oversight

Audit of Cash Management Activities for a Sample of BlueCross and BlueShield Plans

Published by the Office of Personnel Management, Office of Inspector General on 2014-01-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                     U.S. OFFICE OF PERSONNEL MANAGEMENT
                                                           OFFICE OF THE INSPECTOR GENERAL
                                                                            OFFICE OF AUDITS




Final Audit Report

Subject:



                AUDIT OF
   CASH MANAGEMENT ACTIVITIES FOR A
SAMPLE OF BLUECROSS AND BLUESHIELD PLANS


                                           Report No. 1A-99-00-13-018


                                            Date: January 17, 2014




                                                          --CAUTION--
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.
                                                     AUDIT REPORT



                                    Federal Employees Health Benefits Program
                                    Service Benefit Plan     Contract CS 1039
                                         BlueCross BlueShield Association
                                                   Plan Code 10

                                         Cash Management Activities for a
                                      Sample of BlueCross and BlueShield Plans




                       REPORT NO. 1A-99-00-13-018                                   January 17, 2014
                                                                             DATE: ______________




                                                                               ______________________
                                                                               Michael R. Esser
                                                                               Assistant Inspector General
                                                                                 for Audits




                                                          --CAUTION--
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.
                              EXECUTIVE SUMMARY



                         Federal Employees Health Benefits Program
                         Service Benefit Plan     Contract CS 1039
                              BlueCross BlueShield Association
                                        Plan Code 10

                            Cash Management Activities for a
                         Sample of BlueCross and BlueShield Plans




               REPORT NO. 1A-99-00-13-018                 January 17, 2014
                                                    DATE: ______________

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations
at a sample of 21 BlueCross and BlueShield (BCBS) plans questions $1,547,417 in cash
management activities and lost investment income (LII). The BlueCross BlueShield Association
(Association) and/or BCBS plans agreed (A) with $527,718, disagreed (D) with $84,062, is
reviewing (R) $929,405 and did not respond (NR) to $6,232 of the questioned amounts.

Our limited scope audit was conducted in accordance with Government Auditing Standards.
The audit covered cash management activities related to FEHBP funds from January 1, 2011
through September 30, 2012 for a sample of 21 BCBS Plans. Specifically, we reviewed letter of
credit account (LOCA) drawdowns, working capital calculations, adjustments and/or balances,
dedicated Federal Employee Program (FEP) investment account balances, and interest income
transactions to determine if these BCBS plans handled FEHBP funds in accordance with
applicable laws and regulations concerning cash management in the FEHBP.

The questioned cash management activities are summarized as follows:

•   Excess Funds in the Federal Employee Program Investment Accounts              $1,331,300

    Our audit determined that four BCBS plans held excess FEHBP funds, totaling $1,331,300,
    in dedicated FEP investment accounts as of September 30, 2012. These excess FEHBP funds
    consisted of $929,405 by Excellus BCBS; $390,871 by Highmark BCBS of West Virginia;
    $7,467 by BCBS of Hawaii; and $3,557 by BCBS of Vermont.


                                              i
    The Association agreed with the questioned excess funds of $401,895 (A) for Highmark
    BCBS of West Virginia, BCBS of Hawaii, and BCBS of Vermont. However, the
    Association is continuing to review the questioned excess funds of $929,405 (R) for Excellus
    BCBS. During our audit, we verified that Highmark BCBS of West Virginia and BCBS of
    Vermont subsequently returned $390,871 and $1,516 of the questioned excess funds,
    respectively, to the FEHBP.

•   Working Capital Deposits                                                           $143,898

    Based on our review of the BCBS plans’ working capital (WC) deposits, we determined that
    four BCBS plans (Arkansas, Idaho, Kansas, and Mississippi) did not maintain the correct
    WC amounts in the FEP investment accounts, resulting in these plans holding excess FEHBP
    funds of $139,740. Specifically, we found that these BCBS plans either held WC balances
    with excess amounts or held WC funds outside of the FEP investment accounts. As a result
    of this finding, the BCBS plans of Arkansas, Mississippi and Kansas returned $137,666 to
    the FEHBP, consisting of $133,508 for WC funds and $4,158 for applicable LII. However,
    the Association did not address the questioned WC funds of $6,232 for BCBS of Idaho.

    The Association agreed with $53,604 (A), disagreed with $84,062 (D), and did not respond to
    $6,232 (NR) of these questioned amounts. Although the Association disagreed with $84,062
    of the questioned WC funds, BCBS of Arkansas actually returned these funds to the FEHBP.

•   Treasury Offsets (A)                                                                $72,219

    During our review of LOCA drawdowns, we determined that BCBS of Rhode Island had not
    returned $71,644 to the FEHBP for offsets taken from the LOCA by the United States
    Treasury (Treasury) on December 28, 2011 and September 27, 2012. As a result of this
    finding, BCBS of Rhode Island returned $72,219 to the FEHBP, consisting of $71,644 for
    Treasury offsets against the LOCA and $575 for applicable LII.




