US OFFICE OF PERSONNEL MANAGEMENT 

OFFICE . ' . - OF"THE - ... INSPECtOR GENERAL

OFFICE OF AUDITS 

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.. report may contain ProprJetarydatawlilcbis protected:by Federal law (18 U.KC. 1905);lherefore, whiletbipudit report is Bvailable . 

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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Experience-Rated Health Maintenance Organization
 

Blue Shield of California Access+ HMO
 

Contract CS 2639 Plan Code SJ
 

San Francisco, California
 

REPORT NO. ID':'SJ-00-09-021 DATE: June 9. 2009 

WaMichael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.gov www.usa]obs.gov 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Experience-Rated Health Maintenance Organization
 

Blue Shield ofCalifornia Access+ HMO
 

Contract CS 2639· Plan Code S1
 

San Francisco, California
 

REPORT NO. 10-81-00-09-021 DATE: June 9, 2009 

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

Blue Shield ofCalifornia Access+ HMO (Plan) questions $178,930 inadministrative expenses 

and $402,805 in lost investment income (LII) on excess letter of credit drawdowns. The Plan 

agreed (A) with all questioned charges. 

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

audit covered miscellaneous health benefit payments and credits and administrative expenses 

from 2003 through 2007 as reported in the Annual Accounting Statements. In addition, we 

reviewed the Plan's cash management practices related to FEHBP funds for contract years 2003 

through 2007. 

Questioned items are summarized as follows: 

www.opm.gov www.usaJobs.gov 
A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 

The audit disclosed no findings pertaining to miscellaneous health benefit payments and credits. 

Overall, we concluded that the Plan returned health benefit refunds and recoveries, including 

pharmacy drug rebates, to the FEHBP. 

B. ADMINISTRATIVE EXPENSES 

• Incorrect Reporting of Administrative Expenses fA) $121,822 

The Plan overstated the administrative expenses reported in the 2007 Annual Accounting 

Statement by $121,822. Since administrative expenses are considered when developing the 

premium rates, overstating administrative expenses may increase future rates. 

• Unallocable Cost Center Expenses fA) $57,108 

The Plan charged the FEHBP $50,484 in expenses from two unallocable cost centers. As a . 

result, the FEHBP is due $57,108, consisting of$50,484 for unallocable cost center expenses 

and $6,624 for LII on these expenses. 

c. CASH MANAGEMENT 

• Lost Investment Income on Excess Letter of Credit Drawdowns fA) $402,805 

For the period 2003 through 2007, the Plan included inflow and outflow adjustments, totaling 

$5,430,761 (net), when calculating and requesting letter of credit (LaC) drawdowns. The 

inclusion ofthese adjustments in the LaC drawdown calculations caused the Plan to withdraw 

funds in excess of actual expenses. The Plan subsequently returned these excess drawdowns 

to the FEHBP in 2008, but did not return LII of $402,805 on these excess funds. 

11 
CONTENTS
 

PAGE
 

EXECUTIVE SUMMARY .i
 

I. INTRODUCTION AND BACKGROUND ;	 _ 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGy	 3
 

III. AUDIT FINDINGS AND RECOMMENDATIONS	 6
 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 6
 

B. ADMINISTRATIVE EXPENSES	 6
 

1. Incorrect Reporting ofAdministrative Expenses	 6
 

2. Unallocable Cost Center Expenses	 7
 

C. CASH MANAGEMENT	 8
 

1. Lost Investment Income on Excess Letter of Credit Drawdowns 8
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT	 10
 

V. SCHEDULES 

A. CONTRACTCHARGESANDAMOUNTSQUESTIONED 

B. QUESTIONED CHARGES 

APPENDIX	 (Blue Shield of California's reply, dated April 27, 2009, to the draft 

audit report) 
I. INTRODUCTION AND BACKGROUND 

INTRODUCTION 

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

limited scope audit ofthe Federal Employees Health Benefits Program (FEHBP) operations at 

Blue Shield of California Access+ HMO (Plan). The Plan is located in San Francisco, 

California. 

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 Center for Retirement and 

Insurance Services has overall responsibility for administration ofthe FEHBP. The provisions of 

theFEHB Act are implemented by OPM tlrrough regulations, which are codified in Title 5, 

Chapter 1, Part 890 of the Code ofFederal Regulations (CFR). Health insurance coverage is made 

available through contracts with various health insurance carriers. 

The Plan is an experience-rated health maintenance organization (HMO) that provides heath 

benefits to federal enrollees and their families, I Enrollment is open to all federal employees and 

annuitants in the Plan's service area. The Plan's service area includes most of California. 

