U.S. OFFICE OF PERSONNEL MANAGEMENT

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS

Final Audit Report

Subject:

AUDIT OF 

CASH MANAGEMENT ACTIVITIES FOR A

SAMPLE OF BLUECROSS AND BLUESHIELD PLANS

Report No. 1A-99-00-13-018 

 Date: 

--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 that 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 propriety information that was redacted from the publicly distributed copy. 
AUDIT REPORT

Federal Employees Health Benefits Program 

Service Benefit Plan Contract CS 1039 

BlueCross BlueShield Association

Plan Code 10 

Cash Management Activities for a 

Sample of BlueCross and BlueShield Plans

REPORT NO. 1A-99-00-13-018 DATE: ______________ 

______________________

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 that 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 propriety information that was redacted from the publicly distributed copy. 
i 

EXECUTIVE SUMMARY

Federal Employees Health Benefits Program 

Service Benefit Plan Contract CS 1039 

BlueCross BlueShield Association

Plan Code 10 

Cash Management Activities for a 

Sample of BlueCross and BlueShield Plans

REPORT NO. 1A-99-00-13-018 DATE: ______________ 

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations 

at a sample of 21 BlueCross and BlueShield (BCBS) plans questions $1,547,417 in cash 

management activities and lost investment income (LII). The BlueCross BlueShield Association 

(Association) and/or BCBS plans agreed (A) with $527,718, disagreed (D) with $84,062, is 

reviewing (R) $929,405 and did not respond (NR) to $6,232 of the questioned amounts. 

Our limited scope audit was conducted in accordance with Government Auditing Standards. 

The audit covered cash management activities related to FEHBP funds from January 1, 2011 

through September 30, 2012 for a sample of 21 BCBS Plans. Specifically, we reviewed letter of 

credit account (LOCA) drawdowns, working capital calculations, adjustments and/or balances,

dedicated Federal Employee Program (FEP) investment account balances, and interest income 

transactions to determine if these BCBS plans handled FEHBP funds in accordance with 

applicable laws and regulations concerning cash management in the FEHBP. 

The questioned cash management activities are summarized as follows:

• Excess Funds in the Federal Employee Program Investment Accounts $1,331,300

Our audit determined that four BCBS plans held excess FEHBP funds, totaling $1,331,300, 

in dedicated FEP investment accounts as of September 30, 2012. These excess FEHBP funds 

consisted of $929,405 by Excellus BCBS; $390,871 by Highmark BCBS of West Virginia; 

$7,467 by BCBS of Hawaii; and $3,557 by BCBS of Vermont. 
ii

The Association agreed with the questioned excess funds of $401,895 (A) for Highmark 

BCBS of West Virginia, BCBS of Hawaii, and BCBS of Vermont. However, the 

Association is continuing to review the questioned excess funds of $929,405 (R) for Excellus 

BCBS. During our audit, we verified that Highmark BCBS of West Virginia and BCBS of 

Vermont subsequently returned $390,871 and $1,516 of the questioned excess funds, 

respectively, to the FEHBP. 

• Working Capital Deposits $143,898 

Based on our review of the BCBS plans’ working capital (WC) deposits, we determined that 

four BCBS plans (Arkansas, Idaho, Kansas, and Mississippi) did not maintain the correct 

WC amounts in the FEP investment accounts, resulting in these plans holding excess FEHBP 

funds of $139,740. Specifically, we found that these BCBS plans either held WC balances 

with excess amounts or held WC funds outside of the FEP investment accounts. As a result 

of this finding, the BCBS plans of Arkansas, Mississippi and Kansas returned $137,666 to 

the FEHBP, consisting of $133,508 for WC funds and $4,158 for applicable LII. However, 

the Association did not address the questioned WC funds of $6,232 for BCBS of Idaho. 

The Association agreed with $53,604 (A), disagreed with $84,062 (D), and did not respond to 

$6,232 (NR) of these questioned amounts. Although the Association disagreed with $84,062 

of the questioned WC funds, BCBS of Arkansas actually returned these funds to the FEHBP. 

• Treasury Offsets (A) $72,219

During our review of LOCA drawdowns, we determined that BCBS of Rhode Island had not 

returned $71,644 to the FEHBP for offsets taken from the LOCA by the United States 

Treasury (Treasury) on December 28, 2011 and September 27, 2012. As a result of this 

finding, BCBS of Rhode Island returned $72,219 to the FEHBP, consisting of $71,644 for 

Treasury offsets against the LOCA and $575 for applicable LII. 

