Military Treatment Facilities
Internal Control Activities Need Improvement Gao ID: GAO-03-168 October 25, 2002The $24 billion Military Health System provided health care to over 8 million eligible beneficiaries. Although Congress has provided sizeable increases in funding for health care over the past few years, the Department of Defense (DOD) has needed supplemental appropriations for 6 of the last 8 fiscal years from 1994 to 2001 because its costs were higher than expected. The growing budgetary pressure increases the risk of not achieving the mission of the organization. DOD's military treatment facilities (MTF) represent over half of DOD's health care expenditures. The three MTF's reviewed have not effectively implemented internal control activities in the areas of eligibility, billings and collections, expired drugs, personal property management, and government purchase card usage. The three MTFs also did not identify all patients with third party insurance coverage. In addition, they frequently did not bill those insurers even when they knew that such coverage existed, thereby losing opportunities to collect millions of dollars of reimbursements for services. Ineffective physical and financial controls over personal property assets and indications of control breakdowns in the use of government purchase cards existed at the three facilities.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-168, Military Treatment Facilities: Internal Control Activities Need Improvement
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Report to Congressional Requesters:
October 2002:
Military Treatment Facilities:
Internal Control Activities Need Improvement:
GAO-03-168:
Letter:
Results in Brief:
Background:
Internal Controls Not Effectively Implemented:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Financial and Operational Information at Selected MTF‘s
(Unaudited):
Appendix III: Results of Personal Property Existence Testing
Appendix IV: Comments from the Department of the Defense:
GAO Comments:
Appendix V: GAO Contact and Staff Acknowledgements:
GAO Contact:
Acknowledgments:
Tables :
Table 1: Results of Third Party Billing Selections by MTF and Workload
Type:
Table 2: Third Party Billing Timeliness for Selected Transactions:
Table 3: Fiscal Year 2001 Financial and Operational Information at
Selected MTFs (Unaudited):
Table 4: Error Rates for Personal Property:
Abbreviations:
DMLSS: Defense Medical Logistics Standard Support:
DOD: Department of Defense:
IG: Inspector General:
JWOD: Javits-Wagner-O‘Day Act:
MTF : military treatment facility:
SSA: Social Security Administration:
Letter October 25, 2002:
The Honorable Dennis J. Kucinich
Ranking Minority Member
Subcommittee on National Security, Veterans Affairs
and International Relations
Committee on Government Reform
House of Representatives:
The Honorable Janice D. Schakowsky
Ranking Minority Member
Subcommittee on Government Efficiency, Financial Management
and Intergovernmental Relations
Committee on Government Reform
House of Representatives:
The $24 billion Military Health System provides health care to over 8
million eligible beneficiaries. Although the Congress has provided
sizeable increases in funding for health care over the past few years,
the Department of Defense (DOD) has needed supplemental appropriations
for 6 of the last 8 fiscal years from 1994 to 2001 because its costs
were higher than expected. The growing budgetary pressure increases the
risk of not achieving the mission of the organization.
DOD‘s military treatment facilities (MTF) represent over half of DOD‘s
health care expenditures. Because budgetary pressures sometimes result
in agencies reducing key oversight and control activities, you
requested that we review key internal controls at selected MTFs in
order to determine whether the internal control activities were
effectively implemented.
The Comptroller General‘s five standards of internal control help
management to cope with evolving demands and priorities, achieve
effective and efficient program results, and are essential for proper
stewardship and accountability of government resources. These standards
include (1) the existence of a positive and supportive control
environment, (2) an assessment of the risks the agency faces from both
external and internal sources, (3) an assessment of the quality of
performance over time, (4) relevant, reliable, and timely
communications among managers and others relating to both internal and
external events, and (5) control activities, which are the policies,
procedures, techniques, and mechanisms that help ensure that
management‘s directives to mitigate risk are carried out. This report
summarizes the results of our tests of selected internal control
activities.
DOD‘s MTFs are the focus of its health care delivery. Using a case
study approach, this report focuses on some targeted key internal
control activities that relate to the overall effectiveness and
efficiency of the facilities in providing health care services at one
large, diverse medical facility from each of the three
services.[Footnote 1] These key internal control activities were in the
areas of:
* restricting access to care to only those who are eligible;
* identifying patients with third party insurance, and the accuracy and
timeliness of the billing and collection process for third party
insurance;
* monitoring and analyzing the types and levels of expired drugs turned
in for credit or disposal;
* managing personal property accountability; and:
* using government purchase cards.