The Plan's contract (CS 2639) with OPM is experience-rated. Thus, the costs of providing 

benefits in the prior year, including underwritten gains and losses which have been carried 

forward, are reflected in current and future years' premium rates. In addition, the contract 

provides that in the event of termination, unexpended program funds revert to the FEHBP Trust 

Fund. In recognition oftheseprovisions, the contract requires an accounting ofprogram funds 

be submitted at the end of each contract year. The accounting is made on a statement of 

operations known as the Annual Accounting Statement. 

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

management. Also, management ofthe Plan is responsible for establishing and maintaining a 

system of internal controls. 

1 Members of an experience-rated HMO have the option of using a designated network of providers or using nonnetwork providers. A member's choice in selecting one healthcare provider over another has monetary and medical 

implications. For example, if a member chooses a non-network provider, the member will pay a substantial portion 

ofthe charges and benefits available may be less comprehensive.. 

1
 
This is our first audit of the Plan. The results of our audit were provided to the Plan in written 

audit inquiries; were discussed with Plan officials throughout the audit and at an exit conference; 

and were presented in detail in a draft report, dated March 27,2009. The Plan'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. 

2
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

OBJECTIVES
 

The objectives of our audit were to determine whether the Plan charged costs to the FEHBP and 

provided services to FEHBP members in accordance with the terms of the contract. Specifically, 

our objectives were as follows: 

Miscellaneous Health Benefit Payments and Credits 

•	 To determine whether miscellaneous payments charged to the FEHBP were in 

compliance with the terms of the contract. 

•	 To determine whether credits and miscellaneous income relating to FEHBP benefit 

payments were returned promptly to the FEHBP. 

Administrative Expenses 

•	 To determine whether administrative expenses charged to the contract were actual, 

allowable, necessary, and reasonable expenses incurred in accordance with the tenus 

ofthe contract and applicable regulations. 

Cash Management 

•	 To determine whether the Plan 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 objectives. We believe that the evidence obtained provides a 

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

We reviewed the Plan's FEHBP Annual Accounting Statements for contract years 2003 through 

2007. During this period, the Plan paid approximately $419 million in health benefit charges and 

$19 million in administrative expenses (See Figure 1 and Schedule A). The Plan also paid 

approximately $3 million in other expenses and retentions (See Schedule A). 

Specifically, we reviewed miscellaneous health benefit payments and credits (i.e., refunds, 

subrogation recoveries, provider audit recoveries, fraud recoveries, uncashed provider and 

subscriber checks, and pharmacy drug rebates), administrative expenses, and cash management 

for 2003 through 2007. 

3
 
Blue Shield of California Access"" HMO
 

Summary of Contract Charges
 

$150 ,------,------------, 

.~ $100 

i 

$50 

$0 

2003 2004 2005 2006 2007 

~---------­

Contract Years 

1'21 Health Benefit Payments .Administrative Expenses 

Figure 1 '- Contract Charges 

In planning and conducting our audit, we 

obtained an understanding of the Plan's 

internal control structure to help determine the 

nature, timing, and extent ofour 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 the 

Plan'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 the Plan's system of 

internal controls taken as a whole. 

We also conducted tests to determine whether the Plan had complied with the contract, the 

applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal 

Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws 

and regulations governing the FEHBP. The results ofour tests indicate that, with respect to the 

items tested, the Plan did not comply with all provisions ofthe contract and federal procurement 

regulations. Exceptions noted in the areas reviewed are set forth in detail in the "Audit Findings 

and Recommendations" section of this audit report. With respect to the items not tested, nothing 

came to our attention that caused us to believe that the Plan 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 the 

Plan: 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 objectives. 

The audit was performed at the Plan's office in San Francisco, California from February 3, 2009 

through February 26,2009. Audit fieldwork was also performed at our offices in Cranberry 

Township, Pennsylvania and Jacksonville, Florida through March 27,2009: 

METHODOLOGY 

We obtained an understanding of the internal controls over the Plan's financial, cost accounting, 

and cash management systems by inquiry ofPlan officials. 

