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HomeMy WebLinkAboutOIG No. 26-04 Miami Beach Fraternal Order of Police Health Trust Audit ReportJoseph M. Centorino, Inspector General TO: Honorable Mayor and Members of the City Commission FROM: Joseph Centorino, Inspector General DATE: May 19, 2026 PROJECT: Miami Beach Fraternal Order of Police Health Trust Audit Report PERIOD: October 1, 2021, through September 30, 2024 OIG No.: 26-04 This report presents the findings of a compliance audit conducted by the City of Miami Beach Office of the Inspector General (OIG) of the City’s Agreement with the Miami Beach Fraternal Order of Police (FOP) Health Trust from October 1, 2021, through September 30, 2024. BACKGROUND General The Miami Beach Fraternal Order of Police Insurance Trust Fund (the Plan) was established in January 1991 and provides health, vision, and life insurance benefits to eligible employees, certain retirees, and eligible dependents, in accordance with the terms of a collective bargaining agreement with the City of Miami Beach (City). Benefits The plan provides vision and health benefits (hospital, surgical, supplemental accident, and major medical) through a self-funded plan. The plan maintains an insurance policy to cover payments or health benefits in excess of $250,000 per person per policy year, with no lifetime maximum. EligibilityMiami Beach Fraternal Order of Police (FOP)/City Bargaining unit employees who are currently and previously have been on the City’s Police Department payroll for at least ninety days (covered employees) and their dependents are eligible for coverage under the Plan. The City makes required contributions to the Plan for all eligible employees. Covered employees include retired employees who retired from the Miami Beach Police Department (MBPD) after the Plan went into effect; who were continuously covered employees for forty-eight months before retiring or separating from employment; and who were continuously members of the F.O.P. during that 48-month period. Retired employee dependents are also eligible for coverage under the Plan, provided that the retiree is already enrolled or enrolls at the time of retirement. Non-bargaining unit employees are also eligible for coverage under the Plan if they meet certain conditions. To be eligible, the employee must be on the City Police Department payroll for at least ninety days at the time of enrollment; must be an F.O.P. member for two years prior to enrollment; Page 1 of 9 must maintain F.O.P. membership throughout the period of coverage; and must make the election to participate in the Plan within thirty days after leaving the bargaining unit. Funding PolicyThe plan is funded by contributions from the City and the Plan’s participants. The monthly City contribution rates for participants were $817.28, $877.76, and $937.45 for single coverage in 2022, 2023, and 2024, respectively. For family coverage, the rates were $2,003.40, $2,151.65, and $2,297.96 in 2022, 2023, and 2024, respectively. SUMMARY The OIG auditor examined all payments recorded during the audit period to determine whether the City contributions to the program were correctly calculated and accurately remitted to the FOP Health Trust. During the audit period, the following City Contributions to the FOP Health Trust were made: City Contribution Payments Period Active Retiree Total Oct 1, 2021 to Sept 30,2022 $ 7,319,310 $ 6,491,356 $ 13,810,666 Oct 1, 2022 to Sept 30, 2023 $ 7,846,307 $ 7,194,791 $ 15,041,098 Oct 1, 2023 to Sept 30,2024 $ 8,539,090 $ 7,941,516 $ 16,480,606 Total $ 23,704,706 $ 21,627,664 $ 45,332,370 SCOPE, OBJECTIVES, AND METHODOLOGY The primary scope of this audit was to determine whether the Employee Benefits Division within the Human Resources Department adhered to Article 9 of the Bargaining Agreement. Additionally, the audit scope included verification that the City Contributions were accurately paid to the FOP Health Trust for the healthcare services. OBJECTIVES The objectives of this audit were to determine whether: • The City Contribution for Health Care payments were accurately calculated and remitted to the FOP Health Trust by the Finance Department. • Proper controls were in place to ensure the integrity, reliability, and accuracy of calculations, records, and data for City contributions. • Sufficient documentation exists to support City contributions. • Other audit procedures as deemed necessary. METHODOLOGY The OIG performed this audit by following the procedures below: • Reviewed Article 9 of the Bargaining Agreement to understand the City’s required contributions. Page 2 of 9 • Obtained the payment data and supporting documentation related to City contributions during the audit period from the City’s Finance and Human Resources departments. • Interviewed and made inquiries of City staff and FOP administrators to gain an understanding of internal controls, assess control risk, and plan audit procedures. • Assessed the traceability of employee status changes starting from the FOP notification. • Recalculated the expected monthly City contributions based on contractual provisions. • Compared actual payments with recalculated amounts. • Identified and reported any discrepancies, errors, or potential control issues. • Performed substantive testing consistent with the audit objectives, including, but not limited to, an examination of applicable transactions and records. • Drew conclusions based on the results of testing with corresponding recommendations and obtained auditee responses and corrective action plans; • Performed other audit procedures as deemed necessary. FINDINGS, RECOMMENDATIONS, AND MANAGEMENT RESPONSES Finding # 1: Health Trust Eligibility Condition: Since November 2022 the Fraternal Order of Police (FOP) Health Trust has been enrolling new employees into the Health Plan within 30 days of their hire date based on informal instructions from the City Human Resources (HR) Employee Benefits Division. This unapproved practice does not comply with the 90-day waiting period established in the Bargaining Agreement for the Plan between the City and the FOP Health Trust. The OIG identified a total of 77 newly eligible employees for FOP benefits during the audit period. Of this total, testing results revealed that 60 employees were added to the Plan prior to their actual eligibility date, which is 90 days from the hiring date under the Plan terms. Criteria: Bargain Agreement Section 9.6 (Employment Eligibility) states that Employees in the bargaining unit are eligible for inclusion in the Health Trust Plan after 90 days of employment with the City Police Department. Cause: The FOP administration has enrolled employees in the plan before they reached the 90-day eligibility requirement, as outlined in Section 9.6 of the Bargaining Agreement. The change to a 30-day enrollment period was implemented in November 