Our objective was to determine whether the targeted internal control
activities at the selected medical facilities were effectively
implemented. To address this objective, we gained an overall
understanding of their operations and performed specific tests and
analyses to assess adherence to policies and procedures. Because we
tested only selected internal control activities at three locations, we
cannot give an overall opinion on internal controls at these facilities
or project our results to other facilities. We did not perform a
financial audit of the medical facilities, nor did we do the level of
internal control testing that would be done in conjunction with a
financial audit. Therefore, we cannot give an opinion on their
financial condition. Further details on our scope and methodology are
included in appendix I.
Results in Brief:
The three MTFs we reviewed have not effectively implemented internal
control activities in the areas of eligibility, billings and
collections, expired drugs, personal property management, and
government purchase card usage. Unreliable and inaccurate data, system
inadequacies, complicated processes, and a lack of adherence to
policies and procedures contributed to the internal control weaknesses
we identified. For example, a comparison of Social Security
Administration (SSA) death records with hospital treatment records at
one location indicated that 41 patients who allegedly had been treated
during fiscal year 2001 had died in the prior fiscal year or earlier.
Although these matches of information in death records and patients‘
records could be the result of clerical errors, someone may have
fraudulently assumed the identity of a deceased person in order to
receive free medical care. Weaknesses in DOD eligibility databases as
well as in the facilities‘ processes and efforts to identify ineligible
individuals preclude them from knowing whether individuals are
fraudulently obtaining health care services.
The three MTFs also did not identify all patients with third party
insurance coverage. In addition, they frequently did not bill those
insurers even when they knew that such coverage existed, thereby losing
opportunities to collect millions of dollars of reimbursements for
services. Moreover, two of the medical facilities did not perform
inventories of their expired or obsolete drugs being held for return
and could not validate the accuracy of the credits received from
manufacturers for their return. None of the three hospitals adequately
analyzed trends of their returned drugs or the actual losses related to
the expired drugs. Consequently, the MTFs do not have reliable
information needed to improve their pharmaceutical inventory management
practices and reduce future losses.
Ineffective physical and financial controls over personal property
assets and indications of control breakdowns in the use of government
purchase cards existed at the three facilities. We found items that
were not included in property records as well as weak processes for
ensuring that items were actually received and recorded in facility
records. Both types of weaknesses increase the risk that pilferable
items or other types of assets can be converted to personal use. Lack
of controls over the use of the government purchase card also resulted
in misuse including potentially fraudulent, improper, abusive, and
questionable purchases as evidenced by, at one location, a military
cardholder defrauding the government of tens of thousands of dollars by
purchasing items for personal use.
We are making recommendations to strengthen the internal control
activities over these areas to improve accountability, reduce the abuse
of government resources, and enable program directors and managers to
make better decisions. In its comments, DOD agreed with our
recommendations and briefly outlined both current and planned actions
for addressing them.
Background:
The medical mission of DOD is to provide and maintain readiness,
medical services, and support to the armed forces during military
operations and to provide medical services and support to members of
the armed forces, their family members, retirees and their families,
and eligible survivors of deceased active and retired military
personnel. DOD‘s health care program provides medical services such as
surgery and inpatient care, pharmacy services, and mental health care
to eligible beneficiaries. This care is delivered through its military
hospitals and clinics, known as MTFs, or from contracted civilian-
provided care. However, if an eligible beneficiary has commercial
insurance and care is provided by the MTF, the government is authorized
to bill the insurance company under the Third Party Collections Program
established in Public Law 99-272, as amended by Public Law 101-510 (10
U.S.C. 1095). Currently, according to DOD records, over 8 million
active duty and retired military personnel along with their dependents
and survivors are eligible for health care benefits from the military
health care system.
