oversight

Audit of BENEFEDS as Administered by Long Term Care Partners, LLC for Contract Years 2010 through 2013

Published by the Office of Personnel Management, Office of Inspector General on 2014-12-23.

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

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




Final Audit Report
Subject:




    AUDIT OF BENEFEDS AS ADMINISTERED BY 

       LONG TERM CARE PARTNERS, LLC 

    FOR CONTRACT YEARS 2010 THROUGH 2013 





                                           Report No. 1G-LT-00-14-031


                                           Date:       December 23.               201 4




                                                            --CAUTION-­
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                                UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                               Washington. DC 20415


   Oftice of the
Inspector General




                                                          AUDIT REPORT 





                             AUDIT OF BENEFEDS AS ADMINISTERED BY 

                                LONG TERM CARE PARTNERS, LLC 

                             FOR CONTRACT YEARS 2010 THROUGH 2013 



                                    CONTRACT NUMBER: OPM0031000001 





                     Report No. 1G-LT-00-14-031                                          Date:             1 2I 23I 1 4




                                                                                           t-./'"~;~   /   ~·/   __ )   /~?   -~

                                                                                           vtL// 1- - C-­
                                                                                          Michael R. Esser
                                                                                          Assistant Inspector General
                                                                                            for Audits



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




        www.opm.gov                                                                                                                www.usajobs.gov
                           UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                              Washington. DC 20415 



  Office of the
l nspcctor General




                                      EXECUTIVE SUMMARY 





                          AUDIT OF BENEFEDS AS ADMINISTERED BY 

                             LONG TERM CARE PARTNERS, LLC 

                          FOR CONTRACT YEARS 2010 THROUGH 2013 



                              CONTRACT NUMBER: OPM0031000001 





                     Report No. 1G-LT-00-14-031                  Date: 1 2 I 2 3 I 1 4

      The enclosed audit report details the results of our audit of BENEFEDS as administered by Long
      Term Care Partners, LLC (LTCP) for contract years 2010 through 2013. The primary objective
      of our audit was to determine whether costs charged to the program and services provided to
      BENEFEDS users were in accordance with the terms of Contract Number OPM0031 000001,
      between LTCP and the U.S. Office of Personnel Management, and applicable federal
      regulations. The audit identified one finding and questions $77,590 from an overcharge of
      allocated expenses.

      Our audit fieldwork was conducted at L TCP' s location in Portsmouth, New Hampshire, from
      February 10 through February 21,2014, and additional audit work was performed at our offices
      in Washington, D.C., and Cranberry Township, Pennsylvania.

      The results of our audit have been summarized below.

                                 ADMINISTRATIVE EXPENSE REVIEW

      •     Overcharged Allocated Expenses                                                  $77,590

            LTCP overcharged BENEFEDS $77,590 in allocated expenses during contract year 2012.




          www.opm.gov                                                                     www.usajobs.gov
                             CASH MANAGEMENT REVIEW

The results of our review showed that LTCP had sufficient policies and procedures in place to
ensure that BENEFEDS funds were kept separate from LTCP’s other lines of business and that
interest earned, profit allowances, administrative fees, and premiums were properly handled.

                                  COMPLIANCE REVIEW

The results of our review showed that LTCP followed the requirements for subcontracts and had
sufficient internal controls in place to prevent and detect fraud, waste, and abuse.

                                PERFORMANCE REVIEW

The results of our review showed that LTCP had sufficient policies and procedures in place to
meet its annual performance standards.
                                                  CONTENTS
                                                                                                                     PAGE

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

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

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

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

       A.       ADMINISTRATIVE EXPENSE REVIEW ........................................................... 8

                1. Overcharged Allocated Expenses ..................................................................... 8

       B.       CASH MANAGEMENT REVIEW........................................................................ 9

       C.       COMPLIANCE REVIEW ...................................................................................... 9

       D.       PERFORMANCE REVIEW................................................................................... 9

 II.   MAJOR CONTRIBUTORS TO THIS REPORT ..............................................................10

       SCHEDULE A – SCHEDULE OF RECEIPTS AND DISBURSEMENTS
       SCHEDULE B – SUMMARY OF QUESTIONED COSTS

       APPENDIX (LTCP’s response to the draft report, dated May 28, 2014)
                    I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This report details the results of our audit of BENEFEDS as administered by Long Term Care
Partners, LLC (LTCP) for contract years 2010 through 2013. The audit was conducted pursuant
to the provisions of Contract Number OPM0031000001 and applicable regulations.

