March 5, Background. About Massachusetts Education & Government Association (MEGA)

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1 REQUEST FOR PROPOSAL TO PROVIDE ANNUAL AUDITING SERVICES FOR THE MASSACHUSETTS EDUCATION & GOVERNMENT ASSOCIATION (MEGA) WORKERS COMPENSATION GROUP March 5, 2018 The MEGA Board of Directors, through its third party administrator Cannon Cochran Management Services, Inc. (CCMSI), invites independent, certified public accountants that are licensed to practice in the Commonwealth of Massachusetts, to submit proposals to perform annual audit services in accordance with these specifications. Background CCMSI currently contracts MEGA s annual audit through BDO, Certified Public Accountants located in Boston, Massachusetts. BDO has conducted MEGA s audit for the past 3 years. About Massachusetts Education & Government Association (MEGA) operates in accordance with Massachusetts General Law Chapter 180, with its initial fiscal year beginning July 1, It was created consistent with M.G.L. Chapter 152, 25E through 25U in order to provide a self-insured workers compensation program for public entities within the Commonwealth of Massachusetts. Effective July 24, 1995, MEGA was recognized as a Non-Profit Massachusetts Corporation. As such, it is granted tax exemption by the Internal Revenue Service on the basis that it is an extension of governmental instrumentalities. On July 1, 2003, the Massachusetts Commissioner of Insurance approved a merger between the MEGA Workers Compensation Group, Inc. and the newly formed MEGA Property & Casualty Group in order to offer property and casualty lines of insurance in addition to workers compensation [to public entities]. This new group was formed in accordance with, and is governed by, M.G.L. Chapter 40M. As of July 1, 2011, MEGA ceased writing lines of insurance other than workers compensation. MEGA employs a third party administrator, CCMSI, to directly handle claims administration, loss control services, and other related financial, legal and investigative services. Through its administrative team (regional and state supervisors, account manager, claims and underwriting supervisors), the following MEGA team is directly managed: Loss Control Consultant Indemnity Adjusters Medical Adjusters Underwriters Claims Adjusters Multi-Line Adjusters

2 Page 2 The MEGA group averages 175 members with a premium level of approximately $14.4M and a surplus level of approximately $3M. The Property & Casualty business line is currently in runoff and consists of one (1) remaining claim. Purpose of the Request for Proposal The purpose of MEGA s Request for Proposal is to engage an experienced financial and claims auditing firm to conduct a statutory basis audit that is in compliance with accounting practices prescribed or permitted by the Massachusetts Division of Insurance. In accordance with auditing standards generally accepted in the United States of America, the audit should express an opinion as to the preparation and fair presentation on the following financial statements which are comprised of: Statement of Financial Position (Statutory Basis) Statements of Operations and Changes in Surplus/Deficit (Statutory Basis) Statement of Cash Flows (Statutory Basis) Related Notes To the Financial Statements The audit should involve performing procedures to obtain audit evidence about the amounts and related disclosures in the financial statements including the risk of material misstatement of the financial statements due to fraud or error. The audit should also consider an assessment of risk and internal controls related to the development of claims [by CCMSI] and related IBNR as supported by MEGA s independent actuarial valuation for reserve adequacy. With respect to the actuary, the audit should focus on the reserving methodologies with emphasis on: Methodology used for establishing reserves Whether reserves reasonably reflect the exposure based on industry standards If the reserve was timely based on relevant/available claims information Additionally, MEGA is required to obtain an independent accountant s report fon applying agreed upon procedures (AUP) to classifications, experience ratings, rates and payroll for premiums billed to members. The AUP shall be conducted in accordance with MGL c.152, 25O. Selection of applicable policies Ranking governing class codes by total payroll Recalculatation of premium using WCRIB(MA) premium algorithm calculator Review independent payroll auditor s report (compare payroll class to those used by MEGA) Compare identified inputs used to calculate premiums to source manuals/circulars/letters) (rates by class code, rate deviation, increased limit factors, experience rating factor, construction credit, ARAP factor, premium discount, QLMP credit & DIA assessment rate) Conformity to specified requirements (form of presentation, tables of policies tested/premums used compared to WCRIB algorithm calculation along with printouts, line-by-line calculations & explanations for exceptions)

