Does Blue Cross Blue Shield Have Too Much in Reserves?
- Monday, 04 January 2016 19:16
- David Le
According to the Chronicle of Philanthropy and the Houston Chronicle, Blue Cross and Blue Shield of Texas, whose parent is Health Care Service Corp. (HCSC), obtained approval for raising their insurance rates by 20% despite maintaining approximately a $9.9 billion dollar reserve fund, HCSC awarding their CEO a $10 million bonus and HCSC have a net loss of $282 million during the year of 2014. These articles make an implication that Blue Cross and Blue Shield of Texas is operating as a for profit entity and gouging those who are insured by them to pay their officers and employees that are in the higher positions of the organizational hierarchy large salaries and bonuses although they’re considered a nonprofit entity.
What the Chronicle of Philanthropy and the Houston Chronicle failed to mention was insurers in Texas, like Blue Cross and Blue Shield of Texas, must follow Texas regulations requiring these insurers to maintain funds, which are restricted for specific purposes. Noted in Texas’s regulations under Insurance Code Title 11. Subtitle B. Chapter 2551. Subchapter F. Reserves, it notes all the required minimum reserve funds that must be maintained for a variety of purposes. Carl McDonald said “our reserves serve a different purpose and that is to remain in place to protect our nearly 15 million HCSC members and ensure anticipated and unanticipated claims by our members” to defend Blue Cross and Blue Shield of Texas’s nonprofit status. Although due to the 2014 audited financial statements not being available as of today, we checked on the Blue Cross Blue Shield of Texas website for its availability, it is too early to draw conclusions as to whether they should be considered a nonprofit entity or not based on whether the reserve funds being kept are considered reasonable to maintain their nonprofit status under Texas law.
Texas Insurance Code: http://www.statutes.legis.state.tx.us/Docs/IN/htm/IN.2551.htm
Blue Cross Blue Shield Financial Statements: http://www.bcbstx.com/company-info/who-we-are/financial-statements
Reviewing Changes Under Uniform Guidance
- Tuesday, 29 December 2015 15:12
- Connor Walker
With many changes coming to the Single Audit under the new Uniform Guidance, Aronson has outlined some of the major changes to help ease the transition to the updated Federal Grant and Single Audit Compliance Requirements.
- Threshold Changes:
- Non-federal entities expending $750K or more of federal funds during one fiscal year are subject to an audit under the Uniform Guidance.
- The threshold to determine Type A versus Type B programs has been raised to $750K.
- The threshold for reporting questioned costs had been increased to $25,000.
- Be wary that a133 has not simply been replaced by the Uniform Guidance. Federal awards made before December 26, 2014 still fall under a133.
- The new guidance is codified under 2 CFR Part 200 aka “Uniform Guidance” (sometimes referred to as the Super Circular). Visit http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title02/2cfr200_main_02.tpl for greater detail.
- Changes are effective for years beginning after December 26, 2014.
- Uniform Guidance may also apply to incremental funding made after December 26, 2014 if the incremental funding changes the award’s terms and conditions. If unclear, inquire of your grantor’s representative to determine whether incremental funding is subject to the Uniform Guidance.
- Monitoring of subrecipients must now be “robust” and follow a system. Subrecipients are subject to the same procurement rules as federal awardees.
- Pass-through entities must evaluate each subrecipient’s risk of noncompliance for purposes of determining appropriate subrecipient monitoring.
- Subrecipients are no longer required to submit their reporting package directly to a pass-through entity.
- Changes to the Schedule of Expenditures of Federal Funds (SEFA):
- All expenditures of federal awards, including non-cash assistance and loan programs, must be presented on the face of the SEFA.
- The face of the SEFA must also include total expenditures for a cluster of programs and the total amount provided to subrecipients for each federal program.
- The Summary Schedule of Prior Audit Findings must now describe the reason for the recurrence of a prior year finding. All findings not fully corrected will need to be described in this manner.
- The Single Audit report, including the Schedule of Expenditures of Federal Awards and the Schedule of Findings and Questioned Costs, will be available to the public via the Federal Audit Clearinghouse (FAC) website.
- Specific Agency changes:
- Appendix VII of the Compliance Supplement states that effective for grants and cooperative agreements with budget periods beginning on or after December 26, 2014, and awards that receive supplemental funding on or after December 26, 2014, ALL awards issued by NIH meet the definition of “Research and Development”
- Effective for proposals due on or after January 14, 2013, ALL awards issued by the NSF meet the definition of “Research and Development”
- Section 200.24(b) states that when no CFDA number is assigned, all Federal awards to non-federal entities from the SAME agency made for the SAME purpose must be combined and considered one program
- Conflict of interest now extends to the organizational level, meaning that any unequal access to information has to be disclosed to the federal agency.