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. Our
audit fieldwork was conducted at LTCP’s location in Portsmouth, New Hampshire, from
February 10 through February 21, 2014, and additional audit work was performed at our offices
in Washington, D.C. and Cranberry Township, Pennsylvania.

BACKGROUND

LTCP, a wholly owned subsidiary of John Hancock Life & Health Insurance Company, was
created in 2002 to administer the Federal Long Term Care Insurance Program (FLTCIP).
Beginning March 1, 2005, LTCP assumed the responsibility for the development, maintenance,
and administration of BENEFEDS (an enrollment and premium processing system) necessary to
facilitate the administrative functions of the Federal Employee Dental and Vision Insurance
Program (FEDVIP) and the Federal Employees Flexible Spending Account Program
(FSAFEDS) through an amendment to Contract OPM-01-RFP-0016 between OPM and LTCP.

LTCP’s agreements with OPM for all services (Contract OPM-01-RFP-0016) expired on
April 30, 2009, but were extended to September 30, 2009. OPM awarded the Sole Source
Contract OPM0031000001 to LTCP, effective October 1, 2009, to continue administering
BENEFEDS. The new contract provided for two 3-month and six 1-month options to extend the
contract period. The last of the extension options expired on September 30, 2012, and there have
been four additional modifications to the contract to extend it through April 30, 2014.

BENEFEDS was implemented in 2006, and consists of the system and business structures
necessary to administer the enrollment and/or premium administration functions associated with
multiple voluntary federal benefits that include FEDVIP, FSAFEDS, and FLTCIP.

There are four major components to BENEFEDS:

      an enrollment website (www.BENEFEDS.com);
      data transmission to/from the carriers;
      a premium administration system; and
      a customer service system.

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



                                               1
Our previous audit of BENEFEDS (Report Number 1G-LT-00-08-062), dated November 4,
2009, covered administrative expenses, premium payments, and cash management activities
related to FEDVIP for contract years 2005 through July 2008. The audit report did not disclose
any findings or significant deficiencies.




                                               2
               II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The primary objective of our audit was to determine whether costs charged to BENEFEDS and
services provided to portal users were in accordance with the terms of Contract
OPM0031000001 and federal regulations.

Our specific objectives were as follows:

Administrative Expense Review

      To obtain and document an understanding of LTCP’s cost accounting system.
      To determine if all overhead and administrative expenses charged to the program were
       actual, allocable, reasonable, and allowable.
      To determine if excess administrative fees were used in subsequent years to reduce
       administrative expenses.

Cash Management Review

      To determine if LTCP accurately transferred the FEDVIP premiums to carriers, if
       administrative fees for OPM and LTCP were calculated correctly and reconcile to
       financial statements, and to reconcile FEDVIP refunds and returned items to supporting
       documentation and financial statements.
      To determine if LTCP accounted for and maintained premiums and program funds
       independent of its other lines of business and if the premiums and program funds were
       held in interest bearing accounts.
      To determine if LTCP’s FEDVIP profit allowances were correctly calculated and
       reconcile to the financial statements.
      To obtain an understanding of OPM’s fee subsidy in FY 2012 and to reconcile the
       subsidy to bank statements and financial statements.
      To determine if LTCP’s FSAFEDS administrative fees and profit allowances were
       correctly calculated and reconcile to the financial statements.

