oversight

Audit of the Federal Long Term Care Insurance Program As Administered by Long Term Care Partners, LLC for Contract Years 2010 Through 2012

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 THE FEDERAL LONG TERM CARE 

 INSURANCE PROGRAM AS ADMINISTERED BY 

    LONG TERM CARE PARTNERS, LLC FOR 

    CONTRACT YEARS 2010 THROUGH 2012 





                                           Report No. lG-LT-00-14-025


                                          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


   Office of the
Inspector General




                                                              AUDIT REPORT 





                                AUDIT OF THE FEDERAL LONG TERM CARE 

                               INSURANCE PROGRAM AS ADMINISTERED BY 

                                  LONG TERM CARE PARTNERS, LLC FOR 

                                  CONTRACT YEARS 2010 THROUGH 2012 



                                         CONTRACT NUMBER: OPM490900004 




                        Report No. lG-LT-00-14-025                                          Date: 1 2 I 2 3 I 1 4




                                                                                             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
Inspector General




                                       EXECUTIVE SUMMARY




                           AUDIT OF THE FEDERAL LONG TERM CARE 

                          INSURANCE PROGRAM AS ADMINISTERED BY 

                             LONG TERM CARE PARTNERS, LLC FOR 

                             CONTRACT YEARS 2010 THROUGH 2012 



                                CONTRACT NUMBER: OPM490900004 





                      Report No. lG-LT-00-14-025                   Date: 1 2 I 2 3 I 1 4

       The enclosed audit report details the results of our audit of the Federal Long Term Care
       Insurance Program (FLTCIP) as administered by Long Term Care Partners, LLC (LTCP) for
       contract years 2010 through 2012. The primary objective of our audit was to determine whether
       LTCP's costs charged to the FLTCIP and services provided to FLTCIP subscribers were in
       accordance with the terms of Contract No. OPM490900004, between LTCP and the U.S. Office
       of Personnel Management (OPM), and applicable federal regulations. The audit scope included
       a review of LTCP's administrative expenses, cash management, claim benefit payments, profit
       and performance incentives, HIP AA policies and procedures, and fraud and abuse policies and
       procedures. We expanded the scope of the profit and performance incentives review through
       December 6, 2013, due to the charging of excess investment management fees to the FL TCIP
       Experience Fund.

       The audit identified four monetary findings. Three findings identified overcharges to the
       program of $34,524, including $3,826 in lost investment income, and one finding identified an
       undercharge of $77,590. Additionally, the audit identified two procedural findings regarding
       administrative expenses and cash management.

       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.



        www.opm.gov                                                                        www.usajobs.gov
The results of our audit have been summarized below.

                         ADMINISTRATIVE EXPENSE REVIEW 


•   Unallowable Lodging Expenses                                                        $13,110

    LTCP charged the FLTCIP $13,110 in unallowable lodging expenses in excess of the
    General Service Administration's per diem rates during contract years 2010 through 2012.

•   Undercharged Allocated Expenses                                                   ($77,590)

    LTCP did not properly apply its Management Allocation methodology used to allocate
    certain administrative expenses to the FLTCIP in 2012, resulting in a $77,590 undercharge.

•   Understatement of 2010 FLTCIP Audited Financial Statements                      Procedural

    LTCP erroneously understated the FLTCIP's administrative expenses reported in its 2010
    audited financial statements by $114,591.

                              CASH MANAGEMENT REVIEW

•   Outstanding Check                                                               Procedural

    LTCP did not properly void or credit one outstanding benefit check within 25 months of
    issuance.

                                      CLAIMS REVIEW

The results of our review found that LTCP had the appropriate policies and procedures in place
to process claims and recover overpayments.

                 PROFIT AND PERFORMANCE INCENTIVES REVIEW

•   Investment Management Fees - Lost Investment Income                                 $17,588

    LTCP did not return $17,588 oflost investment income on investment management fees that
    were incorrectly calculated from 2010 through 2013.

    HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT REVIEW

The results of our review showed that LTCP has policies and procedures in place to address the
Health Insurance Portability and Accountability Act's Standards for Electronic Transactions,
Privacy Rules, and Security Rules.




                                               11
                               FRAUD AND ABUSE REVIEW 


Our review determined that LTCP's policies and procedures for fraud and abuse were in
compliance with the requirements of the Contract.

                               LOST INVESTMENT INCOME

•   Lost Investment Income on Unallowable Expenses                                           $3,826

    The FL TCIP is due $3,826 for lost investment income related to $13, 110 in questioned
    administrative expenses.




                                              lll
                                                       CONTENTS 

                                                                                                                               PAGE

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


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


 II.     OBJECTIVES, SCOPE, AND METHODOLOGY ............................................................. .4 


III. 	   AUDIT FINDINGS AND RECOMMENDA TIO NS ......................................................... .! 0 


         A. 	     ADMINISTRATIVE EXPENSE REVIEW ............................................................ 10 


                  1. Unallowable Lodging Expenses ........................................................................ 10 

                  2. Undercharged Allocated Expenses .................................................................... 11 

                  3. Understatement of 2010 FL TCIP Audited Financial Statements ...................... 13 


         B. 	     CASH MANAGEMENT REVIEW ......................................................................... 14 


                   1. Outstanding Check ............................................................................................. 14 


         C. 	     CLAIMS REVIEW .................................................................................................. 15 


