Summary of Report 03-016

January 2003

Report Number 03-016

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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