oversight

Audit of the Federal Long Term Care Insurance Program's Operations

Published by the Office of Personnel Management, Office of Inspector General on 2011-11-10.

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

•   Unallowable Travel Expenses                                                            $11,453

    LTCP charged the Program for unallowable travel related expenses.

•   Unallowable Administrative Expenses                                                      $208

    LTCP charged the Program $208 in unallowable administrative expenses.

•   Costs Charged to the Program Inappropriately                                     Procedural

    LTCP inappropriately charged costs related to non-Program business to the Program before
    transferring the cost to the appropriate line of business.

                                   CASH MANAGEMENT

•   Outstanding Checks                                                               Procedural

    LTCP did not properly void two outstanding benefit checks within 25 months of issuance.

                                           CLAIMS

    The results of our claims reviews did not identify any claims paid in error by LTCP.


                                     FRAUD AND ABUSE

    The results of our review showed that LTCP’s policies and procedures for fraud and abuse
    complied with the Contract and applicable regulations.


    HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA)

    The results of our review showed that LTCP complied with the Contract’s HIPAA
    requirements.

                               LOST INVESTMENT INCOME

•   Lost Investment Income on Program Overcharges                                          $53,593

    The FEHBP is due $53,593 for lost investment income on overcharges to the program related
    to administrative expenses calculated through October 31, 2011. In addition, the contracting
    officer should recover lost investment income on amounts due for the period beginning
    November 1, 2011 until all questioned costs have been returned to the Program.



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                                                         CONTENTS
                                                                                                                                   PAGE

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

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

 II.   OBJECTIVES, SCOPE, AND METHODOLOGY ........................................................... 2

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

       A.     ADMINISTRATIVE EXPENSES............................................................................ 5

              1.      Program Maintenance Costs ............................................................................ 5
              2.      Unallowable Travel Expenses.......................................................................... 7
              3.      Unallowable Administrative Expenses ............................................................ 9
              4.      Costs Charged to the Program Inappropriately............................................... 10

       B.     CASH MANAGEMENT ......................................................................................... 11

              1.      Outstanding Checks ........................................................................................ 11

       C.     CLAIMS .................................................................................................................. 11

       D.     FRAUD AND ABUSE ............................................................................................ 12

       E.     HEALTH INSURANCE PORTABILITY AND ACCOUNTABILTY ACT ......... 12

       F.     LOST INVESTMENT INCOME ............................................................................ 12

             1. Lost Investment Income on Program Overcharges ............................................ 12

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ............................................................. 13

       SCHEDULE A – PREMIUM REVENUE AND CONTRACT CHARGES
       SCHEDULE B – QUESTIONED COSTS
       SCHEDULE C – LOST INVESTMENT INCOME

       APPENDIX A (LTCP’s response to the draft report, dated March 4, 2011.)
       APPENDIX B (LTCP’s response to the draft report, dated June 18, 2011.)
                     I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This report details the results of our audit of the Federal Long Term Care Insurance Program
(Program) operations at Long Term Care Partners, LLC (LTCP). LTCP is a joint venture
between John Hancock Life Insurance Company (John Hancock) and Metropolitan Life
Insurance Company (MetLife) (referred to collectively as the Carriers), located in Portsmouth,
New Hampshire. 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 Program was established by the Long Term Care Security Act (Public Law 106-265), which
was signed by the President on September 19, 2000. The Act directed OPM to develop and
administer a long term care insurance program for Federal employees and annuitants, current and
retired members of the uniformed services, and qualified relatives.

In December 2001, OPM awarded a seven year contract to LTCP to offer long term care
insurance coverage to eligible participants. Operations began on March 25, 2002, and the
contract expired on April 30, 2009. A new contract was awarded to John Hancock upon the
expiration of the original contract and provided for the continuation of LTCP even though
MetLife was no longer involved in the Program. LTCP, with OPM oversight, is responsible for
all administrative functions of the Program, including marketing and enrollment, underwriting,
policy issuance, premium billing and collection, and claims administration.

Program assets are held in the Experience Fund. Premiums received by LTCP are deposited into
the Experience Fund and invested by the Carriers. Investment income, net of Carrier
management fees, is retained in the Experience Fund. Claims paid by LTCP are deducted from
the Experience Fund, and liabilities for “incurred but not reported claims” are accrued and
reported in the financial statements.