         D. 	     PROFIT AND PERFORMANCE INCENTIVES REVIEW .................................. .15 


                  1. Investment Management Fees - Lost Investment Income ................................ .15 


         E. 	     HEALTH INSURANCE PORTABILITY AND ..................................................... 16 

                  ACCOUNTABILITY ACT REVIEW 


         F. 	     FRAUD AND ABUSE REVIEW ............................................................................ 16 


         G. 	     LOST INVESTMENT INCOME ............................................................................ 17 


                  1. Lost Investment Income on Unallowable Expenses .......................................... 17 


IV. 	    MAJOR CONTRIBUTORS TO THIS REPORT ................................................................ 18 


         SCHEDULE A - SCHEDULE OF REVENUE AND EXPENSES 

         SCHEDULE B - SUMMARY OF QUESTIONED COSTS 

         SCHEDULE C - LOST INVESTMENT INCOME CALCULATION 


         APPENDIX (LTCP' s response to the draft report, dated July 8, 2014)
                    I. INTRODUCTION AND BACKGROUND 


INTRODUCTION 


This report details the results of our audit of the Federal Long Term Care Insurance Program
(FLTCIP) as administered by Long Term Care Partners, LLC (LTCP) for contract years 2010
through 2012. The audit was conducted pursuant to the provisions of Contract Number
OPM490900004 (Contract) and applicable regulations (5 CFR Part 875). The audit covered
LTCP' s adherence to its contractual and regulatory requirements under the FL TCIP. We
expanded the scope of the profit and performance incentives review through December 6, 2013,
due to the charging of excess investment management fees to the FL TCIP Experience Fund.

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

The FLTCIP 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 their qualified relatives.

In December 2001, OPM awarded a seven-year contract to LTCP to offer long term care
insurance coverage to eligible participants. A new contract was awarded to John Hancock Life
and Health Insurance Company (John Hancock) upon the expiration of the original contract. On
October 1, 2009, John Hancock became the sole insurer and LTCP became a wholly-owned
subsidiary of John Hancock. 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.

OPM's Federal Employee Insurance Operations, Individual Benefits and Life (IBL) group has
overall responsibility for administering the Program, including the publication of program
regulations and agency guidelines and the following:

   •	  Maintain the OPM FL TCIP website;
   •	  Liaison with federal agencies and uniformed services;
   •	  Facilitate the promotion of the FLTCIP as Program sponsor,
   •	  Be responsive on a timely basis to the LTCP's requests for information and assistance;
   •	  Perform, as provided by th.e Long Term Care Security Act, functions typically associated
       with insurance commissions such as the review and approval of rates, forms, and
       marketing materials, and
   • 	 Request any re-determinations, if necessary, from the Secretary of the Treasury pursuant
       to 26 U.S.C. 7702B(g)(2)(B)(iii) in order to ascertain that the FLTCIP meets the

                                               1

       requirements of the National Association oflnsurance Commissioners Long Term Care
       Model Act and Regulations.

OPM's IBL group contracts with LTCP to provide Long Term Care Insurance coverage to
federal employees. LTCP's responsibilities, as outlined in the Contract, are carried out at its
office located in Portsmouth, New Hampshire. The Contract and the "Request For Proposal"
include a provision, 1.10 Inspection of Services - Fixed Price, which allows for audits of
FLTCIP's operations.

Incorporated into this Contract are six modifications (0001 through 0006). This is a fixed-price
with prospective price re-determination-type contract. The Contract is for a base period of seven
years with an option for renewal.

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

The duties and responsibilities of LTCP include the following:

   a. 	 To provide payments or benefits to an eligible individual if such individual is entitled
        thereto under the terms of the contract; and
   b. 	 with respect to disputes regarding claims for payments or benefits under the terms of the
        contract;
         1.   to establish internal procedures designed to expeditiously resolve such disputes; and
        11. 	 to establish, for disputes not resolved through procedures under clause, procedures
              for one or more alternative means of dispute resolution involving independent third­
              party review under appropriate circumstances by entities mutually acceptable to the
              Office and qualified company.

Program assets are held in the "Experience Fund." Premiums received by LTCP are deposited
into the Experience Fund and invested by John Hancock. Investment income, net of John
Hancock management fees, is retained in the Experience Fund. Claims paid by L TCP are
deducted from the Experience Fund, and liabilities for "incurred but not reported claims" (IBNR)
are accrued and reported in the financial statements. Upon termination of the contract, the
Experience Fund (reduced by IBNR claims, any other reserves for claims remaining with LTCP,
and agreed-upon termination fees), calculated as of the date of the termination, would be
transferred to the new contract holder.

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

Our previous audit of LTCP (Report Number lG-LT-00-10-022), dated November 10, 2011,
covered Administrative Expenses, Cash Management, Claims, Health Insurance Portability and


                                                 2

Accountability Act (HIP AA) Compliance and Fraud and Abuse Compliance for contract years
2008 and 2009. All recommendations from the prior audit have been satisfactorily resolved.




                                             3

               II. OBJECTIVES, SCOPE, AND METHODOLOGY 

OBJECTIVES

The primary objective of our audit was to determine whether LTCP' s costs charged to the
FL TCIP and services provided to FL TCIP subscribers were in accordance with the terms of the
Contract 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 reconcile the FLTCIP Experience Fund's administrative expenses reported in the
       Audited Financial Statements to LTCP' s general ledger and other supporting
       documentation, as necessary.
   • 	 To determine whether the sampled invoices charged to the FLTCIP were allowable,
       allocable, and reasonable based on Federal Acquisition Regulation (FAR) Part 31.2. In
       addition, provide reasonable assurance that LTCP' s updated travel policy was
       implemented properly.
   • 	 To determine whether the cost centers and natural accounts charged to the FLTCIP were
       allowable, allocable, and reasonable based on FAR 31.201.
   • 	 To determine whether LTCP charged executive compensation to the FL TCIP in 

       accordance with the federal regulations. 

   • 	 To review all expense guarantees to ensure the charges reported to OPM didn't exceed
       the expense guarantee requirements.
   • 	 To review the allocation methodology to determine whether an appropriate base is used
       and to reconcile the allocations made based on the accounting methodology provided.
   • 	 To review John Hancock's management fees charged to the FLTCIP for allowability.

