COUNTY FLORIDA Office of the County Auditor 115 S. Andrews Avenue. Room 520 Fort Lauderdale, Florida FAX

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1 BR:9WARD COUNTY FLORIDA Office of the County Auditor 115 S. Andrews Avenue. Room 520 Fort Lauderdale, Florida FAX Exhibit 1 May 20, 2016 To: From: Subject: Mayor and Members, Board of County Commissioners Evan A. Lukic, Count~tof". Flexible Spending Account Forfeitures As shown in Table I below, forfeitures from Flexible Spending Accounts (FSA) have continued to accumulate, resulting in a current available balance of $715,078 as of the end of calendar year Table 1 Source: Data from Human Resources Division, Employee Benefits Services It is appropriate at this time, during the development of the budget for Fiscal Year 2017, to evaluate the potential use of the forfeitures. We recommend using the forfeited funds pursuant to IRS regulations for the benefit of County employees. In accordance with IRS regulations, forfeitures may be: retained by the employer; used to reduce required salary reduction amounts for the immediately following plan year, on a reasonable and uniform basis; returned to the employees on a reasonable and uniform basis (such funds are taxable as income) or Broward County Board of County Commissioners Mark Bogen Beam Furr Dale V.C. Holness Marty Kiar Chip LaMarca Stacy Ritter nm Ryan Barbara Shaner Lois Wexler

2 Flexible Spending Account Forfeitures May 20, 2016 Page 2 used to defray reasonable administrative expenses directly associated with the FSA. The accumulated balance is likely to increase in May, following completion of the reconciliation of calendar year 2015 activity 1 Background The Board established Flexible Spending Accounts (FSAs) as a component of Broward County's Benefit Choice (Cafeteria) Plan effective January 1, FSAs provide benefiteligible employees reimbursement for eligible expenses on a pre-tax basis. The County offers two types of FSA accounts: medical and dependent care reimbursement accounts. The plan is governed by Internal Revenue Service (IRS) Code Section 125. The FSA accounts are managed by a third party administrator. The administrator receives employee contributions biweekly through payroll deductions and reimburses employees for eligible expenses following submission of documented claims. All contributions not claimed by March 31st of the following year are forfeited. Forfeited funds have accumulated since inception of the Flexible Spending Account Program in The balance of forfeited funds for both types of FSA, Medical and Dependent Care, is $715,078 as of the end of calendar year See also our attached 2004 report, titled Review of the Internal Controls for Employee Medical Reimbursement Accounts and September 201 O follow-up memorandum and Board discussion at the September 28, 2010 meeting of the Board of County Commissioners. EAUdh/besa cc: Bertha Henry, County Administrator Joni Armstrong Coffey, County Attorney Kevin Kelleher, Assistant Director, Finance and Administrative Services Mary McDonald, Human Resources Division Lisa Morrison, Benefits Manager 1 For calendar year 2015, Section 8.2 of the County's Section 125 Plan requires the forfeited amounts to be used to defray any administrative costs and experience losses or used to provide additional benefits under the Plan.

3 BPt~ARD ' COUNTY COUNTY AUDITOR 115 S. Andrews Avenue, Room 520, Ft. Lauderdale, FL FAX September 21, 2010 To: From: Subject: Mayor and Members, Board of County Commissioners Evan A. Lukfc. Cou~ Status of Implementation - Employee Medical Reimbursement Accounts Recommendations The following table depicts the status of the two recommendations contained in our report of Internal Controls for Employee Medical Reimbursement Accounts adopted by the Board of County Commissioners on November 9, 2004, Agenda Item #41 (See Attachment). r-= " , ;;-R_e_c_o_m_m_e_n_d_a_ti_on...--~---!-, Implemented ;.. :1. Develop a policy for utilizing flexible spending account! (FSA) forfeitures for submission to the Board No, see comments : l re RLI in 2007 on I T ()_!ge 2. -~ --i-- Yes Ensure FSA are reconciled at least ~n!luall~ "" As indicated above, the County has yet to adopt a policy for utilizing Flexible Spending Accounts (FSA) forfeitures. Forfeitures have continued to accumulate, resulting in a current available balance of approximately $613,000 as of September 30, No expenditures have been made from the forfeitures accounts since inception in Recent expanalon of allowable uses for FSA forfeitures provide an opportunity for the County to apply all or a portion of the balance to various programs. Given the present budgetary constraints facing the County, we would encourage adoption of a policy to use FSA forfeitures to defray costs, offset employee health care contributions or otherwise use the fund$ in accordance with IRS regulations. Background The Board adopted Flexible Spending Accounts (FSAs) as a component of Broward County's Benefit Choice (Cafeteria) Plan effective January 1, FSAs provide benefit-eligible employees reimbursement for eligible expenses on a pre-tax basis. The County offers two types of FSA accounts: medical and dependent care reimbursement accounts. The plan is governed by Internal Revenue Service (IRS) Code Section 125. Browafd County Board of County CommiSsioners Sue GunRutget l<lls!ln D. JacctlS Albeit C. Jones Ken ICe8cttJ Ilene Llebannan Slacv ~r John E. Rodslrom. Jr LOii Weder

