- Associated Press - Monday, December 8, 2014

DENVER (AP) - Colorado’s health insurance exchange has spent millions more on vendors than what they were initially contracted for, and in some cases made payments without proper documentation, according to a scathing state audit released Monday that reviewed expenditures of federal funds.

In all, auditors found problems with 35 of the 92 payments and contracts they sampled during their examination of how Connect for Health has spent nearly $136.5 million in federal grants to implement an insurance marketplace under the nation’s new health care law. The exchange has been awarded $177.7 million in federal money, so Connect for Health is expected to get $41.2 million more in grants.

“The money that has come from the federal government to help start the exchanges in the various states is taxpayer money that was earned by taxpayers and you should have the highest respect for those taxpayers in spending that money,” said Sen. David Balmer, a Republican from Centennial and one of the lawmakers on the legislative audit committee briefed on the report.

In one instance, one vendor received $3.4 million for a contract that was initially $350,000.

Connect for Health is overseen by a government-appointed 12-member board, but auditors said the organization’s staff did not get approval from the board for the overage.

The vendor in question is North Highland, a project management consultancy firm that has helped the exchange with customer service and technology.

Luke Clarke, a spokesman for Connect for Health, said the company’s work has been valuable and it was not overpaid.

“Senior management and the board were aware throughout the time period at issue of the value and cost associated with North Highland,” he said. “The issue reported in the audit speaks to the process of documenting the approvals of the board and management.”

Auditors said 25 vendors were paid about $10.5 million more than their contracted amounts.

The services the exchange contracted for included customer service, marketing and outreach, training, and technology. Other issues the audit found:

- Seven payments for $109,355 lacked evidence to support amounts paid and services provided.

- One vendor received $38,344 for 100,000 tubes of lip balm for a promotional giveaway. Auditors said that went against the federal health law, which prohibits exchanges from using grant funding for promotional giveaways.

- Thirteen payments totaling $229,518 were made without required supervisory review.

- One contractor was paid $134,696 in July 2013 without providing Connect for Health its staff timesheets.

Exchange interim CEO Gary Drews said he welcomes the auditors’ input and his organization is working to improve controls over its finances.

“We can do better and we will,” he told lawmakers.

Drews also defended his staff.

“Financial decisions are obviously never made in a vacuum. This report does not exactly consider what was happening at the time the expenditures were made,” he said, adding that “staff did the best they could with the information they had and the decisions they had to make at the time.”

The report examined only how the exchange managed public funds it received. State auditors don’t have the authority to review other areas of operation at Connect for Health, such as the effectiveness of its website or how officials determine enrollment and tax credit eligibility for consumers.

Republicans have long called for a more comprehensive audit of the exchange. Earlier this year, a bill they sponsored easily cleared the House with bipartisan support, but was quickly defeated in the Democrat-controlled Senate.

Republican Rep. Dan Nordberg said he’ll propose a bill again next year.

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