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The Minnesota Marketplace Misallocated Federal Funds and Claimed Unallowable Costs

The Minnesota marketplace did not always allocate costs for establishing a health insurance marketplace and expend establishment grant funds in accordance with Federal requirements. Specifically, it:

  • allocated $1.8 million to the establishment grants and Medicaid on the basis of a cost allocation methodology that used outdated, estimated data instead of updated, better estimated data that were available, thereby misallocating $346,000 in costs to the establishment grants instead of allocating these costs to its State-based public health care programs;
  • did not appropriately authorize $930,000 for additional marketing work or execute a contract amendment until after the contractor completed the work;
  • reimbursed a contractor twice, resulting in an unallowable payment of $4,000; and
  • did not create or maintain complete and accurate inventory records for equipment purchased with establishment grants in accordance with Federal requirements.

These errors occurred because the State agency did not have adequate policies and procedures to follow Federal requirements.

We recommended that the Minnesota marketplace (1) refund to CMS $346,000 that was misallocated to the establishment grants by not using the updated, better 2013 data, or work with CMS to resolve the amounts misallocated to the establishment grants; (2) refund to CMS $934,000, consisting of (a) $930,000 that was paid for additional marketing work performed without a contract amendment and (b) $4,000 that was a duplicate payment; (3) work with CMS to ensure that costs we did not review for the audit period and costs claimed after our audit period are allocated correctly using updated cost allocation methodology; (4) implement internal controls to ensure the (a) application of updated, better data to properly allocate costs and (b) allocation of costs for all allocable project components; (5) strengthen senior management oversight to ensure that additional contract work is not performed before an amendment is in place; (6) implement internal controls to ensure proper prepayment review of invoices; and (7) create a complete and accurate inventory record, develop procedures to ensure that it maintains complete and accurate inventory records for equipment purchased with establishment grant funds, and conduct a physical inventory at least biennially.

In written comments on our draft report, the Minnesota marketplace did not agree with six of our recommendations. The Minnesota marketplace concurred with our recommendation to create complete and accurate inventory records and said that it has been working to "identify a resolution that will be efficient and allow for compliance with Federal and State requirements going forward." We maintain that our findings and recommendations are valid.

Copies can also be obtained by contacting the Office of Public Affairs at Public.Affairs@oig.hhs.gov.

Download the complete report.

Office of Inspector General, U.S. Department of Health and Human Services | 330 Independence Avenue, SW, Washington, DC 20201