2022 (during the audit period) by a Benefit Division employee in the Human Resources Department without any amendment being made to the Bargaining Agreement with approval by the City Commission. The renewed bargaining agreement for the 2024 – 2027 period states that the required eligibility period is 90 days from the employee’s start date of employment. In communications with HR, as well as in the management response attached to this report, it was learned that HR relied on Commission Resolution 2022-32038 as justifying that adjustment for new FOP employees during the FY 2022-2023 budget process that resulted in its implementation in November 2022. There are, however, serious deficiencies in HR’s reliance on that Resolution, which called only Page 3 of 9 for an actuarial study to aid in determining the fiscal impact associated with providing health insurance benefits on the first day of employment “for all new eligible classified and unclassified City employees”: (1) The Resolution stated on its face that it excluded fire and police bargaining unit employees; (2) Based on the City Commission discussion of the Resolution at the February 9, 2022 Commission meeting, it was made clear that the Resolution was intended only to authorize the study and not to approve any adjustment even for the City’s eligible classified and unclassified City employees, unless the study was brought back to the Commission for its consideration prior to approving the eligibility change for inclusion in the upcoming FY 2022-2023 budget. Excerpts from that meeting’s discussion, addressed to an HR representative by Commissioner (now Mayor) Steven Meiner prior to approval of the Resolution, make this clear: Meiner: Ultimately after they do this study they would come back to us to make that determination whether we want to go through with this? HR: Absolutely. Meiner: So it’s just for the study itself? HR: Yes. Further comments by former Commissioner David Richardson and Commissioner Alex Fernandez (sponsor of the item) confirmed that this approach was the intent of the Resolution, and that its approval of the Resolution did not authorize a change in the eligibility period without the Commission’s consideration of an actuarial study and its explicit approval of the change. Yet, it appears that the change in health care benefits for eligible classified and unclassified City employees (as well as FOP employees) was made even though the item was never brought back to the Commission for its approval of that change, either during a regular Commission meeting or a budget session, and that the Commission’s directive was not followed. In effect, the reduction in the eligibility period for the FOP Health Trust by City staff was based on a faulty interpretation of a Commission Resolution believed to have extended the same benefit to other City employees, but which did not actually effectuate such a change, even though the change had been made for the other employees by City staff without Commission approval. Although an internal actuarial study was apparently performed, HR staff could not provide, and the OIG could not locate, any record of Commission consideration of the results of the study or its considered approval of the eligibility change before or during the FY 2022-23 budget deliberations. The fact that the change was included in the final approved budget for that year does not meet the Commission’s directive that the issue be brought back before it for further discussion and approval. The OIG has taken no position on the merits of the underlying issue of the extension of the health benefits to FOP members or to the other City employees already receiving the unapproved benefit without the 90-day eligibility period. The practice of extending such a benefit may be justifiable based on due consideration by the City Commission, but not based on a Resolution that awarded them to neither the FOP nor other City employees. Such an award of benefits, which will continue indefinitely for present and future City employees and will result in substantial long-term increases in the expenditure of public funds, should have been subject to a process meeting basic standards of transparency and accountability. Page 4 of 9 --- Effect: Based on OIG calculations, noncompliance with Section 9.6 of the Bargaining Agreement resulted in the City’s overpaying contributions to the Health Trust Plan by $120,424 during the audit period. City staff, in the Management Response cited below as well as in the complete attached Administration response to the draft of this audit report (see Exhibit 1), calculated the award to have been only $67,883 during the same period. The discrepancy remains unresolved based on the OIG’s response to the City’s calculations. Notably, the difference between the calculated amounts covering a portion of the audit period is insignificant compared to the long-term fiscal consequences of the unauthorized change in eligibility. Additionally, implementing such changes without proper Commission approval sets a harmful precedent that could have serious consequences in future unapproved changes in City contracts. Recommendations: The OIG recommends that the City, through the HR Department, take the following actions: 1. Refrain from providing instructions to the FOP administrator that are not in accordance with the terms of the current FOP Bargaining Agreement. Future modifications to the eligibility requirements should be fully documented, approved, and authorized by the City Commission before implementation. 2. Either recover from the FOP all overpaid amounts captured during the audit period ($120,424) and calculate the amounts of overpayments that have occurred to date after the audit period, or submit the matter to the Commission for retroactive approval of the expanded benefits. It is understood that the logistical difficulties in recovering the funds, as pointed out by both the FOP and HR, may leave the Commission with limited options. A Resolution (Item C7E) “ratifying and approving all excess contributions” to the FOP Health Trust is included in the agenda for the May 20, 2026, Commission meeting. 