Cash Management Review

   • 	 To obtain an overview of LTCP's procedures and processes for the FLTCIP.
   • 	 To determine ifLTCP accounted for and maintained FLTCIP funds separate from 

       LTCP's other assets. 

   • 	 To determine ifLTCP held premiums in an interest-bearing bank account and investment
       income earned was credited to the Experience Fund. Also, to reconcile the investment
       fees and income reported to financial records, as of September 30, 2012.
   • 	 To reconcile LTCP's monthly cash management schedules to Experience Fund bank
       records and/or other supporting documentation.
   • 	 To reconcile one month of premiums received to premiums expected, and then sample
       and review the premiums received to determine if they were supported and deposited into
       the Experience Fund properly.
   • 	 To select a sample and review the disbursements (i.e., on-going costs, Deferred 

       Acquisition Cost taxes, profit charge, interest expense, and OPM administrative 

       expenses) from the Experience Fund. 


                                              4
   • 	 To determine if the estimate for claims incurred but not reported and the Disabled Life
       Reserve calculations are supported and reconcile to the audited financial statements.
   • 	 To determine if any outstanding checks are older than 25 months.

Claims Review

   • 	 To obtain an understanding of LTCP' s claims processing system for the FL TCIP.
   • 	 To reconcile LTCP's paid claims file total to the amount reported as paid claims on the
       Statement of Experience Fund Activity/Trial Balance.
   • 	 To select "other" identified claim samples to provide to LTCP for review.
   • 	 To verify that there were no unallowable or duplicate claim payments made by LTCP.
   • 	 To determine if Medicare eligible claims were properly coordinated.
   • 	 To obtain supporting documentation to determine whether LTCP timely deposited the
       claim overpayments to the Experience Fund.

Profit and Performance Incentives Review

   • 	 To determine if the profit charge (performance and asset based) for the FL TCIP was
       calculated and supported with adequate documentation.
   • 	 To determine if LTCP met its performance standards identified in the Quality Assurance
       Surveillance Plan during the scope of the audit.
   • 	 To determine if the investment management fees were calculated and supported with
       adequate documentation.

HIPAA Review

   • 	 To determine if LTCP's administration of FLTCIP is in compliance with HIP AA 

       regulations. 


Fraud and Abuse Review

   • 	 To determine if LTCP has policies and procedures in place to prevent, detect, and 

       disclose fraud and abuse of FL TCIP funds. 


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 2012. The audit scope included a review ofLTCP's
administrative expenses, cash management, claim benefit payments, profit and performance
incentives, HIP AA policies and procedures, and fraud and abuse policies and procedures. As

                                               5

stated previously, we expanded the scope of the profit and performance incentives review
through December 6, 2013, due to the charging of excess investment management fees to the
Experience Fund.

For contract years 2010 through 2012, the FL TCIP had revenues of $1.8 billion, which includes
premiums and investment income. It also had expenses of $508 million, which includes claims
expense, deferred acquisition costs tax, profit charge, interest expense, and OPM and LTCP
administrative expenses (See Schedule A).

In planning and conducting the audit, we obtained an understanding of L TCP' 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 the FLTCIP. 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.

METHODOLOGY

To determine whether L TCP' s administration of the FL TCIP was in compliance with the terms
of the contract and applicable regulations, the following audit steps were performed:

Administrative Expense Review

   • 	 We reconciled L TCP' s general ledger expenses to its annual financial statements.

   • 	 From contract year 2012, we randomly selected 43 general ledger transactions (out of a
       universe of 13,556), totaling $130,594 (out of a universe of $26,546,072), to determine if
       the amounts were actual, allocable, reasonable, and allowable. As a result of an audit
       finding, we expanded the general ledger review to include all $67,831 in expenses
       charged to natural account "Lodging - Marketing/Seminars/CL TC Sales" during contract
       years 2010 through 2012 that were greater than or equal to $259, with the exception of
       transactions identified as accrual expenses.


                                                 6

   • 	 From contract years 2010 through 2012, we judgmentally selected 6 cost centers (out of a
       universe of21), totaling $39,516,211 (out of a universe of$84,821,739), to determine if
       the costs charged were actual, allocable, reasonable, and allowable. Specifically, we
       selected four cost centers (totaling $31,417,496) based on high dollars and three cost
       centers (totaling $17,442, 191) where year to year percentage changes were greater than
       34 percent and where the dollar value of the change was greater than or equal to
       $150,000. (Note: One cost center, totaling $9,343,476, was common between the two
       samples, resulting in six total cost centers selected.)

   • 	 From contract year 2012, we judgmentally selected 10 natural accounts (out of a universe
       of 73), totaling $17,600, 195 (out of a universe of $26,546,072), to determine if the costs
       charged were actual, allocable, reasonable, and allowable. Specifically, we selected five
       natural accounts based on high dollars (totaling $16,465,456) and five natural accounts
       based on nomenclature review (totaling $1, 134, 73 9).

   • 	 We reviewed all executive compensation expenses charged to the FL TCIP during
       contract years 2010 through 2012, totaling $4,167,621, to verify that the amounts did not
       exceed the compensation expense limit for government contractors.

   • 	 We compared the 2010 through 2012 expenses to LTCP's expense guarantees, to ensure
       that LTCP did not exceed its expense guarantees.

   • 	 From contact year 2012, we judgmentally selected the allocation method associated with
       the highest dollar cost center (out of a universe of four allocation methods), totaling
       $3,600,594 (out of a universe of$3,951,289), to test its allocated costs and determine if
       an appropriate base was used.

   • 	 From contract years 2010 through 2012, we judgmentally selected $2,132,744 in John
       Hancock management fees that were charged to the FL TCIP (out of a universe of
       $3 ,609,019), to determine if the costs were actual, allocable, reasonable, and allowable.
       Specifically, we selected the two high dollar personnel costs from the two high dollar
       expense categories for each fiscal year.