 
CONTENTS

PAGE

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

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

II. OBJECTIVE, SCOPE, AND METHODOLOGY ............................................................3 

III. AUDIT FINDINGS AND RECOMMENDATIONS .......................................................5

A. CASH MANAGEMENT ACTIVITIES ..................................................................5 

 

1. Excess Funds in the Federal Employee Program Investment Accounts ............5 

2. Working Capital Deposits ..................................................................................8 

3. Treasury Offsets ...............................................................................................10 

IV. MAJOR CONTRIBUTORS TO THIS REPORT ...........................................................12

V. SCHEDULE A – QUESTIONED CHARGES

 

APPENDIX (BlueCross BlueShield Association response, dated October 17, 2013, to 

the draft audit report)
1 

I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This final audit report details the findings, conclusions, and recommendations resulting from our 

limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at a 

sample of 21 BlueCross and BlueShield (BCBS) plans. 

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.

BACKGROUND 

The FEHBP was established by the Federal Employees Health Benefits (FEHB) Act (Public Law 

86-382), enacted on September 28, 1959. The FEHBP was created to provide health insurance 

benefits for federal employees, annuitants, and dependents. OPM’s Healthcare and Insurance 

Office has overall responsibility for administration of the FEHBP. The provisions of the FEHB 

Act are implemented by OPM through regulations, which are codified in Title 5, Chapter 1, Part 

890 of the Code of Federal Regulations (CFR). Health insurance coverage is made available 

through contracts with various health insurance carriers. 

The BlueCross BlueShield Association (Association), on behalf of participating BCBS plans, has 

entered into a Government-wide Service Benefit Plan contract (CS 1039) with OPM to provide a 

health benefit plan authorized by the FEHB Act. The Association delegates authority to 

participating local BCBS plans throughout the United States to process the health benefit claims 

of its federal subscribers. There are approximately 64 local BCBS plans participating in the 

FEHBP.

The Association has established a Federal Employee Program (FEP1

) Director’s Office in 

Washington, D.C. to provide centralized management for the Service Benefit Plan. The FEP 

Director’s Office coordinates the administration of the contract with the Association, member 

BCBS plans, and OPM. 

The Association has also established an FEP Operations Center. The activities of the FEP 

Operations Center are performed by CareFirst BlueCross BlueShield, located in Washington, 

D.C. These activities include acting as fiscal intermediary between the Association and member 

plans, verifying subscriber eligibility, approving or disapproving the reimbursement of local plan 

payments of FEHBP claims (using computerized system edits), maintaining a history file of all 

FEHBP claims, and maintaining an accounting of all program funds. 

 

1 Throughout this report, when we refer to "FEP", we are referring to the Service Benefit Plan lines of business at 

the Plan. When we refer to the "FEHBP", we are referring to the program that provides health benefits to federal 

employees.
2 

Compliance with laws and regulations applicable to the FEHBP is the responsibility of the 

management for the Association and each BCBS plan. Also, management of each BCBS plan is 

responsible for establishing and maintaining a system of internal controls.

This is our first focused audit of cash management activities for these 21 BCBS plans. The 

results of this audit were discussed with the Association and BCBS plan officials throughout the 

audit and at an exit conference on April 22, 2013. The Association’s comments offered in 

response to the draft report were considered in preparing our final report and are included as an 

Appendix to this report. Also, additional documentation provided by the Association and BCBS 

plans on various dates through October 17, 2013 was considered in preparing our final report.
3 

II. OBJECTIVE, SCOPE, AND METHODOLOGY

OBJECTIVE 

The objective of this audit was to determine whether BCBS plans handled FEHBP funds in 

accordance with applicable laws and regulations concerning cash management in the FEHBP. 

SCOPE

We conducted our limited scope performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform the audit to 

obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objective. We believe that the evidence obtained provides a 

reasonable basis for our findings and conclusions based on our audit objective. 

The audit covered cash management activities and practices from January 1, 2011 through 

September 30, 2012 for a sample of 21 BCBS plans.2

 Our sample included all BCBS plans with 

FEHBP health benefit payments of $250 million or less in contract year 2011 (except for Capital 

BlueCross and several other BCBS plans that are part of multi-plan organizations, such as 

WellPoint, Inc. and Regence BCBS). Specifically, we reviewed letter of credit account (LOCA) 

drawdowns, working capital calculations, adjustments and/or balances, dedicated FEP 

investment account balances, and interest income transactions to determine if these 21 BCBS 

plans handled FEHBP funds in accordance with applicable laws and regulations concerning cash 

management in the FEHBP. 

We did not consider each BCBS plan’s internal control structure in planning and conducting our 

auditing procedures. Our audit approach consisted mainly of substantive tests of transactions 

and not tests of controls. Therefore, we do not express an opinion on each BCBS plan’s system 

of internal controls taken as a whole. 

We conducted tests to determine whether the BCBS plans had complied with the contract and the 

laws and regulations governing the FEHBP as they relate to cash management of FEHBP funds. 