3. Ensure compliance with the current 2024-2027 FOP Bargaining Agreement by reinforcing to HR Employee Benefits Division staff the need to monitor and correct any noncompliance with the current Bargaining Agreement. Management Response:The City agrees that the change to the eligibility criteria or waiting period for new hires eligible for insurance coverage under the FOP Health Trust-sponsored plan was changed without formally amending the collective bargaining agreement between the City and the FOP. However, the City disagrees with amount of overpayment calculated by the OIG for numerous reasons which we will expound on in this response: (1) the OIG misinterpreted the waiting period as 30 days from date of hire as opposed to the first of the month after the first 30 days of hire; (2) the OIG included employees newly eligible for coverage preceding the beginning of fiscal year 2023 (October 1, 2022) when the change to the waiting period went into effect. Any employee for whom a contribution was made by the City to the FOP Health Trust hired between October 1, 2021 and September 30, 2022 would have been subject to the 90-day waiting period; (3) in its per diem calculation of the monthly contributions made anticipatorily, the OIG miscalculated the number of days by relying on the first day of the pay period encompassing the date of the changed waiting period without considering the first day of the pay period encompassing the 90-day waiting period; and (4) the OIG's methodology does not properly consider the relationship between the timing of the contributions and the coverage period. These reasons led the OIG to overcalculate the total amount of contribution based on the methodology it used. Considering these differences in assumptions, the City has calculated the amount of contributions Page 5 of 9 made during the period starting October 1, 2022, through September 30, 2024, as $67,883 — a difference of $52,541 from the OIG's calculation — and has provided all calculations to the OIG via email on May 1, 2026. (The complete Administration response can be found in Exhibit 1) Implementation Date: The recommended actions have been completed, with the exception of the updated internal training materials, which are expected to be completed within 90 days from the date of this response. OIG Reply to Administration’s Response to Finding 1:The Office of Inspector General (OIG) did not misinterpret the eligibility waiting period; all calculations were based exclusively on the language of the collective bargaining agreement (CBA), which cannot be superseded by internal procedures that were never formally approved by the Commission, as the CBA was. HR’s assertion that pre-FY 2023 hires were included in the OIG’s calculation is inaccurate, as the revised estimate supporting the $120,424 overpayment excludes any employees hired before the start of FY 2023. The OIG also did not miscalculate the number of days in its per diem calculation of monthly contributions; the calculation followed the waiting period requirements set forth in the CBA rather than undocumented internal HR practices. Finally, HR’s reference to a contribution-to-coverage timing relationship lacks foundation, as no such methodology or explanation was ever disclosed to the OIG, even after the OIG voluntarily shared its detailed computation with HR. Accordingly, the OIG reaffirms its methodology and the resulting overpayment estimate. OIG’s Reply to the “Background” comments on Management Response (see Exhibit 1):The City Administration’s response to the OIG’s findings asserts that, during the FY 2023 budget process, it recommended reducing the Health Plan waiting period to the first of the month following 30 days of employment; however, no record from Commission proceedings, committee discussions, or budget hearings that such a recommendation was ever presented or approved. The response further focuses on the need for an MOU to amend the FOP collective bargaining agreement but does not address the controlling requirements of Resolution 2022-3208, which directed the Administration to obtain an actuarial study on the fiscal impact of coverage being provided on day one of City employment and to present those findings to the Commission prior to approval of any change in eligibility for either Classified/Unclassified City employees or Fire and Police Bargaining Unit employees. The Administration offered no evidence that the actuarial study was ever transmitted to policymakers for appropriate discussion and decision-making. Because the Administration has not demonstrated that any change to the contractual 90-day waiting period was validly adopted, either through Commission action or through an executed agreement with the FOP prior to the change to a 30-day waiting period, the OIG’s reliance on the existing contractual language remains appropriate. The City’s claim that the OIG “misapplied” the waiting period is therefore unsupported, as it presupposes the existence of an adopted policy change that cannot be found in the legislative, budgetary, or administrative record. In the absence of such evidence, the OIG’s calculation of premature contributions to the FOP Health Trust stands as the most accurate and contractually sound determination available. FOP Health Trust Response and OIG reply: See Exhibit 2. Page 6 of 9 Objective identified Source: GAO. I GA0-25-107721 Controls designed Controls in place • Objective achieved Finding #2: Lack of Proper Oversight of the FOP Health Trust Contributions Condition: The Human Resources Department’s Employee Benefit Division has not implemented proper oversight and validation of City contributions to the FOP Health Trust for both active and retired employees. Key transactions recorded in Munis System, such as employee status changes, annual contribution calculations, and payroll deductions, were not properly supported by marriage certificates, birth certificates, and other official documents to validate that the changes actually occurred. During the OIG audit, HR staff informed the OIG that an internal review, conducted at the request of the FOP Administrator, was completed during the audit. This review identified numerous errors that occurred during and after the audit period, which have now been corrected. Total errors resulted in the City’s failure to make timely payments to the FOP, resulting in a deficiency in the City’s contributions of $425,133, which the City was responsible for reimbursing. Additionally, payment plans were established for 17 active and retired employees for whom the City failed to withhold sufficient amounts, resulting in a balance due to the City of $102,288. Conversely, the City withheld an excess amount of the required contributions for nine employees, totaling $4,283, owed to the City. Criteria: According to Section 1-Fundamental Concepts of Internal Control, Standards for Internal Control in the Federal Government (Green Book) published by the U.S. Government Accountability Office (GAO), “Internal control is a process, effected by an entity’s oversight body, management, and other personnel, designed to provide reasonable assurance that the objectives of an entity will be achieved.” Cause: The lack of oversight from the Human Resources department Employee Benefit Division appears to stem from deficiencies in internal controls and adequate validation processes for employee and retiree changes. Effect: Following the Human Resources review, the City made payments to the FOP, totaling $425,133, to correct the untimely payment errors noted above, which reimbursed the FOP trust fund per the Bargaining Agreement. The