The three medical facilities in our engagement are also DOD medical
teaching facilities. Eisenhower trains residents in both surgical and
primary care specialties with emphasis on research and state-of-the-art
specialty care. Portsmouth is the oldest hospital in the U.S. Navy
having provided continuous care since July 1830. It has a medical
education program offering internships and residency training programs
in medicine, dentistry, psychology, and pastoral care. It is one of
three teaching hospitals in the Navy with residency programs in 13
specialty areas. Wilford Hall is the Air Force‘s largest medical
facility. It focuses on military readiness, provides a worldwide
referral center for military personnel and their dependents, and
provides trauma and emergency medical care for the San Antonio and
south Texas civilian communities. It is also the Air Force‘s foremost
provider of medical education, providing the Air Force with 65 percent
of its physician specialists and 85 percent of its dental specialists.
Appendix II provides more background information about the military
facilities.
Internal Controls Not Effectively Implemented:
The following five subsections of this report outline opportunities for
the three MTFs covered by this review to improve their financial or
operating controls and to, in the process, reduce federal costs. DOD
auditors‘ and our work has also reported on a number of these issues at
some of the same facilities and recommended improvements. As discussed
in appendix I and under the following sections, our work, while not
designed to ascertain the extent of each problem, indicates the
existence of systemic problems for each of the five areas we reviewed.
Inadequate Eligibility Controls Allow for Unauthorized Access to Care:
Erroneous eligibility information contained in DOD information systems
precluded the MTFs from providing reasonable assurance that medical
care was only provided to eligible persons. DOD personnel query a
medical management automated information system to determine those who
are eligible. However, the three facilities could not readily provide a
list from this system of all those who were treated during fiscal year
2001, which could be used to facilitate analysis and detect ineligible
persons who were treated. Further, the DOD Inspector General
(IG)reported[Footnote 2] weaknesses in DOD‘s eligibility database and
concluded that ineligible persons could have received medical care,
pharmaceuticals, or other benefits. Our work at the three facilities
supports the DOD IG‘s finding that eligibility information contains
inaccuracies.
In order to measure the facilities‘ ability to control access to care,
we requested data files of all patients who had been admitted, treated
as outpatients, or received pharmaceutical benefits during fiscal year
2001. After considerable effort, just one facility was able to provide
a file of beneficiaries who received pharmaceuticals during the year.
Using this file, we compared patient name, date of birth, and social
security number with similar data contained in the SSA death records
and identified 41 patients who received care during fiscal year 2001,
and who, according to SSA records, had died prior to the start of
fiscal year 2001. The social security numbers of an additional 225
patients matched SSA death records, but the names or dates of birth did
not match. The implications of this comparison could reflect something
as simple as the erroneous entry of a patient‘s social security number
in the hospital‘s medical records or clinical staff mistakenly
dispensing a prescription under a deceased person‘s records. Or, at the
other end of the spectrum, a person could be fraudulently using a
deceased person‘s identification to receive prescriptions and treatment
at no cost. Having complete and unique information for each patient,
such as name, social security number, and date of birth, is important
not only to control access to care but also to assure that clinical
care is being provided to the right patient. We have follow-up work
under way on these matters.
A July 2001 DOD IG report indicated that questions regarding
eligibility are an issue across the MTF network. The DOD IG reviewed
the reliability and completeness of DOD‘s eligibility data as well as
management controls in the system used to control access to military-
provided health care. The DOD IG reported that these data were reliable
85 percent of the time, and said that quality control and other
improvements were needed to improve the accuracy of the eligibility
databases. It estimated that about 415,000, or about 5 percent, of the
8.4 million beneficiaries in this database were either ineligible or
had incorrect critical data, and that the existence or eligibility of
another 10 percent could not be verified. For example, a divorced
spouse inappropriately remained eligible in the system for almost 2
years after losing eligibility as result of the divorce from the
sponsor.[Footnote 3] Another example involved a sponsor who was
discharged over 20 years ago without benefits yet was listed
incorrectly in this system as an eligible active duty retiree.
The DOD IG also found inadequate management controls associated with
the implementation of the system used to produce identity cards for
military personnel and family members. This military identity card
system is important because it is used to update personnel information
stored in DOD‘s eligibility database, which provides information to the
military health system. The DOD IG reported weak management controls
and little consistency and standardization of policies and procedures
to ensure accurate and reliable data entry at the 13 sites the staff
visited. The problems occurring most often at these locations include
the lack of documented data quality reviews, no retention of source
documents, lack of separation of duties between officials responsible
for verifying beneficiary eligibility information and officials
responsible for issuing the military identification card, and no
internal standard operating procedures.