- Employee morale is no longer an allowed cost.
- Period of Availability is now referred to as Period of Performance.
- The detailed specifics about internal controls are gone, which will allow nonprofits to create their own controls specific to their operations.
- Many agencies have codified the “Common Rule” A-110 Uniform Administrative Requirements with their own specific requirements. Be sure to check the CFR for agency specific requirements.
- To ensure that controls over compliance are sufficient in protecting federal fund expenditures, internal controls should assure 3 primary objectives:
- Reasonable assurance of effectiveness and efficiency of operations
- Reliable reporting
- Compliance with laws and regulations
Reviewing New Procurement Standards Under Uniform Guidance
- Tuesday, 29 December 2015 14:58
- Connor Walker
Procurement guidelines had several changes that came with the codification of A-133 into the new Uniform Guidance.
- “Micro purchases” of less than $3,000 do not need competitive bids or price analysis.
- “Small” purchases are purchases that exceed the micro-purchase amount but do not exceed the simplified acquisition threshold ($150K). If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources.
- If an agreement of $150K or more is reached with a contractor, the actual profit point worked into that agreement has to be negotiated separately.
- MBE/WBE (Minority Owned Business/Woman Owned Business) language that used to say to use these businesses “whenever possible” now says “must take all necessary steps.”
- Important: There is a one-year grace period for non-federal entities to implement changes to their procurement policies and procedures.
- Refer to the Bear Claw from COFAR:
5 Questions to Foster Tone at the Top
- Friday, 20 February 2015 08:00
- Brandon Williams
An important component of a strong internal control environment is the idea of “Tone at the Top,” which refers to the ethical behavior and example of integrity that management and key employees set for the rest of the organization to follow. When tone at the top is lacking, the likelihood of fraud occurring is increased, because these individuals have a strong influence over internal controls and the internal control environment. When assessing the example that management and key employees set, here are five questions to keep in mind:
- Do one or two key employees appear to dominate the company?
If control is centered in the hands of one or two key employees, extra effort should be made to create internal controls that create checks and balances to avoid management override and ensure compliance with policies and procedures. It is important to remember that good controls protect the individuals as well as the organization when it comes to fraud.
- Do any key employees have friends or relatives reporting directly to them?
Management should be above board in appearance and in fact. Even the appearance of nepotism could create mistrust within the organization. Organizations should prohibit key employees from having friends or relatives report directly to them. Aside from the message it sends, also note that opportunities for collusion increase the risk of fraud and increase the difficulty of finding such fraud.
- Do any key employees have outside business interests that might conflict with their duties at the company?
Key employees should be required to provide annual financial disclosures that list outside business interests. Interests that conflict with the organization’s interests should be prohibited. Management and key employees should place the mission above personal interests in both appearance and in fact in order to set good tone at the top.
- Have any key employees failed to take vacation?
While being so dedicated to work that one forgoes vacation may look good, it can actually be a serious red flag. Requiring key employees to take annual vacations can aid an employer in detecting an ongoing fraud scheme because schemes tend to fall apart and become obvious when the perpetrator is removed from the scene.
- Are any key employees experiencing financial pressures, such as debts, gambling, medical bills, or divorce?
It’s a touchy subject, but key employees who are experiencing financial pressures represent a potential fraud risk to the organization and should be monitored by management. Employee assistance programs can be made available to help employees with alcohol, drug, and other problems with compassion and help alleviate some of the pressure these issues create.
For more information on business topics affecting nonprofit organizations, contact Aronson’s Nonprofit & Association Industry Services Group or Brandon Williams at 301.231.6200.
Proposed Changes in Nonprofit GAAP
- Thursday, 08 January 2015 15:36
- Carol Barnard
Thomson Reuters reports that the FASB expects to issue their proposals of changes to nonprofit GAAP by late March 2015. These proposals would represent the first major changes to nonprofit accounting in over 20 years.
The key proposals are expected to address the following aspects of nonprofit GAAP:
- Clarified reporting related to the restriction of funds relative to the total amount of funds available.
- Improved performance reporting by altering the statement of activities to include an operating measure showing expenditures related to the organization’s mission as well as donated funds available to be spent.
- Significant changes to the statement of cash flows which would propose changing from the indirect cash flow method of reporting to requiring the direct cash flow method which separates the reporting of cash receipts and payments tied to operating activities.
- Expanded disclosures on endowments.
- New disclosures on the organization’s access to immediate cash.
The objective of the proposals would be to increase transparency in nonprofit financial statements by providing more information to donors, creditors, and watchdogs about how funds are spent and invested. The FASB is planning to weigh the cost benefit of the proposals during the first quarter of 2015. If an agreement is reached that the benefit outweighs the costs then the proposals will be released for public comment.
Read more about it here.