                                               ii
                                                     CONTENTS
                                                                                                                          PAGE

       EXECUTIVE SUMMARY .............................................................................................. i

 I.    INTRODUCTION AND BACKGROUND .....................................................................1

II.    OBJECTIVE, SCOPE, AND METHODOLOGY ............................................................3

III.   AUDIT FINDINGS AND RECOMMENDATIONS .......................................................5

       A.     CASH MANAGEMENT ACTIVITIES ..................................................................5

              1. Excess Funds in the Federal Employee Program Investment Accounts ............5

              2. Working Capital Deposits ..................................................................................8

              3. Treasury Offsets ...............................................................................................10

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ...........................................................12

V.     SCHEDULE A – QUESTIONED CHARGES

       APPENDIX            (BlueCross BlueShield Association response, dated October 17, 2013, to
                           the draft audit report)
                         I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This final audit report details the findings, conclusions, and recommendations resulting from our
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at a
sample of 21 BlueCross and BlueShield (BCBS) plans.

The audit was performed by the Office of Personnel Management’s (OPM) Office of the
Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.

BACKGROUND

The FEHBP was established by the Federal Employees Health Benefits (FEHB) Act (Public Law
86-382), enacted on September 28, 1959. The FEHBP was created to provide health insurance
benefits for federal employees, annuitants, and dependents. OPM’s Healthcare and Insurance
Office has overall responsibility for administration of the FEHBP. The provisions of the FEHB
Act are implemented by OPM through regulations, which are codified in Title 5, Chapter 1, Part
890 of the Code of Federal Regulations (CFR). Health insurance coverage is made available
through contracts with various health insurance carriers.

The BlueCross BlueShield Association (Association), on behalf of participating BCBS plans, has
entered into a Government-wide Service Benefit Plan contract (CS 1039) with OPM to provide a
health benefit plan authorized by the FEHB Act. The Association delegates authority to
participating local BCBS plans throughout the United States to process the health benefit claims
of its federal subscribers. There are approximately 64 local BCBS plans participating in the
FEHBP.

The Association has established a Federal Employee Program (FEP 1) Director’s Office in
Washington, D.C. to provide centralized management for the Service Benefit Plan. The FEP
Director’s Office coordinates the administration of the contract with the Association, member
BCBS plans, and OPM.

The Association has also established an FEP Operations Center. The activities of the FEP
Operations Center are performed by CareFirst BlueCross BlueShield, located in Washington,
D.C. These activities include acting as fiscal intermediary between the Association and member
plans, verifying subscriber eligibility, approving or disapproving the reimbursement of local plan
payments of FEHBP claims (using computerized system edits), maintaining a history file of all
FEHBP claims, and maintaining an accounting of all program funds.




1
  Throughout this report, when we refer to "FEP", we are referring to the Service Benefit Plan lines of business at
the Plan. When we refer to the "FEHBP", we are referring to the program that provides health benefits to federal
employees.
                                                          1
Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
management for the Association and each BCBS plan. Also, management of each BCBS plan is
responsible for establishing and maintaining a system of internal controls.

This is our first focused audit of cash management activities for these 21 BCBS plans. The
results of this audit were discussed with the Association and BCBS plan officials throughout the
audit and at an exit conference on April 22, 2013. The Association’s comments offered in
response to the draft report were considered in preparing our final report and are included as an
Appendix to this report. Also, additional documentation provided by the Association and BCBS
plans on various dates through October 17, 2013 was considered in preparing our final report.




                                                2
                  II. OBJECTIVE, SCOPE, AND METHODOLOGY
OBJECTIVE

The objective of this audit was to determine whether BCBS plans handled FEHBP funds in
accordance with applicable laws and regulations concerning cash management in the FEHBP.

SCOPE

We conducted our limited scope performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objective. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objective.

The audit covered cash management activities and practices from January 1, 2011 through
September 30, 2012 for a sample of 21 BCBS plans. 2 Our sample included all BCBS plans with
FEHBP health benefit payments of $250 million or less in contract year 2011 (except for Capital
BlueCross and several other BCBS plans that are part of multi-plan organizations, such as
WellPoint, Inc. and Regence BCBS). Specifically, we reviewed letter of credit account (LOCA)
drawdowns, working capital calculations, adjustments and/or balances, dedicated FEP
investment account balances, and interest income transactions to determine if these 21 BCBS
plans handled FEHBP funds in accordance with applicable laws and regulations concerning cash
management in the FEHBP.

We did not consider each BCBS plan’s internal control structure in planning and conducting our
auditing procedures. Our audit approach consisted mainly of substantive tests of transactions
and not tests of controls. Therefore, we do not express an opinion on each BCBS plan’s system
of internal controls taken as a whole.