4
 
We interviewed Plan personnel and reviewed the Plan's policies, procedures, and accounting 

records during our audit ofmiscellaneous health benefit payments and credits. Using various 

sampling methodologies, we selected and reviewed 186 health benefit refunds and recoveries, 

totaling $4,644,328 (from a universe of 4,050 refunds and recoveries, totaling $12,544,799), to 

determine ifrefunds and recoveries were promptly returned to the FEHBP. Specifically, our 

sample included 168 refunds, subrogation recoveries, and provider audit recoveries totaling 

$2,489,490; 13 uncashed checks totaling $54,583; and 5 pharmacy drug rebates totaling 

$2,100,255. In addition, prior to the start of our audit, the Plan identified and returned $181,522 

in refunds, uncashed checks, provider interest charges, and lost investment income to the FEHBP 

as part of a corrective action plan. Ofthis amount, we judgmentally selected and reviewed 

$57,522 to determine ifthese funds were properly returned to the FEHBP. The results ofthese 

samples were not projected to the universe of miscellaneous health benefit payments and credits. 

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years 

2003 through 2007. Specifically, we reviewed administrative expenses relating to cost centers, 

natural accounts, out-of-system adjustments, employee health benefits, executive compensation, 

BlueCross BlueShield Association dues, gains and losses, return on investment, benefit plan 

brochures, and Health Insurance Portability and Accountability Act of 1996 compliance. We 

used the FEHBP contract, the FAR, and the FEHBAR to determine the allowability, allocability, 

and reasonableness of charges. 

We also reviewed the Plan's cash management to determine whether the Plan handled FEHBP 

funds in accordance with Contract CS 2639 and applicable laws and regulations. 

5
 
III. AUDIT FINDINGS AND RECOMMENDATIONS
 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 

The audit disclosed no findings pertaining to miscellaneous health benefit payments and 

credits. Overall, we concluded that the Plan returned health benefit refunds and recoveries, 

including pharmacy drug rebates, to the FEHBP. 

B. ADMINISTRATIVE EXPENSES 

1.	 Incorrect Reporting of Administrative Expenses $121,822 

The Plan overstated the administrative expenses reported in the 2007 Annual Accounting 

Statement (AAS) by $121,822. Since administrative expenses are considered when 

developing the premium rates, overstating administrative expenses may increase future 

rates. 

Contract CS 2639, Part III, Section 3.2 (a)(3) states, "Based on the results of either the 

independent audit prescribed by the Guide or a Government audit, OPM may require the 

carrier to adjust its annual accounting statements (i) by amounts found not to constitute 

actual, allowable, allocable and reasonable costs; or (ii) to reflect prior overpayments or 

underpayments." 

We reconciled the Plan's cost accounting reports to the administrative expenses reported 

on the AAS's for contract years 2003 through 2007. Based on our reconciliation, we 

determined that the Plan overstated the amount of administrative expenses reported on 

the 2007 AAS. This overstatement was caused by the following items: 

•	 The Plan misclassified the December 2007 service charge accrual of $69,31 0 as an 

administrative expense accrual. 

•	 The Plan incorrectly recorded $2,012 in lost investment income (LII) as an increase in 

administrative expenses, instead ofrecording this amount as a decrease. 

•	 The Plan incorrectly calculated the amount of disallowed charges to be excluded from 

the administrative expense amount reported on the AAS, resulting in an 

overstatement of $50,500. 

As a result ofthese inadvertent errors, the Plan overstated the administrative expenses by 

$121,822 in the 2007 AAS. 

Plan's Response: 

The Plan agrees with this finding and has adjusted the 2008 AAS accordingly. 

6
 
Recommendation 1 

We recommend that the contracting officer verify that the Plan made the appropriate prior 

period adjustment in the 2008 AAS to correct the 2007 administrative expense 

overstatement of $121,822. 

2. Unallocable Cost Center Expenses	 $57,108 

The Plan charged the FEHBP $50,484 in expenses from two unallocable cost centers. As 

a result, the FEHBP is due $57,108, consisting of $50,484 for unallocable expenses and 

$6,624 for LII on these expenses. 

48 CFR 31.201-4 states, "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

(a)	 Is incurred specifically for the contract; 

(b)	 Benefits both the contract and other work, and can be distributed to them in
 

reasonable proportion to the benefits received; or
 

(c)	 Is necessary to the overall operation ofthe business, although a direct relationship 

to any particular cost objective cannot be shown," 

48 CFR 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 

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

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

From 2003 through 2007, the Plan charged the following expenses to the FEHBP from 

two cost centers that did not benefit the FEHBP: 

Cost Centers 

2503H - Hospital and Provider Liaison $39,821 

6035H - Producer Internet Sales	 10,663 

$50.484 

Specifically, cost center 2503H (Hospital and Provider Liaison) benefits the preferred 

provider organization Federal Employee Program product but not the experience-rated 

HMO product, and cost center 6035H (Producer Internet Sales) does not provide support to 

the FEHBP. As a result, the FEHBP is due $50,484 for unallocable cost center expenses 

charged to the FEHBP. 

