Audit Guidance

DEFENSE CONTRACT AUDIT AGENCY DEPARTMENT OF DEFENSE 8725 JOHN J. KINGMAN ROAD, SUITE 2135 FORT BELVOIR, VA 22060-6219 IN REPLY REFER TO PSP 850.1.C August 4, 2009 09-PSP-016(R) MEMORANDUM FOR REGIONAL DIRECTORS, DCAA DIRECTOR, FIELD DETACHMENT, DCAA HEADS OF PRINCIPAL STAFF ELEMENTS, HQ, DCAA SUBJECT: Audit Guidance on Review of Dependent Health Benefit Costs SUMMARY It has come to our attention that some 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. Since purchased insurance premiums or self insurance claims associated with ineligible dependents do not meet the expressed requirements of the referenced FAR provision (i.e., in accordance with established contractor policy), penalties should be recommended on any questioned amounts as part of incurred cost audits. In addition, auditors should verify that contractors have adequate procedures to ensure payment of insurance premiums or claims are only being made ...