The results of our tests indicate that, with respect to the items tested, the BCBS plans did not 

fully comply with the provisions of the contract relative to cash management of FEHBP funds. 

Exceptions noted in the areas reviewed are set forth in detail 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 the BCBS plans had not complied, in all material 

respects, with those provisions. 

 

2 Our sample consisted of the following BCBS plans: BCBS of Arkansas, Highmark BCBS of Delaware, BCBS of 

Hawaii, BCBS of Idaho, Wellmark BCBS (Iowa/South Dakota), BCBS of Kansas, BCBS of Louisiana, BCBS of 

Mississippi, BCBS of Kansas City, BCBS of Montana, BCBS of Nebraska, BCBS of Western New York, Excellus 

BCBS (New York), BCBS of North Dakota, Independence BlueCross (Pennsylvania), BlueCross of Northeastern 

Pennsylvania, Triple-S Salud, Inc. of Puerto Rico, BCBS of Rhode Island, BCBS of Vermont, Highmark BCBS of 

West Virginia, and BCBS of Wyoming.
4 

In conducting our audit, we relied to varying degrees on computer-generated data provided by 

the FEP Director’s Office and the BCBS plans. 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 our audit testing, nothing came to our attention to 

cause us to doubt its reliability. We believe that the data was sufficient to achieve our audit 

objective.

The audit was performed at our offices in Jacksonville, Florida and Cranberry Township, 

Pennsylvania from January 22 through April 19, 2013. 

 

METHODOLOGY 

To test each of the 21 BCBS plans’ compliance with contract provisions relative to cash 

management activities, we selected and reviewed a judgmental sample of 14 or more high dollar 

LOCA drawdowns from each plan for the purpose of determining if the drawdowns were 

appropriate and adequately supported. In total for these 21 BCBS plans, we selected and 

reviewed 400 LOCA drawdowns, totaling approximately $145 million (out of approximately 

$4.2 billion), from the period January 1, 2011 through September 30, 2012.3

 We also reviewed 

each BCBS plan’s working capital calculations, adjustments, and/or balances during the period 

January 1, 2012 through September 30, 2012. Additionally, we reviewed a detailed itemization 

of exactly what funds were in each BCBS plan’s dedicated FEP investment account as of 

September 30, 2012, as well as the interest income earned in each plan’s dedicated FEP 

investment account and/or returned to the FEHBP during the period January 1, 2011 through 

September 30, 2012. 

 

3 The 400 LOCA drawdowns consisted of 34 drawdowns, totaling $19,071,244 (out of $249,887,155), for BCBS of 

Arkansas; 14 drawdowns, totaling $5,300,618 (out of $126,416,200), for Highmark BCBS of Delaware; 14 

drawdowns, totaling $712,585 (out of $24,524,138), for BCBS of Hawaii; 14 drawdowns, totaling $5,231,665 (out 

of $174,795,446), for BCBS of Idaho; 14 drawdowns, totaling $10,864,370 (out of $398,961,916) for Wellmark 

BCBS (Iowa/South Dakota); 14 drawdowns, totaling $5,156,411 (out of $222,099,710), for BCBS of Kansas; 14 

drawdowns, totaling $817,979 (out of $427,737,751), for BCBS of Louisiana; 20 drawdowns, totaling $9,127,615 

(out of $335,265,495), for BCBS of Mississippi; 35 drawdowns, totaling $21,106,656 (out of $291,774,284), for 

BCBS of Kansas City; 23 drawdowns, totaling $10,082,146 (out of $182,835,418), for BCBS of Montana; 14 

drawdowns, totaling $11,233,285 (out of $282,418,130), for BCBS of Nebraska; 14 drawdowns, totaling $1,839,043 

(out of $57,356,609), for BCBS of Western New York; 41 drawdowns, totaling of $4,037,655 (out of 

$133,205,958), for Excellus BCBS; 14 drawdowns, totaling $2,682,325 (out of $114,168,538), for BCBS of North 

Dakota; 15 drawdowns, totaling $14,193,735 (out of $408,467,253), for Independence BlueCross; 14 drawdowns, 

totaling $3,671,280 (out of $89,547,844), for BlueCross of Northeastern Pennsylvania; 14 drawdowns, totaling 

$449,396 (out of $2,816,332), for Triple-S Salud, Inc. of Puerto Rico; 15 drawdowns, totaling $2,686,970 (out of 

$118,980,132), for BCBS of Rhode Island; 14 drawdowns, totaling $1,615,077 (out of $83,427,540), for BCBS of 

Vermont; 14 drawdowns, totaling $8,686,976 (out of $362,380,291), for Highmark BCBS of West Virginia; and 35 

drawdowns, totaling $6,914,475 (out of $108,553,252), for BCBS of Wyoming.
5 

III. AUDIT FINDINGS AND RECOMMENDATIONS

A. CASH MANAGEMENT ACTIVITIES

1. Excess Funds in the Federal Employee Program Investment Accounts $1,331,300 

Our audit determined that four BCBS plans held excess FEHBP funds, totaling 

$1,331,300, in dedicated FEP investment accounts as of September 30, 2012. These 

excess FEHBP funds consisted of $929,405 by Excellus BCBS; $390,871 by Highmark 

BCBS of West Virginia; $7,467 by BCBS of Hawaii; and $3,557 by BCBS of Vermont. 

