Federal Reports

During our audit period, CDS was a subsidiary of Blue Cross Blue Shield of South Carolina (BCBS South Carolina), whose home office is in Columbia, South Carolina. CDS was created after being awarded the Enterprise Data Center (EDC) contract effective March 10, 2006. The EDC contract was replaced by a Virtual Data Center contract on November 15, 2012, which is still in effect. BCBS South Carolina sponsors a PRB plan, called the BCBS South Carolina Postretirement Health and Life Insurance Programs, which is offered to CDS employees. The purpose of this PRB plan is to provide retiree health and life insurance benefits to eligible retirees and their dependents. CDS claimed PRB costs using the accrual basis of accounting and funded those accrual costs through a Voluntary Employee Benefit Association (VEBA) trust in conjunction with a 401(h) account. The disclosure statement that CDS submits to CMS states that CDS uses pooled cost accounting. Medicare contractors use pooled cost accounting to calculate the indirect cost rates (whose computations include pension and PRB costs) that they submit on their ICPs. Medicare contractors use the indirect cost rates to calculate the contract costs that they report on their ICPs. In turn, CMS uses these indirect cost rates in determining the final indirect cost rates for each contract. Medicare Reimbursement of Postretirement Benefit CostsCMS reimburses a portion of the Medicare contractors’ annual PRB costs, which are funded by contributions that contractors make to their dedicated trust funds. The PRB costs are included in the computation of the indirect cost rates and reported on the ICPs. In turn, CMS uses indirect cost rates in reimbursing costs under cost-reimbursement contracts. Federal regulations (FAR 31.205-6(o)) require that to be allowable for Medicare reimbursement, PRB costs must be (1) measured, assigned, and allocated in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 715-60 (formerly Statement of Financial Accounting Standards (SFAS) 106) and (2) funded as specified by part 31 of the FAR. In claiming costs, contractors must follow cost reimbursement principles contained in the FAR and the Medicare contracts. Incurred Cost Proposal AuditsAt CMS’s request, Figliozzi & Company CPAs P.C. (Figliozzi), Mayer Hoffman McCann P.C. (McCann), the Defense Contract Audit Agency (DCAA), and CohnReznick (Reznick) performed audits of the ICPs that CDS submitted for CYs 2012 through 2016. The objectives of these ICP audits were to determine whether costs were allowable in accordance with applicable Federal regulations. For our current audit, we relied on the Figliozzi, McCann, DCAA, and Reznick ICP audit findings and recommendations when computing the allowable PRB costs discussed in this report. We incorporated the results of the Figliozzi, McCann, DCAA, and Reznick ICP audits into our computations of the audited indirect cost rates, and ultimately the PRB costs claimed, for the contracts subject to the FAR. CMS will use our report on allowable PRB costs, as well as the Figliozzi, McCann, DCAA, and Reznick ICP audit reports, to determine the final indirect cost rates and the total allowable contract costs for CDS for CYs 2012 through 2016. The cognizant Contracting Officer will perform a final settlement with the contractor to determine the final indirect cost rates. These rates ultimately determine the final costs of each contract.