HR team also initiated 17 payment plans for employees who owed the City a total of $102,288, due to the City’s insufficient withholdings. The nine employees for whom the City made excess withholdings were reimbursed a total of $4,283 to complete the correction. Page 7 of 9 Recommendations: The OIG recommends that the City, through the Human Resources Employee Benefits Division, strengthen internal controls over the employee status change process under the Plan by establishing standardized procedures that include required documentation to validate employee status changes, regular monitoring and reconciliation of reimbursement payments, and periodic internal reviews of activity. Management Response: See Exhibit 1. FOP Health Trust Response: See Exhibit 2. Finding #3: Lack of Adequate Records Retention and Retrieval Condition: The HR Employee Benefits Division has not established a records retention policy to ensure the preservation, classification, and secure storage of administrative and benefit-related documentation involving the FOP Health Trust participants. All relevant documentation, benefit changes, enrollment notifications, and status updates, are maintained in a fragmented manner, primarily by an off-site FOP administrator, without a centralized system or backup repository maintained within the City. Criteria: According to the Standards for Internal Control in the Federal Government (Green Book), management is responsible for establishing policies and procedures to ensure the proper retention, safeguarding, and accessibility of documentation. Pursuant to the General Records Schedule for State and Local Governments GS1-SL, maintained by the State of Florida: “All Florida public agencies are eligible to use the GS1-SL, which provides retention periods for the most common administrative records, such as routine correspondence and personnel, payroll, financial, and legal records.” These principles require entities to maintain formal records retention policies and schedules to ensure that essential documents are preserved for appropriate periods and are available to support operational, legal, and regulatory requirements. Proper documentation practices are also necessary to ensure auditability, transparency, and continuity of operations. Cause: The original Agreement and Declaration of Trust for the FOP insurance trust fund in 1991 did not account for the FOP Trust's long-term operational growth or the need for formal records retention policies, centralized filing systems, or digital backup protocols to support changes in employee status as noted in Finding #2. Effect: The absence of a records retention policy increases the risk of data loss, incomplete documentation, and a lack of historical records of police employee status changes. This condition may compromise auditability, legal compliance, and decision-making, particularly if the current Page 8 of 9 enera l Norman IBlaio administrator becomes unavailable or if documents are needed for litigation or benefit validation. Recommendations: The City, through the Human Resources Department, should: 1. Develop and implement a formal records retention policy in alignment with City standards and require that the FOP follow these guidelines. 2. Designate a centralized and secure digital repository for all administrative and benefit- related documents within the City HR Department. 3. Define clear retention periods for different types of documents, and ensure proper labeling, organization, and periodic review. 4. Ensure backup protocols and shared access to essential records among designated personnel to support continuity and reduce dependency on a single individual. Management Response: See Exhibit 1. FOP Health Trust Response: See Exhibit 2. cc: Eric Carpenter, City Manager Mark Taxis, Assistant City Manager Wayne Jones, Chief of Police Jason Greene, Chief Financial Officer Marla Alpizar, Director of Human Resources Bobby Hernandez, FOP President Kathleen Phillips, FOP Attorney OFFICE OF THE INSPECTOR GENERAL, City of Miami Beach 1130 Washington Avenue, 6th Floor, Miami Beach, FL 33139 Tel: 305.673.7020 • Fax: 305.675.0420 • Hotline: 786.897.1111 Email: CityofMiamiBeachOIG@miamibeachfl.gov Website: www.mbinspectorgeneral.com Page 9 of 9 EXHIBIT 1 MIAMI ,BEACH City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www.miamibeachfl.gov MEMORANDUM TO: Joseph M. Centorino, Inspector General Office of the Inspector General ("OIG") FROM: Marla Alpizar, Director ~ Human Resources Department () I [ CC: Eric Carpenter, City Manager DATE: May 1, 2026 SUBJECT: Miami Beach Fraternal Order of Police Health Trust ("FOP Health Trust") Audit Report October 1, 2021, through September 30, 2024 OIG No.: Pending This memorandum represents the Administration's response to the findings of the Inspector General report on the subject matter captioned above as permitted pursuant to Miami Beach Code Section 2-256(h). On February 24, 2026, the OIG's draft report on this matter was provided to the City Manager, City Attorney, and me. I requested three extensions to file a response to the draft report by the OIG. The last extension ended on Monday, May 4, 2026. This response is filed timely. The OIG performed an audit of the monetary contributions made by the City to the FOP Health Trust to determine whether the contributions were made in conformity with and in the amounts set forth in Article 9 of the collective bargaining agreement between the City and the Fraternal Order of Police ("FOP"). The stated objectives of the OIG audit report are to assist the Administration in making sure the contributions to the FOP Health Trust conform with the terms of the collective bargaining agreement ("CBA"), are calculated and remitted accurately, and supported by sufficient and reliable information that is documented and retained with the goal of ensuring the integrity, reliability, and accuracy of City contributions calculations, records, and data. The OIG made three findings and a series of recommendations to address each finding. Each finding is restated in summary for brevity. For a complete statement of each finding please refer to the OIG report. Because the HR Department is directly involved in negotiations over contributions to the FOP Health Trust and calculating and remitting contributions to the FOP Health Trust, HR provides a response on behalf of Administration following each finding. OIG Finding #1: Health Trust Eligibility Noncompliance with Section 9.6 of the bargaining agreement resulted in the City overpaying contributions to the Health Trust Plan in the amount of $120,424 during [October 1, 2021, through September 30, 2024] the audit period. According to the OIG Report, the overpayment occurred as a result of contributions made by the City on behalf of employees who were enrolled in the Health Trust Plan earlier than the 90-days-from-hire waiting period required by the collective bargaining agreement. The 90-day waiting period was changed to a 30-day­ from-hire enrollment period and was implemented in November 2022 (during the audit period) based on informal instructions by a Benefits Division employee in the Human Resources (HR) We are committed to providing excellent public service and safely to all who live. work and play in our vibrant tropical historic communily Department without any amendment being made to the collective bargaining agreement. OIG Recommendations to address Finding #1: 1. Refrain from providing instructions to the FOP administrator that are not in accordance with the terms of the current FOP bargaining agreement. Future modifications to the eligibility requirements should be fully documented, approved, and authorized by the appropriate governing body before implementation. 