During our audit, we verified that Highmark BCBS of West Virginia and BCBS of 

Vermont subsequently returned $390,871 and $1,516 of the questioned excess funds, 

respectively, to the FEHBP.

48 CFR 1632.771 (c) states, “FEHBP funds shall be maintained separately from other 

cash and investments of the carrier or underwriter.” 

48 CFR 31.201-5 states, “The applicable portion of any income, rebate, allowance, or 

other credit relating to any allowable cost and received by or accruing to the contractor 

shall be credited to the Government either as a cost reduction or by cash refund.” 

Contract CS 1039, Part II, Section 2.3 (i) states, “All health benefit refunds and 

recoveries, including erroneous payment recoveries, must be deposited into the working 

capital or investment account within 30 days and returned to or accounted for in the 

FEHBP letter of credit account within 60 days after receipt by the Carrier.”

Regarding reportable monetary findings, Contract CS 1039, Part III, section 3.16, states, 

“Audit findings in the scope of an OIG audit are reportable as questioned charges unless 

the Carrier provides documentation supporting that the findings were identified . . . and 

corrected (i.e., overcharges returned to the FEHBP) prior to audit notification.” 

The BCBS plan’s FEP investment account generally includes FEP working capital funds, 

health benefit refunds and recoveries from providers and subscribers, interest income 

earned, and other cash identified as due to the FEP. Based on Contract CS 1039, all 

funds deposited into the FEP investment account, such as health benefit refunds, interest 

income and excess working capital, should be returned to the FEHBP by adjusting the 

LOCA within 60 days after receipt by the BCBS plan.

In our audit information request (AIR), we requested each of the 21 BCBS plans in our 

sample to provide a detailed itemization of the funds in the plan’s dedicated FEP 

investment account as of September 30, 2012, including an aging of these funds.4

 Based 

on our review of these FEP investment account itemizations, we determined that four of 

these BCBS plans (Excellus BCBS, Highmark BCBS of West Virginia, BCBS of Hawaii, 

 

4 Each BCBS plan in our sample provided a detailed itemization of the FEP investment account balance as of 

September 30, 2012 (except for Triple-S Salud, Inc. of Puerto Rico and BCBS of Western New York, which did not 

maintain dedicated FEP investment accounts as of September 30, 2012). 
6 

and BCBS of Vermont) were holding a total of $1,331,300 in excess FEHBP funds as of 

September 30, 2012. Most of these excess funds had been held in these BCBS plans’ 

FEP investment accounts for more than a year (as of September 30, 2012). 

The following is a summary of the questioned excess funds that were held by these four 

BCBS plans as of September 30, 2012. 

As part of our audit, we verified that Highmark BCBS of West Virginia returned 

$390,871 of the excess funds to the LOCA on March 12, 2013. We also verified that 

BCBS of Vermont returned $1,516 of the excess funds to the LOCA on November 7, 

2012. In total, we verified that $392,387 of the questioned excess funds have been 

returned to the FEHBP. However, since these excess funds were returned to the FEHBP 

after the Association and BCBS plans received our audit notification and AIR (dated 

October 1, 2012), we are continuing to question these excess funds as a monetary finding.

Association’s Response: 

The Association agrees with the questioned excess funds of $401,495 for Highmark 

BCBS of West Virginia, BCBS of Hawaii, and BCBS of Vermont. However, the 

Association is continuing to research what the appropriate resolution should be for the 

questioned excess funds of $929,405 for Excellus BCBS.5

 

Regarding the questioned excess funds for Excellus BCBS, the Association states, “After 

exhaustive research, the Plan determined that there is a $929,405 difference between the 

working capital balance and the investment account balance as of September 30, 2012. 

The Plan determined that the difference occurred prior to 2004; however, documentation 

from that time frame is no longer available, so the Plan is unable to determine whether 

this variance is a result of excess corporate funds in the FEP account or funds due the 

Program. The Plan is determining within the contract language what the appropriate 

resolution for this unsupported imbalance, which dates back 10 years, should be.” 

 

 

5 In the Association’s initial draft report response (dated July 31, 2013), the Association stated that Excellus BCBS 

agreed to return the questioned excess funds to the FEHBP by August 2013.