During our audit period, Palmetto was a subsidiary of Blue Cross Blue Shield of South Carolina (BCBS South Carolina), whose home office is in Columbia, South Carolina. Palmetto administers Medicare operations under the MAC contracts for Medicare Parts A and B Jurisdiction 1 and Jurisdiction 11 effective October 25, 2007, and May 21, 2010, respectively, as well as other CAS-covered and FAR-covered contracts. Currently, Palmetto is the Medicare Parts A and B contractor for Jurisdictions J and M (formerly Jurisdiction 11). Palmetto also continues to perform Railroad Retirement Board contract operations under a specialty MAC contract awarded on November 27, 2012. BCBS South Carolina sponsors a PRB plan, called the BCBS South Carolina Postretirement Health and Life Insurance Programs, which is offered to Palmetto employees. The purpose of this PRB plan is to provide retiree health and life insurance benefits to eligible retirees and their dependents. Palmetto claimed PRB costs using the accrual basis of accounting and funded those accrual costs through a Voluntary Employee Benefit Association (VEBA) trust and in conjunction with a 401(h) account. The disclosure statement that Palmetto submits to CMS states that Palmetto uses pooled cost accounting. Medicare contractors use pooled cost accounting to calculate the indirect cost rates (whose computations include pension, PRB, Supplemental Executive Retirement Plan, and Excess Plan costs) that they submit on their ICPs. Medicare contractors use the indirect cost rates to calculate the contract costs that they report on their ICPs. In turn, CMS uses these indirect cost rates in determining the final indirect cost rates for each contract. Medicare Reimbursement of Postretirement Benefit CostsCMS reimburses a portion of the Medicare contractors’ annual PRB costs, which are funded by contributions that contractors make to their dedicated trust funds. The PRB costs are included in the computation of the indirect cost rates and reported on the ICPs. In turn, CMS uses indirect cost rates in reimbursing costs under cost-reimbursement contracts. Federal regulations (FAR 31.205-6(o)) require that to be allowable for Medicare reimbursement, PRB costs must be (1) measured, assigned, and allocated in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 715-60 (formerly Statement of Financial Accounting Standards (SFAS) 106) and (2) funded as specified by part 31 of the FAR. In claiming costs, contractors must follow cost reimbursement principles contained in the FAR and the Medicare contracts. Incurred Cost Proposal AuditsAt CMS’s request, Figliozzi & Company CPAs P.C. (Figliozzi), the Defense Contract Audit Agency (DCAA), and CliftonLarsonAllen, LLP (Allen), performed audits of the ICPs that Palmetto submitted for CYs 2012 through 2016. The objectives of these ICP audits were to determine whether costs were allowable in accordance with applicable Federal regulations.

During our audit period, Palmetto was a subsidiary of Blue Cross Blue Shield of South Carolina (BCBS South Carolina), whose home office is in Columbia, South Carolina. Palmetto administers Medicare operations under the MAC contracts for Medicare Parts A and B Jurisdiction 1 and Jurisdiction 11 effective October 25, 2007, and May 21, 2010, respectively, as well as other CAS-covered and FAR-covered contracts. Currently, Palmetto is the Medicare Parts A and B contractor for Jurisdictions J and M (formerly Jurisdiction 11). Palmetto also continues to perform Railroad Retirement Board contract operations under a specialty MAC contract awarded on November 27, 2012. During our audit period, CMS and BCBS South Carolina entered into an agreement called the “Advance Agreement on the Computation of Nonqualified Defined-Benefit Pension Plan Costs for Periods Beginning January 1, 2015” (agreement). This agreement allowed BCBS South Carolina to change its accounting methodology from a pay-as-you-go to an accrual method. This agreement also closed costs prior to January 1, 2015. Starting with January 1, 2015, the SERP III plan would, under the terms of the agreement, identify its segments by individual participant. These segments allocate to each of BCBS South Carolina’s Medicare subsidiaries: Palmetto; Companion Data Services, LLC; and CGS Administrators, LLC. This report addresses Palmetto’s compliance with the provisions of the Federal requirements and its Medicare contracts in claiming SERP III costs. The disclosure statement that Palmetto submits to CMS states that Palmetto uses pooled cost accounting. Medicare contractors use pooled cost accounting to calculate the indirect cost rates (whose computations include pension, postretirement benefit, SERP III, and Excess Plan costs) that they submit on their ICPs. Medicare contractors use the indirect cost rates to calculate the contract costs that they report on their ICPs. In turn, CMS uses these indirect cost rates in determining the final indirect cost rates for each contract. BCBS South Carolina sponsors a SERP III plan. The purpose of this deferred compensation plan is to supplement participants’ benefits payable under BCBS South Carolina’s retirement plans. This plan is provided to a limited group of management employees who are responsible for earnings and long-term growth of the company. BCBS South Carolina allocated costs to the Palmetto Medicare segment. Accounting MethodologiesThe Medicare contracts require Palmetto to calculate the SERP III plan costs in accordance with the FAR and CAS 412 and 413. The FAR and the CAS require that the costs for nonqualified plans be measured under either the accrual method or the pay-as-you-go method. Under the accrual method, the allowable costs are based on the annual contributions that the employer deposits into its trust fund. For nonqualified plans that are not funded through the use of a funding agency, costs are to be accounted for under the pay-as-you-go method. This method is based on the actual benefits paid to participants, which are comprised of lump-sum payments and annuity payments. Palmetto claimed SERP III plan costs on an accrual basis. At CMS’s request, the Defense Contract Audit Agency (DCAA) and CliftonLarsonAllen, LLP (Allen), performed audits of the ICPs that Palmetto submitted for CYs 2015 and 2016. The objectives of these ICP audits were to determine whether costs were allowable in accordance with applicable Federal regulations.