2. Recover from the FOP all overpaid amounts captured during the audit period ($120,424) and calculate the amounts of overpayment that have occurred to date after the audit period. 3. Ensure compliance with the current 2024-2027 FOP bargaining agreement by reinforcing to HR Employee Benefits Division staff the need to monitor and correct any noncompliance with the current bargaining agreement. HR Response The City agrees that the change to the eligibility criteria or waiting period for new hires eligible for insurance coverage under the FOP Health Trust-sponsored plan was changed without formally amending the collective bargaining agreement between the City and the FOP. However, the City disagrees with amount of overpayment calculated by the OIG for numerous reasons which we will expound on in this response: (1) the OIG misinterpreted the waiting period as 30 days from date of hire as opposed to the first of the month after the first 30 days of hire; (2) the OIG included employees newly eligible for coverage preceding the beginning of fiscal year 2023 (October 1, 2022) when the change to the waiting period went into effect. Any employee for whom a contribution was made by the City to the FOP Health Trust hired between October 1, 2021 and September 30, 2022 would have been subject to the 90-day waiting period; (3) in its per diem calculation of the monthly contributions made anticipatorily, the OIG miscalculated the number of days by relying on the first day of the pay period encompassing the date of the changed waiting period without considering the first day of the pay period encompassing the 90-day waiting period; and (4) the OIG's methodology does not properly consider the relationship between the timing of the contributions and the coverage period. These reasons led the OIG to overcalculate the total amount of contribution based on the methodology it used. Considering these differences in assumptions, the City has calculated the amount of contributions made during the period starting October 1, 2022 through September 30, 2024 as $67,883 -a difference of $52,541 from the OIG's calculation -and has provided all calculations to the OIG via email on May 1, 2026. Background The Administration was directed by the Commission to assess the costs of reducing the waiting period from 90-days from hire to zero days ( coverage on day of hire) for coverage through the city-sponsored group health plan through the adoption of Resolution 2022-3208 on February 11, 2022, a copy of which is attached as Exhibit A. As part of the budget adoption process for fiscal year 2023, the Administration recommended a reduction to the waiting period to first of the month after 30 days of employment. The change to the waiting period for the city-sponsored group health plan was fully funded through the adoption of the fiscal 2023 budget -the principal funding and expenditure plan for the City -beginning October 1, 2022. The plan year for the city-sponsored group health plan and the budget year are concurrent. Anyone hired on or after October 1, 2022 would have become eligible to join the city­ sponsored group health plan on the first of the month following the first 30 days of employment. For uniformity and ease of administration, the HR Department notified the FOP Health Trust of the change to the waiting period for the city-sponsored health plan and inquired whether the FOP Health Trust would make the same change. The FOP Health Trust did. This action, in hindsight, was in error and should have been formalized through a We ore commilled lo providing excellen t public service and safety lo all who live work and ploy in our vibrant tropical historic community memorandum of understanding ("MOU") to amend the collective bargaining agreement in effect. Nonetheless, the OIG's calculation of the overpayment is overstated for the reasons stated above and explained in detail as follows: The waiting period was changed to first of the month after 30 days from hire, not 30 days from hire. The crux of the OIG's report is that the City made contributions to the FOP Health Trust on behalf of newly eligible employees insured under the FOP Health Trust-sponsored plan earlier than what was required by contract. To determine the amount of contribution made prematurely, the OIG calculated the difference in days between the 90-days from hire waiting period and the 30-days from hire waiting period and then determined a per diem for the monthly contribution. If the changed waiting period is misapplied, then the difference in days and monthly-contribution equivalent will be erroneous. To illustrate, assume an employee is hired the first of the month. According to the OIG's application of the changed waiting period, this would have caused the City to make a contribution to the FOP Health Trust on behalf of this employee sixty days earlier. Because contributions are made monthly, the City would have overpaid two times the contribution as a result of the change. Applying the correct waiting period is fundamental to calculating the overpayment. According to the methodology used, the OIG overestimated the overpayment by misapplying the changed waiting period and overestimating the number of days the City made contributions anticipatorily. For all new hires as of the beginning of fiscal year 2023, all but those starting on the first of the month would have a waiting period greater than 30 days. To illustrate, consider an employee hired to start employment on day 2 of any month. That employee would have an effective waiting period of 58 days before becoming eligible to join the health plan or an additional 28 days after the first 30 days of employment. The following table illustrates the practical impact of the change to the waiting period for employees hired between day 2 and day 15 in any month, considering there is an average of 30 days in each month: Hire day (day of month) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Addt'I wait plus initial 30 28 27 26 25 24 23 22 21 20 19 18 17 16 17 Total days' wait 