Compliance Review

      To determine if LTCP has policies and procedures in place to prevent, detect, and
       disclose fraud and abuse.
      To determine if LTCP complies with the Health Insurance Portability and Accountability
       Act’s (HIPAA) in its handling of personally identifiable information.
      To determine if LTCP contracted with any subcontractors to carry out its functions for
       the program and if all applicable laws and regulations were followed.
      To determine if LTCP’s internal control policies and procedures are reasonable
       safeguards over activities and processes.



                                              3
Performance Review

      To determine if LTCP met its performance standards and whether it paid any penalties
       for performance standards that were not met.
      To determine if LTCP performs a review of dependents to ensure that coverage has been
       terminated for those dependents who have aged-out of the FEDVIP.

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 LTCP’s adherence to its contractual and regulatory requirements
for contract years 2010 through 2013. The audit scope included a review of LTCP’s
administrative expenses, cash management, contractual compliance, and performance standards.

For contract years 2010 through 2013, LTCP reported collecting $4,099,230,355 in receipts for
BENEFEDS operations, including fee subsidies and investment income. From this amount,
LTCP reported disbursements of $3,923,440,554 in premium payments to FEDVIP carriers and
another $161,055,340 for BENEFEDS administrative fees disbursed to itself and OPM (includes
LTCP’s profit allowance of $18,012,985). The remaining funds are maintained as a cash balance
for BENEFEDS (See Schedule A).

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.

We also conducted tests to determine whether LTCP had complied with the contract and the laws
and regulations governing BENEFEDS. Exceptions noted in the areas reviewed are set forth in
the “Audit Findings and Recommendations” section of this report. With respect to the items not
tested, nothing came to our attention that caused us to believe that LTCP 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
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.


                                                 4
METHODOLOGY

To determine whether LTCP’s administration of BENEFEDS was in compliance with the terms
of the contract and applicable regulations, we performed the following audit steps:

Administrative Expense Review

      Met with LTCP personnel and reviewed their cost accounting policies and procedures to
       obtain an understanding of LTCP’s cost accounting system.

      Reconciled expenses reported in LTCP’s general ledger to its audited financial statements
       to ensure that they were properly reported.

      Selected a judgmental sample of 10 cost centers from fiscal year (FY) 2012 totaling
       $22,489,063 out of a universe of 20 cost centers totaling $25,015,857 to determine if the
       cost centers were allowable, allocable, and reasonable based on Federal Acquisition
       Regulation (FAR) part 31.2. Our sample selection included four cost centers with the
       highest dollar amount and the six cost centers that contained allocations for LTCP’s
       senior management.

      Selected a judgmental sample of 10 natural accounts from FY 2012 totaling $23,059,626
       out of a universe of 45 natural accounts totaling $25,015,857 to determine if the accounts
       were allowable, allocable, and reasonable under FAR 31.2. Our sample selection
       included the 10 natural accounts with the highest dollar amounts.

      Selected a sample of 50 general ledger transactions from FY 2012 with a net charge of
       $152,556 out of a universe of 6,797 general ledger transactions with a net charge of
       $25,015,857 to determine whether the transactions were allowable, allocable, and
       reasonable under FAR 31.2. We randomly selected the 50 general ledger transactions
       using Microsoft Excel’s Data Analysis tool for random number generating and sample
       selection.

      Reconciled FEDVIP’s and FSAFEDS’s reported excess administrative fees per the
       audited financial statements to their actual administrative fees per the year-end bank
       statements to ensure that they were properly reported.

      Reviewed LTCP’s executive compensation charged to BENEFEDS for FY 2010 through
       2013 to determine if the amounts exceeded the Office of Federal Procurement Policy’s
       allowable limits.

      Recalculated the allocation methodology, using our sample of six cost centers that
       contained allocations for LTCP’s senior management, to ensure that expenses were
       properly divided between LTCP’s two lines of business (BENEFEDS and FLCTIP).




                                                5
Cash Management Review

          Requested and reviewed banking account documentation to verify that LTCP has not
           commingled funds with its other line of business.