We conducted tests to determine whether the BCBS plans had complied with the contract and the
laws and regulations governing the FEHBP as they relate to cash management of FEHBP funds.
The results of our tests indicate that, with respect to the items tested, the BCBS plans did not
fully comply with the provisions of the contract relative to cash management of FEHBP funds.
Exceptions noted in the areas reviewed are set forth in detail in the “Audit Findings and
Recommendations” section of this report. With respect to the items not tested, nothing came to
our attention that caused us to believe that the BCBS plans had not complied, in all material
respects, with those provisions.



2
 Our sample consisted of the following BCBS plans: BCBS of Arkansas, Highmark BCBS of Delaware, BCBS of
Hawaii, BCBS of Idaho, Wellmark BCBS (Iowa/South Dakota), BCBS of Kansas, BCBS of Louisiana, BCBS of
Mississippi, BCBS of Kansas City, BCBS of Montana, BCBS of Nebraska, BCBS of Western New York, Excellus
BCBS (New York), BCBS of North Dakota, Independence BlueCross (Pennsylvania), BlueCross of Northeastern
Pennsylvania, Triple-S Salud, Inc. of Puerto Rico, BCBS of Rhode Island, BCBS of Vermont, Highmark BCBS of
West Virginia, and BCBS of Wyoming.
                                                     3
In conducting our audit, we relied to varying degrees on computer-generated data provided by
the FEP Director’s Office and the BCBS plans. Due to time constraints, we did not verify the
reliability of the data generated by the various information systems involved. However, while
utilizing the computer-generated data during our audit testing, nothing came to our attention to
cause us to doubt its reliability. We believe that the data was sufficient to achieve our audit
objective.

The audit was performed at our offices in Jacksonville, Florida and Cranberry Township,
Pennsylvania from January 22 through April 19, 2013.

METHODOLOGY

To test each of the 21 BCBS plans’ compliance with contract provisions relative to cash
management activities, we selected and reviewed a judgmental sample of 14 or more high dollar
LOCA drawdowns from each plan for the purpose of determining if the drawdowns were
appropriate and adequately supported. In total for these 21 BCBS plans, we selected and
reviewed 400 LOCA drawdowns, totaling approximately $145 million (out of approximately
$4.2 billion), from the period January 1, 2011 through September 30, 2012. 3 We also reviewed
each BCBS plan’s working capital calculations, adjustments, and/or balances during the period
January 1, 2012 through September 30, 2012. Additionally, we reviewed a detailed itemization
of exactly what funds were in each BCBS plan’s dedicated FEP investment account as of
September 30, 2012, as well as the interest income earned in each plan’s dedicated FEP
investment account and/or returned to the FEHBP during the period January 1, 2011 through
September 30, 2012.




3
  The 400 LOCA drawdowns consisted of 34 drawdowns, totaling $19,071,244 (out of $249,887,155), for BCBS of
Arkansas; 14 drawdowns, totaling $5,300,618 (out of $126,416,200), for Highmark BCBS of Delaware; 14
drawdowns, totaling $712,585 (out of $24,524,138), for BCBS of Hawaii; 14 drawdowns, totaling $5,231,665 (out
of $174,795,446), for BCBS of Idaho; 14 drawdowns, totaling $10,864,370 (out of $398,961,916) for Wellmark
BCBS (Iowa/South Dakota); 14 drawdowns, totaling $5,156,411 (out of $222,099,710), for BCBS of Kansas; 14
drawdowns, totaling $817,979 (out of $427,737,751), for BCBS of Louisiana; 20 drawdowns, totaling $9,127,615
(out of $335,265,495), for BCBS of Mississippi; 35 drawdowns, totaling $21,106,656 (out of $291,774,284), for
BCBS of Kansas City; 23 drawdowns, totaling $10,082,146 (out of $182,835,418), for BCBS of Montana; 14
drawdowns, totaling $11,233,285 (out of $282,418,130), for BCBS of Nebraska; 14 drawdowns, totaling $1,839,043
(out of $57,356,609), for BCBS of Western New York; 41 drawdowns, totaling of $4,037,655 (out of
$133,205,958), for Excellus BCBS; 14 drawdowns, totaling $2,682,325 (out of $114,168,538), for BCBS of North
Dakota; 15 drawdowns, totaling $14,193,735 (out of $408,467,253), for Independence BlueCross; 14 drawdowns,
totaling $3,671,280 (out of $89,547,844), for BlueCross of Northeastern Pennsylvania; 14 drawdowns, totaling
$449,396 (out of $2,816,332), for Triple-S Salud, Inc. of Puerto Rico; 15 drawdowns, totaling $2,686,970 (out of
$118,980,132), for BCBS of Rhode Island; 14 drawdowns, totaling $1,615,077 (out of $83,427,540), for BCBS of
Vermont; 14 drawdowns, totaling $8,686,976 (out of $362,380,291), for Highmark BCBS of West Virginia; and 35
drawdowns, totaling $6,914,475 (out of $108,553,252), for BCBS of Wyoming.
                                                       4
                III. AUDIT FINDINGS AND RECOMMENDATIONS