Cash Management Review

   • 	 We held a meeting with LTCP to confirm that it did not commingle FL TCIP funds with
       other lines of business.

   • 	 For contract year 2012, we judgmentally selected three reporting months (July, August,
       and September) to determine if:
       ~ the reported investment income reconciled to the trial balances;
       ~ the amounts reported in the Experience Fund traced to supporting documentation;
            and
       ~ the disbursements and premiums reported in operational program reports reconciled
            to the bank statements.


                                                7

   • 	 For contract year 2012, we reviewed and reconciled the estimate for incurred but not
       reported claims, the disabled life reserve calculations, and other year-end adjustments to
       the audited financial statements.

   • 	 We reviewed the outstanding check reports as of September 3 0, 2012, to determine if
       there were any outstanding checks older than 24 months.

Claims Review

   • 	 We performed a reconciliation of paid claim amounts in LTCP' s claims system to paid
       benefits reported in the Experience Fund's annual financial statements and the FL TCIP
       trial balance.

   • 	 From contract years 2010 through 2012, we judgmentally selected 60 paid claims (out of
       a universe of 77,779 paid claims), representing $2,211,171 in net claim payments (out of
       a universe of $173,359,302), to determine if the claims were accurately processed.
       Specifically, we selected the 20 highest dollar claims per contract year for review.

   • 	 From contact years 2010 through 2012, we judgmentally selected the 10 highest dollar
       claim overpayments (out of a universe of 95), representing $67,677 in credits (out of a
       universe of $159,626), to determine if the refunds were returned promptly to the FL TCIP.

Profit and Performance Incentives Review

   • 	 For contract year 2012, we judgmentally selected the last quarter of the contract year
       (most readily available information) to recalculate the profit charges using supporting
       documentation to verify the amounts reported.

   • 	 From the 2012 contract year quality assurance surveillance plan (QASP) performance
       standards, we judgmentally selected 4 factors with at least 0.2 percent of the 2 percent
       non-guaranteed profit charge amount (out of a universe of9) to determine ifthe QASP
       target values were accurate and achieved or if the profit value at risk was remitted to
       OPM.

   • 	 From contract year 2012, we judgmentally selected investment management fees for the
       last quarter of the contract year (most readily available information), totaling $1,204,511
       (out of a universe of $4,436,202), to determine ifthe investment management fees were
       calculated accurately and supported with adequate documentation. As a result of an audit
       finding, we expanded the audit scope through December 6, 2013, to verify that the
       Experience Fund was fully reimbursed for excess management fees.

Health Insurance Portability and Accountability Act Review

   • 	 We reviewed LTCP policies and procedures in place to determine if they are in
       compliance with HIP AA regulations.


                                                8
Fraud and Abuse Review

    • 	 We reviewed LTCP policies and procedures in place to prevent, detect, and disclose
        fraud and abuse of FL TCIP funds.

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

The results of our audit were discussed with LTCP officials throughout the audit. In addition, a
draft report, dated June 6, 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.




                                                 9

             III. AUDIT FINDINGS AND RECOMMENDATIONS 


A.   ADMINISTRATIVE EXPENSE REVIEW 


     1. Unallowable Lodging Expenses                                                      $13,110

        L TCP charged the FL TCIP $13, 110 in unallowable lodging expenses in excess of the
        General Service Administration's (GSA) lodging per diem rates during contract years
        2010 through 2012.

        Contract section I.32(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 [FAR] applicable on October 1 of each year .... "

        Additionally, 48 CFR 31.205-46( a)(2) states that costs incurred for lodging, meals, and
        incidental expenses shall be considered reasonable and allowable only 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 Regulations, prescribed by GSA, for travel in
        the contiguous United States.

       We reviewed a sample of 43 general ledger transactions to determine ifthe costs
       charged to the FL TCIP were allowable, allocable, and reasonable. Our review
       identified one lodging transaction where LTCP did not adjust lodging expenses to the
       lesser of actual cost incurred or the maximum daily GSA per diem rates. Because this
       error was also identified in our prior audit of LTCP, we expanded our general ledger
       transaction review to include all expenses charged to natural account 72024 ("Lodging
       -Marketing/ Seminars/CL TC Sales") during contract years 2010 through 2012 that
       were greater than or equal to $259, with the exception of transactions identified as
       accrued expenses. As a result, we determined that LTCP charged the FL TCIP $13, 110
       in unallowable lodging expenses which were in excess of the GSA's lodging per diem
       rates.

        LTCP stated that it did not adhere to the GSA's lodging per diem rates for travel
        expenses during contract years 2010 through 2011. In March 2012, LTCP conducted
        an internal review of lodging expenses charged to the FL TCIP for the period of October
        2011 through March 2012, to reclassify lodging expenses in excess of the GSA's
        lodging per diem rates to its corporate account. L TCP stated that $641 of the $13, 110
        in unallowable expenses found by our audit were for contract year 2012 lodging
        expenses missed by its internal review. Additionally, LTCP stated that in May 2012, a
        new FAR compliant travel policy and new travel expense system was implemented to
        automatically reclassify lodging expenses in excess of the GSA's lodging per diem
        rates to its corporate account.




                                               10 

   As a result of not implementing a FAR compliant travel policy and travel expense
   system until May 2012, L TCP charged the FL TCIP $13, 110 in unallowable lodging
   expenses in excess of the GSA's lodging per diem rates.

   Recommendation 1

   We recommend that the contracting officer verify that LTCP returned $13, 110 in
   unallowable lodging expenses to the FLTCIP.

   LTCP's Comments:

   L TCP agrees with this recommendation and states that it has reduced its current year
   (fiscal year 2014) lodging expenses by $13,110.