4 Status of Implementation - Employee Medical Reimbursement Accounts Recommendations ~tember 21, 2010 Page2 IRS issued proposed regulations providing guidance on cafeteria plans. Effective January 1, , flexible spending account forfeitures may be: 1. Retained by the employer or 2. Used by the employer in the following manner: a. reduce required salary reduction amounts for the immediately following plan year on a reasonable and uniform basis, b. retum to the employees on a reasonable and uniform basis, or c. defray expenses to administer the cafeteria plan. FSA's are currenuy managed by a Third Party Administrator, Fringe Benefits Management Company (FBMC). Employee contributions are transferred to FBMC biweekly. Employees submit reimbursement requests to FBMC for eligible expenses. FBMC determines eligibility of claims and sends reimbursement to the employee for eligible expenses. At the end of each plan year. any contributions not claimed by March 31st ofthe following year are forfeited. Forfeited funds have accumulated since inception of the Flexible Spending Account Program in The balance of forfeited funds as of the end of fiscal year 2009 is approximately $513,000. An attempt to use the forfeited funds was made In 2007 in connection with a Request for Letters of Interest (RLI) for Wellness and Disease Management Services. Costs for this program were estimated to be approximately $ (the approximate forfeitures balance at that time) and the forfeited funds were to be used to offset costs for the first year of the program. However, the Insurance Selection Committee rejected au proposals to the RLI and the Wellness and Disease Management Services RLI was canceled. Given the present budgetary constraints facing the County, It Is more appropriate than ever to evaluate the potential use ofthe forfeitures to defray costs. offset employee health care contributions or otherwise use the funds in accordance with IRS regulations. EAUSJT/ng cc: Bertha Henry, County Administrator Jeffrey Newton, County Attomey Dinah Lewis, Director, Finance and Administrative Services Attachment: Review ofthe lntemal Controls for Employee Medical Reimbursement Accounts by the Board of County Commissioners on November 9, 2004 (Agenda Item #41). 1 Monies forfeited before January 2009 had to be used to defray reasonable administrative expenses, reduce required premi1111s, increase the annual coverage amount or returned to the participants in the form of cash.

5 AilACHMENI REVIEW OF THE INTERNAL CONTROLS FOR EMPLOYEE MEDICAL REIMBURSEMENT ACCOUNTS Broward County, Florida Employee Benefit Services Human Resources Division Finance &Administrative Services Department Project: 3009PE FINAL REPORT October 29, 2004 Prepared by Office of County Auditor Broward County, Florida

