State report reviews broker contracts, health insurance, lunch policy at Buena Regional

The Office of the State Comptroller issued a report Wednesday reviewing the awarding of insurance broker contracts and the administration of health insurance and lunch programs in the Buena Regional School District.

The report, a follow-up on a Comptroller's Office audit of the district in 2020, indicates that Buena Regional largely complies with state standards. It still, however, falls short of certain transparency requirements with respect to insurance-broker contracts.

Acting Comptroller Kevin Walsh admonished Buena Regional on the latter point in a news release issued Wednesday.

"Local governments need to be transparent so taxpayers can see how their taxes are being spent," Walsh said.

Buena Regional Business Administrator Donna Phillips declined comment when contacted Wednesday.

The 2020 Comptroller's Office audit, which investigated Buena Regional in fiscal years 2016 and 2017, had three findings paired with five recommended corrective actions.

The comptroller's report issued Wednesday found Buena Regional fully implemented four of those recommendations and partially implemented the fifth.

The partially implemented recommendation was about transparency in awarding insurance-broker contracts. The initial finding in the 2020 audit determined the district did not file certification with the board when looking to forgo formal bidding procedures when awarding a pair of insurance broker contracts in fiscal year 2017. It also did not send notices about the contracts to local newspapers.

The comptroller's review found Buena Regional was generally not requiring bidders on the broker contracts to list fees or commissions in their proposals. This obscured the actual value of the contracts and left the district less able to determine which broker submitted the best, most cost-effective proposal. The Comptroller's Office reported that the district awarded a pair of brokers commissions of $140,000 and $50,000 in fiscal year 2022. Buena Regional also did not include the value of the contracts when sending notices to the local newspapers.

Walsh said Buena Regional's failure to fully implement his office's recommendation was inefficient and left the district vulnerable to reckless spending decisions.

"The district created an opportunity for wasteful spending by not requiring brokers to disclose the amount of their fees or commissions in their proposals," he said.

The district did revise policies requiring health insurance brokers to disclose their commissions and fees from the purchase of health insurance coverage to later in the process. The comptroller's report considered its recommendation on this topic implemented. While those figures were disclosed, this was done via undated letters after the signing of the broker contract. This is legal, according the comptroller's report, but did not adhere to best practices as established by the state Department of Banking and Insurance. The report also noted that new federal law requires disclosures prior to contract approvals.

"The district should revise its policies and procedures to ensure that the broker's commission and financial self-interest are revealed as soon as possible and considered at every step of the procurement process," the comptroller's report states.

The district had also been imposing unreasonable standards requiring contractors to be located within a certain distance of the school without first demonstrating that physical proximity was needed for performance. The district's request for proposal for the employees' benefits broker required the broker's office to be located within 30 miles of the Buena Board of Education. The health insurance broker was required to be located within 20 miles. The Comptroller's Office maintains extraneous proximity requirements could "undermine competition" in the awarding of insurance-broker contracts. It determined the two distance requirements created in 2022 were not justified and "an unlawful restraint on competition."

Walsh suggested distance restrictions could be leveraged to the benefit of certain candidates for the position.

"Mileage restrictions can be used to favor certain brokers," Walsh said. "Local governments should avoid these sorts of constraints on competition whenever possible."

Buena Regional did publish notice of the broker contract awards in its designated newspaper, though it did not disclose the value of those contracts.

The new recommendations ask that Buena Regional ensure that brokers list their fees and commissions, use proximity limits "sparingly" and with "clear justification," and more fully notify the public of broker awards in its designated newspaper.

The four recommendations Buena Regional did implement stemmed from two findings.

The first finding concerned whether Buena Regional complied with federal income-verification regulations when administering the National School Lunch Program. In fiscal years 2016 and 2017, Buena Regional did not apply federally mandated scrutiny to applications for free or reduced-price lunch. The district specifically needed to further examine "error prone applications," which are applications where the listed income is too close to the eligibility limit; and applications requiring "verification for cause," which focuses on applicants with zero reported income or applicants the district believes are receiving unreported income.

The comptroller's report found the district had participated in required training and is applying appropriate scrutiny to applications.

The second finding concerned duplicate health insurance benefits. The Comptroller's Office found Buena Regional issued health benefit waiver payments to nine employees who were already receiving district health insurance benefits, costing the district $35,469 in fiscal year 2017. Six cases of duplicate benefits were enabled by the collective bargaining agreement with the Buena Regional Education Association that allows for spouses to individually opt out of the district insurance plan.

"We note that this practice is permissible under the current collective bargaining agreement and that the individuals were previously identified in the 2020 audit," the comptroller's report states. "We note, however, that this practice is wasteful and contrary to the purpose of a waiver payment as these employees were able to receive health benefits while collecting payment for opting out of the same benefits."

The Comptroller's Office recommended that Buena Regional develop policies to avert the double benefits awarded through administrative mistakes. Buena Regional said in its corrective action plan it would do so by subjecting each health insurance waiver request to direct review by the business administrator. In its Wednesday report, the Comptroller's Office found that recommendation had been implemented.

The Comptroller's Office also asked that the district negotiate with the teachers union to amend their collective bargaining agreement and bar spouses from receiving duplicate benefits. While the comptroller's report determined that recommendation had been implemented, district negotiations with the union on that front have not been successful for the district.