WASHINGTON—A Texas company hired to keep watch on the state’s Medicare money should not have spent $394,028 on severance packages for three executives who left voluntarily, government accountants said.

The money was a portion of $6.5 million in costs that TMF Health Quality Institute submitted to the federal government from 2003 to 2005, said a report released Friday by the Office of Inspector General for the Health and Human Services Department.

The auditors found $6 million of those costs were allowed under federal rules. But $403,581 were prohibited and another $49,157 were questionable, they said.

TMF, which received a draft copy of the report last month, disagreed with most of the findings. It believes that only $35,200 in costs were prohibited.

The nonprofit consulting company said some travel and compensation costs should not have been submitted for reimbursement. But it disputed that severance packages, legal fees, equipment, and media and public relations costs were prohibited.

The company is hired by the federal government to ensure medical care paid for with Medicare dollars is of good quality, medically necessary and provided at a fair cost.

The company’s contract limits severance packages to employees being terminated, the inspector general’s reports said. Additionally, the severance packages paid for services that were not in the company’s contract.

The accountants’ findings prompted questions from Sen. Charles Grassley, the highest ranking Republican on the Senate Finance Committee, for more details on the executives and on the company’s severance package history.

“I have a responsibility to protect these programs and more than 80 million beneficiaries who receive health through them,” Grassley, R-Iowa, said in a letter to the Austin-based company.

The inspector general also questioned $2,732 in travel costs. The sum included costs for travel to a funeral, to receive an honorarium and attend a reception.

Travel costs for a spouse and for two board members who live in Texas but traveled from Colorado to attend board meetings four times also were prohibited, the accountants found.

Grassley asked the company to justify the trips as part of their contract obligations and to give more details on who received Christmas and performance bonuses, which were among the costs considered questionable.