BCBS Plans Excess FEHBP Funds

Excellus BCBS $929,405

Highmark BCBS of West Virginia 390,871

BCBS of Hawaii 7,467

BCBS of Vermont 3,557

TOTAL $1,331,300
7 

OIG Comments:

After reviewing the Association’s response and additional documentation provided by the 

Association and/or BCBS plans, we revised the questioned amount from our draft report 

to $1,331,300. For our revised questioned amount, we determined that the Association 

agreed with the questioned excess funds of $401,895 for Highmark BCBS of West 

Virginia, BCBS of Hawaii, and BCBS of Vermont. However, the Association is 

continuing to review the questioned excess funds of $929,405 for Excellus BCBS. 

The Association and/or Excellus BCBS did not provide a logical reason why Excellus 

BCBS would actually maintain $929,405 in corporate funds in the dedicated FEP 

investment account for 10 years or more. Excellus BCBS is responsible to account for all 

funds in the FEP investment account. The FEP investment account normally consists of 

the following funds: an approved working capital balance, approved LOCA drawdowns, 

and FEP health benefit refunds and recoveries. If there are excess funds in this account, 

the most likely reasons would be that Excellus BCBS deposited FEP health benefit 

refunds and recoveries into the FEP investment account but did not return these funds to 

the LOCA; inadvertently withdrew excess funds from the LOCA; and/or withdrew funds 

from the LOCA to cover claim payments but then inadvertently did not transfer these 

funds from the FEP investment account into a corporate account. Without documentation 

supporting otherwise, we have to conclude that these excess funds in the plan’s dedicated 

FEP investment account are actually FEHBP funds, and therefore, owed to the FEHBP.

 

Recommendation 1 

For the uncontested amounts, we recommend the contracting officer verify that these 

questioned excess funds of $401,895 were returned to the FEHBP (i.e., $390,871 by 

Highmark BCBS of West Virginia; $7,467 by BCBS of Hawaii; and $3,557 by BCBS of 

Vermont). (Note: Of these uncontested amounts, we have already verified that 

Highmark BCBS of West Virginia and BCBS of Vermont returned $390,871 and $1,516, 

respectively, to the FEHBP.) 

Recommendation 2 

We recommend that the contracting officer instruct Excellus BCBS to immediately return 

the questioned excess funds of $929,405 to the FEHBP (unless the plan can provide 

evidence or supporting documentation that these funds are not FEHBP funds). 

Recommendation 3 

We recommend that the contracting office require the Association to provide evidence or 

supporting documentation ensuring that all BCBS plans are performing FEP investment 

account reconciliations at least on a quarterly basis. We also recommend that the 

contracting office require the Association to provide evidence or supporting 

documentation ensuring that the BCBS plans are not maintaining and/or commingling the 

plans’ corporate funds in the FEP investment accounts.
8 

2. Working Capital Deposits $143,898 

Based on our review of the BCBS plans’ working capital (WC) deposits, we determined 

that four BCBS plans (Arkansas, Idaho, Kansas, and Mississippi) did not maintain the 

correct WC amounts in the FEP investment accounts, resulting in these plans holding 

excess FEHBP funds of $139,740. Specifically, we found that these BCBS plans either 

held WC balances with excess amounts or held WC funds outside of the FEP investment 

accounts. As a result of this finding, the BCBS plans of Arkansas, Mississippi, and 

Kansas returned $137,666 to the FEHBP, consisting of $133,508 for WC funds and 

$4,158 for applicable LII. However, the Association did not address the questioned WC 

funds of $6,232 for BCBS of Idaho. 

“Letter of Credit System Guidelines” (dated May 2009), states: “Carriers should maintain 

a working capital balance equivalent to an average of 2 days of paid claims. The working 

capital fund should be established using federal funds. Carriers are required to monitor 

their working capital fund on a monthly basis and adjust if necessary on a quarterly basis. 

The interest earned on the working capital funds must be credited to the FEHBP at least 

on a monthly basis. The working capital is not required but strongly recommended.” 

For the period January 1, 2012 through September 30, 2012, we reviewed the WC 

calculations, adjustments and/or balances for a sample of 21 BCBS plans. Based on our 

review of these BCBS plans’ WC balances and supporting documentation, we determined 

that the following four BCBS plans did not maintain the correct WC balances in the FEP 

investment accounts as of September 30, 2012. 

• For BCBS of Arkansas, we determined that the plan should have only maintained a 

WC balance of $215,938. However, the plan had a WC balance of $300,000. 

Therefore, the plan held a WC balance with an excess amount of $84,062 ($300,000 

minus $215,938) over the amount actually needed to meet the plan’s daily cash needs 

for FEHBP claim payments. (Note: As a result of this finding, BCBS of Arkansas 

returned the excess WC funds of $84,062 to the FEHBP.) 

