McNew & Associates, Inc. Blog

Audit Guidance on Review of Dependent Health Benefit Costs
February 19, 2010, 10:33 PM
Filed under: DCAA Compliance | Tags: , , , ,

DCAA has found that numerous large defense contractors are inappropriately charging the Government for health benefit costs for dependents that are no longer eligible for such benefits under the contractors’ plans.  Auditors should ensure that the contractor’s forecasted costs and incurred cost submissions do not contain health benefit costs for ineligible dependents.  The cost of health insurance premiums and claims for ineligible dependents and ineligible spousal coverage are unallowable in accordance with FAR 31.205-6(m)(1), Compensation for Personal Services, Fringe Benefits

Auditors should verify that contractors have adequate procedures and penalties should be recommended on any questioned amounts as part of incurred costs audits.  Failure to have adequate control procedures over employee benefit costs should be reported as an internal control deficiency in the contractor’s accounting system and a CAS 405 noncompliance, if applicable. 

Current audits have disclosed that contractors have paid a significant number of dependent medical cost claims for family members who did not qualify as dependents under the contractor’s medical/health care plan.  The reasons for dependent/spousal ineligibility include:

  1. Dependents reached the age where they no longer qualified as a dependent.
  2. Spouses were either divorced or deceased.
  3. Dependents were covered under another plan as well as the contractor’s plan, and the employee failed to notify the contractor of the double coverage as the contractor’s plan required and adjusted premium for double coverage.

The costs of fringe benefits are allowable to the extent that they are reasonable and are required by law, employer-employee agreement, or an established policy of the contractor.  The risk of contractor payments being made related to ineligible dependents applies to both purchased and self insurance plans. 

“MEMORANDUM FOR REGIONAL DIRECTORS, DCAA.” Defense Contract Audit Agency Department of Defense 4 August 2010, 09-PSP-016(R).

McNew & Associates, Inc.                                                     

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[…] Audit Guidance on Review of Dependent Health Benefit Costs В« McNew … Feb 19, 2010 … Audit Guidance on Review of Dependent Health Benefit Costs … cost claims for family members who did not qualify as dependents under the contractor's medical/ health care plan. … […]

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