City of Niagara Falls

Internal Controls Over Health Insurance - Executive Summary

Health insurance benefits are an integral part of an employee’s compensation and represent a significant component of a local government’s costs. The increasing cost of providing health insurance coverage to employees and retirees substantially contributes to the financial challenges confronting local officials.

Pursuant to City ordinance and labor agreements, the City of Niagara Falls (City) provides health insurance coverage to 1,062 employees, officials and retirees. As of March 2006, the City offers just one provider, BlueCross BlueShield. The vast majority, 99 percent, of total monthly health insurance expenses are funded entirely by the City, with employees and retirees contributing less than 1 percent toward this cost.

Scope and Objective

We examined health insurance records for the City for the period January 1, 2005 to January 10, 2007. We extended the scope of our audit back to March 2004 to review a COBRA notification to a former City employee whose position had been terminated. The objective of our audit was to evaluate internal controls over the City’s health insurance functions to identify cost-saving opportunities. Our audit addressed the following related questions:

• Are adequate processes and controls in place to ensure the accuracy of health insurance bills for current and retired employees?
• Are adequate policies and procedures in place to ensure the timely collection of all insurance premiums due to the City?
• Has the City initiated any practices that have resulted in health insurance cost savings, which other local governments could emulate?

Audit Results

Generally, we found that the City has adequate health insurance billing and collection processes in place that are working effectively. However, we found that City officials provided enhanced benefits to employees and retirees beyond those provided through collective bargaining agreements and City ordinance. We identified more than $139,000 in improper benefits extended to four part-time employees ($84,816), two retirees ($51,156), and a full-time employee ($3,080).