• For BCBS of Mississippi, we determined that the plan should have only maintained a 

WC balance of $125,202. However, the plan had a WC balance of $168,825. 

Therefore, the plan held a WC balance with an excess amount of $43,623 ($168,825 

minus $125,202) over the amount actually needed to meet the plan’s daily cash needs 

for FEHBP claim payments. (Note: As a result of this finding, BCBS of Mississippi 

returned the excess WC funds of $43,623 to the FEHBP.) 

• For BCBS of Kansas, we determined that the plan correctly calculated the WC 

amount and properly withdrew the funds from the LOCA to maintain a WC balance 

of $430,085. However, the plan’s WC balance in the dedicated FEP investment 

account only totaled $424,262 as of September 30, 2012. Therefore, the WC deposit 

was underfunded by $5,823 ($430,085 minus $424,262) due to the plan not 

maintaining all of these funds in the FEP investment account. The Plan did not 

provide a reason for the WC shortage. However, the plan calculated LII of $4,158 on 
9 

these WC funds that were not maintained in the FEP investment account. We 

reviewed and accepted the plan’s LII calculation. (Note: As a result of this finding, 

BCBS of Kansas deposited $5,823 into the FEP investment account for the WC 

shortage and returned LII of $4,158 to the FEHBP.) 

• For BCBS of Idaho, we determined that the plan correctly calculated the WC amount 

and properly withdrew the funds from the LOCA to maintain a WC balance of 

$400,000. However, the plan’s WC balance in the dedicated FEP investment account 

only totaled $393,768 as of September 30, 2012. Therefore, the WC deposit was 

underfunded by $6,232 ($400,000 minus $393,768) due to the plan not maintaining 

all of these WC funds in the FEP investment account.6

In total, we are questioning $143,898, consisting of $139,740 ($84,062 plus $43,623 plus 

$5,823 plus $6,232) for BCBS plans holding excess WC funds and/or not maintaining the 

correct WC amounts in the FEP investment accounts and $4,158 for applicable LII. 

Association’s Response: 

The Association agrees with the questioned excess WC funds of $43,623 that were held 

by BCBS of Mississippi and the questioned WC funds of $5,823 that were not 

maintained in an FEP investment account by BCBS of Kansas. The Association states 

that the BCBS plans of Mississippi and Kansas have returned these questioned amounts 

to the FEHBP. However, the Association disagrees with the questioned excess WC funds 

of $84,062 that were held by BCBS of Arkansas. (Note: The Association did not address 

the questioned WC funds of $5,823 for BCBS of Idaho.) 

Regarding the contested amount for BCBS of Arkansas, the Association states, “The Plan 

disagrees its working capital balance is overstated by $84,062. At the end of 2011, the 

Plan had a working capital balance of approximately $400,000, or 2% of the Plan’s Cost 

of Care. The additional funds were needed to ensure that FEP claims were paid during 

any situation that might arise and the Plan did not want to have overdrafts on a regular 

basis.” Although BCBS of Arkansas disagrees with the finding, the Association states 

that the plan returned the questioned amount to the FEHBP on April 25, 2013. 

OIG Comments:

After reviewing the Association’s response and additional documentation provided by the 

Association and/or BCBS plans, we revised the questioned amount from our draft report 

to $143,898. For our revised questioned amount, we determined that the Association 

and/or BCBS plans agreed with $53,604, consisting of $43,623 for excess WC funds held 

 

6 For BCBS of Idaho, the balance in the FEP investment account totaled $1,859,309 as of September 30, 2012, 

including $400,000 for the WC deposit. However, during the audit, the plan provided documentation supporting 

that $1,465,541 of these funds in the FEP investment account were actually corporate funds. As a result, the plan 

transferred $1,465,541 of the FEP investment account balance into the plan’s corporate account, leaving a balance of 

$393,768 in the FEP investment account. Therefore, the WC deposit was underfunded by $6,232 ($400,000 minus 

$393,768) in the FEP investment account. 
10 

by BCBS of Mississippi; $5,823 for WC funds that were not maintained in an FEP 

investment account by BCBS of Kansas; and $4,158 for applicable LII on the WC funds 

that were not maintained in an FEP investment account by BCBS of Kansas. As part of 

our audit, we verified that the BCBS plans of Mississippi and Kansas returned these 

uncontested WC and LII amounts to the FEHBP. Additionally, although the Association

disagreed with the questioned excess WC funds of $84,062 that were held by BCBS of 

Arkansas, we verified that the plan subsequently returned these funds to the FEHBP. 

Recommendation 4 

Since we verified that the excess WC funds of $127,685 ($84,062 by BCBS of Arkansas 

and $43,623 by BCBS of Mississippi) were returned to the FEHBP, no further action is 

required for this questioned amount. 

