oversight

Audit of BlueShield of California Access+ HMO San Francisco, California

Published by the Office of Personnel Management, Office of Inspector General on 2018-02-28.

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

     CE OF PERSONNEL MANAGEMENT
OFFICE OF THE INSPECTOR GENERAL
        OFFICE OF AUDITS




 Final Audit Report

              AUDIT OF
BLUESHIELD OF CALIFORNIA ACCESS+ HMO
     SAN FRANCISCO, CALIFORNIA

        Report Number 1D-SI-00-17-022
               February 28, 2018
               EXECUTIVE SUMMARY
                             Audit of BlueShield of California Access+ HMO

Report No. 1D-SI-00-17-022                                                                         February 28, 2018



 Why did we conduct the audit?            What did we find?

 We conducted this limited scope audit    We questioned $4,908,939 in health benefit refunds and recoveries,
 to obtain reasonable assurance that      administrative expenses, cash management activities, and lost
 BlueShield of California Access+         investment income (LII). We also identified a procedural finding
 HMO (Plan), doing business as            regarding the Plan’s Fraud and Abuse Program. The Plan agreed with
 BlueShield of California, is complying   all of the questioned amounts as well as the procedural finding for the
 with the provisions of the Federal       Plan’s Fraud and Abuse Program.
 Employees Health Benefits Act and
 regulations that are included, by        Our audit results are summarized as follows:
 reference, in the Federal Employees      x   Health Benefit Refunds and Recoveries – We questioned
 Health Benefits Program (FEHBP)
                                              $3,299,254 for pharmacy drug rebates, medical drug rebates, and
 contract. The objectives of our audit
                                              vendor credit recoveries that had not been returned to the FEHBP
 were to determine if the Plan charged
                                              and $177,023 for LII on rebates and recoveries that were returned
 costs to the FEHBP and provided
 services to FEHBP members in                 untimely to the FEHBP. We verified that the Plan has returned
 accordance with the terms of the             these questioned amounts to the FEHBP.
 contract.                                x   Administrative Expenses – We questioned $1,208,543 in
 What did we audit?                           administrative expenses and applicable LII, consisting of
                                              $832,571 for unallocable expenses related to BlueShield of
 Our audit covered the Plan’s health          California’s Shield Advance project, $351,064 for unallowable
 benefit refunds and recoveries,              and/or unallocable cost center expenses, and $24,908 for
 including pharmacy and medical drug          applicable LII. We verified that the Plan has returned $291,373
 rebates, from 2012 through September         of these questioned amounts to the FEHBP.
 2016, and administrative expenses from
 2011 through 2015. We also reviewed      x   Cash Management – We determined that the Plan held an excess
 the Plan’s cash management activities        working capital deposit of $200,392 in the dedicated FEHBP
 and practices related to FEHBP funds         investment account. We also questioned $20,774 for United
 from 2012 through September 2016,            States Treasury offsets, $1,979 for applicable LII on these offsets,
 and the Plan’s Fraud and Abuse               and $974 for investment income earned on funds held in the
 Program from 2015 through September          dedicated investment account that had not been returned to the
 2016. Due to concerns with the Plan’s        FEHBP. We verified that the Plan has returned $23,727 of these
 vendor credit recoveries, we expanded        questioned amounts to the FEHBP.
 our scope to also include these
 recoveries from October 2016 through     x   Fraud and Abuse Program – The Plan is not in compliance with
 June 2017
  une 20117..                                 the communication and reporting requirements for fraud and
                                              abuse cases that are set forth in FEHBP Carrier Letter 2014-29.

  _______________________
  Michael R. Esser
  Assistant Inspector General
  for Audits                                          i
                 ABBREVIATIONS


CFR        Code of Federal Regulations
CL         Carrier Letter
Company    BlueShield of California
EFT        Electronic Funds Transfer
FAR        Federal Acquisition Regulations
FEHB       Federal Employees Health Benefits
FEHBAR     Federal Employees Health Benefits Acquisition Regulations
FEHBP      Federal Employees Health Benefits Program
HMO        Health Maintenance Organization
LII        Lost Investment Income
LOCA       Letter of Credit Account
OIG        Office of the Inspector General
OPM        U.S. Office of Personnel Management
Plan       BlueShield of California Access+ HMO
Treasury   United States Treasury




                                    ii
	
                        TABLE OF CONTENTS

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


       ABBREVIATIONS ..................................................................................................... ii 


I.     BACKGROUND ..........................................................................................................1 


II.    OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................3 


III.   AUDIT FINDINGS AND RECOMMENDATIONS.................................................8 


       A. HEALTH BENEFIT REFUNDS AND RECOVERIES .........................................8 


            1. Pharmacy and Medical Drug Rebates ................................................................8 

            2. Vendor Credit Recoveries................................................................................12 


       B. ADMINISTRATIVE EXPENSES.........................................................................14
	

            1. Shield Advance Project....................................................................................14 

            2. Unallowable and/or Unallocable Cost Centers ................................................16 


       C. CASH MANAGEMENT .......................................................................................18
	

            1. Excess Working Capital Deposit .....................................................................18 

            2. Treasury Offsets...............................................................................................20 

            3. Investment Income...........................................................................................22 


       D. FRAUD AND ABUSE PROGRAM .....................................................................23
	

            1. Special Investigations Unit ..............................................................................23 


IV.    SCHEDULE A – QUESTIONED CHARGES

       APPENDIX: BlueShield of California Access+ HMO Draft Report Response, dated
       December 1, 2017

       REPORT FRAUD, WASTE, AND MISMANAGEMENT
                                  I. BACKGROUND

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
BlueShield of California Access+ HMO (Plan), doing business as BlueShield of California
(Company). The Plan is located in San Francisco, California.

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

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 Plan is an experience-rated health maintenance organization (HMO) that provides health
benefits to Federal enrollees and their families.1 Enrollment is open to all federal employees and
annuitants in the Plan’s service area, which includes most of Southern California.

The Plan’s contract (CS 2639) with OPM is experience-rated. Thus, the costs of providing
benefits in the prior year, including underwritten gains and losses that have been carried forward,
are reflected in current and future years’ premium rates. In addition, the contract provides that in
the event of termination, unexpended program funds revert to the FEHBP Trust Fund. In
recognition of these provisions, the contract requires that an accounting of program funds be
submitted at the end of each contract year. The accounting is made on a statement of operations
known as the Annual Accounting Statement.