          Reviewed a judgmental sample of premiums received to determine if the correct
           premiums were calculated and transferred to each FEDVIP carrier, if the refunds and
           returned items reconciled to financial statements and supporting documentation, and if
           the correct administrative fees for OPM and LTCP were calculated and transferred. We
           selected our sample by first identifying the lowest month of premiums received from
           each fiscal year (FY 2010 through 2014) and then selected the lowest week of premiums
           from each of those months. Total sample size included 4 weeks totaling $10,472,924 in
           premiums received out of a universe of 208 weeks totaling $4,086,254,256 in premiums
           received.

          Reviewed LTCP’s bank accounts and banking documents to verify that the premiums and
           OPM’s administrative fees were held in an interest-bearing bank account and that
           investment income earned was used to offset expenses.

          Judgmentally selected a 4 month sample of the FEDVIP’s profit allowance, totaling
           $1,509,939, out of a universe of 48 months, totaling $16,479,949, to verify that LTCP
           correctly calculated and reconciled its profit allowance in accordance with enrollment
           reports and Attachments 5C-5E of the contract. We selected our sample by choosing two
           months from FY 2012 and two months from FY 2013 with the highest dollar profit
           amount for review. FY 2010 and 2011 were excluded from selection due to Section
           I.21(e) of the contract, which prohibits the questioning of any costs that have not been
           audited within two years after they were incurred.

          Gained an understanding of OPM’s fee subsidy that was paid to LTCP in FY 2012, and
           verified that the subsidy amounts within the financial statements reconciled to bank
           records and/or other supporting documentation.

          We reviewed all FSAFEDS administrative expenses and profit allowance for FY 2012
           and 2013 to determine if the amounts were calculated correctly and reconciled to the
           financial statements and appropriate reports. FY 2010 and 2011 were excluded from
           selection due to Section I.21(e) of the contract, which prohibits the questioning of any
           costs that have not been audited within two years after they were incurred.

Compliance Review

           Reviewed LTCP’s policies and procedures for fraud and abuse to determine if they
            were sufficient to prevent, detect, and disclose fraud and abuse activities.

           Reviewed LTCP’s policies and procedures for HIPAA to determine if they complied
            with each HIPAA standard.


                                                    6
        Identified any subcontractors utilized by LTCP to perform functions related to
         BENEFEDS and verified that OPM was aware of and approved the subcontracts.

        Reviewed LTCP’s internal control policies and procedures to determine if there were
         reasonable safeguards over activities and processes.

Performance Review

        Judgmentally selected the performance standard metric groups for FEDVIP and
         FSAFEDS that carried the greatest amount of weight or greatest penalty potential in
         FY 2012 and 2013 to verify that LTCP is complying with the performance standards
         and paid any penalty for performance standards that were not met. Our review
         included a total penalty amount of $0.62 per enrollee encompassing 11 performance
         standards out of a universal penalty amount of $1.10 per enrollee encompassing 26
         performance metrics. FY 2010 and 2011 were excluded from selection due to Contract
         OPM0031000001 Section I.21(e), which prohibits the questioning of any costs that
         have not been audited within two years after they were incurred.

        Determined it LTCP performs a review of dependents to ensure that coverage has been
         terminated for those dependents who have aged-out of the FEDVIP.

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 were representative of
the universe as a whole. We used the BENEFEDS contract and FAR 31.2 to determine if the
administrative expenses charged against the Contract were allowable, allocable, and reasonable.

The results of our audit were discussed with LTCP officials throughout the audit. In addition, a
draft report, dated April 24, 2014, was provided to LTCP for review and comment. LTCP’s
response and comments to our draft report were considered in preparing the final report and are
included as an Appendix.




                                                 7
             III. AUDIT FINDINGS AND RECOMMENDATIONS
A.   ADMINISTRATIVE EXPENSE REVIEW

     1. Overcharged Allocated Expenses                                                   $77,590

        LTCP overcharged BENEFEDS $77,590 in allocated expenses during contract year
        2012.

        Contract OPM0031000001, I.23(b)(1) states that “The allowable costs chargeable to the
        contract 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 [FAR]….”

