In recent guidance to its audit staff, DCAA noted that some contractors were inappropriately charging the Government for health benefit costs for dependents that are no longer eligible for those benefits under the terms of the contractors’ health benefit plans. DCAA is claiming that any such costs are specifically unallowable and subject to penalty if disclosed during an audit. While we would be the first to agree that the costs are not allowable under Government contracts, we believe that DCAA’s position that such costs carry a penalty is somewhat far-reaching. As far as we know, DCAA’s position has not yet been tested through the appeals process.
Internal Controls. The guidance further states that a contractor’s failure to exclude ineligible dependents from health benefit coverage is a reportable accounting system internal control deficiency. We recommend that contractors establish procedures to ensure that ineligible dependents are excluded from coverage. The easiest method for doing this is to make certain that all employees understand the limits on coverage (training), have them certify annually that they comply with the restrictions and limitations, and perform internal audit tests to ensure compliance.
Third-party Service Providers. Some companies utilize outside service providers to perform eligibility reviews. In those cases, DCAA will most likely want to review their work to the same extent they would in situations where contractors utilize in-house personnel. Your third-party service providers need to be aware of this requirement and be prepared to provide appropriate documentation.
Cost. In some cases, health insurance premiums are unaffected by small changes in the number of eligible dependents. Thus, it is not necessarily true that ineligible dependents will automatically increase costs to the Government. Assuming this ever becomes an issue with your company, you need to have a thorough understanding of how your premiums are computed. It may help your defense.