A. CASH MANAGEMENT ACTIVITIES

    1. Excess Funds in the Federal Employee Program Investment Accounts                           $1,331,300

        Our audit determined that four BCBS plans held excess FEHBP funds, totaling
        $1,331,300, in dedicated FEP investment accounts as of September 30, 2012. These
        excess FEHBP funds consisted of $929,405 by Excellus BCBS; $390,871 by Highmark
        BCBS of West Virginia; $7,467 by BCBS of Hawaii; and $3,557 by BCBS of Vermont.
        During our audit, we verified that Highmark BCBS of West Virginia and BCBS of
        Vermont subsequently returned $390,871 and $1,516 of the questioned excess funds,
        respectively, to the FEHBP.

        48 CFR 1632.771 (c) states, “FEHBP funds shall be maintained separately from other
        cash and investments of the carrier or underwriter.”

        48 CFR 31.201-5 states, “The applicable portion of any income, rebate, allowance, or
        other credit relating to any allowable cost and received by or accruing to the contractor
        shall be credited to the Government either as a cost reduction or by cash refund.”

        Contract CS 1039, Part II, Section 2.3 (i) states, “All health benefit refunds and
        recoveries, including erroneous payment recoveries, must be deposited into the working
        capital or investment account within 30 days and returned to or accounted for in the
        FEHBP letter of credit account within 60 days after receipt by the Carrier.”

        Regarding reportable monetary findings, Contract CS 1039, Part III, section 3.16, states,
        “Audit findings in the scope of an OIG audit are reportable as questioned charges unless
        the Carrier provides documentation supporting that the findings were identified . . . and
        corrected (i.e., overcharges returned to the FEHBP) prior to audit notification.”

        The BCBS plan’s FEP investment account generally includes FEP working capital funds,
        health benefit refunds and recoveries from providers and subscribers, interest income
        earned, and other cash identified as due to the FEP. Based on Contract CS 1039, all
        funds deposited into the FEP investment account, such as health benefit refunds, interest
        income and excess working capital, should be returned to the FEHBP by adjusting the
        LOCA within 60 days after receipt by the BCBS plan.

        In our audit information request (AIR), we requested each of the 21 BCBS plans in our
        sample to provide a detailed itemization of the funds in the plan’s dedicated FEP
        investment account as of September 30, 2012, including an aging of these funds. 4 Based
        on our review of these FEP investment account itemizations, we determined that four of
        these BCBS plans (Excellus BCBS, Highmark BCBS of West Virginia, BCBS of Hawaii,

4
 Each BCBS plan in our sample provided a detailed itemization of the FEP investment account balance as of
September 30, 2012 (except for Triple-S Salud, Inc. of Puerto Rico and BCBS of Western New York, which did not
maintain dedicated FEP investment accounts as of September 30, 2012).
                                                      5
         and BCBS of Vermont) were holding a total of $1,331,300 in excess FEHBP funds as of
         September 30, 2012. Most of these excess funds had been held in these BCBS plans’
         FEP investment accounts for more than a year (as of September 30, 2012).

         The following is a summary of the questioned excess funds that were held by these four
         BCBS plans as of September 30, 2012.


                                 BCBS Plans                         Excess FEHBP Funds
                    Excellus BCBS                                                       $929,405
                    Highmark BCBS of West Virginia                                       390,871
                    BCBS of Hawaii                                                         7,467
                    BCBS of Vermont                                                        3,557
                                   TOTAL                                              $1,331,300


         As part of our audit, we verified that Highmark BCBS of West Virginia returned
         $390,871 of the excess funds to the LOCA on March 12, 2013. We also verified that
         BCBS of Vermont returned $1,516 of the excess funds to the LOCA on November 7,
         2012. In total, we verified that $392,387 of the questioned excess funds have been
         returned to the FEHBP. However, since these excess funds were returned to the FEHBP
         after the Association and BCBS plans received our audit notification and AIR (dated
         October 1, 2012), we are continuing to question these excess funds as a monetary finding.

         Association’s Response:

         The Association agrees with the questioned excess funds of $401,495 for Highmark
         BCBS of West Virginia, BCBS of Hawaii, and BCBS of Vermont. However, the
         Association is continuing to research what the appropriate resolution should be for the
         questioned excess funds of $929,405 for Excellus BCBS. 5

         Regarding the questioned excess funds for Excellus BCBS, the Association states, “After
         exhaustive research, the Plan determined that there is a $929,405 difference between the
         working capital balance and the investment account balance as of September 30, 2012.
         The Plan determined that the difference occurred prior to 2004; however, documentation
         from that time frame is no longer available, so the Plan is unable to determine whether
         this variance is a result of excess corporate funds in the FEP account or funds due the
         Program. The Plan is determining within the contract language what the appropriate
         resolution for this unsupported imbalance, which dates back 10 years, should be.”