58 57 56 55 54 53 54 52 51 50 49 48 47 46 The longer the total wait time, the lower the amount of premature contributions made. The number of newly eligible employees calculated by the OIG is overstated. The OIG includes in its calculation of overpayment 60 newly eligible employees "during the audit period" including fiscal year 2022 (October 1, 2021 through September 30, 2022) when the eligibility period had not changed. Employees who were newly eligible during fiscal year 2022 would be entitled to a full contribution for coverage continued during fiscal year 2023, the year the eligibility period was changed. Including any employees other than those hired on or after October 1, 2022 is an error and leads to an overstatement of the overpayment amount. Based on our hiring records, from October 1, 2022 to September 30, 2024, the City hired only 42 employees eligible for insurance through the FOP Health Trust. Counting the first date in a pay period that encompasses the date equivalent to the changed waiting period without also considering the first date of the pay period for the original waiting period overstates the overpayment when using a per diem methodology. To determine the amount of contribution made prematurely, the OIG calculated the difference in days between the 90-days from hire waiting period and the first day of the pay period encompassing the date corresponding to the 30-days from hire waiting period . The OIG then multiplied the number of days times a per diem for the monthly contribution. The number of We are commilfed lo providing excellent public service and safely lo all who live work and play ,n our vibrant tropical historic commun,ly days drives the contribution amount characterized as an overpayment. If the number of days is based on the time between the first date in the pay period encompassing the date equivalent to the changed waiting period and the coverage start date, then the driver -the difference in days -and the resulting monthly contribution will be erroneous and overstated. To illustrate, consider an employee hired on October 17, 2022. The OIG determined the date 90 days from hire as January 15, 2023. Then, the OIG determined the date equivalent to the first of the month after 30 days of employment as December 1, 2022. The OIG then identified the pay period starting on November 21, 2022 and ending on December 4, 2022 which encompasses December 1, 2022 (the new eligibility date) and calculated the number of days between November 21, 2022 (the beginning of the pay period) and January 15, 2023 (the 90- day wait period) as 55 days adding 27 additional days to the per diem calculation of overpayment. The OIG overstated the overpayment because it did not consider the alignment between the timing of the contributions and the coverage period. All regular benefit deductions and contributions for active employees are systematically made based on a payroll calendar. In calculating the overpayment by including the first day of each pay period that encompasses the changed eligibility date without also considering the first day of each pay period that encompasses the original eligibility date, the OIG obviates a significant limiting factor. To illustrate this point, take the same example used above. The City would have made the monthly contribution for the employee newly eligible on December 1, 2022 in two installments following the payroll calendar dates as follows: 1Pay Period Beginning Pay Period Ending Pay Day Month 111/21/2022 12/04/2022 12/09/2022 Dec 1st payment, covering benefit usage December 1-15 12/05/2022 12/18/2022 12/23/2022 Dec 2nd payment, covering benefit usage December 16-31 These two pay dates do not align with the beginning and end date of the month of December. This does not mean that coverage was initiated any earlier than December 1, 2022 or that the City would make any additional contribution for the remaining 8 days in December not included in the December pay dates. Continuing with this same example, the OIG did not consider that the next pay period, starting on 12/19/2022, paid for benefit usage between January 1-15, 2023. An employee with a 90- days-from-hire benefit eligibility date of January 15, 2023 would, per the correct application of the benefits payroll calendar, be deducted for such benefits within their 01/06/2023 paycheck. The OIG's failure to consider the application of the benefits payroll calendar on both ends of their equation erroneously adds an additional 27 days to the overage calculation for this employee. Pay Period Beginning Pay Period Ending Pay Day Month Jan 1st payment, covering benefit usage January 1-15 (the pay period in which12/19/2022 01/01/2023 01/06/2023 premiums would have been owed for a 90-days-from- hire waitin eriod The OIG's failure to consider the alignment between the timing of the contributions and the coverage period causes the overpayment to be overstated. We are cammiltec/ ta providing excel/en/ publ,c service and safely la all who live work and play in our vibranl lropical h,sloric commun,ly HR's Response to Recommendations 1 and 3 HR accepts the recommendations made by the OIG. HR recognizes that the provisions of the collective bargaining agreement cannot be changed without a formal writing signed by both parties to the contract. To date, an MOU formalizing the change to the eligibility date retroactive to October 1, 2022 has been executed, a copy of which is attached as Exhibit B. HR has advised Compensation and Benefits staff on the findings of the OIG report and is working on making changes to its internal training material and procedures to ensure staff does not unilaterally or without authority deviate from the contractual provisions. HR's Response to Recommendation 2 It would be untenable to require the FOP Health Trust to return any amount of overpayment based upon the change to the eligibility period. Between the City and the FOP Health Trust, the equities in this case lie with the FOP Health Trust. The FOP Health Trust changed the eligibility to align with the City's health plan at the City's request and upon their board's consent and agreement. These are past acts with consequences that cannot be undone - coverage has been provided and claims have been paid. HR proposes to present a resolution to the Commission at the May 20, 2026 Commission meeting that ratifies all overpayments based on the changed eligibility date. Implementation Date The recommended actions have been completed, with the exception of the updated internal training materials which are expected to be completed within 90 days from the date of this response. OIG Finding #2: Lack of Proper Oversight of the FOP Health Trust Contributions HR has not implemented proper oversight and validation of City contributions to the FOP Health Trust for both active and retired employees. Key transactions recorded in Munis System, such