Arkansas has made progress in recovering unpaid taxes, but it can recoup even more owed tax balances and stem the growth of the problem, according to a consultant hired to aid Gov. Asa Hutchinson in the reorganization of state government.
The consultant, PricewaterhouseCoopers, also concluded that immediate cost savings exist in state government's employee transportation and fleet management. The consultant also highlighted a potential opportunity for the state to save money through the recovery of improper Medicaid claims and associated payments.
The London-based consultant was paid $900,000 under a one-year contract, which ended in late May, to make recommendations to improve state government, and its money proposals were part of that report. Some efforts are already being made in the recommended areas, according to state officials.
The state released a copy of the consultant's final report to lawmakers in late February. The report led Sen. Ron Caldwell, R-Wynne, to question whether the state benefited from spending $900,000 on the contract. At that time, Hutchinson said the work by PricewaterhouseCoopers was beneficial and his administration's proposal would allow his Cabinet secretaries to create efficiencies in state government.
Earlier this year, the Legislature and Hutchinson enacted Act 910, which reduced the number of state agencies that report to the governor from 42 to 15 and created a Cabinet with secretaries. The change became effective Monday.
As part of its work for the state, PricewaterhouseCoopers said it would provide at least two or three short-term cost-savings strategies for improvements and changes. State records obtained under the Arkansas Freedom of Information Act show the consultant's recommendations to collect taxes and save money.
PricewaterhouseCoopers recommended the state Department of Finance and Administration hire five more direct collections staff members at a cost of about $167,000 a year. These employees could accelerate tax recoveries by up to $14 million, or about $2.8 million per staff member.
"Sourcing these staff members from other state agencies or other DFA departments (if available) could potentially mitigate the need for the upfront $167,000 investment," the consulting firm said.
The finance department is responsible for collecting state tax revenue, driver's license fees and motor vehicle fees. Its Collections Section goes after delinquent taxes and has 37 employees, according to the consultant.
These employees include 16 people who are primarily deployed to collect delinquent individual income taxes; two focused on garnishments; and three focused on hot-check collections, PricewaterhouseCoopers reported. Each collector handles about 55 calls a day. The unit uses some employees in a second shift.
"As of October 2018, the state of Arkansas had $416,154,938 in outstanding tax obligations eligible for collection, which represents an almost 27% increase since October of 2016 when the obligation was $327,229,962," according to the consultant's report.
"Interviews with DFA staff indicated, although this increase is significant, it is in part due to more accurate reporting and assessments of accounts receivable as a result of improvements related to the resources and staffing dedicated to assessing tax obligations and better information sharing," PricewaterhouseCoopers said. "Nevertheless, this increase in outstanding tax receivables also accounts for improved delinquent tax collection efforts."
The finance department is now reviewing the consultant's recommendation to hire five more people to handle collections and is considering other steps to recover delinquent taxes, said department spokesman Scott Hardin.
"Beginning in 2017, DFA expanded the hours for our collections effort until 7 p.m., which previously stopped at 4:30 p.m. While no new positions were added, DFA did move existing open positions to the collections team in order to staff the new hours," Hardin said in a written statement.
"This had a significant impact, as evidenced through growing collections numbers since that time," he said. "For example, in March 2017, DFA's collection effort totaled $12.9 million. The number moved to $17.6 million for March 2018 and $27.9 million in March 2019. Overall, collections totaled $111 million in calendar year 2016, $132 million in 2017 and $180 million in 2018. Through May 2019, more than $105 million has been collected. We anticipate this year's total will exceed $200 million for the first time."
PricewaterhouseCoopers also called for the finance department to contract with a data analytics firm to "cleanse, mine and better structure the outstanding tax collection data and facilitate the build out of a rigorous tax collection prioritization methodology and algorithm, as part of a larger and more robust tax collection strategy."
But Hardin said the department "continues to utilize data analytics in order to more effectively collect outstanding taxes on each individual account.
"Saving taxpayer dollars, DFA's analytics are produced by existing employees. The growth in collections over the last three years can be attributed to expanded hours along with more effectively using data," he said.
In the long run, the state should consider other options such as exploring the possibility of outsourcing the most difficult-to-collect delinquent taxes, according to the consultant.
"Regarding outsourcing, this was considered via legislation earlier this year although it did not move forward," Hardin said. "In order for DFA to outsource any collections, legislative approval is required."
House Bill 1930 would have created a one-year pilot program in which a contractor would collect bad debts. The bill was defeated twice in the House.
PricewaterhouseCoopers recommended requiring state agencies to buy vehicles for employees who use personal vehicles for official business.
"Several 'break-even' analyses reveal that the state can save approximately $900,000 by purchasing vehicles for state employees who have sought 'high' and 'medium' levels of mileage reimbursement," according to the consultant. "This recommendation may require a legislative amendment (A.C.A. 19-4-906), and if DFA should advance such an amendment."
The consultant also called for the state to hire a supervisor who would design and implement policies to ensure employee transportation is efficient and cost effective. The transportation supervisor also would help transition agencies to a centralized fleet tracking system.
The savings in reduced personal vehicle reimbursement in the first year would offset the cost of implementing a fleet system. The state would see more savings by buying fewer vehicles and fuel.
PricewaterhouseCoopers also called for moving all executive branch agencies to a centralized and digitized employee transportation system. Such a platform would allow the state to optimize the funding and resources required to manage 4,300 vehicles and $9.8 million in annual personal mileage reimbursement.
The consultant also recommended the state explore working with companies such as Enterprise or ARI Fleet because "several case studies have revealed significant cost savings for state and local agencies that engage with third party vendors for fleet and asset management."
These recommendations will be considered by the Department of Transformation and Shared Services, said Hardin.
An analysis by the Office of Medicaid Inspector General revealed that of about 270,000 Medicaid claims from January 2015 to October 2017, about 40,000 claims handled by the Department of Human Services' third party liability unit and recoupment efforts accounted for the recovery of $2.9 million in improper Medicaid payments so far, the consultant said.
The office also has identified about 238,000 claims that, on a preliminary basis, appear to be eligible for recovery by the office and represent about $11 million in improper Medicaid claims from pharmacies, according to the consultant. About 60,000 of the claims totaling about $4 million represent duplicate payments to Medicare Part D and Medicaid for the same pharmacy service, the consultant reported.
Interviews with the office's staff revealed that recouping up to $4 million in duplicate claims should be prioritized, and would return about $1.3 million to the state after the federal government is reimbursed for its share of the improper Medicaid costs, according to the consultant.
The consultant's report outlined five "next steps" to take, including starting collection efforts for duplicate claims and then recouping remaining improper Medicaid claims.
Hutchinson spokesman J.R. Davis said in a written statement that the Office of Medicaid Inspector General and the Human Services Department have already started reaching out to pharmacies about these claims.
"These efforts are a priority for the state's Medicaid Inspector General, Elizabeth Smith, and will continue to be as she moves into her new role as Secretary of the Department of Inspector General on July 1," he said last week.
Department of Human Services spokesman Amy Webb said in a written statement that third-party liability is one area that the agency has identified as needing improvements, and the department has begun taking action related to both processes and collections.
A Section on 07/05/2019
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