        Additionally, FAR 31.201-4 states that “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… (b) Benefits both the contract and other work, and can be
        distributed to them in reasonable proportion to the benefits received....”

        Finally, section I.19 of the contract requires LTCP to pay BENEFEDS investment
        income that was lost as a result of unallowable, unallocable, or unreasonable charges.

        As part of our administrative expense review, we looked at the allocation methods used
        to split expenses between LTCP’s two lines of business, BENEFEDS and the FLTCIP.
        Because LTCP splits the expenses based on its employee headcount, we recalculated
        the percentages and found that LTCP’s spreadsheet formula excluded the employee
        count within its FLTCIP Claims Unit. The employee count in the FLTCIP’s Claims
        Unit varied between 11 and 13 full-time employees during the months of October 2011
        through May 2012. The formula error was discovered and corrected by LTCP in June
        2012, but no adjustments were made to recover the overcharge to BENEFEDS that was
        incurred from the prior eight months.

        As a result of this error, the allocation percentage used to charge administrative
        expenses to BENEFEDS should have been three percent lower on average. When
        applied to the six cost centers that were affected by the error, BENEFEDS was
        overcharged $77,590.

        After being notified of this audit finding, LTCP reviewed the figures and returned
        $77,590 to BENEFEDS through a general ledger adjustment for March 2014.

        Recommendation 1

        We recommend that the contracting officer verify that LTCP has returned $77,590 to
        BENEFEDS as part of its corrective action plan to resolve the administrative expense
        overcharge.

                                               8
        LTCP’s Comments:

        LTCP agrees with the recommendation, and as mentioned above, has already returned
        the questioned amount through a general ledger adjustment for March 2014.

        Recommendation 2

        We recommend that the contracting officer direct LTCP to implement a management
        approval process that will require a review of its manual calculations for allocating
        costs between the FLTCIP and BENEFEDS.

        LTCP’s Comments:

        LTCP agrees with the recommendation and has implemented a management level
        review and approval process to ensure that expense allocations are correct for future
        years.

        Recommendation 3

        We recommend that the contracting officer require LTCP to pay BENEFEDS lost
        investment income (LII) on the $77,590 unallowable charge in accordance with section
        I.19 of the contract.

        LTCP’s Comments:

        The draft report did not include LII on the audit finding. Therefore, LTCP did not
        address this recommendation in its response to the draft report.

B.   CASH MANAGEMENT REVIEW

     The results of our review showed that LTCP had sufficient policies and procedures in place
     to ensure that BENEFEDS funds were kept separate from LTCP’s other lines of business
     and that interest earned, profit allowances, administrative fees, and premiums were
     properly handled.

C.   COMPLIANCE REVIEW

     The results of our review showed that LTCP followed the requirements for subcontracts
     and had sufficient internal controls in place to prevent and detect fraud, waste, and abuse.

D.   PERFORMANCE REVIEW

     The results of our review showed that LTCP had sufficient policies and procedures in place
     to meet its annual performance standards.




                                                9
             IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

REDACTED, Auditor-In-Charge

REDACTED, Auditor



REDACTED, Group Chief REDACTED

REDACTED, Senior Team Leader




                                 10
                                                                                                                                                 SCHEDULE A
                                                            AUDIT OF BENEFEDS AS ADMINISTERED BY
                                                               LONG TERM CARE PARTNERS, LLC
                                                            FOR CONTRACT YEARS 2010 THROUGH 2013

                                                           SCHEDULE OF RECEIPTS AND DISBURSEMENTS
                                                                REPORT NUMBER: 1G-LT-00-14-031


RECEIPTS                                                                         2010             2011             2012             2013           TOTAL

 A.   PREMIUM                                                                $815,869,024    $1,004,330,716   $1,093,637,809   $1,169,008,771   $4,082,846,320

 B.   FEE SUBSIDY                                                                $0               $0           $4,810,000       $11,558,906      $16,368,906

 C.   INVESTMENT INCOME                                                        $15,129            $0               $0               $0             $15,129