5
 In the Association’s initial draft report response (dated July 31, 2013), the Association stated that Excellus BCBS
agreed to return the questioned excess funds to the FEHBP by August 2013.
                                                          6
OIG Comments:

After reviewing the Association’s response and additional documentation provided by the
Association and/or BCBS plans, we revised the questioned amount from our draft report
to $1,331,300. For our revised questioned amount, we determined that the Association
agreed with the questioned excess funds of $401,895 for Highmark BCBS of West
Virginia, BCBS of Hawaii, and BCBS of Vermont. However, the Association is
continuing to review the questioned excess funds of $929,405 for Excellus BCBS.

The Association and/or Excellus BCBS did not provide a logical reason why Excellus
BCBS would actually maintain $929,405 in corporate funds in the dedicated FEP
investment account for 10 years or more. Excellus BCBS is responsible to account for all
funds in the FEP investment account. The FEP investment account normally consists of
the following funds: an approved working capital balance, approved LOCA drawdowns,
and FEP health benefit refunds and recoveries. If there are excess funds in this account,
the most likely reasons would be that Excellus BCBS deposited FEP health benefit
refunds and recoveries into the FEP investment account but did not return these funds to
the LOCA; inadvertently withdrew excess funds from the LOCA; and/or withdrew funds
from the LOCA to cover claim payments but then inadvertently did not transfer these
funds from the FEP investment account into a corporate account. Without documentation
supporting otherwise, we have to conclude that these excess funds in the plan’s dedicated
FEP investment account are actually FEHBP funds, and therefore, owed to the FEHBP.

Recommendation 1

For the uncontested amounts, we recommend the contracting officer verify that these
questioned excess funds of $401,895 were returned to the FEHBP (i.e., $390,871 by
Highmark BCBS of West Virginia; $7,467 by BCBS of Hawaii; and $3,557 by BCBS of
Vermont). (Note: Of these uncontested amounts, we have already verified that
Highmark BCBS of West Virginia and BCBS of Vermont returned $390,871 and $1,516,
respectively, to the FEHBP.)

Recommendation 2

We recommend that the contracting officer instruct Excellus BCBS to immediately return
the questioned excess funds of $929,405 to the FEHBP (unless the plan can provide
evidence or supporting documentation that these funds are not FEHBP funds).

Recommendation 3

We recommend that the contracting office require the Association to provide evidence or
supporting documentation ensuring that all BCBS plans are performing FEP investment
account reconciliations at least on a quarterly basis. We also recommend that the
contracting office require the Association to provide evidence or supporting
documentation ensuring that the BCBS plans are not maintaining and/or commingling the
plans’ corporate funds in the FEP investment accounts.

                                        7
2. Working Capital Deposits                                                         $143,898

   Based on our review of the BCBS plans’ working capital (WC) deposits, we determined
   that four BCBS plans (Arkansas, Idaho, Kansas, and Mississippi) did not maintain the
   correct WC amounts in the FEP investment accounts, resulting in these plans holding
   excess FEHBP funds of $139,740. Specifically, we found that these BCBS plans either
   held WC balances with excess amounts or held WC funds outside of the FEP investment
   accounts. As a result of this finding, the BCBS plans of Arkansas, Mississippi, and
   Kansas returned $137,666 to the FEHBP, consisting of $133,508 for WC funds and
   $4,158 for applicable LII. However, the Association did not address the questioned WC
   funds of $6,232 for BCBS of Idaho.

   “Letter of Credit System Guidelines” (dated May 2009), states: “Carriers should maintain
   a working capital balance equivalent to an average of 2 days of paid claims. The working
   capital fund should be established using federal funds. Carriers are required to monitor
   their working capital fund on a monthly basis and adjust if necessary on a quarterly basis.
   The interest earned on the working capital funds must be credited to the FEHBP at least
   on a monthly basis. The working capital is not required but strongly recommended.”

   For the period January 1, 2012 through September 30, 2012, we reviewed the WC
   calculations, adjustments and/or balances for a sample of 21 BCBS plans. Based on our
   review of these BCBS plans’ WC balances and supporting documentation, we determined
   that the following four BCBS plans did not maintain the correct WC balances in the FEP
   investment accounts as of September 30, 2012.

   •   For BCBS of Arkansas, we determined that the plan should have only maintained a
       WC balance of $215,938. However, the plan had a WC balance of $300,000.
       Therefore, the plan held a WC balance with an excess amount of $84,062 ($300,000
       minus $215,938) over the amount actually needed to meet the plan’s daily cash needs
       for FEHBP claim payments. (Note: As a result of this finding, BCBS of Arkansas
       returned the excess WC funds of $84,062 to the FEHBP.)