Compliance with laws and regulations applicable to the FEHBP is the responsibility of the Plan’s
management. In addition, management of the Plan is responsible for establishing and
maintaining a system of internal controls.




1
 Members of an experience-rated HMO plan have the option of using a designated network of providers or using
out-of-network providers. A member’s choice in selecting one healthcare provider over another has monetary and
medical implications. For example, if a member chooses an out-of-network provider, the member will pay a
substantial portion of the charges and covered benefits may be less comprehensive.

                                                        1                     Report No. 1D-SI-00-17-022 

    All findings from our prior audit of the Plan (Report No. 1D-SJ-09-021, dated June 9, 2009),
    covering contract years 2003 through 2007, have been satisfactorily resolved.

    The results of this audit were provided to the Plan in written audit inquiries; were discussed with
    Plan officials throughout the audit and at an exit conference on September 12, 2017; and were
    presented in detail in a draft report, dated October 17, 2017. The Plan’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.




                                                     2                    Report No. 1D-SI-00-17-022


.
II. OBJECTIVES, SCOPE, AND METHODOLOGY

OBJECTIVES

The objectives of our audit were to determine whether the Plan charged costs to the FEHBP and
provided services to FEHBP members in accordance with the terms of the contract. Specifically,
our objectives were as follows:

       Health Benefit Refunds and Recoveries

       x	 To determine whether health benefit refunds and recoveries, including pharmacy and
          medical drug rebates, were returned timely to the FEHBP.

       Administrative Expenses

       x	 To determine whether administrative expenses charged to the contract were actual,
          allowable, necessary, and reasonable expenses incurred in accordance with the terms
          of the contract and applicable regulations.

       Cash Management

       x	 To determine whether the Plan handled FEHBP funds in accordance with applicable
          laws and regulations concerning cash management in the FEHBP.

       Fraud and Abuse Program

       x	 To determine whether the Plan's communication and reporting of fraud and abuse
          cases complied with the terms of Contract CS 2639 and Carrier Letter 2014-29.

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 objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objectives.




                                                3		                Report No. 1D-SI-00-17-022 

We reviewed the Plan’s Annual Accounting Statements for contract years 2011 through 2015.
During this period, the Plan paid approximately $547 million in FEHBP health benefit payments
and charged the FEHBP $33 million in administrative expenses.


                                  BlueShield of California Access+ HMO
                                            Contract Charges

                                 150
                                 125
                                 100
                    $ Millions




                                 75
                                 50
                                 25
                                   0
                                        2011      2012      2013       2014     2015
                                                         Contract Years
                                       Health Benefit Payments     Administrative Expenses


Specifically, we reviewed health benefit refunds and recoveries (e.g., cash and auto recoupment
refunds, vendor credit recoveries, and pharmacy and medical drug rebates) and the Plan’s cash
management activities and practices from 2012 through September 30, 2016, as well as
administrative expenses from 2011 through 2015. We also reviewed the Plan’s Fraud and Abuse
Program activities and practices from 2015 through September 30, 2016. Due to concerns with
the Plan’s vendor credit recoveries, we expanded our scope to also include these recoveries from
October 1, 2016, through June 30, 2017.

In planning and conducting our audit, we obtained an understanding of the Plan’s internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
determined to be the most effective approach to select areas of audit. For those areas selected,
we primarily relied on substantive tests of transactions and not tests of controls. Based on our
testing, we did not identify any significant matters involving the Plan’s internal control structure
and its operations. However, since our audit would not necessarily disclose all significant
matters in the internal control structure, we do not express an opinion on the Plan’s system of
internal controls taken as a whole.

We also conducted tests to determine whether the Plan had complied with the contract, the
applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws

                                                           4                     Report No. 1D-SI-00-17-022 

and regulations governing the FEHBP. The results of our tests indicate that, with respect to the
items tested, the Plan did not comply with all provisions of the contract and federal procurement
regulations. Exceptions noted in the areas reviewed are set forth in detail in the "Audit Findings
and Recommendations" section of this audit report. With respect to the items not tested, nothing
came to our attention that caused us to believe that the Plan had not complied, in all material
respects, with those provisions.

In conducting our audit, we relied to varying degrees on computer-generated data provided by
the Plan. 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, nothing came to our attention to cause us to doubt its reliability. We believe
that the data was sufficient to achieve our audit objectives.

The audit was performed at the Plan’s office in San Francisco, California on various dates from
April 4, 2017, through June 23, 2017. Audit fieldwork was also performed at our offices in
Cranberry Township, Pennsylvania; Jacksonville, Florida; and Washington, D.C. through
September 12, 2017. Throughout the audit process, the Plan did an excellent job providing
complete and timely responses to our numerous requests for supporting documentation. We
greatly appreciated the Plan’s cooperation and responsiveness during the pre-audit and fieldwork
phases of this audit.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s financial, cost accounting,
and cash management systems by inquiry of Plan officials.

We interviewed Plan personnel and reviewed the Plan’s policies, procedures, and accounting
records during our audit of health benefit refunds and recoveries. For the period 2012 through
September 30, 2016, we also judgmentally selected and reviewed the following FEHBP items:

   Health Benefit Refunds

   x   A high dollar sample of 25 health benefit refunds returned via auto recoupments, totaling
       $2,350,246 (from a universe of 201 refunds returned via auto recoupments, totaling
       $4,405,612). Our high dollar sample included the five highest auto recoupment amounts
       from each year in the audit scope.




                                                  5                   Report No. 1D-SI-00-17-022 

    x	 A high dollar sample of 10 refund summary deposits, totaling $494,507 (from a universe
       of 212 refund summary deposit amounts, totaling $1,190,391).2 Our high dollar sample
       included the 10 highest refund summary deposit amounts during the audit scope.

    Other Health Benefit Credits and Recoveries

    x	 All 20 pharmacy drug rebate amounts, totaling $8,991,718, for the audit scope.

    x	 13 high dollar vendor credit recoveries (i.e., received by the Plan from provider audit
       and/or subrogation vendors), totaling $311,373, from a universe of 120 credit recoveries,
       totaling $398,912, from September 2015 through September 2016. For this sample, we
       judgmentally selected all vendor credit recoveries of $5,000 or more. Since we identified
       that the Plan had not returned these recoveries to the FEHBP, we expanded our review to
       include all vendor credit recoveries that the Plan had received from January 2012 through
       August 2015 and October 2016 through June 30, 2017.

    x	 23 medical drug rebate amounts, totaling $128,806, from a universe of 50 medical drug
       rebate amounts, totaling $150,463. For this sample, we judgmentally selected all medical
       drug rebate amounts of $2,000 or more for the audit scope.