   OIG Comments:

   While we appreciate that LTCP has agreed to return the overcharged amount, its
   method ofreturn (adjusting current year expenses) is not the appropriate action.
   Rather, it should adjust the actual expense totals for each fiscal year (2010 by $3,868,
   2011 by $8,601, and 2012 by $641) via prior period adjustments so that it's financial
   reports are accurately stated.

   Recommendation 2

   We recommend that the contracting officer verify that the FLTCIP's new travel
   expense system correctly reclassifies FL TCIP lodging expenses that are in excess of
   GSA' s per diem rates to LTCP' s corporate account.

   LTCP's Comments:

   L TCP agrees with this recommendation and states that its new travel and expense
   reporting system (implemented in 2012) provides its employees the allowed rates along
   with a list of compliant hotels to choose from when traveling. Additionally, it stated
   that alerts are sent to the Chief Financial Officer when lodging is booked at a non­
   compliant hotel and any amounts in excess of the allowed rates are charged to a non­
   FL TCIP account.

2. Undercharged Allocated Expenses                                                   ($77,590)

   L TCP did not properly apply its Management Allocation methodology used to allocate
   certain administrative expenses to the FL TCIP in contract year 2012, resulting in a
   $77,590 undercharge to the FLTCIP.

   Section l.32(b )(1) of the Contract states that the allowable charges to the contract for a
   fiscal year will be the allocable amounts incurred with proper justification and



                                           11 

accounting support, determined in accordance with FAR Subpart 31.2 applicable on
October 1 of each year.

Additionally, 48 CFR 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 ... Benefits both the contract and other work, and can be
distributed to them in reasonable proportion to the benefits received ...."

For contract year 2012, we reviewed the allocation methodology (Management
Allocation) which charged the most cost to the FL TCIP to determine if an appropriate
base was used. Based on our review, we determined that L TCP miscalculated the
Management Allocation for the months of October 2011 through May 2012.
Specifically, LTCP erroneously calculated the FL TCIP employee headcount and its
corporate employee headcount by excluding the FL TCIP dedicated Claims cost center
(481) headcount from the calculations. Consequently, six cost centers allocated costs to
the FL TCIP based on incorrect statistics from the Management Allocation
methodology.

For the months of October 2011 through May 2012, LTCP manually calculated and
allocated costs for the Management Allocation methodology. On a monthly basis,
LTCP's Finance department obtained month-end FLTCIP and corporate employee
headcounts from the Human Resources department. Using a Microsoft Excel
spreadsheet with pre-defined formulas, the Finance department inserted the month-end
headcount and corporate expenses into the spreadsheet to determine monthly allocated
expenses chargeable to applicable cost centers.

Following the start of contract year 2012, LTCP separated claims activities from the
Care Coordination cost center (480) to create the Claims cost center. However, when
this change took place, the Management Allocation spreadsheet was not updated to
include the Claims cost center's headcount in the calculation. LTCP realized this error
in July 2012 but failed to retroactively adjust allocated expenses for the period of
October 2011 through May 2012.

As a result of misapplying the October 2011 through May 2012 Management
Allocation methodology, LTCP undercharged the FLTCIP by $77,590.

Recommendation 3

We recommend that the contracting officer verify that LTCP charged the FL TCIP
$77,590 for contract year 2012 allocation expenses that were undercharged.

L TCP's Comments:

L TCP agrees with this recommendation and states that it has booked an adjustment to
correct the error during the audit.


                                       12
   OIG Comments:

   We accept LTCP' s response. However, LTCP should report the correction of this error
   in the Experience Fund's financial statements as a prior period adjustment to fiscal year
   2012 by ($77,590).

   Recommendation 4

   We recommend that the contracting officer verify that LTCP reviewed its monthly
   allocation approval process and identified areas of improvement to reduce manual
   errors.

   LTCP's Comments:

   LTCP agrees with the recommendation and stated that it has implemented additional
   review and approval processes to avoid these errors in the future.

   OIG Comments:

   We accept LTCP' s response. However, it did not provide the updated review and
   approval processes for our review. Therefore, we were unable to determine if the
   changes made were adequate.

3. Understatement of 2010 FLTCIP Audited Financial Statements                      Procedural

   L TCP erroneously understated the FLTCIP's administrative expenses reported in the
   Experience Fund's audited financial statements for contract year 2010 by $114,591.

   Section I.32(a)(l) of the Contract states, "The Contractor will prepare annually an
   accounting statement summarizing the financial results of the FL TCIP for the previous
   fiscal year."

   Additionally, section I.32(b )(2)(ii) states, "Administrative expenses consist of all
   actual, allocable, allowable and reasonable expenses incurred in the Contractor's
   overall administration of the FLTCIP."

   We performed a reconciliation of the FL TCIP' s administrative expenses reported in the
   Experience Fund's audited financial statements to LTCP's corporate general ledger for
   each year of our scope to identify variances. In contract year 2010, LTCP reported
   FL TCIP administrative expenses of $28, 198,646 in the financial statements and
   $28,313,237 in LTCP's corporate general ledger (a variance of$114,591). We
   determined that this variance was a result of LTCP erroneously understating the
   FL TCIP's administrative expenses in the financial statements.

   LTCP stated that it maintains two general ledgers on an ongoing basis - the corporate
   general ledger and the FL TCIP general ledger. Each month, LTCP posts administrative
   expenses incurred in administering the FL TCIP to its corporate general ledger and then

                                           13 

       to the FLTCIP's general ledger. For the month of May 2010, LTCP posted the
       FLTCIP' s final month-end administrative expenses to its corporate general ledger but
       failed to post the correct amount to the FLTCIP's general ledger. Subsequently,
       LTCP' s monthly and year-end accounting reviews did not detect this oversight.

       As a result, LTCP did not report to OPM the actual administrative expenses incurred
       during contract year 2010. Therefore, OPM may have relied upon inaccurate
       information in its oversight of LTCP's administration of the FLTCIP.