Weaknesses in Billings and Collections Prevent Full Recovery of
Millions from Third Party Insurers:
Although the MTFs are authorized to bill insurance companies under the
Third Party Collections program, millions of dollars are not being
collected each year because patient medical records are incomplete, as
is the identification and billing of reimbursable care. Patients were
not systematically asked to provide current insurance information,
thereby hindering the ability to identify all billable care. Even when
patient insurance information was obtained, the staff often failed to
send a bill to the third party insurer or sent the bill late. Once a
bill is successfully processed, collections from third party insurance
companies represent 2 percent to 5 percent of the facilities‘ operating
costs each year.
The MTF Uniform Business Office Manual, DOD 6010.15-M, dated April
1997, prescribes procedures for third party collection activities such
as the identification of beneficiaries who have other health insurance.
It also states that the staff shall obtain written certification from
beneficiaries at the time of each inpatient admission or outpatient
visit if a certification is not on file or if it has not been updated
within 12 months. However, our observations of patient reception at
several clinics at the three medical facilities showed that staffs were
not systematically obtaining and updating patient insurance information
and rarely asked outpatients about third party insurance coverage. In
addition, the required DOD Form 2569 used to document third party
insurance coverage was often not completed and maintained for either
inpatients or outpatients in hospital files or databases. Having a
completed form is important because it (1) documents the existence and
type of coverage, (2) is used to update insurance data in the automated
medical management information system, and (3) authorizes the medical
facility to bill insurance companies on behalf of the beneficiary. Our
tests of third party insurance documentation for 1 day during each
quarter of fiscal year 2001 showed the following results.
* At Eisenhower, only 9 of 60 patients, primarily inpatients, selected
had a current completed DOD Form 2569. After our visit, Eisenhower‘s
staff began monitoring the admissions process in an effort to improve
the completions of DOD Form 2569 by all non-active-duty inpatients and
assigned staff members to ask about insurance while patients wait to
receive pharmaceuticals.
* Portsmouth uses an internally developed form to document if patients
have private health insurance. For 40 of 60 inpatients selected,
Portsmouth had insurance information in the patient billing files.
* Wilford Hall had a completed, current DOD Form 2569 for 41 of the 69
patients selected. Wilford Hall has for some time dedicated personnel
on a part-time basis to assist patients in completing the DOD Form 2569
at one of its clinics.
Without completed insurance information forms, recording and
maintaining accurate, complete, up-to-date, and verifiable insurance
information in facilities‘ billing systems is not possible. We found
instances where the patient record in the automated medical information
system contained out-of-date or no insurance coverage information,
making system reports incomplete and inaccurate. Reasons given by
facility officials for these problems were mostly attributed to
staffing constraints and shortages. Consequently, there was little
assurance that all reimbursable care was being identified for billing.
In a recent report,[Footnote 4] the Air Force Audit Agency reported the
same condition--insurance information for inpatients was not being
obtained and entered into the automated medical information system. For
over 70 percent of the non-active-duty inpatient population at 14 MTFs
they reviewed, no insurance data were recorded in the system, resulting
in lost collections. Air Force auditors sampled the inpatients shown in
the system as not having insurance data and determined that those who
actually had unrecorded third party coverage had received care valued
at $113,330. Projected to the entire population over a 6-year period,
Air Force auditors estimated that $14.4 million could have been billed
to third party insurers at the 14 Air Force MTFs.
Our tests of billings at the three facilities revealed that even when
patient insurance information was available, the staff often did not
send a bill. As shown in table 1, about one-third of our
nonrepresentative selection of 240 instances of treatment that should
have been billed to a third party insurer were not billed.
Table 1: Results of Third Party Billing Selections by MTF and Workload
Type:
Hospital/workload: Eisenhower.
Hospital/workload: * Admissions; Billed: 16; Not billed:
0; Total: 16.
Hospital/workload: * Outpatient visits; Billed: 10; Not
billed: 10; Total: 20.
