Examination of the Administrative Costs Incurred Under the Health Insurance for the Aged and Disabled (Medicare) Part A

EXECUTIVE SUMMARY:

The objective of our audit was to determine whether (1) Blue Cross and Blue Shield of North Carolina (BCBSNC) had established effective systems on internal control, accounting and reporting for administrative costs and (2) the Final Administrative Cost Proposals (FACP) presented fairly, in all material respects, the costs of program administration for the Part A program in accordance with Part 31 of the Federal Acquisition Regulations as interpreted and amended by Appendix B of BCBSNC's agreement with the Health Care Financing Administration (HCFA).

We determined that BCBSNC had generally established adequate systems for internal control, accounting and reporting for administrative costs. Further, the administrative costs for the period October 1, 1995 through September 30, 1998 were generally in accordance with Part 31 of the Federal Acquisition Regulations as interpreted and amended by Appendix B of BCBSNC's agreement with HCFA. However, we identified $21,302 in costs claimed on the FACPs for which we recommend disallowance for the period October 1, 1995 through September 30, 1997. Unallowable late payment penalties of $128 to the Internal Revenue Service were claimed on the 1996 Fiscal Year FACP and executive compensation costs of $21,174 were claimed on the 1997 Fiscal Year FACP in excess of the maximum amounts allowed by Public Law 105-85.