Operating expenses incurred by LTCP for the administration of the Program are reimbursed from
the Experience Fund to the Carriers, subject to expense guarantees stipulated in the contract and
according to defined timelines and funds availability. Interest on any outstanding balance owed
to the Carriers accrues at the rate of return earned by the Experience Fund.

Compliance with laws and regulations applicable to the Program is the responsibility of LTCP’s
management. Also, management of LTCP is responsible for establishing and maintaining a
system of internal controls.

All findings identified in our previous audit of the Program as administered by LTCP (Report
No. 1G-LT-00-08-047, dated August 6, 2009) have been satisfactorily resolved.




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               II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The purpose of the audit was to determine whether charges to the Program and claims services
provided to Program members were in accordance with the terms of the Contract and applicable
regulations. The specific objectives of the audit were as follows:

   •   Administrative Expenses
         o To determine if the administrative expenses incurred for the Program by LTCP
            and reported to OPM were actual, necessary, reasonable, and allocable.

   •   Cash Management
          o To determine if premiums were properly deposited into the Experience Fund and
             invested by the Carriers;
          o To determine if the Carriers invested and reinvested all Program funds on hand
             until needed to discharge the obligations incurred under the Contract;
          o To determine if the disbursements made from the Experience Fund
             (reimbursements to the Carriers) were made in accordance with the terms of the
             Contract (including any subsequent modifications) and applicable regulations; and
          o To determine if LTCP reconciled premiums expected to premiums received.

   •   Claims
          o To determine if there were any unallowable or duplicate claim payments incurred
              by the Program; and
          o To determine if Medicare eligible claims were properly coordinated.

   •   Fraud and Abuse
          o To determine how LTCP prevents and protects itself and its Federal employee
             members against fraud and abuse.

   •   Health Insurance Portability and Accountability Act (HIPAA) Compliance
          o To determine if LTCP is in compliance with the Contract’s HIPAA requirements.

SCOPE

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

This performance audit covered administrative expenses, cash management activities, claim
benefit payments, compliance with the Contract’s requirements related to the prevention of fraud
and abuse, and compliance with the Contract’s HIPAA requirements for the period of August 1,
2008 through September 30, 2009. In fiscal year 2009, LTCP received $298,222,033 in


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premium revenue and incurred $31,187,488 and $17,983,801 in claim and administrative
expenses, respectively.

In planning and conducting the audit, we obtained an understanding of LTCP’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 LTCP’s internal control structure
and its operation. However, since our audit would not necessarily disclose all significant matters
in the internal control structure, we do not express an opinion on LTCP’s system of internal
controls taken as a whole.

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

We also conducted tests to determine whether LTCP and the Carriers had complied with the
contract, the applicable procurement regulations (i.e., Federal Acquisition Regulations), and the
laws and regulations governing the Program. 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 LTCP
and the Carriers had not complied, in all material respects, with those provisions.

METHODOLOGY

To test whether LTCP accurately charged the Program for administrative expenses and that
claims services provided to Program members were in accordance with the terms of the Contract
and applicable regulations, we performed the following audit steps:

   •   Administrative Expenses
       o Selected a judgmental sample of natural accounts for review. We selected 24 natural
         accounts based on total percent change (increase) in amounts charged to the Program
         from fiscal year 2008 to 2009, and nomenclature review. Accounts selected were:
         50100 Salaries, 50110 Overtime, 50120 Incentive/Performance Sharing, 51120
         401(k) Match, 51130 Insurance –Medical, 51140 Insurance – Dental, 51150
         Insurance – Short Term Disability, 51155 Insurance – Long Term Disability, 51160
         Insurance – Life, 60100 Airfare, 60110 Other Travel, 60120 Lodging, 60130 Meals
         and Entertainment, 61105 Lease/Rent Building and Equipment, 61165 Disaster
         Recovery, 61188 CARE/Web I-Series Hosting Charges, 62215 Consultants/Contract
         Expenses, 70028 National Sponsorship, 70029 National Sponsorship – Marketing
         Related, 71022 Local Fulfillment, 72020 Airfare – Marketing (Seminar), 72022 Other
         Travel Marketing (Seminar), 72024 Lodging – Marketing (Seminar), and 72026
         Meals and Entertainment –Marketing (Seminar). The natural accounts selected
         totaled $13,412,490 out of a universe of $17,983,801 in administrative expenses.