We reviewed these samples to determine if health benefit refunds, vendor credit recoveries, and
pharmacy and medical drug rebates were timely returned to the FEHBP. Since we did not use
statistical sampling, the results of these samples were not projected to the applicable universes.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2011 through 2015. Specifically, we reviewed administrative expenses relating to cost centers
and natural accounts.3 We used the FEHBP contract, the FAR, and the FEHBAR to determine
the allowability, allocability, and reasonableness of charges.


2
  Each of these summary deposits usually included numerous health benefit refund cash receipt amounts.
3
  In general, the Plan records administrative expense transactions to natural accounts that are then allocated through
cost centers to the Plan’s various lines of business, including the FEHBP. The Plan allocated administrative
expenses of $36,848,581 to the FEHBP from 647 cost centers that contained 250 natural accounts. From this
universe, we selected a judgmental sample of 56 cost centers to review, which totaled $17,016,290 in expenses
allocated to the FEHBP. We also selected a judgmental sample of 38 natural accounts to review, which totaled
$8,530,089 in expenses allocated to the FEHBP through the cost centers. Because of the way we select and review
each of these samples, there is a duplication of some of the administrative expenses tested. We selected these cost
centers based on high dollar amounts, high dollar allocation methods, and our nomenclature review and trend
analysis. The natural accounts were only selected based on a nomenclature review. We reviewed the expenses from
these cost centers and natural accounts for allowability, allocability, and reasonableness. The results of these
samples were not projected to the universe of administrative expenses, since we did not use statistical sampling.


                                                           6		                    Report No. 1D-SI-00-17-022 

We reviewed the Plan’s cash management activities and practices to determine whether the Plan
handled FEHBP funds in accordance with Contract CS 2639 and applicable laws and regulations.
Specifically, we reviewed letter of credit account (LOCA) drawdowns, working capital
calculations, adjustments and/or balances, United States Treasury (Treasury) offsets, and interest
income transactions from 2012 through September 30, 2016, as well as the Plan’s dedicated
FEHBP investment account balance as of September 30, 2016.

We also interviewed the Plan’s Special Investigations Unit regarding the effectiveness of the
Fraud and Abuse Program, as well as reviewed the Plan’s communication and reporting of fraud
and abuse cases to test compliance with Contract CS 2639 and FEHBP Carrier Letter 2014-29.




                                                7                   Report No. 1D-SI-00-17-022 

III. AUDIT FINDINGS AND RECOMMENDATIONS

 A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

   1. Pharmacy and Medical Drug Rebates                                                 $2,107,281

      Our audit determined that the Plan had not returned pharmacy and medical drug rebates,
      totaling $2,000,113, to the FEHBP as of September 30, 2016. The Plan subsequently
      returned these rebates to the FEHBP in November 2016, March 2017 and August 2017,
      from 58 to 1,120 days late and after receiving our audit notification letter. Additionally,
      the Plan untimely returned pharmacy and medical drug rebates, totaling $7,208,829, to
      the FEHBP during the audit scope. As a result, we are questioning $2,107,281 for this
      audit finding, consisting of $2,000,113 for the questioned pharmacy and medical drug
      rebates and $107,168 for lost investment income (LII) on pharmacy and medical drug
      rebates returned untimely to the FEHBP.

      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 2639, Part II, Section 2.3 (i) states, “All health benefit refunds and
      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.”

      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 41 U.S.C. 7109, which is
      applicable to the period in which the 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.”

      Regarding reportable monetary findings, Contract CS 2639, Part III, section 3.16 (a),
      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
      already identified and corrected (i.e., . . . untimely health benefit refunds were already
      processed and returned to the FEHBP) prior to audit notification.”



                                                 8                   Report No. 1D-SI-00-17-022 

                                    The Plan coordinates pharmacy benefits as the
     The Plan returned
                                    pharmacy benefit manager and negotiates pharmacy
   pharmacy and medical
                                    drug rebate programs with various drug manufacturers.
 drug rebates of $2,000,113
                                    The Plan also participates in medical drug rebate
 to the FEHBP from 58 to
                                    programs with various drug manufacturers. Both
  1,120 days late and after
                                    pharmacy and medical drug rebates are determined
     receiving our audit
                                    based on claims for the applicable drugs received
      notification letter.
                                    through the Plan’s pharmacy benefit program or drugs
administered in a physician’s office. Pharmacy and medical drug rebates are received
multiple times a year (usually on a quarterly basis) by the Plan and credited to the
participating groups, including the FEHBP. Prior to July 2013, the Plan allocated and
returned pharmacy and medical drug rebates to the FEHBP right after receiving the
individual rebates. Starting in July 2013, the Plan began waiting to receive all of the
applicable rebates for a particular quarter before allocating and returning those rebate
amounts to the FEHBP. This process change inherently causes the Plan to return the
pharmacy and medical drug rebates untimely to the FEHBP.

Pharmacy Drug Rebates

For the period 2012 through September 30, 2016, the Plan received 20 pharmacy drug
rebate amounts, totaling $562,738,199, for all participating groups. The Plan allocated
$8,991,718 of these pharmacy drug rebate amounts to the FEHBP. We selected and
reviewed all of the FEHBP pharmacy drug rebate amounts to determine if the Plan
properly allocated and timely returned these rebate amounts to the FEHBP. Based on our
review, we identified the following exceptions:

x	 The Plan had not returned three pharmacy drug rebate amounts, totaling $1,898,421,
   to the FEHBP as of September 30, 2016. The Plan subsequently returned these rebate
   amounts to the FEHBP from 136 to 973 days late, after receiving our audit
   notification letter and/or because of our audit. Therefore, we are questioning this
   amount as a monetary finding as well as $37,459 for LII on these pharmacy drug
   rebates returned untimely to the FEHBP.

x	 The Plan returned 17 pharmacy drug rebate amounts, totaling $7,093,296, untimely to
   the FEHBP during the audit scope. Specifically, we noted that the Plan deposited
   these rebate amounts into the FEHBP investment account from 29 to 1,084 days late,
   before returning these funds to the LOCA. As a result, we are questioning $67,918
   for LII on these pharmacy drug rebates returned untimely to the FEHBP.