7
 
Subsequent to us identifying this audit finding, the Plan returned $50,484 to the FEHBP on 

March 16,2009 for these unallocable cost center expenses. Accordingly, we verified the 

return of these funds to the FEHBP and calculated LII of $6,624 through March 16,2009 

on these questioned expenses. 

Plan's Response: 

The Plan agrees with this finding. The Plan will return LII of $6,624 to the FEHBP in the 

next drawdown during the first week of May 2009. 

Recommendation 2 

We verified that the Plan returned the questioned cost center expenses of $50,484 to the 

FEHBP on March 16,2009. Therefore, no further action is required for these questioned 

expenses. 

Recommendation 3 

We recommend that the contracting officer verify that the Plan returned $6,624 to the 

FEHBP for LII on the unallocable cost center expenses that were charged to the FEHBP. 

c. CASH MANAGEMENT 

1. Lost Investment Income on Excess Letter of Credit Drawdowns $402.805 

For the period 2003 through 2007, the Plan included inflow and outflow adjustments, 

totaling $5,430,76] (net), when calculating and requesting letter of credit (LOC) 

~·drawdowns. The inclusion of these adjustments in the LOC drawdown calculations 

caused the Plan to withdraw funds in excess of actual expenses. The Plan subsequently 

returned these excess drawdowns to the FEHBP in 2008, but did not return LII of 

$402,805 on these excess funds. 

Contract CS 2639, Part III, Section 3.2 (b)(I) states, "The Carrier may charge a cost to the 

contract for a contract term ifthe cost is actual, allowable, allocable, and reasonable. In 

addition, the Carrier must: ... (ii) determine the cost in accordance with: (A) the terms 

of this contract ...." 

48 CFR 1652.215-71 requires the carrier to invest and reinvest all excess FEHBP funds 

on hand, and to credit all investment income earned on those funds to the Special Reserve 

on behalf of the FEHBP. 

48 CFR 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 ofthe Contract 

8 
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." 

From 2003 through 2007, the Plan requested $432,760,945 in reimbursements via LOC 

drawdowns. When requesting these funds, the Plan included inflow and outflow 

adjustments totaling $5,430,761 (net) in their LOC drawdown calculations. According to 

the Plan,these adjustments were included primarily to cover estimated capitation 

expenses incurred a month prior to reimbursement from the FEHBP. For example, the 

Plan wire transferred the January 2005 provider capitation payments in the beginning of 

January; however, the Plan was not reimbursed for these expenses until the month-end 

drawdown was requested in mid-February. In order to have sufficient funds for the 

January 2005 provider capitation payments, the Plan added an inflow and outflow 

adjustment to the December 2004 month-end drawdown. 

Although these adjustments were added to the LOC drawdowns to cover estimated 

allowable expenses, the LOC drawdowns were not properly reconciled or adjusted for 

variances between month-end actual expenses versus funds received for the 

corresponding month. As a result, as of December 31, 2007, the Plan maintained a 

balance of$6,555,018 in excess funds.' 

In 2008, the Plan discontinued the use of inflow and outflow adjustments and adjusted 

various LOC drawdowns to return the excess funds of$6,555,018 to the FEHBP. 

Although the Plan returned the principal amount to the FEHBP, the Plan did not return 

1.,11 on the overdrawn funds. As a result, the FEHBP is due LIl of $402,805 on these 

excess funds. 

Plan's Response: 

The Plan agrees with this finding and returned 1.,11 of $402,805 to the FEHBP on April 16, 

2009. 

Recommendation 4 

We recommend that the contracting officer verify that the Plan returned $402,805 to the 

FEHBP for LII on the excess LOC drawdowns. 

2 The funds returned to the FEHBP in 2008 were greater than the inflow and outflow adjustments disclosed in our 

review for the period 2003 though 2007 because the balance of $6,555,018 also included inflow and outflow 

adjustments accumulated prior to 2003. 