Hospital/workload: * Pharmacy; Billed: 34; Not billed:
6; Total: 40.
Hospital/workload: Subtotal; Billed: 60; Not billed:
16; Total: 76.
Hospital/workload: Portsmouth.
Hospital/workload: * Admissions; Billed: 15; Not billed:
2; Total: 17.
Hospital/workload: * Outpatient visits; Billed: 24; Not
billed: 16; Total: 40.
Hospital/workload: * Pharmacy; Billed: 22; Not billed:
10; Total: 32.
Hospital/workload: Subtotal; Billed: 61; Not billed:
28; Total: 89.
Hospital/workload: Wilford Hall
Hospital/workload: Wilford Hall; Billed: [Empty]; Not
billed: [Empty]; Total: [Empty].
Hospital/workload: * Admissions; Billed: 14; Not billed:
1; Total: 15.
Hospital/workload: * Outpatient visits; Billed: 17; Not
billed: 12; Total: 29.
Hospital/workload: * Pharmacy; Billed: 4; Not billed:
27; Total: 31.
Hospital/workload: Subtotal; Billed: 35; Not billed:
40; Total: 75.
Hospital/workload: Total; Billed: 156; Not billed:
84; Total: 240.
Source: GAO analysis of DOD data.
[End of table]
Billings were generally better for inpatient admissions, while the
billing rates for outpatient visits and pharmacy benefits were much
lower. More specifically, our testing of 48 inpatient admissions
identified only 3 instances when insurers were not billed. In addition
to the 38 outpatient visits not billed, our selection also disclosed
patients with third party insurance who used the facilities frequently,
but whose insurance had never been billed for any care provided during
fiscal year 2001. While all facilities had pharmacy billing problems,
the situation was most serious at Wilford Hall, which reported only
billing for about $158,000 in pharmacy charges during fiscal year 2001.
After we brought this to the attention of Wilford Hall‘s management, it
hired a contractor to supplement its billing staff. As a result, by
June 30, 2002, Wilford Hall had billed almost $800,000 in pharmacy
charges during the first 9 months of fiscal year 2002, of which
$650,000 was billed during the third quarter of the year. Lost forms,
clinical data coding or input problems, lack of staff to handle high
workloads, missed billings due to clerical oversight, and a complicated
multistep billing process were explanations provided for not billing
for reimbursable care.
The Air Force Audit Agency also recently reported that military
facilities were not effectively recovering the cost of pharmaceuticals
provided to patients with private health insurance.[Footnote 5]
Thirteen facilities were not adequately identifying patients with third
party insurance, and even when sufficient data were available, billing
was not always done. Air Force auditors projected that increased
management emphasis in this area would generate increased billings of
about $114 million for the 13 Air Force MTFs over a 6-year period.
Wilford Hall was one of the facilities included in the Air Force Audit
Agency review.
When billing for third party insurance occurred, it was often delayed.
DOD standard criteria call for facilities to bill for admissions within
10 business days following completion of the medical record and within
7 business days for outpatient visits. In evaluating the timeliness of
billing, we used a more liberal standard of 30 days after treatment for
billing admissions and 90 days for outpatients and pharmaceuticals
dispensed. Even then, the military facilities still did not bill within
those extended time frames in about half the cases, as shown in table
2.
Table 2: Third Party Billing Timeliness for Selected Transactions:
Hospital: Eisenhower; Billed timely: 25; Billed late: 35; Total: 60.
Hospital: Portsmouth; Billed timely: 23; Billed late: 38; Total: 61.
Hospital: Wilford Hall; Billed timely: 28; Billed late: 7; Total: 35.
Hospital: Total; Billed timely: 76; Billed late: 80; Total: 156.
Source: GAO analysis of DOD data.
[End of table]
Promptly invoicing insurers for care provided is a sound business
practice and should result in improved cash flow for the government.
Reasons for delayed billings provided by personnel were staffing
shortages, high workloads, and coding delays. Also, officials at all
three MTFs cited the current cumbersome billing process, which requires
a high degree of manual intervention, as a cause for not billing
promptly.