                                                 3
   •   Cash Management
       o Judgmentally selected the month in fiscal year 2009 with the highest amount of
          premiums for review. The month selected (December 2008) totaled $30,540,133 in
          premiums from a fiscal year 2009 universe of $298,222,033.
       o From each Carrier, we judgmentally selected the fourth quarter of 2009 investment
          income activity (totaling $19,354,932) for review from a universe of $73,713,062;
          and
       o From each Carrier, we judgmentally selected the two largest reimbursements for
          OPM expenses in fiscal year 2009. The resulting sample totaled $20,481,469 in
          expense from a universe of $71,455,078.

   •   Claims
       o Using stratifications of claims, we calculated each stratum’s claim percentage as
          compared to the universe (13,974 claims totaling $31,187,488) to determine a number
          of members to select from each stratum. We judgmentally selected every third
          member to select up to the number of members (rounded) determined. Our sample
          consisted of 101 members with 497 claims totaling $2,279,243; and
       o For Medicare eligible claims we selected a judgmental sample of the top five claims
          paid by Medicare where no LTCP check number was listed, the top five claims paid
          by Medicare where a LTCP check number was listed with no amount paid ($0), and
          one claim where it appeared as if both Medicare and LTCP paid on the claim. Our
          sample of 11 claims totaled $164,525 from a universe of 145 claims totaling
          $585,520.

   •   Fraud and Abuse
       o We reviewed LTCP’s policies and procedures related to fraud and abuse, its
          responses to a fraud and abuse questionnaire, and interviewed appropriate personnel
          at LTCP.

   •   HIPAA Compliance
       o We reviewed LTCP’s policies and procedures related to the HIPAA and interviewed
          appropriate personnel at LTCP.

The samples selected during our review were not statistically based. Consequently, the results
could not be projected to the universe since it is unlikely that the results are representative of the
universe as a whole.

We used provisions of the Contract (OPM-01-RFP-0016), Public Law 106-265, and the Federal
Acquisition Regulations to determine the allowability, allocability, and reasonableness of the
administrative expenses charged against the contract.

The results of our audit were discussed with LTCP officials throughout the audit and at the exit
conference. In addition, a draft report, dated January 5, 2011, was provided to LTCP for review
and comment. LTCP’s comments on the draft report were considered in preparing the final
report and are included as Appendices to this report.




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             III. AUDIT FINDINGS AND RECOMMENDATIONS

A.   ADMINISTRATIVE EXPENSES

     1. Program Maintenance Costs                                                        $796,021

        LTCP charged the Program $796,021 in program maintenance costs that were either not
        properly supported or not directly related to the Carriers’ roles of financial and legal
        oversight of the Program.

        The Contract (Updates to Solicitation No. OPM-01-RFP-0016 Cost Proposal – Section
        IV, Financial Section B, Question b.6 – Overhead Allocations) states that “Since LTC
        Partners exists to support the FLTCIP, we have not indentified any of its expenses as
        ‘overhead’ and have included traditional ‘overhead’ expenses, such as rent, in our
        estimate of program maintenance cost. However, there are certain services for which it
        is more cost efficient for LTC Partners to rely upon the actuarial, financial, legal and
        auditing staffs of John Hancock and MetLife. The services described are directly
        related to the carrier’s role of financial and legal oversight of the FLTCIP ….” It is our
        opinion that duties related to the FLTCIP should be provided and charged by either the
        LTCP as an administrative expense or by the Carriers as program maintenance costs,
        but not both.

        The Contract (Cost Evaluation Questions - Question 1C) also states that “the asset
        management fees should include all transaction and brokerage costs; there should be no
        separate transaction or brokerage charges to the Experience Fund.”

        Additionally, 48 CFR 31.201-2 (d) states “A contractor is responsible for accounting
        for costs appropriately and for maintaining records, including supporting
        documentation, adequate to demonstrate that costs claimed have been incurred, are
        allocable to the contract, and comply with applicable cost principles in this subpart and
        agency supplements. The contracting officer may disallow all or part of a claimed cost
        that is inadequately supported.” Furthermore, Contract Section K.9 (b) (1) states “The
        allowable costs chargeable to the contract for a fiscal year will be the actual, necessary,
        reasonable, and allocable amounts incurred with proper justification and accounting
        support, determined in accordance with Subpart 31.2 of the Federal Acquisition
        Regulation (FAR) applicable on October 1 of each year, and the terms of this contract.”

