In a letter from the Defense Contract Audit Agency (DCAA), Department of Defense (DOD) contractors were informed that they will need to be able to verify that adequate controls are in place to prevent and remove ineligible dependents from the contractors’ health plans.
The DCAA indicated that DOD contractors would be subject to penalties under FAR 31.205-6(m)(1), Compensation for Personal Services, Fringe Benefits and possibly cited for Cost Accounting Standard 405 noncompliance if it is determined that adequate controls are not in place to remove and prevent ineligible dependents from being on their health plans.
The DCAA indicated that this requirement applied to both contractors that have self-insured plans and those that purchase fully-insured plans.
The DCAA also gave guidance on the maintenance of records associated with determining dependent eligibility (Birth Certificates, Marriage Licenses, etc.) when a third party is used. It indicated that the third-party auditors must be able to provide ready access to all records used during the verification process (Note: Chapman Kelly provides fully indexed PDF copies of all records to each of its clients). The DCAA’s statement would seem to give preference to documentation-based approaches, rather than questionnaire or affidavit-based audits.
Amnesty periods were also mentioned in the letter. If the DOD Contractor chooses to offer an amnesty period, they should be able to account for the cost impact of the voluntarily dropped dependents. The cost for any ineligible dependents will not be reimbursed by the DOD regardless of whether or not they voluntarily dropped from the plan.
The DOD’s acknowledgement of dependent audits and ineligible dependent controls as a mandatory compliance measure is very important to any company that might be contracting with the government. If your company hasn’t yet conducted a dependent audit, or would like to discuss the controls you have in place feel free to contact us.