During our audit period, Palmetto was a subsidiary of BCBS South Carolina, whose home office is in Columbia, South Carolina. Palmetto administers Medicare operations under the MAC contracts for Medicare Parts A and B Jurisdiction 1 and Jurisdiction 11 effective October 25, 2007, and May 21, 2010, respectively, as well as other CAS-covered and FAR-covered contracts. Currently, Palmetto is the Medicare Parts A and B contractor for Jurisdictions J and M (formerly Jurisdiction 11). Palmetto also continues to perform Railroad Retirement Board contract operations under a specialty MAC contract awarded on November 27, 2012. During our audit period, CMS and BCBS South Carolina entered into an agreement called the “Advance Agreement On the Computation of Nonqualified Defined-Benefit Pension Plan Costs for Periods Beginning January 1, 2015” (agreement). This agreement allowed BCBS South Carolina to change its accounting methodology from a pay-as-you-go to an accrual method. This agreement also closed costs prior to January 1, 2015. Starting with January 1, 2015, the Excess Plan would, under the terms of this agreement, have three Medicare segments: (1) Palmetto, (2) Companion Data Services, LLC (CDS), and (3) Partial Medicare. This report addresses Palmetto’s compliance with the provisions of the Federal requirements and its Medicare contracts in claiming Excess Plan costs. We are addressing the Excess Plan costs claimed for the CGS Administrators, LLC (CGS), and CDS Medicare segments in separate audits. The disclosure statement that Palmetto submits to CMS states that Palmetto uses pooled cost accounting. Medicare contractors use pooled cost accounting to calculate the indirect cost rates (whose computations include pension, PRB, Supplemental Executive Retirement Plan III, and Excess Plan costs) that they submit on their ICPs. Medicare contractors use the indirect cost rates to calculate the contract costs that they report on their ICPs. In turn, CMS uses these indirect cost rates in determining the final indirect cost rates for each contract. Blue Cross Blue Shield of South Carolina Excess Plan BCBS South Carolina sponsors the Excess Plan. The purpose of the Excess Plan is to provide benefits in excess of the limits imposed by the Employee Retirement Income Security Act of 1974 for participants in the qualified defined-benefit plan. Accounting MethodologiesThe Medicare contracts require Palmetto to calculate the Excess Plan costs in accordance with the FAR and CAS 412 and 413. The FAR and the CAS require that the costs for nonqualified plans be measured under either the accrual method or the pay-as-you-go method. Under the accrual method, the allowable costs are based on the annual contributions that the employer deposits into its trust fund. For nonqualified plans that are not funded through the use of a funding agency, costs are to be accounted for under the pay-as-you-go method. This method is based on the actual benefits paid to participants, which are comprised of lump-sum payments and annuity payments. Palmetto claimed Excess Plan costs on an accrual basis.

The OIG investigated allegations that a Bureau of Reclamation (BOR) employee misused a U.S. Government purchase card. Specifically, the complaint alleged that the employee deliberately overbought supplies for a BOR office and gave the excess items to a family member for personal use or sale.We did not substantiate the allegations. We concluded that all the purchases were properly authorized and were consistent with supply requirements at the facility. We also concluded the employee did not improperly dispose of any office supplies.This is a summary of an investigative report we issued to the BOR Commissioner.

Our objective was to determine whether the U.S. Postal Service is effectively managing capital equipment at the Information Technology Center (ITC) in Eagan, MN.In January 2021, the Eagan ITC had over 4,300 capital equipment items — such as computer servers — for operations, system enhancements, equipment replacement, or research and development. During calendar years 2019 and 2020, 628 items with an estimated value of $77 million were entered as capital equipment records.

We investigated a complaint of whistleblower reprisal by a former employee of a non-profit organization affiliated with the BIA.

In this audit, we examined NASA’s development of next-generation spacesuits for ISS and Artemis missions, specifically the extent to which the Agency is addressing cost, schedule, and performance challenges.