        Initially, LTCP did not provide sufficient supporting documentation for us to come to a
        conclusion regarding the accuracy and allowability of the program maintenance costs
        charged to the Program. As a result, we questioned all program maintenance costs.
        LTCP, in its responses to the draft report, provided documentation supporting these
        costs for us to review. We reviewed the documentation provided to determine if the
        charges met the requirements of the Contract, specifically if the charges were “directly
        related to the carrier’s role of financial and legal oversight of the FLTCIP,” and if they
        were actual, necessary, reasonable, and allocable amounts with proper support.



                                                5
Our review of the documentation provided identified $796,021 in program maintenance
costs that are unallowable to the Program. Specifically, we identified the following
unallowable costs per Carrier:

MetLife

•   $181,310 in State Street asset management fees which were paid to MetLife as part
    of the Contract and are, therefore, duplicate charges;
•   $179,666 in additional “Other Fees” which were identified by MetLife as other
    eligible expenses that were not previously reimbursed, to substitute for costs it
    agreed were unallowable in its response to the draft report. Not only were these
    costs not supported (only a narrative was provided to explain them), but we find it
    strange that costs which, according to MetLife it did “not account for,” and were
    not previously reported by MetLife, are now being charged to the Program;
•   $165,803 in “Other Fees” which were charged to the Program as an allocated
    portion of MetLife’s total corporate costs. However, the documentation provided
    did not explain how these costs were “directly related to the carrier’s role of
    financial and legal oversight of the FLTCIP.”; and,
•   $62,045 in copier ($48,421) and actuarial ($13,624) charges that were not properly
    supported, nor was it shown how the costs were directly related to MetLife’s role of
    financial and legal oversight of the FLTCIP.

John Hancock

•   $193,573 related to Compliance/Contract Staff ($118,293) and Overhead ($75,280)
    (described as relating to charges for payroll, travel for presentations, and printing
    and collating of reports for the FLTCIP). The functions described as performed for
    these areas do not appear to fit the program maintenance cost requirement of
    financial and legal oversight of the FLTCIP; and,
•   $13,624 in Milliman charges that were not properly supported, nor was it shown
    how the costs were “directly related to the carrier’s role of financial and legal
    oversight of the FLTCIP.”

As a result of the Carriers charging the Program for program maintenance costs which
were not “directly related to the carrier’s role of financial and legal oversight of the
FLTCIP,” the program was overcharged $796,021.

LTCP’s Comments:

The LTCP disagrees with this finding and states that the expenses questioned were
incurred by the Carriers while performing duties related to executive management,
legal, actuarial, and financial support provided to LTCP.




                                       6
   OIG Comments:

   As we have already stated in the finding above, it is our opinion that the program
   maintenance costs questioned were unallowable because they were either duplicate
   charges, unsupported, or it was not clear, based on information provided by the
   Carriers, that the costs were “directly related to the carrier's role of financial and legal
   oversight of the FLTCIP.”

   Recommendation 1

   We recommend that the contracting officer direct the Carriers to reimburse LTCP
   $796,021 for unallowable program maintenance costs.

   Recommendation 2

   We recommend that the contracting officer direct LTCP to only allow those program
   maintenance costs where it completely relies upon the actuarial, financial, legal, and
   auditing expertise of the Carriers.

   Recommendation 3

   We recommend that the contracting officer direct LTCP to require the Carriers to report
   all costs incurred in performing their roles of financial and legal oversight of the
   FLTCIP and support that the costs are actual, necessary, reasonable, and allocable
   amounts in accordance with the Contractual requirements.

2. Unallowable Travel Expenses                                                          $11,453

   LTCP charged the Program $11,453 in travel related administrative expenses in 2009
   that were not actual, allowable, or reasonable.

   Contract section I.35 (Incorporation of Laws and Regulations) states that 48 CFR
   Chapter 1 constitutes a part of the contract between LTCP and OPM. As a result,
   LTCP must adhere to the requirements of those regulations. 48 CFR Ch. 1.31.205-46
   (Travel Costs) states that costs for transportation, lodging, meals, and incidental
   expenses are subject to the limitations of the Federal regulations.