Recommendation 5 

We recommend that the contracting officer require BCBS of Idaho to deposit $6,232 into 

the FEP investment account to resolve the plan’s underfunded WC deposit.

Recommendation 6 

Since we verified that BCBS of Kansas deposited $5,823 into the FEP investment 

account to resolve the plan’s underfunded WC deposit, no further action is required for 

this questioned amount. 

Recommendation 7 

Since we verified that BCBS of Kansas returned $4,158 to the FEHBP for LII on the 

underfunded WC deposit, no further action is required for this LII amount. 

3. Treasury Offsets $ 72,219

During our review of LOCA drawdowns, we determined that BCBS of Rhode Island had 

not returned $71,644 to the FEHBP for offsets taken from the LOCA by the United States 

Treasury (Treasury) on December 28, 2011 and September 27, 2012. As a result of this 

finding, BCBS of Rhode Island returned $72,219 to the FEHBP, consisting of $71,644 

for Treasury offsets against the LOCA and $575 for applicable LII. 

Contract CS 1039, Part III, section 3.2 (b) (1) states, “The Carrier may charge a cost to 

the contract for a contract term if the cost is actual, allowable, allocable, and reasonable.”

FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall 

bear simple interest from the date due. The interest rate shall be the interest rate 

established by the Secretary of the Treasury as provided in Section 611 of the Contract 

Disputes Act of 1978 (Public Law 95-563), which is applicable to the period in which the 
11 

amount becomes due, as provided in paragraph (e) of this clause, and then at the rate 

applicable for each six-month period as fixed by the Secretary until the amount is paid.” 

The Treasury will occasionally recover non-FEHBP debts from BCBS plans by reducing 

LOCA drawdowns made to the plans for FEHBP claim payments. If this occurs, the 

BCBS plan should make the FEHBP whole by transferring funds into the FEP investment 

account to replenish the funds that were taken. 

During our review of LOCA drawdowns for a sample of 21 BCBS plans, we identified 

two instances where the Treasury offset the BCBS of Rhode Island’s LOCA drawdowns 

by a total of $71,644 on December 28, 2011 and September 27, 2012. We determined 

that BCBS of Rhode Island did not withdraw additional funds from the LOCA to cover 

the shortages caused by these Treasury offsets. However, we also determined that BCBS 

of Rhode Island did not transfer funds into the FEP investment account to cover these

Treasury offsets, which left the FEP investment account short by $71,644. 

Association’s Response:

The Association agrees with this finding and states that BCBS of Rhode Island returned 

the questioned amount to the FEHBP on June 5, 2013. 

OIG Comments:

The Association provided documentation supporting that BCBS of Rhode Island returned 

$72,219 to the FEHBP, consisting of $71,644 for the Treasury offsets against the LOCA 

and $575 for applicable LII. We reviewed and accepted the plan’s LII calculation.

Recommendation 8

Since we verified that the Plan returned $71,644 to the FEHBP for the Treasury offsets 

against the LOCA, no further action is required for this questioned amount. 

Recommendation 9 

Since we verified that the Plan returned $575 to the FEHBP for LII on the Treasury 

offsets against the LOCA, no further action is required for this LII amount. 
12 

IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group 

, Auditor-In-Charge 

, Auditor

, Auditor

, Auditor

, Auditor

, Chief (

, Senior Team Leader 
AUDIT FINDINGS 2011 2012 TOTAL 

 1. Excess Funds in the FEP Investment Accounts 

 Excellus BCBS $0 $929,405 $929,405

 Highmark BCBS of West Virginia 0 390,871 390,871

 BCBS of Hawaii 0 7,467 7,467

 BCBS of Vermont 0 3,557 3,557

 Total Excess Funds in the FEP Investment Accounts $0 $1,331,300 $1,331,300

 2. Working Capital Deposits

 BCBS of Arkansas $0 $84,062 $84,062

 BCBS of Mississippi 0 43,623 43,623

 BCBS of Kansas 0 9,981 9,981

 BCBS of Idaho 0 6,232 6,232

 Total Working Capital Deposits $0 $143,898 $143,898

 3. Treasury Offsets

 BCBS of Rhode Island $12,547 $59,672 $72,219

 Total Treasury Offsets $12,547 $59,672 $72,219

TOTAL QUESTIONED CHARGES $12,547 $1,534,870 $1,547,417

CASH MANAGEMENT ACTIVITIES

SAMPLE OF BLUECROSS BLUESHIELD PLANS

QUESTIONED CHARGES

V. SCHEDULE A
APPENDIX 


BlueCrossBhteShield 

Association 

An Association ofJndep eooent

Blue Cross and Blue Shield Pl~m.s 

Federal Employee Program 

13 10 G Street:, N .W. 