                                 TOTAL RECEIPTS                              $815,884,153    $1,004,330,716   $1,098,447,809   $1,180,567,677   $4,099,230,355

DISBURSEMENTS

 A.   PREMIUM PAID TO FEDVIP CARRIERS                                        $785,328,828    $939,247,152     $1,056,224,421   $1,142,640,153   $3,923,440,554

 B.   ADMINISTRATIVE FEES PAID TO LTCP                                       $31,075,868      $32,104,358      $33,297,355      $33,334,993     $129,812,574
      (FEDVIP Profit Allowance included in total above)                       $3,561,844       $3,906,527       $4,413,706       $4,597,872      $16,479,949
      (FSAFEDS Profit Allowance included in total above)                       $376,793         $379,631         $385,555         $391,057        $1,533,036
                                                                                                                                                 $18,012,985

 C.   ADMINISTRATIVE FEES PAID TO OPM                                         $9,500,692      $11,329,008      $5,940,905       $3,372,007       $30,142,612

 D.   OTHER DISBURSEMENTS (Refunds and Bank Fees)                             $202,862         $226,327         $321,990         $348,975        $1,100,154

      TOTAL ADMINISTRATIVE FEES                                              $40,779,422      $43,659,693      $39,560,250      $37,055,975     $161,055,340

                             TOTAL DISBURSEMENTS                             $826,108,250    $982,906,845     $1,095,784,671   $1,179,696,128   $4,084,495,894

                                  CASH BALANCE                               ($10,224,097)    $21,423,871      $2,663,138        $871,549        $14,734,461
                                                                                                       SCHEDULE B
                                          AUDIT OF BENEFEDS AS ADMINISTERED BY
                                             LONG TERM CARE PARTNERS, LLC
                                          FOR CONTRACT YEARS 2010 THROUGH 2013

                                             SUMMARY OF QUESTIONED COSTS
                                             REPORT NUMBER: 1G-LT-00-14-031

AUDIT FINDINGS                                                     2010       2011     2012     2013     TOTAL

 A.   ADMINISTRATIVE EXPENSES

      1. Overcharged Allocated Expenses                            $0            $0   $77,590   $0       $77,590

TOTAL QUESTIONED COSTS                                             $0            $0   $77,590   $0       $77,590
100 Arboretum Drive                                                                          Appendix
Portsmouth, NH 03801-7833

May 28, 2014

REDACTED
Group Chief
Special Audits group
U.S. Office of Personnel Management
1900 E Street NW
Washington, DC 20415

RE: Draft Audit Report No. 1G-LT-00-14-031

Dear REDACTED,

I’m writing in response to the draft audit report No. 1G-LT-00-14-031, Audit of BENEFEDS as
Administered by Long Term Care Partners, LLC For contract Years 2010 through 2013.

We agree with the finding identified in your report regarding overcharged allocated expenses of $77,594
during FY2012. As you stated, the overcharge was caused by an error in the formula used to allocate
indirect administrative costs to our two lines of business, BENEFEDS and the Federal Long Term Care
Insurance Program (FLTCIP). Although the formula error had been identified and corrected by our
accounting personnel prior to your audit, the financial impact had not been. When this was brought to
our attention, an adjustment, reducing BENEFEDS expenses and increasing FLTCIP’s, was made to the
current fiscal year (FY2014). Documentation of the adjustment was provided to the audit team.
Additionally, we have implemented a management level review and approval process to ensure that
expense allocations are done correctly in the future.

Thank you for the opportunity to respond to the draft report.

Sincerely,
Linda S. Roth
Linda S. Roth, CPA
Chief Financial Officer

cc:    Paul E. Forte, Chief Executive Officer
       Long Term Care Partners, LLC

       REDACTED, Controller
       Long Term Care Partners, LLC

       REDACTED, Senior Team Leader
       Special Audits Group, Office of the Inspector General, U.S. Office of Personnel Management

       REDACTED, Auditor
       Special Audits Group, Office of the Inspector General, U.S. Office of Personnel Management