9
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Experience-Rated Audits Group 

Auditor-In-Charge (AIC) 

Co-AIC 

Auditor 

Auditor 

Chief 

enior Team Leader 

10
 
SCHEDULE A 

V. SCHEDULES
 

BLUE SHIELD OF CALIFORNIA ACCESS+ HMO
 

SAN FRANCISCO, CALIFORNIA
 

CONTRACT CHARGES AND AMOUNTS QUESTIONED
 

CONTRACT CHARGES" 2003 2004 2005 2006 2007 2008 2009 TOTAL 

A. HEALTH BENEFIT CHARGES $47,702,247 $64,806,091 576,965,557 $108,482,649 $121,352,159 $419,308,703 

B. ADMINISTRATIVE EXPENSES 2,487,298 3,431,558 3,462,416 4,275,300 5,477,599 19,134,171 

C. OTHER EXPENSES AND RETENTIONS 301,107 417,280 594896 669,267 818,742 2,801,292 

TOTAL CONTRACT CHARGES I $50490652 $68.654.929 S81 022 869 

2005 

SO 

SIB 427 216 

2006 

SO 

S127 648 500 

2007 

SO 

2008 

$0

2009 

SO 

$441244166 

TOTAL AMOUNTS QUESTIONED 

(PER SCHEDULE B) 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 

2003 

SO 

2004 

$0 SO 

B. ADMINISTRA.TIVE EXPENSES 6,508 6,990 7,412 10,029 144,907 2,492 592 178,930 

C. CASH MANAGEMENT 24,635 83,435 ·35,818 80,898 98,652 79,367 0 402,805 

TOTAL QUESTIONED CHARGES I $31143 $90425 $43230 $90.927 $243.559 $81859 $592 S581735 

.. We did not review claim payments and other expenses and retentions. 
AUDIT FINDINGS 2<103 

SO

2004 

SO 

2005 

SO 

2006 

so 

2007 

SO 

2008 

50

2009 

50 

TOTAL 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS I $0 

B. ADMINISTRATIVE EXPENSES 

1. Incorrect Reporting of Administrative Expenses 50 SO 50 50 5121,822 SO SO 5121,822 

2. Unallocable Cost Center Expenses" 6,508 

56508 

6,990 

56.990 

7,412 

$7.412 

10,029 

$10029 

23,085 

$144907 

2,492 

52492 

592 

5592 

57,108 

TOTAL ADMINISTRATIVE EXPENSES I $178930 

C. CASH MANAGEMENT 

1. Lost Investment Income on Excess Letter of Credit Drawdowns 524,635 

S24.635 

531.143 

583,435 

583.435 

590.425 

535,818 

$35818 

S43.230 

$80,898 

S80898 

590927 

$98,652 

598.652 

S243.559 

579,367 

$79.367 

SO 

SO 

5592 

5402,805 

5402805 

5581735 

TOTAL CASH MANAGEMENT 

TOTAL QUESTIONED CHARGES 

I 

I 581859 

,. This audit finding inchldes lost investment lecome of $6,624. 

SCHEDULEB 

BLUE SHIELD OF CALIFORNlA ACCESS+ HMO 

SAN FRANCISCO, CALIFORNlA 

QUESTIONED CHARGES 
APPENDIX blue, of california 

April 27, 2009 

Senior Team Lead
 

Experienced-Rated Audit Group
 

Office oflnspector General
 

RE: Report No. 1O-SJ-00-09-021 

Dear •••••• 

In response to the April 21, 2009 email from OIG stating that OIG has decided to not change the LII calculation 

methodology and also agreed to revise the Audit Inquiry #2 overcharge to be $50,484, Blue Shield of California has 

the following responses to the Draft Audit Report dated March 27, 2009 and revised Audit Inquiry #2: 

Audit Inquiry #1 - Incorrect Reporting of 2007 Administrative Expenses ($121,822) 

o	 Blue Shield ofCalifornia agrees with the finding and has adjusted the 2008 AAS accordingly. 

Audit Inquiry #2 - Unallocable Cost Centers ($57,108) 

o	 Blue Shield of California agrees with this finding that cost centers 2503H - Hospital and Provider Liaison 

and 6035H - Producer Internet Sales were charged in error to the program. 

Cost Centers: 

2503H - Hospital and Provider Liaison $39,821 

6035H - Producer Internet Sales 10,663 

$50.484 

o	 Blue Shield of California agrees with the revised LII calculation of$6,624 related to the overcharge to the 

program and will return the LII to OPM on the next drawdown during the first week ofMay 2009. 

Audit Inquiry #3 • Lost Investment Income on Excess Letter of Credit Drawdowns (402,805) 

o	 Blue Shield of California agrees with the finding. Even though the LII amount wasn't completely 

finalized, Blue Shield returned the $402,805 to OPM on April 16, 2009 with the assumption that any LII 

calculation changes would be adjusted during a future drawdown. Since OIG did not revise the LII 

calculation methodology, no future draw adjustments will be needed. 

Sincerely, 

a 

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Director, ::;E. Federal Employee Program 

Blue Shield of California c

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