                                         9		                Report No. 1D-SI-00-17-022 

Additionally, when reconciling the total FEHBP pharmacy drug rebates for the audit
scope ($8,991,718) to the total pharmacy drug rebates returned to the FEHBP by the Plan
via LOCA drawdown adjustments ($8,934,362), we identified a variance of $57,356
related to portions of multiple rebate amounts that were inadvertently not returned to the
FEHBP. As a result, the Plan returned this variance of $57,356 to the FEHBP.

In total, the Plan returned $2,061,154 to the FEHBP for these pharmacy drug rebate
exceptions, consisting of $1,955,777 ($1,898,421 plus $57,356) for the questioned
pharmacy drug rebates and $105,377 for applicable LII on the rebates returned untimely
to the FEHBP.

Medical Drug Rebates

For the period 2012 through September 30, 2016, the Plan received 50 FEHBP medical
drug rebate amounts, totaling $150,463, from various drug manufacturers. This universe
consisted of individual medical rebate amounts as well rebate amounts that were grouped
quarterly. From this universe, we judgmentally selected and reviewed 23 medical drug
rebate amounts, totaling $128,806, to determine if the Plan timely returned these rebate
amounts to the FEHBP. Our sample included all FEHBP medical drug rebate amounts of
$2,000 or more. Based on our review, we identified the following exceptions:

x	 The Plan had not returned three medical drug rebate amounts, totaling $36,489, to the
   FEHBP. The Plan subsequently returned these rebates to the FEHBP from 58 to
   1,120 days late, after receiving our audit notification letter and/or because of our
   audit. Therefore, we are questioning this amount as a monetary finding as well as
   $1,147 for LII on these medical drug rebates returned untimely to the FEHBP.

x	 The Plan had not completely returned four medical drug rebate amounts, totaling
   $7,847, which the Plan then returned to the FEHBP.

x	 The Plan returned 19 medical drug rebate amounts, totaling $115,533, untimely to the
   FEHBP during the audit scope. Specifically, we noted that the Plan deposited these
   rebate amounts into the FEHBP investment account from 8 to 286 days late, before
   returning these funds to the LOCA. As a result, we are questioning $644 for LII on
   these medical drug rebates returned untimely to the FEHBP.

In total, the Plan returned $46,127 to the FEHBP for these medical drug rebate
exceptions, consisting of $44,336 ($36,489 plus $7,847) for the questioned medical drug
rebates and $1,791 for applicable LII on the rebates returned untimely to the FEHBP.

                                         10		                Report No. 1D-SI-00-17-022 

Plan Response:

The Plan agrees with this finding.

OIG Comment:

As part of our review, we verified that the Plan returned $2,107,281 to the FEHBP on
various dates in November 2016 through September 2017, consisting of $2,000,113
($1,955,777 plus $44,336) for the questioned pharmacy and medical drug rebates and
$107,168 ($105,377 plus $1,791) for applicable LII.

Recommendation 1

We recommend that the contracting officer require the Plan to return $2,000,113 to the
FEHBP for the questioned pharmacy and medical drug rebates. However, since we
verified that the Plan returned $2,000,113 to the FEHBP for these questioned pharmacy
and medical drug rebates, no further action is required for this amount.

Recommendation 2

We recommend that the contracting officer require the Plan to return $107,168 to the
FEHBP for the questioned LII on the pharmacy and medical drug rebates that were
returned untimely to the FEHBP. However, since we verified that the Plan returned
$107,168 to the FEHBP for the questioned LII, no further action is required for this LII
amount.

Recommendation 3

We recommend that the contracting officer require the Plan to provide evidence or
supporting documentation demonstrating that the Plan has implemented the necessary
corrective actions to ensure that pharmacy and medical drug rebates are timely returned
to the FEHBP.




                                         11                  Report No. 1D-SI-00-17-022 

2. Vendor Credit Recoveries                                                        $1,368,996
	

   Our audit determined that the Plan had not returned vendor credit recoveries, totaling
   $1,299,141, to the FEHBP as of June 30, 2017. The Plan subsequently returned these
   recoveries to the FEHBP in August 2017. As a result, we are questioning $1,368,996 for
   this audit finding, consisting of $1,299,141 for these previously unreturned vendor credit
   recoveries and $69,855 for LII on these recoveries returned untimely to the FEHBP.

   As previously cited from Contract CS 2639, all health benefit refunds and recoveries
   must be deposited into the FEHBP investment account within 30 days and returned to the
   FEHBP within 60 days after receipt by the Carrier.

   As previously cited from FAR 52.232-17(a), all amounts that become payable by the
   Carrier should include simple interest from the date due.

   For the period September 2015 through September 2016, the Plan provided us a listing of
   120 vendor credit recoveries, totaling $398,912, which were received from subrogation
   and provider audit recovery vendors. Although we initially requested the Plan to provide
   us a complete universe for the period 2012 through September 2016, the Plan informed
   us that vendor credit recoveries were not tracked prior to September 2015. Therefore,
   from the Plan’s partial universe, we selected a judgmental sample of 13 vendor credit
   recoveries, totaling $311,373, to determine if the Plan timely returned these recoveries to
   the FEHBP. Our sample included all vendor credit recoveries of $5,000 or more. Based
   on our review, we determined that the Plan had not returned the vendor credit recoveries
   from the partial universe, totaling $398,912, to the FEHBP. As a result of our finding,
   the Plan returned these recoveries of $398,912 to the FEHBP in August 2017.

   As previously noted, the Plan had not tracked the FEHBP vendor credit recoveries from
   2012 through August 2015. Since the Plan held contracts with subrogation and provider
   audit vendors throughout this period, we generally concluded that the Plan had not
   returned vendor credit recoveries during this period either. Therefore, we estimated the
   financial impact of these potentially unreturned FEHBP recoveries for the period 2012
   through August 2015, based on a monthly average using the available data from
   September 2015 through September 2016. Based on our analysis, we determined that the
   Plan potentially owed the FEHBP $1.3 million in vendor credit recoveries for the period
   2012 through August 2015. In response to our analysis, the Plan provided documentation
   to support that the Plan actually received $682,186 in FEHBP vendor credit recoveries
   during this period. Based on our review of this documentation, we agreed with the Plan’s



                                            12                  Report No. 1D-SI-00-17-022 

total amount for these vendor credit recoveries. As a result of our finding, the Plan also
returned these recoveries of $682,186 to the FEHBP in August 2017.