   •   For BCBS of Mississippi, we determined that the plan should have only maintained a
       WC balance of $125,202. However, the plan had a WC balance of $168,825.
       Therefore, the plan held a WC balance with an excess amount of $43,623 ($168,825
       minus $125,202) over the amount actually needed to meet the plan’s daily cash needs
       for FEHBP claim payments. (Note: As a result of this finding, BCBS of Mississippi
       returned the excess WC funds of $43,623 to the FEHBP.)

   •   For BCBS of Kansas, we determined that the plan correctly calculated the WC
       amount and properly withdrew the funds from the LOCA to maintain a WC balance
       of $430,085. However, the plan’s WC balance in the dedicated FEP investment
       account only totaled $424,262 as of September 30, 2012. Therefore, the WC deposit
       was underfunded by $5,823 ($430,085 minus $424,262) due to the plan not
       maintaining all of these funds in the FEP investment account. The Plan did not
       provide a reason for the WC shortage. However, the plan calculated LII of $4,158 on

                                            8
             these WC funds that were not maintained in the FEP investment account. We
             reviewed and accepted the plan’s LII calculation. (Note: As a result of this finding,
             BCBS of Kansas deposited $5,823 into the FEP investment account for the WC
             shortage and returned LII of $4,158 to the FEHBP.)

        •    For BCBS of Idaho, we determined that the plan correctly calculated the WC amount
             and properly withdrew the funds from the LOCA to maintain a WC balance of
             $400,000. However, the plan’s WC balance in the dedicated FEP investment account
             only totaled $393,768 as of September 30, 2012. Therefore, the WC deposit was
             underfunded by $6,232 ($400,000 minus $393,768) due to the plan not maintaining
             all of these WC funds in the FEP investment account. 6

        In total, we are questioning $143,898, consisting of $139,740 ($84,062 plus $43,623 plus
        $5,823 plus $6,232) for BCBS plans holding excess WC funds and/or not maintaining the
        correct WC amounts in the FEP investment accounts and $4,158 for applicable LII.

        Association’s Response:

        The Association agrees with the questioned excess WC funds of $43,623 that were held
        by BCBS of Mississippi and the questioned WC funds of $5,823 that were not
        maintained in an FEP investment account by BCBS of Kansas. The Association states
        that the BCBS plans of Mississippi and Kansas have returned these questioned amounts
        to the FEHBP. However, the Association disagrees with the questioned excess WC funds
        of $84,062 that were held by BCBS of Arkansas. (Note: The Association did not address
        the questioned WC funds of $5,823 for BCBS of Idaho.)

        Regarding the contested amount for BCBS of Arkansas, the Association states, “The Plan
        disagrees its working capital balance is overstated by $84,062. At the end of 2011, the
        Plan had a working capital balance of approximately $400,000, or 2% of the Plan’s Cost
        of Care. The additional funds were needed to ensure that FEP claims were paid during
        any situation that might arise and the Plan did not want to have overdrafts on a regular
        basis.” Although BCBS of Arkansas disagrees with the finding, the Association states
        that the plan returned the questioned amount to the FEHBP on April 25, 2013.

        OIG Comments:

        After reviewing the Association’s response and additional documentation provided by the
        Association and/or BCBS plans, we revised the questioned amount from our draft report
        to $143,898. For our revised questioned amount, we determined that the Association
        and/or BCBS plans agreed with $53,604, consisting of $43,623 for excess WC funds held

6
  For BCBS of Idaho, the balance in the FEP investment account totaled $1,859,309 as of September 30, 2012,
including $400,000 for the WC deposit. However, during the audit, the plan provided documentation supporting
that $1,465,541 of these funds in the FEP investment account were actually corporate funds. As a result, the plan
transferred $1,465,541 of the FEP investment account balance into the plan’s corporate account, leaving a balance of
$393,768 in the FEP investment account. Therefore, the WC deposit was underfunded by $6,232 ($400,000 minus
$393,768) in the FEP investment account.
                                                         9
   by BCBS of Mississippi; $5,823 for WC funds that were not maintained in an FEP
   investment account by BCBS of Kansas; and $4,158 for applicable LII on the WC funds
   that were not maintained in an FEP investment account by BCBS of Kansas. As part of
   our audit, we verified that the BCBS plans of Mississippi and Kansas returned these
   uncontested WC and LII amounts to the FEHBP. Additionally, although the Association
   disagreed with the questioned excess WC funds of $84,062 that were held by BCBS of
   Arkansas, we verified that the plan subsequently returned these funds to the FEHBP.

   Recommendation 4

   Since we verified that the excess WC funds of $127,685 ($84,062 by BCBS of Arkansas
   and $43,623 by BCBS of Mississippi) were returned to the FEHBP, no further action is
   required for this questioned amount.

