Purpose

The objective of our examination was to determine, on a test basis, whether Maximus, Inc. (Maximus) charged the Department of Health (DOH) for expenses that were adequately supported, and to identify opportunities for cost control measures under contract C025147. We examined vouchers as part of our daily pre-audit function beginning with the service period June 1, 2013, and continuing through to the present.

Background

DOH added $435 million in contract amendments for services outside the scope of the original contract. The services were related to the New York Health Benefit Exchange, and were not subject to competitive bidding or OSC approval. The amendments brought the total contract amount to $605 million and extended the life of the contract to August 19, 2017.

Key Findings

The contract amendments were set up as time and materials plus a profit. The amendments did not include detailed budgets, rate schedules or other provisions limiting the amount Maximus may charge for its costs. Consequently, there was no contract-based incentive for Maximus to control its costs.

We identified DOH would benefit by reducing the profit margin, establishing a reasonable general and administrative (G & A) rate, removing reimbursable expenses from both the profit and the G & A calculations, limiting travel expenses to maximums published by the General Services Administration, and establishing a salary rate schedule.

DOH Efforts on Key Recommendations

DOH implemented several of our recommendations and, as a result, we estimate DOH will save nearly $21 million over the remaining life of the contract. This includes savings of:

• $11.5 million by reducing the profit rate from 17.65 percent to 15 percent,
• $5.4 million by reducing the G & A rate from 14.2 percent to 12.6 percent, and
• $3.7 million by eliminating profit and G & A fees from pass through costs.

DOH now also requires Maximus to use federal per diem rates for meals and limit the amount of lodging charges, abide by salary rate schedules, and provide more detailed budgets and invoices.