An Audit of The Administrative Expenses the National Heritage Insurance Company Charged to the Health and Human Services Commission
January 2003
Report Number 03-016
Overall Conclusion
Our audit of the administrative expenses that the National Heritage Insurance
Company (NHIC) charged to the Health and Human Services Commission (Commission)
in fiscal year 2001 has led us to conclude that NHIC should refund $15,841,385
in unallowable expenditures it inappropriately charged to the Commission for
processing Medicaid claims in fiscal year 2001. This amount includes the following:
- $13,464,734 for unallowable expenditures. NHIC did not make these expenditures
in compliance with contract terms. For example, some expenditures were unallowable
because they were associated with NHIC's development of Compass 21 (a new
Medicaid claims processing system that NHIC created for the Commission). Others
were unallowable because they were for NHIC employee relocation expenses or
were for expenditures that NHIC made prior to fiscal year 2001.
- $1,512,991 in unallowable employee payroll, bonus, and overtime costs. The
majority of this refund is necessary because NHIC inappropriately charged
the Commission for payroll and bonuses associated with the development of
Compass 21.
- $821,118 in unallowable depreciation costs. This refund is necessary because
NHIC (1) inappropriately accelerated the depreciation of assets and (2) inappropriately
charged the Commission for depreciation on assets it used to develop Compass
21.
- $42,542 in unallowable insurance license costs. This refund is necessary
because NHIC did not properly allocate the cost of its insurance license among
all of the contracts that require it to have this license. The $42,542 refund
is in addition to the $307,599 that NHIC already refunded to the Commission
because of this issue.
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