   Solicitation OPM-01-RFP-0016 section K.9 (b) (1) states that “The allowable costs
   chargeable to the contract for a fiscal year will be the actual, necessary, reasonable, and
   allocable amounts incurred with proper justification and accounting support,
   determined in accordance with Subpart 31.2 of the Federal Acquisition Regulation
   (FAR) applicable on October 1 of each year, and the terms of this contract.”

   During our review, we selected and reviewed administrative expense transactions to
   determine if the costs were actual, allowable, and/or reasonable costs to the program.
   Our review encountered various travel related transactions that although approved and



                                            7
reimbursed by LTCP, did not adhere to the Contract requirements resulting in the
charging of unallowable costs to the Program.

Specifically, we identified $2,576 in per diem allowance charges that exceeded the
Federal Travel Regulation per diem limitation for the time and place in question.
Additionally, we identified $36 in incidental charges (tips) that were in relation to the
purchase of alcoholic beverages.

48 CFR Ch. 1 Part 31.205-46 (a) (2) states that costs for lodging, meals, and incidental
expenses will only be considered allowable to the extent that they do not exceed on a
daily basis the maximum per diem rates in effect at the time of travel as set forth in the
Federal Travel Regulation.

48 CFR Ch. 1 Part 31.205-51 states that the costs of alcoholic beverages are
unallowable. It is our opinion that any resulting incidental expenses relating to the
purchase of unallowable costs are unallowable as well.

We also identified $1,441 in airfare costs that are not allowable costs to the contract.
These excess costs were the result of LTCP employees upgrading the normal coach
airfare to business class or first class airfare and the resulting change fees.

48 CFR Ch. 1 Part 31.205-46 (b) states that airfare costs in excess of the lowest
customary standard, coach airfare offered during business hours are unallowable.

Additionally, as a result of our review and identification of travel related overcharges to
the Program, we also helped LTCP identify fraudulent charges committed by a former
employee. We requested that LTCP review all travel related expense reports, not only
for this employee, but also for all other employees. LTCP determined that all
inappropriate charges, approximately $7,400, were identified during this
comprehensive audit and were reclassified by it as corporate expenses.

As a result of not adhering to the regulations outlined in 48 CFR chapter 1 and the
contract, the LTCP overcharged the Program $11,453 related to travel expenses.

LTCP’s Comments:

The LTCP agrees with this finding and states that it has revised its travel policy to
ensure that the travel costs charged to the Program adhere to the applicable Federal
regulations.

Recommendation 4

We recommend that the contracting office ensure that LTCP has returned $11,453 to
the Program for unallowable travel expenses.




                                        8
   Recommendation 5

   We recommend that the contracting office verify that LTCP has instituted travel
   policies and procedures that will ensure that the travel costs charged to the Program are
   in accordance with the Federal regulations.

3. Unallowable Administrative Expenses                                                   $208

   LTCP charged the Program $208 in unallowable administrative expenses.

   Solicitation OPM-01-RFP-0016 section K.9 (b) (1) states that “The allowable costs
   chargeable to the contract for a fiscal year will be the actual, necessary, reasonable, and
   allocable amounts incurred with proper justification and accounting support,
   determined in accordance with Subpart 31.2 of the Federal Acquisition Regulation
   (FAR) applicable on October 1 of each year, and the terms of this contract.”

   We reviewed a sample of administrative expenses charged to the program to determine
   if the costs charged were actual, allowable, necessary, and/or reasonable costs with
   proper justification and accounting support according to the contract and regulations.
   Our review identified the following unallowable expenses charged to the Program:

   •   One expense transaction, totaling $190, where LTCP charged the Program twice for
       the same expense;
   •   One expense transaction, totaling $16, which was for personal shipping costs of a
       department director of LTCP and was not related to the Program; and,
   •   Ten expense transactions where the Program was inadvertently charged $0.20 in
       excess due to a typographical error in the journal entries, resulting in a $2
       overcharge to the Program.

   Although the amounts questioned are immaterial in total, the nature of the errors and
   the fact that they were not identified by LTCP prior to our audit necessitated the
   reporting of the errors.

