order for the Department to recognize a person or firm as a qualified independent certified public accountant the person or firm must meet or exceed the following qualifications:
8.1.1 Is in good standing with the AICPA and in all states in which the accountant is licensed to practice;
8.1.2 Has neither directly nor indirectly entered into an agreement of indemnification with respect to the audit of the facility; and
8.1.3 He or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the AICPA and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Delaware State Board of Accountancy, or similar code.
9.1 A facility may make written application to DHSS for approval to file consolidated financial statements in lieu of separate annual financial statements if the facility is part of a group. Consolidated statements must meet the following requirements:
9.1.1 Amounts shown on the consolidated audited financial report shall be shown on the worksheet;
9.1.2 Amounts for each separately licensed facility subject to this section shall be stated separately;
9.1.3 Non-facility operations may be shown on the worksheet on a consolidated or individual basis;
9.1.4 Explanations of consolidating and eliminating entries shall be included;
9.1.5 A reconciliation of any differences between the amounts shown in the individual facility columns of the worksheet and comparable amounts shown on the annual statements of the facilities shall be included;
9.1.6 Notes on each facility included in a consolidated audit will be included with the notes of the consolidation with each separate facility clearly identified; and
9.1.7 Any statements completed in excess of 30 days after the closing of the audited period will be accompanied by an in-house prepared financial statement for each separately licensed facility. The period covered by the in-house statement will be from the audit end-date through the most recent facility monthly statement. The statement will be dated and certified as correct by the signature of the Chief Financial Officer.
Financial statements furnished pursuant to Section 7.4 shall be examined by the independent certified public accountant. The audit of the facility’s financial statements shall be conducted in accordance with generally accepted auditing standards. In accordance with AU Section 319 of the Professional Standards of the AICPA, Consideration of Internal Control in a Financial Statement Audit, the independent certified public accountant should obtain an understanding of internal control sufficient to plan the audit.
11.1 A facility that is required to furnish an annual audited financial report shall require the independent certified public accountant to report, in writing, within five (5) business days to the board of directors or its audit committee any determination by the independent certified public accountant that the facility has materially misstated its financial condition to the Department. A facility that receives a report pursuant to this paragraph shall forward a copy of the report to the Department within five (5) business days of receipt of the report accompanied by any amended or corrected audit generated as a result of the misstatement.
11.2 No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with Section 10.1.
11.3 If the accountant, subsequent to the date of the audited financial report filed pursuant to this regulation, becomes aware of facts that might have affected his or her report, the Department notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the AICPA.
12.1 No director or officer of a facility shall, directly or indirectly:
12.1.1 Make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review or communication required under this regulation; or
12.1.2 Fail to accurately report any material fact or information to the accountant in connection with any audit or review required under this regulation; or
12.1.3 Directly or indirectly coerce, manipulate, mislead or fraudulently influence any accountant engaged in the performance of an audit pursuant to this regulation that results in the submission materially misleading financial statements.
13.1 The Department is authorized to impose the below listed actions to monitor the financial capability of a facility it has determined to be in financial distress. Noncompliance with any imposed action may result in the imposition of civil penalties or other remedies for compliance as authorized by 16 Del.C. Chapter 11, Subchapter I.
13.1.1 Monthly submission within thirty (30) calendar days of the end of the month of monthly financial information from the facility to include:
18.104.22.168 Balance Sheet, Profit and Loss Statement, Statement of Cash Flows, Census Information; and
22.214.171.124 Certification by the Chief Financial or Corporate Officer with the following statement: “All financial information provided herein is certified to be true and correct to the best of my knowledge and belief, under penalty of perjury.”
13.1.2 Submission of monthly certifications from the facility that all required licenses, taxes and insurances are paid-to-date, are current and in effect.
13.1.3 Attendance of facility and corporate staff at periodic meetings with the Department to discuss past performance and expectations for future performance, to include:
13.1.4 Requirement of a written plan from the facility indicating how it will return to profitability.
13.1.5 Reclassification of the facility license from annual to provisional status.
13.1.6 Requirement that the parent organization (if any) facility provide a written assurance to the Department that the parent company will step in to provide financial support to ensure that the residents continue to receive quality care. The written assurance is to include text as provided by the Department.
13.1.7 Query courts of local jurisdiction for pending or past legal actions or judgments against the facility by suppliers and/or government agencies.
13.1.8 Notification to The Centers for Medicare and Medicaid Services of the facility’s financial difficulty (federally certified facilities).
13.1.9 The issuance of an emergency order temporarily transferring the management of the facility to another qualified entity in cases where the physical health or safety of a resident(s) is in imminent risk. The terms and conditions of the order are to be determined by the Department. At the conclusion of which the Department will make a final determination regarding the facility’s ongoing licensure status.
13.1.10 Require written notification from the facility, to the each individual resident and, if known, a family member or legal representative that the financial capability of the facility is under review by the Department. The notification must be written in a language and manner that is easily understood by the individual resident and/or individual resident’s representative.
126.96.36.199 Provide a copy of the notice to the DHSS; the State Long Term Care Ombudsman; managed care organization (MCO), as appropriate; any Departmental DHSS agency involved in the resident placement in the facility, including Adult Protective Services; and the protection and advocacy agency as defined in 16 Del.C. §1102 if the resident is an individual with a developmental disability or mental illness.
14.1 The Department shall maintain the financial documents submitted by facilities in a secure and confidential manner.
14.2 Financial documents submitted pursuant to these regulations are not departmental records and are not subject to 29 Del.C. Chapter 100.
If any section or portion of a section of this regulation or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.