Washington, D.C. 20005 

202 .942. 1000

Fax 202.942.1 125 

O ctober 17 , 20 13 

, G roup Chief 

rte Group 

Office of the Inspector General 

U .S . Office of Personnel Management 

1900 E Street, Room 6400 

Washington , DC 20415-11000 

Reference: 	 OPM DRAFT AUDIT REPORT 

Focused Audit of Cash Management Activities 

Audit Report Number 1A-99-00·13-018 

Dear 

This is the Blue Cross and Blue Shield Association's respo nse to the above referenced 

U .S . Office of Personnel Management (OPM) Draft Audit Report covering the Federal 

Employees' Health Benefits Program (FEHBP) health benefit refunds . 

Our comments concerning the finding in the report are as follows: 

1. Excess FEHBP Funds In The FEP Investment Accounts $2,689,775 

Deleted by the Office ofthe Inspector General - Not Relevant to the Fina l 

Report 

Excell us BCBS 	 $844,802 

After exh austive research , the Plan determined that there is a $929,405 difference 

between the working capita l balance and the investment account balance as of 

Septembe r 30 , 201 2. The Plan determined that the difference occurred prior to 

2004: however. documentation from that t ime frame is no longer available, so the 

Plan is unable to determine whether this v ariance is a resu lt of excess corporate 
Page 2 of 4 

fu nds in the FEP account or funds due the Program. The Plan is determining 

within the contract language what the appropriate resolution for this unsupported 

imbalance , which dates back 10 yea rs, should be. 

Highmark West VA $406,027 

The Plan contests the OIG recommendation and does not agree that $1 5,156 is 

owed to the Program. BCBSA provided backup documentation to the OIG 

confirming all adjustments to the investment account have been completed as of 

April 2 , 2013 or prior. 

The Plan provided the attached schedule to BCBSA on June 1, 2013 in support of its 

response and it is included for you r review as part of the Draft Report Response. 

Blue Cross Blue Shield of Hawaii $7,467 

The Plan has completed a review of available documentation that dates back to 

2002 and was unable to reconcile the difference between the working capital and the 

investment account balances as ofSeptember 30, 2012. As a result, the Pla n has 

approved the return of $7,467 to the Program . The Plan submitted a Special Plan 

Invoice to return the funds to the Program . 

Blue Cross Blue Shield of Vermont $3,557 

The Plan agreed with $1 ,516 of the $3 ,557 questioned amount and the funds were 

returned to the Program on November 9, 2012 . The Plan was unable to reconcile 

the remaining difference between the working capital and the investment account of 

$2,041 ; however, due to the immaterial amount, the Plan agreed to return the funds 

to the Program. The Plan submitted a Special Plan Invoice to return the funds to the 

Program. 

2. Working Capital $133,508 

Blue Cross Blue Shield of Arkansas $84,062 

The Plan disagrees its working capital balance is overstated by $84 ,062 . At the end 

of 2011 , the Plan had a working capital balance of approximately $400,000 , or 2% of 

the Plan's Cost of Care. The additional funds were needed to ensure that FEP 

claims were paid during any situation that might arise and the Plan did not want to 

have overdrafts on a regular basis. 
Page 3 of4 

Although, the Plan does not agree with the OIG finding, the Plan returned the funds 

to the Program on April 25, 2013. 

Blue Cross Blue Shield of Mississippi $43,623 

The Plan agrees that the amount of $43, 623 was in excess of the amount needed to 

meet the Plan's daily cash needs for FEP claim payments, as approved by the 

FEPDO. The excess was maintained to alleviate overdraft situations related to claim 

check clearings . As payments to providers and subscribers are made three times a 

month, it was not possible to determine which checks would clear on a particular 

day. The Plan returned the funds via an approved Special Plan Invoice (SPI) 

adjustment to the daily LOCA draw request on May 3, 2013. 

With approval from the FEPDO Financial Policy area, the Plan revised its business 

processes for requesting additional working capital funds . The need for an additional 

amount is monitored on a quarterly basis by comparing the additional amount to the 

current FEP outstanding check list. If additional funds are needed, the amount is 

requested through the LOCA Draw and returned immediately if not needed. 

Blue Cross Blue Shield of Kansas $5,823 

The Plan agreed with the finding and completed the return of funds to the Program 

on June 10, 2013. 

3. Treasury Offsets $72,101 

The Blue Cross Blue Shield of Rhode Island Plan agreed with the finding and 

completed the returned of the funds to the Program on June 5, 2013. 

Deleted by the Office of the Inspector General - Not Relevant to tht Final 

Report 
Page 4 of 4 

We appreciate the opportunity to provide our response to this Draft Aud it Report and 

request that our comments be included in their entirety as an amendment to the Final 

Audit Report. 

Sincerely, 

CIS A 

Attachment