       Recommendation 5

       We recommend that the contracting officer verify that LTCP revised its monthly and
       year-end reviews to include a reconciliation of the corporate general ledger to the
       FL TCIP general ledger.

       L TCP's Comments:

       LTCP agrees with this this finding and states that it has revised its accounting
       procedures so that administrative expenses recorded on both general ledgers are
       reported on an accrual basis and are in agreement.

       OIG Comments:

       We accept LTCP' s response. However, it did not provide us with the revised
       accounting procedures. Therefore, we were unable to determine if the changes made
       were adequate.

B.   CASH MANAGEMENT REVIEW

     1. Outstanding Check                                                           Procedural

       LTCP did not properly void one outstanding benefit check and credit the check amount
       to the Experience Fund within 25 months of issuance.

        Section I.28( a-b) of the Contract states "The Contractor will void all checks issued
        pursuant to the FL TCIP contract that have been outstanding for two years. The
        amounts represented by checks voided under this provision shall be credited as set forth
        below no later than the 25th month after issuance .... The Contractor will credit the
        amount represented by any benefit check or premium refund check to the Experience
        Fund."

        We reviewed a list of LTCP' s outstanding checks and identified one benefit check that
        was not voided and credited back to the Experience Fund within 25 months.
        Specifically, the benefit check was issued on August 25, 2010, and voided and credited
        back to the Experience Fund on October 10, 2012. LTCP indicated that the one
        outstanding benefit check was an oversight due to its manual process of escheating
        checks. It's currently working to implement a less manual process.

                                              14 

        As a result of not voiding or crediting all outstanding benefit checks within the 25
        month requirement, the amounts aren't being returned to the Experience Fund on time.

        Recommendation 6

        We recommend that the contracting office verify that LTCP has strengthened its
        procedures for processing outstanding checks in compliance with the terms of the
        Contract.

        LTCP's Comments:

        L TCP agrees with this recommendation and states that it has strengthened its
        procedures related to outstanding checks.

        OIG Comments:

        We accept LTCP's response. However, it did not provide us with the revised
        outstanding check procedures. Therefore, we were unable to determine if the changes
        made were adequate.

C.   CLAIMS REVIEW

     The results of our review showed that LTCP had the appropriate policies and procedures in
     place to process claims and overpayment recoveries.

D.   PROFIT AND PERFORMANCE INCENTIVES REVIEW

     1. Investment Management Fees - Lost Investment Income                               $17,588

        LTCP did not return $17,588 of lost investment income (Lil) on investment
        management fees that were incorrectly calculated from 2010 through 2013. Although
        the excess fees were returned to the Experience Fund in 2013, the corresponding Lii
        was not calculated or credited.

        Section l.22(f) of the Contract states that Lii may be calculated on investment income
        that was lost by not crediting income due the contract, from the date the funds should
        have been invested until the date the funds are returned.

        Additionally, section l.22(g) states that Lii may be calculated using the rate ofreturn of
        the Experience Fund during the applicable time periods.

        We reviewed a sample of 2012 investment management fees and found that the fees
        had been calculated incorrectly in contract years 2010 through 2013. Specifically, John
        Hancock's Finance staff was not aware of the calculation methodology for the new
        contract, and they had based their calculations on the methodology of the first contract.
        When this was brought to LTCP's attention, we learned that they were already aware of


                                               15 

        the error and had returned a principal amount of $106,882 to the Program ($106,739
        was returned on January 7, 2013, and $143 was returned on December 6, 2013).
        However, Lii on the $106,882 was not calculated and credited to the Fund.

        Consequently, we expanded the audit scope through December 6, 2013, to verify that
        the Experience Fund was fully reimbursed for all excess investment management fees,
        and calculated Lii on the fees charged to the Experience Fund until the final credit was
        received on that date. We computed Lii on a monthly basis, compounded, using the
        Experience Fund's internal rate ofreturn calculated by LTCP. As a result, the
        Experience Fund is due $17,588 in LIL

        Recommendation 7

        We recommend that the contracting officer verify that LTCP returned $17,588 in Lil to
        the Experience Fund.

        L TCP's Comments:

        L TCP agrees with this recommendation and states that it has reduced the Investment
        Management Fee expense for fiscal year 2014 for the amount questioned.

        Recommendation 8

        We recommend that the contracting officer direct L TCP to implement policies and
        procedures for crediting Lii to the Experience Fund in compliance with the
        requirements of the Contract.

        LTCP's Comments:

        No comments addressing this recommendation were provided by LTCP.

E.   HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT REVIEW

     The results of our review showed that LTCP has policies and procedures in place to address
     the HIPAA' s Standards for Electronic Transactions, Privacy Rules, and Security Rules.

F.   FRAUD AND ABUSE REVIEW

     Our review showed that LTCP's policies and procedures for fraud and abuse were in
     compliance with the requirements of the Contract.




                                              16 

G.   LOST INVESTMENT INCOME

     1. Lost Investment Income on Unallowable Expenses                                       $3,826

        The FLTCIP is due $3,826 for Lil related to the $13,110 in questioned administrative
        expenses.

        Section 1.22(d) of the Contract states "the Contractor will pay to the [Experience] Fund
        the investment income that would have been earned, at the rate( s) specified in
        paragraph (g) of this clause, had it not been for the Contractor's noncompliance.
        'Failed to comply with paragraphs (a) or (b )' means (1) making any charges against the
        contract which are not allowable, allocable, or reasonable ...."

        Additionally, section 1.22(e) states that "Investment income lost as a result of
        unallowable, unallocable, or unreasonable charges against the contract will be paid
        from the 1st day of the fiscal year following the fiscal year in which the unallowable
        charge was made and will end on the earlier of: (1) the date the amounts are returned to
        the FLTCIP; (2) the date specified by the Contracting Officer; or (3) the date of the
        Contracting Officer's final decision."

