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Title: Section 98-3.2 - Definitions

Effective Date


Section 98-3.2 Definitions.

For the purposes of this Subpart, the following definitions shall apply:

(a) AICPA means the American Institute of Certified Public Accountants.

(b) Affiliate of, or person affiliated with another person means a person that directly, or indirectly, controls, or is controlled by, or is under common control with, the other person specified.

(c) Audit committee means a committee (or equivalent body) established by the board of directors of a MCO for the purpose of overseeing the accounting and financial reporting processes of a MCO or group of MCOs, and audits of financial statements of the MCO or group of affected MCOs; provided that:

(1) For a holding company that controls a group of MCOs, the audit committee of the holding company may be deemed to be the audit committee for one or more of those controlled MCOs solely for the purposes of this Subpart even if all members of the holding company audit committee are not residents of this state;

(2) For a United States branch of an alien MCO, the audit committee may be comprised of the audit committee of the person that controls the United States branch; and

(3) For a MCO that does not otherwise designate an audit committee, the MCO’s entire board of directors shall constitute the audit committee.

(d) Audited financial report means and includes those items specified in section 98-3.4 of this Subpart.

(e) CPA means:

(1) An independent certified public accountant or accounting firm, who or that meets requirements established by the PCAOB and is also a registrant in good standing with the AICPA and every state in which the accountant or the firm is licensed to practice; or

(2) For a United States branch of a Canadian or British insurer, “CPA” also includes a Canadian-chartered or British-chartered accountant.

(f) Group of MCOs means those MCOs that are:

(1) Part of a holding company system;

(2) A MCO and its subsidiaries that are not part of a holding company system; or

(3) A subset of a group of MCOs described in either paragraph (1) or (2) of this subdivision, which the MCO identifies for aggregation to implement and assess internal control over financial reporting.

(g) Indemnification means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the CPA for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing of other misrepresentations made by the MCO or its representatives.

(h) Independent audit committee member has the meaning described in section 98.13(c) of this Subpart.

(i) Internal control over financial reporting means a process effected by a MCO’s board of directors, management and other personnel designed to provide reasonable assurance regarding the reliability of those items specified in section 98-3.4 of this Subpart and includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

(j) For purposes of this Subpart, MCO means a Prepaid Health Services Plans, HIV Special Needs Plans and Managed Long Term Care Plans (PHSP, HIV SNP and MLTCP).

(k) NAIC means the National Association of Insurance Commissioners.

(l) PCAOB means the Public Company Accounting Oversight Board, which was established by the Sarbanes-Oxley Act of 2002, 15 U. S. C. § 7201 et seq.

(m) Prior calendar year direct written and assumed premiums means the MCO’s combined total of direct premiums and assumed premiums from non-affiliates.

(n) SEC means the United States Securities and Exchange Commission.

(o) SOX means the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7201 et seq.

(p) SOX compliant MCO means a MCO that either is required to be compliant with, or voluntarily is compliant with, all of the following provisions of the Sarbanes-Oxley Act of 2002:

(1) The preapproval requirements of section 201 (section 10A(i) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j-1(i));

(2) The audit committee independence requirements of section 301 (section 10A(m)(3) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j-1(m)(3)); and

(3) The internal control over financial reporting requirements of section 404 (Item 308 of SEC Regulation S-K).

(q) SOX section 404 means section 404 of the Sarbanes-Oxley Act of 2002 titled “management assessment of internal controls” and any rules and regulations promulgated thereunder.

(r) SOX section 404 report means “management’s report on internal control over financial reporting” as defined by SOX section 404 and any rules or regulations promulgated thereunder.

(s) Work papers mean the records kept by the CPA of the procedures followed, the tests performed, the information obtained, the conclusions reached pertinent to the CPA’s audit of the financial statements of a MCO, and any communication between the CPA and the MCO relating to the CPA’s audit of the MCO. Work papers include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of MCO documents and schedules or commentaries prepared or obtained by the CPA in the course of the CPA’s audit of the financial statements of a MCO and that support the CPA’s opinion.


VOLUME A-2 (Title 10)