Due to this oversight by the Plan, we expanded our audit scope to also include the vendor
credit recoveries received by the Plan from October 2016 through June 2017. For this
period, we determined that the Plan had not returned vendor credit recoveries, totaling
$218,043, to the FEHBP. As a result of our finding, the Plan also returned these
recoveries of $218,043 to the FEHBP in August 2017.

                                     In total, the Plan returned $1,368,996 to the FEHBP
      Our audit identified
                                     for this audit finding, consisting of $1,299,141
   unreturned vendor credit
                                     ($398,912 plus $682,186 plus $218,043) for the
       recoveries, totaling
                                     questioned vendor credit recoveries and $69,855 for
   $1,299,141, which the Plan
                                     applicable LII (as calculated by the Plan) on these
 then returned, along with LII
                                     recoveries returned untimely to the FEHBP. We
   of $69,855, to the FEHBP.
                                     reviewed and accepted the Plan’s LII calculation.

Plan Response:

The Plan agrees with this finding.

OIG Comment:

As part of our review, we verified that the Plan returned $1,368,996 to the FEHBP in
August and September of 2017, consisting of $1,299,141 for the questioned vendor credit
recoveries and $69,855 for applicable LII.

Recommendation 4

We recommend that the contracting officer require the Plan to return $1,299,141 to the
FEHBP for the questioned vendor credit recoveries. However, since we verified that the
Plan returned $1,299,141 to the FEHBP for these questioned vendor credit recoveries, no
further action is required for this amount.




                                          13                  Report No. 1D-SI-00-17-022 

     Recommendation 5

     We recommend that the contracting officer require the Plan to return $69,855 to the
     FEHBP for the questioned LII on the vendor credit recoveries that were returned
     untimely to the FEHBP. However, since we verified that the Plan returned $69,855 to the
     FEHBP for the questioned LII, no further action is required for this LII amount.

     Recommendation 6

     We recommend that the contracting officer require the Plan to provide evidence or
     supporting documentation demonstrating that the Plan has implemented the necessary
     corrective actions to ensure that vendor credit recoveries are returned timely to the
     FEHBP.

B. ADMINISTRATIVE EXPENSES

  1. Shield Advance Project                                                             $857,479

     The Plan charged unallocable cost center expenses to the FEHBP in 2012 and 2013
     related to the Company’s Shield Advance project. This Shield Advance project was for
     an extensive, multi-year implementation of the Plan Facets™ Claims System.
     Specifically, the Plan overcharged the FEHBP $316,187 in 2012 and $516,384 in 2013
     for these unallocable cost center expenses. As a result of this finding, the Plan returned
     $291,373 to the FEHBP, consisting of $266,465 of the questioned cost center expenses
     and $24,908 for applicable LII.

     Contract CS 2639, 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.”

     48 CFR 31.201-4 states, “A cost is allocable if it is assignable or chargeable to one or
     more cost objectives on the basis of relative benefits received or other equitable
     relationship. Subject to the foregoing, a cost is allocable to a Government contract if it -
         (a) Is incurred specifically for the contract;
         (b) Benefits both the contract and other work, and can be distributed to them in
             reasonable proportion to the benefits received; or
         (c) Is necessary to the overall operation of the business, although a direct relationship
             to any particular cost objective cannot be shown.”




                                               14                  Report No. 1D-SI-00-17-022 

As previously cited from FAR 52.232-17(a), all amounts that become payable by the
Carrier should include simple interest from the date due.

While concurrently doing an audit of the Company’s Federal Employee Program product,
we noted that the Company’s Shield Advance costs in 2012 and 2013 did not benefit the
FEHBP (unallocable). For that product, we also noted that the Company did not charge
the FEHBP for the cost center expenses related to this project for those years. To also
ensure that the Company did not charge these 2012 and 2013 Shield Advance costs to the
FEHBP for the BlueShield of California Access+ HMO product, we reviewed the Plan’s
cost center listings to determine if the Plan properly excluded these expenses from the
costs charged to the FEHBP.


     The Plan charged              Based on our review of the Plan’s cost center listings,
 $832,571 to the FEHBP in          we determined that the Plan inappropriately allocated
  2012 and 2013 for Shield         and charged $832,571 in administrative expenses to the
 Advance project costs that        FEHBP from 128 cost centers related to the Shield
     were unallocable.             Advance project. As a result of this finding, the Plan
                                   returned $291,373 to the FEHBP, consisting of
$266,465 of the questioned cost center expenses and $24,908 for applicable LII (as
calculated by the Plan). We reviewed and accepted the Plan’s LII calculation. We also
verified that the Plan returned these specific amounts to the FEHBP.

Plan Response:

The Plan agrees with this finding.

OIG Comment:

As part of our review, we verified that the Plan had a total of $566,106 in unreimbursed
allowable costs, consisting of $136,187 in 2012 and $429,919 in 2013. Therefore, the
Plan is not actually required to return $566,106 of the questioned cost center expenses to
the FEHBP. However, the Plan is required to make accounting adjustments for these
questioned amounts to reduce the filed costs for 2012 and 2013. Since there is no impact
on the amount charged to the FEHBP, no LII calculation is necessary on this amount of
the audit finding. Additionally, we verified that the Plan returned the remaining
questioned cost center expenses of $266,465 ($832,571 minus $566,106) to the FEHBP
as well as applicable LII of $24,908.




                                         15                  Report No. 1D-SI-00-17-022 

   Recommendation 7

   We recommend that the contracting officer disallow $832,571 for the questioned Shield
   Advance project cost center expenses charged to the FEHBP in 2012 and 2013.
   However, since we verified that the Plan returned $266,465 of these questioned expenses
   to the FEHBP, the contracting officer only needs to ensure that the Plan makes the
   appropriate accounting adjustments of $832,571 (i.e., $316,187 for 2012 and $516,384
   for 2013) to properly reduce the filed administrative expenses for 2012 and 2013.