6 .. TABLE OF CONTENTS PAGE OBJECTIVE AND SCOPE...3 METHODOLOGY BACKGROUND...3 FINDINGS AND RECOMMENDATIONS...4 2

7 .. OBJECTIVE AND SCOPE The Office of County Auditor conducted a review to evaluate existing procedures and controls over employee medical reimbursement accounts managed by Broward County's Employee Benefit Services (BCEBS) through a contract with First Benefits Services, Inc. (FBS), athird party administrator. (FBS was the plan administrator for the flexible benefits plans, including the Medical Reimbursementand the Dependent Care Assistance Plans for calendar 2002 and Effective January 1, 2004 United Healthcare Insurance Company was named Plan Administrator). The review focused on selected medical reimbursement plan transactions in calendar years 2002 and METHODOLOGY The review consisted of the following: Interview of personnel from and BCEBS Review of the agreement between FBS and Broward County, the Internal Revenue Code, and the County's flexible spending account procedures. Review of a sample of claims for compliance with policies and procedures. Review of medical reimbursement accounts for new enrollees and terminated employees for compfiance with policies and procedures. Review of payments made to FBS and Inquiry about reconciliations between the general ledger (LGFS) system and subsidiary spreadsheets. Review of the forfeitures for accuracy. BACKGROUND The Medical Reimbursement Plan, which qualified under Section 125 of the lntemal Revenue Code, was adopted by the Broward County Board of County Commissioners as a component of the Broward County Benefit Choice (Cafeteria) Plan effective January 1, The Medical Reimbursement Plan allows benefit.eligible employees to be reimbursed for qualified medical expenses on a pre-tax basis. Contributions to the plan range from a mfnimum of $280 to a maximum of $5,000 annually. Employees submit a reimbursement request to FBS for eligible medical services. FBS evaluates submitted claims for eligibility andprocesses biweekly claim requests to BCEBS. BCEBS verifies employment. sufficiency of planned annual contributions, and releases a wire transfer to FBS for the total amount of approved claims. FBS reimburses the employees for approved claims by check or automatic deposit. For year ended December 31, 2003, 718 employees were reimbursed approximately $710,000 in medical claims. 3

8 '. IRS regulations require that an employee be reimbursed for an incurred medical service up to the full amount of the employee's planned annual contribution amount regardless ofthe amount ofdeductions In the employee's account at that time. As a result, the County could pay claims In excess of employee's contributions should the employee leave County services before year end. The potential negative effect of such early termination is offset by unused contributions which are forfeited to the County at the end of the calendar year. Forfeited funds through 2003 for the medical reimbursement and dependent care accounts totaled approximately $266,000. FINDINGS AND RECOMMENDATIONS Finding One: $288,000 In Forfeited Medical Reimbursement Account and Dependent Care Funds Remain Unused As of April 2004, approximately $235,000 and $31,000 in forfeited balances for medical reimbursement and dependent care accounts, respectively, have accumulated since the inception of the plan. The County's Employee Benefit Services consultant advised that Internal Revenue Service rules restrict the use of forfeited funds. The permitted uses Include; recovery of reasonable administrative expenses, reduction In required premiums; Increases In the annual coverage amount; and refunds to all participants as dmdends or premium refunds. Based on the above, the forfeitures could be used to offset the administrative fees paid to FBS and the County's lntemal costs associated with claim processing. Finding Two: Account Reconclllatlona were not performed. While the claim processing procedures currently performed by BCEBS included review of Individual payment requests, periodic reconciliation of the medical and dependent care reimbursement accounts ensures accounting accuracy and confirms the balance of the forfeited amounts. BCEBS Is In the process of reconciling the accounts for prior plan years to ensure accuracy of transactions and the forfeited amounts. Recommendations: The Board of County Commissioners should direct the County Administrator to: Develop a policy addressing the use of plan forfeitures for submission to the Board. Ensure that the flexible benefit plan accounts are reconciled at least annually. 4

9 Board of County Commissioners September 28, 2010 Meeting 10:08 a.m. 50. EMPLOYEE MEDICAL REIMBURSEMENT - COMMISSIONER JACOBS. ACTION: (T-12:17 PM) Commissioner Jacobs referenced a memorandum by County Auditor Evan Lukic as relates to the employee medical reimbursement accounts. (Refer to minutes for full discussion.) ACTION: (T-12:19 PM) County Auditor Evan Lukic advised work began in 2007 as to forfeiture accounts. Mr. Lukic suggested the Board consider utilizing such to defray costs as part of the budget process, as well as referenced IRS regulations. (Refer to minutes for full discussion.) ACTION: (T-12: 19 PM) County Administrator Bertha Henry wilt bring a recommendation back to the Board as to dollar values and alternatives surrounding plan design and options relating to forfeiture accounts. (Refer to minutes for full discussion.) ACTION: (T-12:20 PM) Commissioner Wexler referenced employee medical reimbursement and the positive diligence by the County Auditor, and will bring other items back to the Board relating to the budget. (Refer to minutes for full discussion.) AGENDA ITEM 50 MAYOR KEECHL: Commissioner Jacobs? COMMISSIONER JACOBS: Yes. This is to make up for the fact that I didn't pull an item. Mr. Lukic had a recommendation to us on the employee medical reimbursement accounts; on September 21st, he sent us a memo. And I asked this morning what are happening with those recommendations. And what he was talking about was that it turns out that there are quite a number of - an impressive number of dollars, about $513,000, of monies that were forfeited by employees that I never really knew where those monies went, but evidently they come back to the county. And his recommendation was that we use them to defray the costs or offset the employee healthcare contributions, or otherwise use them in accordance with the IRS regulations. But I think your suggestion is a very good one, and evidently was made back in 2007, and Rlls went out, and there was a bunch of discussion, and, in the end, nothing happened. So I don't know if you all are familiar with his recommendations in this memo, but I thought it was very timely, given our budget discussions tonight, and wondering, Mr. Lukic, if you could at least address the issue, if you wanted to flesh it out any further for the Board. But I would like to see us move in this direction. I think it's a good suggestion. MR. LUKIC: Yes, this was originally started back in We recognized that we had a balance at that time of a few hundred thousand dollars in our forfeitures account, which does return to the county.