   As a result of these unallowable expenses, LTCP overcharged the Program $208.

   LTCP’s Comments:

   The LTCP agrees with the finding and states that it has taken steps to correct the errors
   noted.

   Recommendation 6

   We recommend that the contracting office ensure that LTCP has properly returned the
   $208 to the Program.




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   Recommendation 7

   We recommend that the contracting office ensure that LTCP has implemented
   procedures so that only expenses related to the Program are charged to it in the future.

4. Costs Charged to the Program Inappropriately                                   Procedural

   LTCP did not adhere to the contract stipulations that prohibited the charging of
   allocated costs as if they were direct costs.

   FAR 31.202(a) states “No final cost objective shall have allocated to it as a direct cost
   any cost, if other costs incurred for the same purpose in like circumstances have been
   included in any indirect cost pool to be allocated to that or any other final cost
   objective.”

   LTCP was established to administer the Program contract, which was awarded on
   December 17, 2001. At the time this was the only OPM contract administered by
   LTCP and all costs related to the contract were charged to it directly. In the fall of
   2005, the contract was amended to add an additional cost objective (Benefeds) to
   LTCP’s duties. Benefeds is the portal for Federal employees to register for the
   FEDVIP and FSA programs. With the additional administration of a second cost
   objective in the OPM contract LTCP did not set up intermediary cost pools to allocate
   indirect costs. Rather than update its systems to indirectly allocate costs to the two cost
   objectives, LTCP made the decision to charge all costs related to Benefeds to the
   Program and then to allocate those costs to the proper cost objective.

   We reviewed the costs charged to the Program to determine if they were allocated
   correctly. We identified four costs centers (Executive 120-00, Finance 140-00, IT
   Management 299-00, and Admin Management 499-00) where the costs initially
   charged to the Program included those related to other cost objectives (Benefeds).
   LTCP provided documentation to show how the costs related to the other cost
   objectives were removed from the cost charged to the Program. However, LTCP’s
   method of charging and allocating indirect costs clearly violated the requirement of
   FAR 31.202 (a) and should be modified so that only costs related to the Program are
   charged to it.

   As a result of LTCP not following FAR 31.202 (a) it is running the risk of potentially
   not identifying and removing all costs not related to the Program which would result in
   overcharges.

   LTCP’s Comments:

   LTCP agrees with the finding and stated that it has established a separate cost center for
   indirect costs which eliminates the need to subtract costs that do not relate to the
   Program.




                                          10
        Recommendation 8

        We recommend that the contracting officer ensure that LTCP has established a separate
        cost center for each of its cost objectives to properly account for indirect costs.

B.   CASH MANAGEMENT

     1. Outstanding Checks                                                           Procedural

        LTCP did not properly void two outstanding benefit checks (totaling $8,339) within 25
        months of their issuance.

        According to a letter of agreement between OPM and LTCP dated January 14, 2005,
        “LTCP will void all checks issued pursuant to the FLTCIP contract that have been
        outstanding for two years. The amount represented by checks voided under this
        provision shall be credited ... no later than the 25th month after issuance.”

        We identified two outstanding checks (totaling $8,339) that were outstanding more than
        25 months as of September 30, 2009. All other outstanding checks were either cashed
        or voided within the 25 month window. Discussions with LTCP determined that it
        inadvertently did not follow its internal outstanding checks procedures for these two
        checks.

        As a result of not properly voiding the two checks identified, LTCP did not offset the
        appropriate account or expense charges timely per the letter of agreement.

        LTCP’s Comments:

        LTCP agrees with the finding and stated that it has improved its policies and
        procedures relating to outstanding checks to prevent this from recurring.

        Recommendation 9

        We recommend that the contracting office verify that LTCP has implemented
        procedures to strengthen its internal policies and procedures for following up on
        outstanding checks.

C.   CLAIMS

     The results of our review of claim benefit payments showed that LTCP’s policies and
     procedures, and the processing and payment of claims, complied with the Contract and
     applicable regulations.




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D.   FRAUD AND ABUSE

     The results of our review showed that LTCP’s policies and procedures for fraud and abuse
     complied with the Contract and applicable regulations.

E.   HEALTH INSURANCE PORTABILITY AND ACCOUNTABILTY ACT

     The results of our review showed that LTCP complied with the Contract’s requirements
     related to the HIPAA and privacy laws in its handling of individually identifiable health
     information.