   Recommendation 5

   We recommend that the contracting officer require BCBS of Idaho to deposit $6,232 into
   the FEP investment account to resolve the plan’s underfunded WC deposit.

   Recommendation 6

   Since we verified that BCBS of Kansas deposited $5,823 into the FEP investment
   account to resolve the plan’s underfunded WC deposit, no further action is required for
   this questioned amount.

   Recommendation 7

   Since we verified that BCBS of Kansas returned $4,158 to the FEHBP for LII on the
   underfunded WC deposit, no further action is required for this LII amount.

3. Treasury Offsets                                                                     $ 72,219

   During our review of LOCA drawdowns, we determined that BCBS of Rhode Island had
   not returned $71,644 to the FEHBP for offsets taken from the LOCA by the United States
   Treasury (Treasury) on December 28, 2011 and September 27, 2012. As a result of this
   finding, BCBS of Rhode Island returned $72,219 to the FEHBP, consisting of $71,644
   for Treasury offsets against the LOCA and $575 for applicable LII.

   Contract CS 1039, Part III, section 3.2 (b) (1) states, “The Carrier may charge a cost to
   the contract for a contract term if the cost is actual, allowable, allocable, and reasonable.”

   FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall
   bear simple interest from the date due. The interest rate shall be the interest rate
   established by the Secretary of the Treasury as provided in Section 611 of the Contract
   Disputes Act of 1978 (Public Law 95-563), which is applicable to the period in which the


                                             10
amount becomes due, as provided in paragraph (e) of this clause, and then at the rate
applicable for each six-month period as fixed by the Secretary until the amount is paid.”

The Treasury will occasionally recover non-FEHBP debts from BCBS plans by reducing
LOCA drawdowns made to the plans for FEHBP claim payments. If this occurs, the
BCBS plan should make the FEHBP whole by transferring funds into the FEP investment
account to replenish the funds that were taken.

During our review of LOCA drawdowns for a sample of 21 BCBS plans, we identified
two instances where the Treasury offset the BCBS of Rhode Island’s LOCA drawdowns
by a total of $71,644 on December 28, 2011 and September 27, 2012. We determined
that BCBS of Rhode Island did not withdraw additional funds from the LOCA to cover
the shortages caused by these Treasury offsets. However, we also determined that BCBS
of Rhode Island did not transfer funds into the FEP investment account to cover these
Treasury offsets, which left the FEP investment account short by $71,644.

Association’s Response:

The Association agrees with this finding and states that BCBS of Rhode Island returned
the questioned amount to the FEHBP on June 5, 2013.

OIG Comments:

The Association provided documentation supporting that BCBS of Rhode Island returned
$72,219 to the FEHBP, consisting of $71,644 for the Treasury offsets against the LOCA
and $575 for applicable LII. We reviewed and accepted the plan’s LII calculation.

Recommendation 8

Since we verified that the Plan returned $71,644 to the FEHBP for the Treasury offsets
against the LOCA, no further action is required for this questioned amount.

Recommendation 9

Since we verified that the Plan returned $575 to the FEHBP for LII on the Treasury
offsets against the LOCA, no further action is required for this LII amount.




                                        11
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

           , Auditor-In-Charge

                              , Auditor

             , Auditor

                , Auditor

             , Auditor


                  , Chief (

            , Senior Team Leader




                                          12
                                         V. SCHEDULE A

                             CASH MANAGEMENT ACTIVITIES
                         SAMPLE OF BLUECROSS BLUESHIELD PLANS

                                      QUESTIONED CHARGES

AUDIT FINDINGS                                             2011          2012       TOTAL


  1. Excess Funds in the FEP Investment Accounts
       Excellus BCBS                                              $0     $929,405     $929,405
       Highmark BCBS of West Virginia                              0      390,871      390,871
       BCBS of Hawaii                                              0        7,467        7,467
       BCBS of Vermont                                             0        3,557        3,557
     Total Excess Funds in the FEP Investment Accounts            $0   $1,331,300   $1,331,300

  2. Working Capital Deposits
      BCBS of Arkansas                                            $0     $84,062      $84,062
      BCBS of Mississippi                                          0      43,623       43,623
      BCBS of Kansas                                               0       9,981        9,981
      BCBS of Idaho                                                0       6,232        6,232
     Total Working Capital Deposits                               $0    $143,898     $143,898

  3. Treasury Offsets
       BCBS of Rhode Island                                $12,547       $59,672      $72,219
     Total Treasury Offsets                                $12,547       $59,672      $72,219


TOTAL QUESTIONED CHARGES                                   $12,547     $1,534,870   $1,547,417
                                                                                                 APPENDIX 


                                                                  BlueCross BhteShield
                                                                  Association
                                                                   An Association of Jndep eooent
O ctober 17 , 20 13                                                Blue Cross and Blue Shield Pl~m.s
                                                                   Federal Employee Program
                          , G roup Chief                           13 10 G Street:, N .W.
       rte                  Group                                  Washington, D.C. 20005
                                                                   202 .942. 1000
Office of the Inspector General                                    Fax 202.942.1 125
U .S . Office of Personnel Management
1900 E Street, Room 6400
Washington , DC 20415-11000


Reference: 	                 OPM DRAFT AUDIT REPORT
                             Focused Audit of Cash Management Activities
                             Audit Report Number 1A-99-00·13-018

Dear

This is the Blue Cross and Blue Shield Association's respo nse to the above referenced
U .S . Office of Personnel Management (OPM) Draft Audit Report covering the Federal
Employees' Health Benefits Program (FEHBP) health benefit refunds .