Compared to appropriated funds, third party collections represented a
relatively small revenue source for the MTFs but could actually be
larger. In fiscal year 2001, Eisenhower collected $4.6 million for
current and past years‘ billings, which was about 5 percent of its
facility costs, and Portsmouth and Wilford Hall collected about $5.1
million and $4.2 million, respectively, or about 2 percent of their
respective facility costs. Collections were derived primarily from
admissions and, to a lesser extent, from outpatient care, which
includes recoveries for prescription drugs, emergency medical care, and
clinical visits.
Weaknesses Precluded Adequate Management of Pharmaceutical Return Goods
Program:
Management at the three facilities did not have the information needed
to evaluate the cost of drugs turned in under the pharmaceutical return
goods program. Specifically, pharmacy personnel did not perform
inventories of non-narcotic expired drugs being returned to the
manufacturers for reuse or destruction, which would help management
verify the level and types of drugs being turned in and the accuracy of
any credits received. The lack of a review of expired drugs hampers the
pharmacy personnel‘s ability to identify reasons for any unusual trends
associated with the drugs turned in and any adjustments needed to
current inventory levels.
Pharmacy personnel at the Portsmouth and Wilford Hall facilities did
not inventory the non-narcotic drugs turned in for pickup by their
respective pharmaceutical return goods contractor. This contractor
collects recalled, expired, or deteriorated drugs for a fee and returns
them to their respective manufacturers for possible future credits. The
contractor also provides each facility with a detailed report of the
items returned and credits received. However, the two military
facilities cannot verify the accuracy of credits received without
having performed their own inventories of the returned items since they
do not keep perpetual inventories of non-narcotic drugs, and they did
not have records of what they turned in to the contractor. As a result,
the hospitals were relying solely on the contractor to identify the
actual type and amount of drugs returned to the drugs‘ manufacturers.
Pharmacy officials at Wilford Hall told us that it was not cost-
effective to track non-narcotic expired drugs, but did not provide any
analysis or documentation to support this assertion. However, we
contacted a pharmacy operations official at a large commercial health
care company who stated that it was the company‘s practice to maintain
an inventory of returned drugs by assigning a tracking number for each
returned item so the credit received can be reconciled to its related
tracking number.
Conversely, Eisenhower pharmacy personnel recently started
inventorying the turned in non-narcotic drugs in response to a January
2002 Army Audit Agency report of its pharmaceutical management
practices.[Footnote 6] In this report, Army auditors reported that
pharmacy personnel had not established a method for tracking the amount
of drugs returned to the manufacturers to make sure related credits
were received.
Further, the hospitals did not use the detailed contractor reports to
perform a ’returned drug“ analysis. Therefore, pharmacy personnel are
unable to efficiently monitor drug usage or to determine whether
unusual trends are occurring and if the inventory levels in the
pharmacies are appropriate. Drugs have defined shelf lives, and there
is value added in managing the inventories to minimize the levels of
expired drugs. A periodic evaluation of expired and/or deteriorated
drugs being turned in throughout the year may reveal certain drugs
being turned in at consistently high levels and thus indicate a need to
adjust the inventory levels to better align them with usage levels. If
management reviewed actual performance data and took necessary
corrective action to optimize inventory levels, the cost of
pharmaceutical operations could be reduced. For example, in July 2001,
Portsmouth returned 2,000 tablets of Zocor, a cholesterol-lowering
drug, for destruction and received no credit. Since this drug costs the
pharmacy about $.50 per tablet, the government lost $1,000 on the
purchase of this unused drug.
Weaknesses Preclude Adequate Safeguarding and Management of Personal
Property Assets:
Although internal control standards require agencies to establish
physical control to secure and safeguard vulnerable assets, internal
controls over property at Wilford Hall and Portsmouth were ineffective
and were only partially effective at Eisenhower due to inaccurate
personal property data relative to the existence of these assets. We
also found inaccuracies in the areas of completeness and a lack of
support for the costs and dates of acquisition of these assets. More
specifically, our tests of personal property found examples of items on
the property records that could not be located and items that were
incorrectly recorded or were not recorded in the property records. In
addition, many items in the personal property records had little or no
documentation available to support their acquisition values or dates,
and the resolution of items discovered missing during physical
inventories was significantly delayed.