3 Page 3 Evaluation Overview and Timetable The process begins with this Request for Proposals (RFP). Companies with audit experience specific to workers compensation and [to a lesser extent] property and casualty are invited to submit a Request For Proposal (RFP). The proposals will be reviewed by CCMSI management and members of the MEGA Audit Committee. The contract and all services will be initiated no later than 30 days after the RFP has been evaluated and awarded. Any additional required information or resources must be requested in writing to CCMSI (subject to standard confidentiality requirements). In addition to an oral presentation, a final written report must accompany the proposal to CCMSI and the MEGA Board. Qualifications The successful firm submitting a proposal should have at least five years, or have an individual practitioner within the firm with at least five years, of progressive audit experience in workers compensation (and to a lesser extent, property and casualty claims experience), and knowledge of claims management, as well as a thorough understanding and familiarity with workers compensation laws as governed by Massachusetts regulations, practices and rulings. The following will be considered in evaluating the proposals and should be included in submitted proposals: Experience in conducting [primarily] workers compensation claims audits as well as property and casualty audits including an evaluation of best claims practices based on industry standards. Demonstrated ability to perform all required tasks in a pro-active, highly coordinated manner within the allotted time parameters subject to state reporting submission deadlines. Qualifications and experience of key personnel responsible for delivering the services (please provide names and qualifications of personnel). References from current and former clients. Quality and range of capability to perform the requested work. Proposed professional services fees to conduct the work relative to value provided. Request For Proposal Submission Requirements Specific questions concerning this RFP should be directed [in writing] to Paul Pitman by the close of business on April 6, Proposals must be received no later than close of business on May 4, Any and all costs associated with the proposal will be assumed by the vendor and will not be the responsibility of MEGA or CCMSI.

4 Page 4 MEGA or CCMSI reserves the right to withdraw or modify this RFP. MEGA or CCMSI reserves the right to waive any defect or irregularity in a submitted proposal or reject any proposal or portion thereof [at any time]. Any submissions in response to this RFP may be subject to Massachusetts Public Records Laws. Any specific information which the proposer considers confidential and proprietary and possibly subject to exemption in accordance with the Massachusetts Public Records Laws, Regulations and Statutes, must be clearly designated as such. Please note that information designated as "confidential and proprietary" does not guarantee that it will be exempted from release, but will aid CCMSI in determining if any Public Record exemptions apply. This bid will be awarded based on an evaluation of the experience and price of the bidders that best serves the interest of the MEGA Workers Compensation Group. Scope The annual audit shall include an examination of all MEGA related accounts and/or funds of CCMSI. This includes workers compensation claims, property and casualty claims, reserves and related practices, IBNR and related practices, investments, internal controls, and shall be made in accordance with statutory accounting principles applicable to organizations structured under M.G.L. Ch. 40M, and any other applicable state and federal regulations. Length & Terms of Contract The contract will cover a three-year period beginning with the fiscal year ending June 30, 2018 and ending with the fiscal year ending on June 30, 2020 and will incorporate the terms of this bid proposal. Project & Report Requirements As part of this engagement, the following are also required: Working meetings with the MEGA Audit Committee, CCMSI State Director, Account Manager and Claims Supervisor to coordinate, complete and obtain final signoff of the audit. Final audits cannot be submitted to the State without authorization from the MEGA Board. An exit conference with MEGA Board Members and CCMSI Key Personnel. The annual audit shall meet all federal, state and professional requirements and be presented to the MEGA Board of Directors and CCMSI key personnel at a formally scheduled exit conference. Progress billing will be permitted Billing

5 Page 5 Five copies should be submitted to: Attention: Paul Pitman CCMSI 55 Walkers Brook Drive 4 th Floor, Suite 402 Reading, MA By Friday, May 4th at 10 a.m. Proposals should include: Proposal Requirements Firm contact information and profile, including specific Massachusetts public sector experience. Names of anticipated audit team members (year one) and staff scheduled for subsequent years audits. Please include resumes and a summary of relevant experience. A statement confirming the firm s understanding of the scope of work and relevant experience for auditing the [statutory] financial statements and related actuarial responsibilities of a workers compensation group operating under the relevant sections of Massachusetts General Laws. The date the audit will begin (include preliminary fieldwork) and anticipated end date for each subsequent year, as well as dates for delivery of the financial statements; giving consideration to the deadlines imposed by the Massachusetts Division of Insurance. A summary of expected assistance required by the Board and CCMSI. List the names, addresses and telephone numbers of clients who may be contacted as references. Additionally, all proposals MUST include cost information as follows: Annual Audit (lump sum). All pricing information should be fully inclusive of the auditing services described above. Any additional services not contemplated above must be listed, explained and quantified. Any additional services must be detailed (time and materials). Please state any hourly rates that might apply.