        Finally, section I.22(g) states that Lil may be calculated using the rate of return of the
        Experience Fund during the applicable time periods.

        We computed Lil on a monthly basis, compounded, using the Experience Fund's
        internal rate of return calculated by LTCP. As a result, the Experience Fund is due
        $3,826 for LII from October 1, 2011 through June 23, 2014 when LTCP returned
        $13, 110 in questioned administrative expenses.

        Recommendation 9

        We recommend that the contracting officer require LTCP to refund the Experience
        Fund $3,826 for LII on the audit finding calculated through June 23, 2014.

        LTCP's Comments:

        The draft report did not include Lil on audit findings. Therefore, LTCP did not address
        this finding in their response to the draft report.




                                                17 

              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

                  , Auditor-In-Charge

                 , Auditor

                   , Auditor



                 , Group Chief

                 , Senior Team Leader




                                        18 

                                                                                                                       SCHEDULE A
                                            AUDIT OF THE FEDERAL LONG TERM CARE
                                           INSURANCE PROGRAM AS ADMINISTERED BY
                                              LONG TERM CARE PARTNERS, LLC FOR
                                              CONTRACT YEARS 2010 THROUGH 2012

                                             SCHEDULE OF REVENUE AND EXPENSES 

                                               REPORT NUMBER: IG-LT-00-14-025 




REVENUES                                                                   2010           2011           2012            TOTAL

 A.   PREMIUM REVENUE                                                     $334,891,144   $370,270,038   $416,400,323   $1,121,561,505

 B.   INVESTMENT INCOME                                                    181,947,883     22,783,168    476,524,335     681,255,386

                               TOTAL REVENUES                         I   $516,839,027   $393,053,206   $892,924,658   $1,802,816,891

EXPENSES

 A.   CLAIMS EXPENSES, INCLUDING CHANGE IN DISABLED LIFE RESERVES          $93,366,978   $120,611,535   $143,274,690    $357,253,203

 B.   DEFERRED ACQU1STION COSTS TAX                                          1,607,310      2,187,351      2,506,114        6,300,775

 c.   PROFIT CHARGE                                                         15,425,644     18,341,778     20,717,991      54,485,413

 D.   INTEREST EXPENSE                                                        630,500        394,041       1,255,948        2,280,489

 E.   OPM ADMINISTRATIVE EXPENESES                                           1,150,882      1,096,156      1,025,428        3,272,466

 F.   LTCP ADMINISTRATIVE EXPENSES                                          28,198,646     29,962,432     26,546,072       84,707,150

                               TOTAL EXPENSES                         I   $140,379,960   $172,593,293   $195,326,243    $508,2 99 ,496
                                                                                                                                               SCHEDULE B
                                                         AUDIT OF THE FEDERAL LONG TERM CARE 

                                                        INSURANCE PROGRAM AS ADMINISTERED BY 

                                                           LONG TERM CARE PARTNERS, LLC FOR 

                                                           CONTRACT YEARS 2010 THROUGH 2012 


                                                               SUMMARY OF QUESTIONED COSTS 

                                                               REPORT NUMBER: lG-LT-00-14-025 


AUDIT FINDINGS                                                                   2010       2011           2012        2013        2014          TOTAL

 A.   ADMINISTRATIVE EXPENSES

      1. Unallowable Lodging Expenses                                              $3,868     $8,601          $641                                 $13,110

      2. Undercharged Allocated Expenses                                                                    (77,590)                              ($77,590)

      TOTAL ADMINISTRATIVE EXPENSES                                          I     $3,868     $8,601       ($76,949)          $0          $0      ($64,480)

 B.   PROFIT AND PERFORMANCE INCENTIVES

      1. Investment Management Fees - Lost Investment Income                        $975          ($349)   $13,143      $3,074        $745         $17,588

      TOTAL PROFIT AND PERFORMANCE INCENTIVES                                I      $975          ($349)   $13,143      $3,074        $745         $17,588

TOTAL AUDIT FINDINGS                                                         I     $4,843     $8,252       ($63,806)    $3,074        $745        ($46,892)

 c.   LOST INVESTMENT INCOME (From Schedule C)                               I                                $702      $1,125      $1,999          $3,826

TOTAL QUESTIONED COSTS                                                       I     $4,843     $8,252       ($63,104)    $4,199      $2,744        ($43,066)
                                                                                                                                                                                SCllEDllLE C
                                                                        AllDIT OF THE FEDERAL LO"IG TERM CARE
                                                                       INSURANCE PROGRAM AS ADMINISTERED BY
                                                                          LONG TERM CARE PARTNERS, LLC FOR
                                                                           CONTRACT YEARS2010 THROllGH 2012

                                                                        LOST INVESTMENT INCOME CALCl'LATION
                                                                            REPORT NUMBER IG-LT-00-14-025

                                                                     LOST INVESTMENT INCOME (Lil) CALCllLATION
                               IPrincipal Balance - Additions/ I Principle Balance in I
                                                                                  Principal+ Compounded I Experience Fund Rate   I   Effective   I Days in I    Lil       I    Total Lil by
 Start Date   I   End Date              (Subtraction)                Aggregate        Interest Balance         of Return               Days        Month       Amount         Contract Year

