Audit of Blue Cross Blue Shield of Montana's Unfunded Pension Costs 1987 to 2004

EXECUTIVE SUMMARY:

The objectives of our review were to: (1) determine whether pension costs for plan years 1987 to 2004 were funded in accordance with the Federal Acquisition Regulation and Cost Accounting Standards, and (2) identify and properly account for any unallowable unfunded pension costs. Montana did not correctly identify the accumulated unallowable unfunded pension costs. As of January 1, 2004, Montana determined its accumulated unallowable unfunded pension costs to be $0; however, we identified accumulated unallowable unfunded pension costs of $56,099 ($7,324 for the Medicare segment plus $48,775 for the Other segment). As a result, Montana understated the accumulated unallowable unfunded pension costs by $56,099.

We recommended that Montana: (1) identify $56,099 of accumulated unallowable unfunded pension costs ($7,324 as an unallowable component of Medicare segment pension costs and $48,775 as an unallowable component of the Other segment pension costs) as of January 1, 2004; and (2) properly identify, and update with interest, unallowable unfunded pension costs in subsequent years. Montana concurred with our recommendations