   Recommendation 8

   We recommend that the contracting officer require the Plan to return $24,908 to the
   FEHBP for LII on the questioned cost center expenses. However, since we verified that
   the Plan returned $24,908 to the FEHBP for the questioned LII, no further action is
   required for this LII amount.

2. Unallowable and/or Unallocable Cost Centers                                        $351,064

   The Plan charged unallowable and/or unallocable cost center expenses of $351,064 to the
   FEHBP from 2011 through 2015.

   As previously cited from Contract CS 2639, costs charged to the FEHBP must be actual,
   allowable, allocable, and reasonable.

   48 CFR 31.205-1(a) states that public relations “means all functions and activities
   dedicated to . . . Maintaining, protecting, and enhancing the image of a concern or its
   products . . . .” 48 CFR 31.205-1(f) states, “Unallowable public relations and advertising
   costs include . . . All public relations and advertising costs . . . whose primary purpose is
   to promote the sale of products or services by stimulating interest in a product or product
   line . . . or by disseminating messages calling favorable attention to the contractor for
   purposes of enhancing the company image to sell the company’s products or services.”

   As previously cited from FAR 52.232-17(a), all amounts that become payable by the
   Carrier should include simple interest from the date due.

   For the period 2011 through 2015, the Plan allocated administrative expenses of
   $36,848,581 (before adjustments) to the FEHBP from 647 cost centers. From this
   universe, we selected a judgmental sample of 56 cost centers to review, which totaled
   $17,016,290 in expenses allocated to the FEHBP. We selected these cost centers based


                                             16                   Report No. 1D-SI-00-17-022 

on high dollar amounts, a trend analysis, and our nomenclature review. We reviewed the
expenses from these cost centers for allowability, allocability, and reasonableness. In
addition, because of our simultaneous audit of the Company’s Federal Employee
Program product, we identified and reviewed an additional cost center with potential
unallowable and/or unallocable expenses that were charged to the FEHBP.

Based on our review, we determined that the Plan allocated and charged expenses to the
FEHBP from five cost centers during the period 2011 through 2015 that were expressly
unallowable and/or did not benefit the FEHBP (unallocable). The following schedule is a
summary of these questioned cost center expenses that were inappropriately charged to
the FEHBP from 2011 through 2015.

  Cost Center                                                               Amount
                 Cost Center Name             Reason for Questioning
   Number                                                                  Questioned
    6610H         Creative Services                Unallowable                $137,840
    6400H         Employer Marketing               Unallowable                  80,843
    6050H         Market Insight                   Unallocable                  61,336
    6612H         Marketing Delivery               Unallowable                  51,702
    6300R         Markets Executive                Unallowable                  19,343
     Total                                                                    $351,064

In total, we are questioning $351,064 for these unallowable and/or unallocable cost center
expenses charged to the FEHBP.

Plan Response:

The Plan agrees with this finding.

OIG Comment:

The Plan has unreimbursed allowable costs from 2011 through 2015. Since the Plan’s
total unreimbursed costs exceed the uncontested questioned costs, the Plan only needs to
make accounting adjustments to reduce the filed costs for 2011 through 2015. Therefore,
there is no impact on the amounts charged to the FEHBP, which makes calculating LII
unnecessary for this audit finding.




                                         17                 Report No. 1D-SI-00-17-022 

    Recommendation 9

    We recommend that the contracting officer disallow $351,064 for the questioned
    unallowable and/or unallocable cost center expenses charged to the FEHBP from 2011
    through 2015. However, since we verified that the Plan has unreimbursed allowable
    costs in excess of the amount questioned, the contracting officer only needs to ensure that
    the Plan makes the appropriate accounting adjustments of $351,064 (i.e., $20,246 for
    2011, $24,364 for 2012, $42,969 for 2013, $131,602 for 2014, and $131,883 for 2015) to
    properly reduce the filed administrative expenses for 2011 through 2015.

C. CASH MANAGEMENT

 1. Excess Working Capital Deposit                                                   $200,392

    As of September 30, 2016, the Plan held a working capital deposit of $200,392 over the
    amount needed to meet the Plan’s daily cash needs for FEHBP claim payments.

    OPM’s “Letter of Credit System Guidelines” (Guidelines), dated May 2009, state:
    “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 funds 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.” Based on the Guidelines, the Carrier’s calculation must also
    exclude electronic fund transfers (EFTs).

    Based on the regulations governing the financing of Federal programs by the letter of
    credit method, as established in 31 CFR 205 (Treasury Department Circular No. 10750),
    EFTs should not be included in the calculation. These instructions are established under
    the provisions of Treasury Department Circular No. 1083 (Regulations Governing the
    Utilization of the U.S. TFCS), 5 CFR Part 890, and 48 CFR Chapter 16.

    Based on industry practice (e.g., other FEHBP experience-rated Carriers), the working
    capital deposit should be recalculated on a regular basis to determine if the amount
    currently maintained is adequate to meet the Plan’s daily cash needs for FEHBP claim
    payments. If the deposit is not adequate (either over or underfunded), the Plan should
    make an appropriate adjustment.




                                             18                  Report No. 1D-SI-00-17-022 

We noted that the Plan reviewed the deposit on a regular basis (usually quarterly) during
the period 2012 through September 2016 and made several adjustments to the deposit
during the audit scope. When reviewing the Plan’s calculations, we determined that the
Plan inappropriately included EFTs in the calculations. As of September 30, 2016, the
Plan held a deposit amount of $748,000 in the dedicated FEHBP investment account.

                           To determine if the Plan maintained an appropriate deposit
    The Plan held an
                           amount, we recalculated what the Plan’s deposit should be
 excess working capital
                           and determined that, as of September 30, 2016, the Plan
 deposit of $200,392 in
                           should have only maintained a working capital deposit of
 the dedicated FEHBP
                           $547,608. Our calculation excluded EFTs. Therefore, we
 investment account as
                           determined that, as of September 30, 2016, the Plan held a
 of September 30, 2016.
                           working capital deposit with $200,392 ($748,000 minus
$547,608) over the amount actually needed to meet the Plan’s daily cash needs for
FEHBP claim payments. Since the Plan maintained these excess funds in the dedicated
FEHBP investment account, LII is not applicable for this finding.

Plan Response:

The Plan agrees with this finding.