  10/1/2011       10/31/2011                            $3,868                                      $3,868       5.663%                 31           31           $219
  1111/2011       11130/2011                                                                        $4,087       -2.105%                30           30           ($86)
  12/1/2011       1213112011                                                                        $4,001        1.803%                31           31            $72
   11112012        1/3112012                                                                        $4,073       3.468%                 31           31           $141
  2/1/2012        2/29/2012                                                                         $4,214       2.568%                 29           29           $108
  3/1/2012        3/31/2012                                                                         $4,322       0.150%                 31           31             $6
  41112012        4/30/2012                                                                         $4,328       0.486%                 30           30            $21
  5/1/2012        5/31/2012                                                                         $4,349       -2.686%                31           31          ($117)
  61112012        6/30/2012                                                                         $4,232       2.143%                 30           30            $91
  71112012        713112012                                                                         $4,323       2.813%                 31           31           $122
  8/1/2012        8/3112012                                                                         $4,445        1.212%                31           31            $54
  9/1/2012        9/30/2012                                                                         $4,499        1.588%                30           30            $71
                                                                                                                                                                                         $702
  10/112012       10/31/2012                            $8,601               $12,469               $13,171        0.647%                31           31            $85
  11/112012       11/30/2012                                                                       $13,256        0.298%                30           30            $40
  12/1/2012       12/31/2012                                                                       $13,296        0.669%                31           31            $89
   111/2013       113112013                                                                        $13,385        1.903%                31           31           $255
  2/1/2013        2/28/2013                                                                        $13,640       0.800%                 28           28           $109
  3/1/2013        3/31/2013                                                                        $13,749        1.464%                31           31           $201
  41112013        4/30/2013                                                                        $13,950        2.856%                30           30           $398
  5/1/2013        5/3112013                                                                        $14,348       -1.179%                31           31          ($169)
  6/1/2013        6/30/2013                                                                        $14,179       -2.904%                30           30          ($412)
  7/1/2013        7/31/2013                                                                        $13,767        3.113%                31           31           $429
  8/112013        8/31/2013                                                                        $14,196       -1.704%                31           31          ($242)
  9/1/2013        9/30/2013                                                                        $13,954       2.453%                 30           30           $342
                                                                                                                                                                                       $1,125
 10/1/2013        10/31/2013                             $641                $13,110               $14,937       3.430%                 31           31          $512
 1111/2013        11130/2013                                                                       $15,449       0.702%                 30           30          $108
 12/112013        12/3112013                                                                       $15,557        1.121%                31           31          $174
  11112014         1/31/2014                                                                       $15,731       -0.422%                31           31          ($66)
 2/1/2014         2/28/2014                                                                        $15,665       3.164%                 28           28          $496
 3/1/2014         3/31/2014                                                                        $16,161       0.362%                 31           31           $59
 4/112014         4/30/2014                                                                        $16,220        1.532%                30           30          $248
  51112014        5/31/2014                                                                        $16,468       2.129%                 31           31          $351
 6/1/2014         6/23/2014                                                                        $16,819       0.908%                 23           30          $117
 6/23/2014                                           ($13,110)                    $0
                                                                                                                                                                                       $1,999

Total Lost Investment Income:                                                                                                                                                         $3,826
                                                                                                     APPENDIX
100 Arboretum Drive
Portsmouth, NH 03801-7833
                                                                                               l1ml! Trrm Carr
                                                                                              Partners...
July 8, 2014

DELETED BY OIG, NOT RELEVANT TO FINAL REPORT
Group Chief
Special Audits group
U.S. Office of Personnel Management
1900 E Street NW
Washington, DC 20415

RE: Draft Audit Report No. lG-LT-00-14-025

DELETED BY OIG, NOT RELEVANT TO FINAL REPORT

I'm writing in response to the draft audit report No. 1G-L T-00-14-025, Audit of Federal Long Term
Care Insurance Program as Administered by Long Term Care Partners, LLC For Contract Years
2010 through 2012. Below are comments pertaining to your findings.

   A.1. Unallowable Lodging Expenses:

   We agree with this finding and as recommended, have reduced our current year (FY14) FLTCIP
   lodging expenses by $13, 110, the amount identified in the finding.

                                        DELETED BY OIG 

                                 NOT RELEVANT TO FINAL REPORT 


   As stated in the report, in 2012 we implemented a new, automated travel and expense reporting
   system (                                                                    , which provides
   employees with the allowed GSA rates, along with a list of compliant hotels to choose from when
   traveling. Alerts are sent to the CFO when lodging is booked at a noncom pliant hotel and amounts
   in excess of the allowed rates are charged to a corporate, non-reimbursable account.

                                        DELETED BY OIG 

                                 NOT RELEVANT TO FINAL REPORT 


   A.2. Incorrect Allocation Rate:

   We agree with this finding, 1i1i•&a;w;i1i&1w.1i1&-.r.1M
   you are aware, we booked the adjustment to correct this during the audit. 1i1i•&alllillil1i&11M1i1&mili1Mill
   NOT RELEVANT TO FINAL REPORT . As recommended, we have implemented additional
   review and approval processes to avoid these errors in the future.

   A.3. Understatement of 2010 FL TCIP Audited Financial Statements

   We agree that the FL TCIP administrative expenses as reported on the Experience Fund Audited
   Financial Statements for FY 2010 did not agree with the FL TCIP administrative expenses as
                                                                                         APPENDIX A

   incurred by LTCP. DELETED BY OIG, NOT RELEVANT TO FINAL REPORT . We have
   revised our accounting procedures so that administrative expenses recorded on both general ledgers
   are reported on an accrual basis, and are in agreement.

   B.1. Outstanding Check:

   We agree with this finding, and although it isn't possible to have a fully automated process, we have
   strengthened our procedures for processing outstanding checks.

   D.1. Investment Management Fees-Lost Investment Income:

   We agree with this finding, and have booked an adjustment to reduce the Plan's Investment
   Management Fees expense for FY2014 for the amount oflost investment income. DELETED BY
   OIG, NOT REL EV ANT TO FINAL REPORT

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

Sincerely,
~,,k       . </. /f!,/;(
Linda S. Roth, CPA
Chief Financial Officer


                                      DELETED BY OIG 

                               NOT RELEVANT TO FINAL REPORT 





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