Our comments concerning the finding in the report are as follows:

1.    Excess FEHBP Funds In The FEP Investment Accounts                            $2,689,775



      Deleted by the Office of the Inspector General - Not Relevant to the F ina l
      Report




     Excell us BCBS 	                                                              $844,802

     After exh austive research , the Plan determined that there is a $929,405 difference
     between the working capita l balance and the investment account balance as of
     Septembe r 30 , 201 2. The Plan determined that the difference occurred prior to
     2004: however. documentation from that t ime frame is no longer available, so the
     Plan is unable to determine whether this v ariance is a resu lt of excess corporate
Page 2 of 4

   fu nds in the FEP account or funds due the Program. The Plan is determining
   within the contract language what the appropriate resolution for this unsupported
   imbalance , which dates back 10 yea rs, should be.

   Highmark West VA                                                       $406,027

   The Plan contests the OIG recommendation and does not agree that $1 5,156 is
   owed to the Program. BCBSA provided backup documentation to the OIG
   confirming all adjustments to the investment account have been completed as of
   April 2 , 2013 or prior.

   The Plan provided the attached schedule to BCBSA on June 1, 2013 in support of its
   response and it is included for you r review as part of the Draft Report Response.

   Blue Cross Blue Shield of Hawaii                                       $7,467

   The Plan has completed a review of available documentation that dates back to
   2002 and was unable to reconcile the difference between the working capital and the
   investment account balances as of September 30, 2012. As a result, the Pla n has
   approved the return of $7,467 to the Program . The Plan submitted a Special Plan
   Invoice to return the funds to the Program .

   Blue Cross Blue Shield of Vermont                                      $3,557

   The Plan agreed with $1 ,516 of the $3 ,557 questioned amount and the funds were
   returned to the Program on November 9, 2012 . The Plan was unable to reconcile
   the remaining difference between the working capita l and the investment account of
   $2,041 ; however, due to the immaterial amount, the Plan agreed to return the funds
   to the Program. The Plan submitted a Special Plan Invoice to return the funds to the
   Program.

2. Working Capital                                                        $133,508

   Blue Cross Blue Shield of Arkansas                                     $84,062

   The Plan disagrees its working capital balance is overstated by $84 ,062 . At the end
   of 2011 , the Plan had a working capital balance of approximately $400,000 , or 2% of
   the Plan's Cost of Care. The additional funds were needed to ensure that FEP
   claims were paid during any situation that might arise and the Plan did not want to
   have overdrafts on a regular basis.
Page 3 of4

     Although, the Plan does not agree with the OIG finding, the Plan returned the funds
     to the Program on April 25, 2013.

     Blue Cross Blue Shield of Mississippi                                   $43,623

     The Plan agrees that the amount of $43, 623 was in excess of the amount needed to
     meet the Plan's daily cash needs for FEP claim payments, as approved by the
     FEPDO. The excess was maintained to alleviate overdraft situations related to claim
     check clearings . As payments to providers and subscribers are made three times a
     month, it was not possible to determine which checks would clear on a particular
     day. The Plan returned the funds via an approved Special Plan Invoice (SPI)
     adjustment to the daily LOCA draw request on May 3, 2013.

     With approval from the FEPDO Financial Policy area, the Plan revised its business
     processes for requesting additional working capital funds . The need for an additional
     amount is monitored on a quarterly basis by comparing the additional amount to the
     current FEP outstanding check list. If additional funds are needed, the amount is
     requested through the LOCA Draw and returned immediately if not needed.

     Blue Cross Blue Shield of Kansas                                        $5,823

     The Plan agreed with the finding and completed the return of funds to the Program
     on June 10, 2013.

3.   Treasury Offsets                                                        $72,101

     The Blue Cross Blue Shield of Rhode Island Plan agreed with the finding and
     completed the returned of the funds to the Program on June 5, 2013.




      Deleted by the Office of the Inspector General - Not Relevant to tht Final
      Report
Page 4 of 4

We appreciate the opportunity to provide our response to this Draft Aud it Report and
request that our comments be included in their entirety as an amendment to the Final
Audit Report.

Sincerely,




               CISA


Attachment