Audit of Administrative Costs Claimed by Blue Cross and Blue Shield of Texas

EXECUTIVE SUMMARY:

Conrad and Associates, L.L.P., certified public accountants, under contract with HHS/OIG, performed a financial and compliance audit of expenditures claimed by Blue Cross Blue Shield of Texas (BCBS) related to administration of the Medicare Part A and Part B programs for the period October 1, 1998 through September 30, 1999.  BCBS was unable to provide supporting documentation for various transactions selected for testing.  As a result, expenditures totaling $458,377 were not adequately supported.  The self funded insurance program costs were overstated by $528,745.  BCBS imputed $820,796 as an expense to the Final Administrative Cost Proposals for return on investment.  The contractor used facilities capital employed as its base in applying the cost of money rate in calculating the expense.  However, documentation of facilities capital employed was not maintained or provided for our review.  BCBS did not dispute the questioned costs as presented but reserved the right to comment on this issue at a later point in time.  BCBS stated that the use of depreciation expense does not reflect the asset acquisition or disposals that have an effect on the return on investment computation.