OIG Comment:

When responding to this finding during the fieldwork phase, the Plan also stated that “if
the Plan were to exclude ACH claim payments (EFTs) in the calculation, there is a risk of
overdraft. EFTs make up approximately 80% of the claim payments each day and clear
directly from the investment accounts that hold Working Capital. While the Plan’s
Treasury department does receive notification from Facets of the EFTs, the timing is not
reliable enough to the extent that the Plan could drawdown the required funds ahead of
time to prevent overdraft . . . Furthermore, the Plan has been transparent as to the
inclusion of EFTs in communications with OPM. The Plan always obtained approval
from the contracting officer before making changes to Working Capital via LOCA. To
be consistent with the written regulation, the Plan will seek approval from OPM
regarding this matter.”




                                         19                  Report No. 1D-SI-00-17-022 

   Recommendation 10

   We recommend that the contracting officer require the Plan to return $200,392 to the
   FEHBP for the excess working capital deposit.

   Recommendation 11

   We recommend that the Plan implement corrective actions to ensure that the working
   capital deposit is properly calculated in accordance with the Guidelines and applicable
   regulations. If an exception for the working capital calculation is necessary, then the Plan
   should request prior approval (a waiver) from the contracting officer.

   Recommendation 12

   Since the use of EFTs by the experience-rated Carriers to pay FEHBP claim payments
   have substantially increased in the past several years, we recommend that the contracting
   officer(s) and/or OPM’s Benefits Insurance Accounting Office review and revise (if
   necessary) the Guidelines, including the formula for the working capital calculation, and
   propose regulation changes if applicable.

2. Treasury Offsets                                                                   $22,753

   During our review of LOCA drawdowns, we determined that the Plan had not returned
   $20,774 to the FEHBP for two offsets taken from the LOCA by the Treasury as of
   September 30, 2016. As a result of this finding, the Plan returned $22,753 to the FEHBP,
   consisting of $20,774 for these questioned Treasury offsets against the LOCA and $1,979
   for applicable LII.

   As previously cited from Contract CS 2639, costs charged to the FEHBP must be actual,
   allowable, allocable, and reasonable.

   As previously cited from FAR 52.232-17(a), all amounts that become payable by the
   Carrier should include simple interest from the date due.

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


                                             20                  Report No. 1D-SI-00-17-022 

                            During our review of the Plan’s LOCA drawdowns, we
   The Plan had not
                            identified two instances where the Treasury offset the Plan’s
  returned $20,774 to
                            LOCA drawdowns by a total of $20,774. We determined
    the FEHBP for
                            that the Plan did not withdraw additional funds from the
 Treasury offsets taken
                            LOCA to cover the shortages caused by these Treasury
   from the LOCA.
                            offsets. However, we also determined that the Plan did not
transfer funds into the FEHBP investment account to cover these Treasury offsets, which
left the FEHBP investment account short by $20,774 during the audit scope.

In total, the Plan returned $22,753 to the FEHBP for this audit finding, consisting of
$20,774 for the two questioned Treasury offsets against the LOCA and $1,979 for
applicable LII (as calculated by the Plan) on these funds returned untimely to the FEHBP.
We reviewed and accepted the Plan’s LII calculation.

Plan Response:

The Plan agrees with this finding.

OIG Comment:

We verified that the Plan returned $22,753 to the FEHBP in July 2017 for this audit
finding, consisting of $20,774 for the questioned Treasury offsets and $1,979 for
applicable LII.

Recommendation 13

We recommend that the contracting officer require the Plan to return $20,774 to the
FEHBP for the questioned Treasury offsets. However, since we verified that the Plan
returned $20,774 to the FEHBP for the questioned Treasury offsets, no further action is
required for this amount.

Recommendation 14

We recommend that the contracting officer require the Plan to return $1,979 to the
FEHBP for LII on the questioned Treasury offsets. However, since we verified that the
Plan returned $1,979 to the FEHBP for the questioned LII, no further action is required
for this LII amount.



                                         21                 Report No. 1D-SI-00-17-022 

3. Investment Income                                                                     $974
	

   Our audit determined that the Plan had not returned investment income of $974 to the
   FEHBP as of September 30, 2016. This investment income was earned on funds held in
   the Plan’s dedicated FEHBP investment account from 2012 through September 30, 2016.
   As a result of our audit, the Plan returned this investment income of $974 to the FEHBP.

   48 CFR 1652.215-71 states, “(a) The Carrier shall invest and reinvest all FEHB funds on
   hand that are in excess of the funds needed to promptly discharge the obligations incurred
   under this contract. . . . (b) All investment income earned on FEHB funds shall be
   credited to the Special Reserve on behalf of the FEHBP.”

   As previously cited from Contract CS 2639, audit findings in the scope of an OIG audit
   are reportable as questioned charges unless the Plan provides documentation supporting
   that the findings were already identified and corrected prior to audit notification.

   From 2012 through September 30, 2016, the Plan earned investment income of $18,401
   on the funds in the dedicated FEHBP investment account. After receiving our audit
   notification letter (dated October 3, 2016) and in response to our Audit Information
   Request (during our pre-audit phase), the Plan self-disclosed that $974 of this investment
   income amount inadvertently had not been returned to the FEHBP. As a result, the Plan
   returned this investment income amount to the FEHBP in May 2017. Since the Plan held
   this investment income in the dedicated FEHBP investment account, LII is not applicable
   for this audit finding.

   Plan Response:

  The Plan agrees with this finding.

   OIG Comment:

   As part of our review, we verified that the Plan returned $974 to the FEHBP for the
   questioned investment income.




                                            22                  Report No. 1D-SI-00-17-022 

     Recommendation 15

     We recommend that the contracting officer require the Plan to return $974 to the FEHBP
     for the questioned investment income. However, since we verified that the Plan returned
     $974 to the FEHBP for this questioned investment income, no further action is required
     for this amount.

D. FRAUD AND ABUSE PROGRAM

  1. Special Investigations Unit                                                    Procedural

                             The Plan is not in compliance with the communication and
        The Plan did not
                             reporting requirements for fraud and abuse cases set forth in the
        report all fraud
                             FEHBP Carrier Letter (CL) 2014-29. Specifically, the Plan did
       and abuse cases to
                             not report all fraud and abuse cases to the OIG. Without
           the OIG.
                             awareness of these existing potential fraud and abuse issues, the
     OIG cannot investigate the broader impact of these potential issues on the FEHBP as a
     whole.