10 It has some limitations relative to IRS regulations, but it appears, one, over time, those regulations have gotten more liberalized, and, two, it seems an opportune time to address how we might spend that $500,000. So I just offer it as part of the budget process, to- to resurrect that item and say maybe now's the time we-- we finally do something with that money. COMMISSIONER JACOBS: Thank you. So to- I guess to either the Mayor or the Administrator, how do we make it so? Is this something that would need to come before us as an agenda item? Is it something we handle in budget? Is everyone even prepared to discuss it today? MAYOR KEECHL: Sounds pretty simple to me. COMMISSIONER JACOBS: What would be the process? MAYOR KEECHL: Ms. Henry? Let's hear from Ms. Henry. MS. HENRY: If you recall, the --you had quite a bit of dialog at the workshop about plan design and the effects thereof. It was, on my side, an attempt to, again, bifurcate the issues between the plan design and what the - the - the dollar value of the program. So it's our intent at this point to bring back-- when we bring back the plan design, to identify what the dollar value is and to give you alternatives with that money, recognizing its non recurring dollars at this point, but you could, at least for a year, make some improvements. UNIDENTIFIED SPEAKER: {Inaudible.) MS. HENRY: I'm sorry? COMMISSIONER JACOBS: Well, I was just saying our plan seems to be non-recurring as well, so to use the dollars this year would make sense to me. So that's something that will come to us as a part of the plan design, as an option? MS. HENRY: We'll bring back the -yes. We'll bring back -COMMISSIONER JACOBS: Okay. MS. HENRY: - the recommendations. COMMISSIONER JACOBS: All right. Thank you. MAYOR KEECHL: Thank you. Commissioner Wexler? COMMISSIONER WEXLER: We had this discussion last week, though, in her office, regarding that memo and other issues. So I'm going to wait for the item to come forward at some point in time before I share with you a number of areas regarding budget. This was just one very pleasant surprise that we were reminded of through our Auditor's diligence. And other than that, I have nothing else. Thank you.

11 Office of the County Auditor Board Action Agenda Item #60 June 7, 2016 A. MOTION TO FILE County Auditor s Memorandum - Flexible Spending Account Forfeitures. (Commissioners Holness, Furr, Wexler, and a member of the public pulled this item.) ACTION: (T-3:21 PM) Approved. The Board asked County Administration to provide a list of recommendations. (Refer to minutes for full discussion.) (See Yellow-Sheeted Additional Material, dated June 7, 2016, submitted at the request of Finance and Administrative Services Department.) VOTE: 6-0. Commissioner Bogen was not present. Commissioner Ryan was out of the room during the vote. District 3 is open. ACTION: (T-4:20 PM) Commissioner Ryan requested being shown voting in the affirmative. 60. VOTE: 7-0. B. MOTION TO ADOPT County Auditor s Recommendations. (Commissioners Holness, Furr, Wexler, and a member of the public pulled this item.) ACTION: (T-3:21 PM) Approved. The Board asked County Administration to provide a list of recommendations. (Refer to minutes for full discussion.) VOTE: 6-0. Commissioner Bogen was not present. Commissioner Ryan was out of the room during the vote. District 3 is open. ACTION: (T-4:00 PM) Commissioner Ryan requested being shown voting in the affirmative. VOTE: 7-0. Attachments Exhibit 1 - County Auditor's Memo - Flexible Spending Account Forfeitures Exhibit 2 - Audit Response - Flexible Spending Account Additional Material - Information