Review of Supplemental Executive Retirement Program (SERP) Costs Claimed by Blue Cross Blue Shield of Tennessee

EXECUTIVE SUMMARY:

The objective of this audit was to determine the allowability of Supplemental Executive Retirement Program (SERP) costs claimed by Tennessee for Medicare reimbursement for Fiscal Years 1994 through 2002.  We found that Tennessee had claimed $548,944 of unallowable SERP costs.  The overclaim occurred because Tennessee did not fund the costs accrued for the SERP; thus, according to the Cost Accounting Standards, the allowable costs are limited to the actual benefit payments made.  Tennessee should revise its Final Administrative Cost Proposals to eliminate unallowable SERP costs of $548,944.  Tennessee agreed with our recommendation.