     CL 2014-29 (Office of Personnel Management Federal Employees Health Benefits
     Fraud, Waste and Abuse), dated December 19, 2014, states that all Carriers “are required
     to submit a written notification to OPM-OIG within 30 working days when there is a
     potential reportable . . . [fraud, waste or abuse] that has occurred against the FEHB
     Program. OPM-OIG considers a potential reportable . . . [fraud, waste or abuse] as, after
     a preliminary review of the complaint, the carrier takes an affirmative step to investigate
     the complaint.” There is no dollar threshold for this requirement.

     For the period 2015 through September 30, 2016, the Plan opened eight fraud and abuse
     cases with potential FEHBP exposure. We reviewed these fraud and abuse cases to
     determine if the cases were properly reported to the OIG, as required by CL 2014-29.
     Based on our review, we determined that the Plan did not submit notifications to the OIG
     for these cases.

     Although the Plan did not directly report these cases to the OIG, we noted that these
     cases were reported to the OIG under BlueShield of California’s Federal Employee
     Program product. Nevertheless, each Carrier has a contractual obligation to submit its
     own notifications to the OIG. Ultimately, the Plan’s non-reporting of potential FEHBP
     cases to the OIG has resulted in a failure to meet the communication and reporting
     requirements that are set forth in CL 2014-29.

                                               23                  Report No. 1D-SI-00-17-022 

        In instances where this Plan’s cases are different from BlueShield of California’s Federal
        Employee Program product, the lack of notifications could affect the OIG’s ability to
        investigate whether other FEHBP experience-rated Carriers are exposed to the identified
        fraudulent activity. Consequently, this could result in additional improper payments
        being made by other FEHBP Carriers.

        Plan Response:

        The Plan agrees with this finding.

        Recommendation 16

        We recommend that the contracting officer require the Plan to provide evidence or
        supporting documentation ensuring that the Plan’s Special Investigations Unit has
        implemented the necessary procedural changes to meet the communication and reporting
        requirements of fraud and abuse cases that are contained in CL 2014-29 and CL 2017-13
        (OPM Federal Employees Health Benefits Fraud, Waste, and Abuse).4




4
 CL 2017-13 (dated November 20, 2017) consolidates and updates the information from CL 2014-29, which is
superseded by this guidance. CL 2017-13 also supplements guidance from the FEHBP contract (Section 1.9 – Plan
Performance).

                                                       24                    Report No. 1D-SI-00-17-022 

                        IV. SCHEDULE A - QUESTIONED CHARGES

                                                        BLUESHIELD OF CALIFORNIA ACCESS+ HMO
                                                             SAN FRANCISCO, CALIFORNI A

                                                                      QUESTIONED CHARGES

AUDIT FINDINGS                                            2011          2012         2013          2014         2015          2016          2017        TOTAL

A. HEALT H BENE FIT REFUNDS AND RECOVERIES

   1. Pharmacy andMedical D rug Rebates *                     $16        $7,989      $14,415      $494,687      $17,702     $1,561,626      $10,846     $2,107,281
   2. Vendor Credit Recoveries*                             5,857       235,950      159,041       369,404      340,882         57,091      200,771      1,368,996

   TOTAL HEALTH REFUNDS AND RECOVERIES                     $5,873      $243,939     $173,456      $864,091     $358,584     $1,618,717     $211,617     $3,476,277

B. ADMINISTRATIVE EXPENSES

   1. Shield Advance Project*                                  $0      $315,187     $519,200        $5.494       $5,998        $5,840        $4,760      $857,479
   2. Unallowable and/ o r UnallocableC ost Centers        20,246        24,364       42,969       131,602      131,883             0             0      $351,064

   TOTAL ADMINISTRATIVE EXPENSES                          $20,246      $340,551     $562,169      $137,096     $137,881        $5,840        $4,760     $1,2 08,543

C. CASH MANAGEMENT

   1. Excess Working Capital Deposit                             $0          $0           $0            $0            $0     $200,392            $0      $200,392
   2 . Treasury Offsets*                                          0      20,812          325           428           468          455           265        22,753
   3. Investment Income                                           0         974            0             0             0            0             0           974

   TOTAL CASH MANAGEMENT                                         $0     $21,786         $325          $428          $468     $200,847          $265      $224,119

D. FRAUD AND ABUSE PROGRAM

   1. Special Investigations Unit (Procedural )                  $0            $0           $0            $0           $0            $0            $0           $0

   TOTAL FRAUD AND ABUSE PROGRAM                                 $0            $0           $0            $0           $0            $0            $0           $0

TOTAL QUESTIONED CHARGES                                  $25,119      $606,276     $735,950     $1,001,615    $496,933     $1,825,404     $216,642     $4,908,939

* W e included lost investment income (LII) within audit findings A1 ($107,168), A2 ($69,855), B1 ($24,908), and C2 ($1,979). Therefore, no additional LII is applicable
APPENDIX
	
                     , Group Chief
Experience-Rated Audits Group
Office of the Inspector General
U.S. Office of Personnel Management
1900 E Street, Room 6400
Washington, DC 20415-1100



December 1, 2017


Dear                   :

As noted in the FEP HMO draft audit report, the Plan agrees with its findings, conclusions and
recommendations. Therefore, I have no further comments or supplementary information to provide.

Sincerely,




Federal Employee Program Senior Accountant




                                                                                                         An Independent Member of the BlueCross BlueShield Association




Blue Shield of California                                                           blueshieldca.com
50 Beale Street, San Francisco, CA 94105




                                                                               Report No. 1D-SI-00-17-022 

	                                                                        



               Report Fraud, Waste, and 

                   Mismanagement
	
                          Fraud, waste, and mismanagement in
                       Government concerns everyone: Office of
                           the Inspector General staff, agency
                      employees, and the general public. We
                      actively solicit allegations of any inefficient
                            and wasteful practices, fraud, and
                       mismanagement related to OPM programs
                      and operations. You can report allegations
                                  to us in several ways:


     By Internet: 	        http://www.opm.gov/our-inspector-general/hotline-to-
                           report-fraud-waste-or-abuse


       By Phone: 	         Toll Free Number:                  (877) 499-7295
                           Washington Metro Area:             (202) 606-2423


        By Mail:           Office of the Inspector General
                           U.S. Office of Personnel Management
                           1900 E Street, NW
                           Room 6400
                           Washington, DC 20415-1100