An Audit of The Administrative Expenses the National Heritage Insurance Company Charged to the Health and Human Services Commission in Fiscal Year 2002
June 2003
Report Number 03-036
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 2002 has led us to conclude that NHIC should refund $24,948,068 in unallowable expenditures it inappropriately charged to the Commission for processing Medicaid claims in fiscal year 2002. This amount includes the following:
- $9,457,736 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 expenditures that NHIC made prior to fiscal year 2002.
- $11,981,522 in unallowable employee payroll and bonus costs. The majority of this refund is necessary because NHIC inappropriately charged the Commission for payroll associated with the development of Compass 21.
- $3,508,810 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.
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