as employee status changes, annual contribution calculations, and payroll deductions, were not properly supported by marriage certificates, birth certificates, and other official documents to validate that the changes actually occurred. OIG Recommendation to address Finding #2: Strengthen internal controls over the employee status change process under the Plan by establishing standardized procedures that include required documentation to validate employee status changes, regular monitoring and reconciliation of reimbursement payments, and periodic internal reviews of activity. HR Response To improve the accuracy, completeness, timing, traceability, and reliability of the enrollment data received from FOP Health Trust's plan administrator, HR is working with FOP Health Trust's legal team and benefits data administrators to develop a file-share system that will send all insurance updates to HR in a consistent weekly transfer, formatted to include all necessary information. The systematic electronic transfer of the data will improve HR's ability to reconcile contributions and enrollments. These changes will ensure accuracy over time for both active employees who are deducted by HR, and for retirees who are deducted through the Fire & Police Pension Office. As part of enrollment, the FOP Health Trust requires production of adequate beneficiary documentation to prove eligibility. Also, the FOP Health Trust regularly audits their plan every three years to confirm dependent eligibility. The FOP Health Trust has agreed to provide the City a copy of their audit report every three years or upon request. The City has requested the most recent prior financial and beneficiary audits to determine if there are any discrepancies to correct with the FOP Health Trust. In a recent conversation with HR, OIG staff indicated that the Trust records regarding beneficiaries were in good order and that they provided all requested information. We are comm,lted la providing excel/en/ public service and safety lo all who live work and play in our vibrant lrapical historic community Implementation Date We anticipate a completion date for the regular file transfer within 90 days from the date of this response and most certainly prior to open enrollment for the upcoming plan year. OIG Finding #3: Lack of Adequate Records Retention and Retrieval The HR Employee Benefits Division has not established a records retention policy to ensure the preservation, classification, and secure storage of administrative and benefit-related documentation involving the FOP Health Trust participants. All relevant documentation, benefit changes, enrollment notifications, and status updates are maintained in a fragmented manner, primarily by an off-site FOP administrator, without a centralized system or backup repository maintained within the City. The absence of a records retention policy increases the risk of data loss, incomplete documentation, and a lack of historical records of police employee status changes. This condition may compromise auditability, legal compliance, and decision­ making, particularly if the current administrator becomes unavailable or if documents are needed for litigation or benefit validation. OIG Recommendations to address Finding #3: 1. Develop and implement a formal records retention policy in alignment with the City standards and require that the FOP follow these guidelines. 2. Designate a centralized and secure digital repository for all administrative and benefit­ related documents within the City HR Department. 3. Define clear retention periods for different types of documents, and ensure proper labeling, organization, and periodic review. 4. Ensure backup protocols and shared access to essential records among designated personnel to support continuity and reduce dependency on a single individual. HR Response FOP employee benefit deductions are not initiated or changed by HR without receiving written notice from the FOP Health Trust's administrator, Gary Kluger, who receives, reviews and documents the changes in enrollment for each eligible employee. The team of current HR employees in the Benefits Division has been fully trained on this protocol, and this protocol is being documented in current Standard Operating Procedures (SOP) for the HR Benefits Division to support continuity for future employees. HR's standard current practice is to attach these documents -currently transmitted by email -to each individual employee's record within its database system for ease of access by designated HR staff. (Note that in the short-term, HR and the FOP Health Trust are collaborating on transmitting a consistent and reliable file of changes each payroll which will form part of the backup for each change.) The audit finding #3 identified a failure by select former HR staff to follow longstanding procedures that address the OIG's concerns. For those employees within the audit period who do not have these written notices directly attached to their employee record, HR will be retrieving these notices from archival email files and will attach them accordingly. Implementation Date We anticipate a completion date of 90 days from the date of this response to complete the described SOP and to complete the work of attaching backup to the enrollment changes during the audit period where there were none attached. We are committed ta providing excellent public service and safety ta all who live work and play in our vibrant trop,cal historic community EXHIBIT I A I RESOLUTION NO.1 2022-32038 A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF Tl-tc GI IY Ut­ MIAMI BEACH, FLORIDA, DIRECTING THE CITY· ADMINISTRATION TO OBTAIN AN ACTUARIAL STUDY TO AID IN DETERMINING THE FISCAL IMPACT ASSOCIATED WITH PROVIDING HEALTH INSURANCE BENEFITS COMMENCING ON THE FIRST DAY OF EMPLOYMENT FOR ALL NEW, ELIGIBLE CLASSIFIED AND UNCLASSIFIED CITY EMPLOYEES (EXCLUDING FIRE AND POLICE BARGAINING UNIT EMPLOYEES); AND FURTHER, DIRECTING THE CITY ADMINISTRATION TO PRESENT ITS FINDINGS TO THE MAYOR AND CITY COMMISSION AS PART OF THE . FISCAL YEAR 2023. BUDGET PROCESS, INCLUDING ALL COSTS ASSOCIATED WITH THIS HEALTH BENEFIT, AS WELL AS FUNDING SOURCES AND A PLAN FOR IMPLEMENTATION. WHEREAS, presently, health insurance benefits for new, eligible City employees be.gins after ninety (90) days' employment with the City; and WHEREAS, health insurance benefits are an important factor in many individuals' employment decisions, and commencing health insurance on the first day of employment may be attractive to potential, future City employees; and WHEREAS, health insurance has become even more important for many people in light of the ongoing threat of Covid-19 ( and its various iterations); and WHEREAS, City employees are deemed either classified (unionized) or unclassified (non­ unionized), and the City's health insurance plan covers eligible classified employees (except Police and Fire bargaining unit employees) and all eligible unclassified employees; and WHEREAS, commencing health insurance benefits for new, eligible City employees on day one will have a fiscal and administrative impact that must be identified in order for the Mayor and City Commission to make an informed decision as to whether to implement such an initiative. NOW THEREFORE, BE IT DULY RESOLVED THAT THE MAYOR AND qTY COMMISSION ·OF THE CITY OF MIAMI BEACH, FLORIDA, hereby direct the City Administration to obtain an actuarial study to aid in determining the fiscal impact associated with providing health insurance benefits commencing on the first day of employment for all new, eligible Classified and Unclassified City employees (excluding Fire and Police bargaining unit employees); and further, directing the City Administration to present its findings to the Mayor and City Commission as part of the Fiscal Year 2023 budget process, including all costs associated with this health benefit, as well as funding sources and a plan for implementation. PASSED and ADOPTED this 1 day of February, 2022. ATTE~J /CJ,_t(_ /L_ 2{/ FEB 1-•1 202:ban Gelber, Mayor APPROVED AS TORafael E. Granado, City Clerk , f~t~~s\ FORM & LANGUAGE1(Sponsoredb C • • • • Al . ex J . F d ) ~ .:'°'cr~11,,§>~°''.<IV',,_,..4~~,,~ ,,,y ommIssIoner ernan ez : f \ ~ & FOR EXECUTION %; }-.'.~·CORPt ORA1E~~1 ~ 1--\-)_~r,,,-0-· -... ~\,1(,(/ /0"'.f Date'',{J.tff?t;f City Attorney~ --------- EXHIBIT I B l'\rfE1 '10RANDU1\il OF UNDERSTANDING BETWEEN CITY OF MIAMI BEACH, FLORIDA AND MIAMI BEACH FRATERNAL ORDER OF POLICE WILLIAM NICHOLS LODGE NO. 8 WHEREAS, effective October 1, 2022, the City ofMiami Beach, Florida (City) updated the employee benefits eligibility waiting period. The eligibility period was reduced from 90 days after hire date to the Ist of the month after 30 days. WHEREAS, this change applied to all employees of the City participating in the City's insurance benefits plan. WHEREAS, per the collective bargaining agreement (CBA) between the parties, members of the bargaining unit represented by the Miami Beach Fraternal Order of Police, William Nichols Lodge No. 8 (FOP) obtain their insurance benefits throt1gh the Miami Beach FOP Health Insurance Trust (Health Trust). WHEREAS, in accordance with past practice, the Health Trust has minored the City's benefits eligibility waiting period. WHEREAS, the City offered the same eligibility period to be appiied to participants in the Health Trust. NOW THEREFORE TT IS HEREBYAGREED: 1. The CBA of the parties is herewith amended at Article 9 section 9.6 as follows: Section 9.6. Employment Eligibility Employees i11 the bargaining unit eligible/or inclusion in the Health Trust Plan must be employed at least 30 days and be on the Cizv Police Department payroll. 2. The amendment shall be effective for all employees who arc or were hired into the bargaining unit on or after October I, 2022. ~ ::.:::::::::.-1 ~ ,, } < \ ~--·,:---"' ) ------· <:::,1: /,( >1~~~-Il-t --~~\By: ·,,:___j__-----By . • ( ,/ /.-: ,,,\....-., \ /\A / ./ ...-0 V ~ i ~.._J_,_,___ Robert Hernandez, President Eric Carpenter, City ~1anagcr , Miami Beach Fraternal Order of Pol ice City of Miami Beach William Nichols Lodge No. 8 Date: Date: APPROV!:.D AS TO FORM & L.ANGUAGF & f'OR EXECUTION City Attorney Date EXHIBIT 2 FOP Response: The FOP Health Trust received an offer from the Miami Beach Human Resource Department in October of 2022, which would allow for a reduced eligibility period for new hires in the Police Department. This offer was based on a change which was being made across the Board to all city employees in accordance with a resolution of the City of Miami Beach Commission in 2022. The Trustees reviewed the offer, voted to accept it, and the vote was then verified in the minutes of the meeting following the vote taken. There was no reason to assume that the offer was not authorized by the City in light of the resolution. In reliance on this change, deductions were taken from the new employee wages. The Trust provided all coverages in its plan to the affected employee and their covered dependents. It should be noted that the costs of coverage for that earlier time period have not been considered by the OIG in its recommendation. Further, it should be noted that the FOP and the City have entered into a Memorandum of Understanding codifying this change retroactive to October 1, 2022, which is expected to be approved at the next meeting of the City Commission. The Trust took all reasonable actions to implement the coverage change and reasonably relied on the City’s authority, through its Human Resources Department, to implement the change. No money is owed to the City. This offer was based on a change which was being made across the Board to all city employees in accordance with a resolution of the City of Miami Beach Commission in 2022. OIG reply to FOP response: The City Commission did not endorse any modifications to the eligibility period for new recruitment in the Police Department in 2022. No formal resolution or action has been undertaken by the Commission to alter the 90-day eligibility period as specified in the bargaining agreement. Any claim suggesting that the Commission authorized such a change is inaccurate. The email referenced by the FOP Health Trust was sent by a City Human Resources employee who does not possess decision-making authority regarding benefit eligibility policy modifications. Such communications do not replace official approval and do not constitute authorization from the City Administration or the Commission. The bargaining agreement between the City and the FOP remains unchanged and explicitly stipulates a 90-day eligibility period for new hires. The FOP did not confirm the claimed change with the City, nor did they seek an amendment to the agreement. Any implementation of a reduced eligibility period was not supported by proper negotiation or ratification. The OIG audit pertains solely to the City’s contribution toward health coverage and does not include or address the costs associated with coverage provided during the earlier period referenced by the Trust. Contrary to the Trust’s statement, the City and the FOP have not entered into a Memorandum of Understanding that formalizes any eligibility modifications. The proposed MOU will be presented to the City Commissioners for consideration on May 20, 2026. The outcome remains pending, and the amounts may still be due depending on the decision of the Commission. The OIG strongly advises the FOP Health Trust to obtain official written approval from the City Administration, including any necessary amendments to bargaining agreements, prior to making decisions involving additional funds or modifications to employee benefit eligibility. This approach will ensure proper authorization and help prevent similar issues in the future.