F.   LOST INVESTMENT INCOME

     1. Lost Investment Income on Program Overcharges                                    $53,593

        The Program is due $53,593 for lost investment income (LII) on the findings subject to
        the recovery of LII.

        Solicitation OPM-01-RFP-0016 section I.48 (Investment Income), requires, among
        other things, that the Carriers pay the Program LII on charges made against the contract
        which are not allowable, allocable, or reasonable. It provides that all amounts will bear
        simple interest compounded semiannually at the rates established by the Secretary of
        the Treasury.

        We computed LII that would have been earned using the semiannual rates specified by
        the Secretary of the Treasury and determined that the Program is due $53,593 for LII,
        calculated for the period October 1, 2009 through October 31, 2011, on questioned
        costs from the period August 1, 2008 through September 30, 2009.

        LTCP’s Comments:

        The draft report did not include a section covering LII on the audit findings. Therefore,
        LTCP did not address LII in commenting on the draft report.

        Recommendation 10

       We recommend that the contracting officer require LTCP to refund the Program $53,593
       for LII on the audit findings calculated through October 31, 2011.

       Recommendation 11

       We recommend that the contracting officer recover LII on amounts due beginning
       November 1, 2011 until all questioned costs have been returned to the Program.




                                               12
             IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

                  , Auditor-In-Charge

                 , Auditor

           , Auditor


                 , Group Chief (

                 , Senior Team Leader




                                        13
                                                                SCHEDULE A
                       AUDIT OF THE FEDERAL LONG TERM
                     CARE INSURANCE PROGRAM'S OPERATIONS
                       AT LONG TERM CARE PARTNERS, LLC
                      AUGUST 2008 THROUGH SEPTEMBER 2009

              SCHEDULE OF PREMIUM REVENUE AND CONTRCT CHARGES
                        REPORT NUMBER: 1G-LT-00-10-022


PREMIUM REVENUE                                                  $298,222,033

CONTRACT CHARGES

A. CLAIM PAYMENTS                                                 $31,187,488

B. ADMINISTRATIVE EXPENSES                                        $17,983,801

                      TOTAL CONTRACT CHARGES                      $49,171,289
                                                               SCHEDULE B
                           AUDIT OF THE FEDERAL LONG TERM
                         CARE INSURANCE PROGRAM'S OPERATIONS
                           AT LONG TERM CARE PARTNERS, LLC
                          AUGUST 2008 THROUGH SEPTEMBER 2009

                              SUMMARY OF QUESTIONED COSTS
                              REPORT NUMBER: 1G-LT-00-10-022

AUDIT FINDINGS

 A. ADMINISTRATIVE EXPENSES

     1. Program Maintenance Costs                                  $796,021

     2. Unallowable Travel Expenses                                 $11,453

     3. Unallowable Administrative Expenses                            $208

     4. Costs Charged to the Program Inappropriately              Procedural

TOTAL AUDIT FINDINGS                                               $807,682

B.   LOST INVESTMENT INCOME (From Schedule C)                       $53,593

TOTAL QUESTIONED COSTS                                             $861,275
                                                                                       SCHEDULE C
                                   AUDIT OF THE FEDERAL LONG TERM
                                 CARE INSURANCE PROGRAM'S OPERATIONS
                                   AT LONG TERM CARE PARTNERS, LLC
                                  AUGUST 2008 THROUGH SEPTEMBER 2009

                                         LOST INVESTMENT INCOME
                                       REPORT NUMBER: 1G-LT-00-10-022

                  Year                          2009*        2010        2011**           Total

                         Audit Findings:          $807,682          $0            $0        $807,682

                      Totals (per year):          $807,682          $0            $0        $807,682

                     Cumulative Totals:           $807,682    $807,682     $807,682         $807,682

         Average Annual Interest Rate:             5.2500%     3.1875%      2.5625%

      Interest on Prior Years Findings:                 $0     $25,745      $17,247          $42,992

                Current Years Interest:            $10,601          $0            $0         $10,601

             Total Cumulative Interest:            $10,601     $25,745      $17,247          $53,593

* = 2009 interest calculated beginning October 2009.
** = 2011 interest calculated through October 2011.