We statistically sampled 100 property items at each facility, attempted
to physically locate the items, and compared the facility-assigned bar
code and manufacturer‘s serial number on each item with that shown in
the record. Based on the results of tests of existence of personal
property items at each location, we assessed the overall effectiveness
of each facility‘s property internal controls. To determine
effectiveness, we established three categories of error rates: below 5
percent error was considered effective, from 5 to 10 percent error was
considered partially effective, and above 10 percent error was
considered ineffective. As such, we estimate that at least 11 percent
and 23 percent of the property items could not be found or had serial
numbers that did not match those recorded on the books at Wilford Hall
and Portsmouth, respectively. Since these percentages are greater than
10 percent, we assessed the internal control activities as ineffective
at these two locations. At Eisenhower, we estimate, with 95 percent
confidence, that at most 9 percent of the property items could not be
found or had serial numbers that did not match those recorded on the
books. Since this percentage falls between 5 and 10 percent, we
assessed the internal control activities at Eisenhower as partially
effective.
Additionally, we also estimated the specific existence error rates at
each location. Based on our review, we estimate that the percentage of
items that facility officials would not be able to find, or would find
with serial numbers different than those listed in the property
records, would be 31 percent at Portsmouth, 4 percent at Eisenhower,
and 17 percent at Wilford Hall.[Footnote 7] Almost all of the personal
property items that could not be located were lower priced (under
$5,000) or pilferable items that had been recorded as accountable
assets. Examples of these items included a personal digital assistant
(i.e., a Palm PilotTM); a cellular telephone; computer monitors; color
printers; a handheld radio; and various pieces of medical equipment
such as a stretcher, electric beds, and intravenous pumps. Officials
stated that many of the pieces of medical equipment are portable and
may move from one location to another with patients. However, for the
office equipment items, no explanation was provided as to where they
could be or what had happened to them. Property record errors were not
limited to low dollar value items. For example, Wilford Hall officials
told us that a $1 million magnetic resonance imaging scanner was
returned to the contractor in September 2001. However, the scanner was
still on Wilford Hall‘s records at the time our sample items were
selected in October 2001, and not removed from the MTF‘s records until
November 2001. In addition to the sample items that could not be
located, serial number errors where the facility-assigned bar code
matched but the serial number did not were prevalent in property of all
dollar values. Appendix III summarizes the results of our personal
property existence testing.
Tests of property items traced from their physical locations to the
property records showed similar types of errors. We found instances
where the serial numbers in the property records did not match the
serial numbers on the personal property, although the bar codes did
match. In addition, other items such as a laptop computer, a Sony
monitor, and a sterilizer were not recorded in the property records.
Recording these items accurately in the property records is an
important step to improving accountability and financial control over
these assets and, along with periodic inventory, preventing theft or
improper use of government property.
In addition to the weaknesses found in the physical controls over
personal property assets, the three facilities provided little or no
independent documentation to adequately support the cost or acquisition
dates of their personal property items. Eisenhower and Wilford Hall had
no supporting documentation readily available for any of the items in
the sample, while Portsmouth‘s property management staff mostly
provided internally generated purchase orders and requests in support
of the estimated cost and acquisition dates of many personal property
items. Based on our review, we estimate that Portsmouth would not be
able to provide independent documentation for 93 percent of the items
in the property records.[Footnote 8] Internal control standards for the
federal government require that all transactions be clearly and
completely documented, and that this documentation be readily available
for examination. We previously reported that DOD guidance on proper
documentation and retention was inadequate.[Footnote 9] The
documentation problems we found suggest that these issues still exist.
Taking a periodic physical inventory of personal property and resolving
discrepancies in a timely manner are key internal control activities
for property accountability. However, although all three facilities
take periodic physical inventories, Portsmouth and Wilford Hall had
long delays in researching personal property items not located during
their physical inventories and finalizing inventory results, weakening
personal property accountability. At Portsmouth and Wilford Hall,
missing inventory items were not promptly researched as required by the
DOD Financial Management Regulation. This regulation requires that an
inquiry be initiated immediately after discovery of the loss, damage,
or destruction of government property and that a ’Financial Liability
Investigation of Property Loss“ form be completed. At Wilford Hall,
research was still ongoing in May 2002 for items missing during the May
2001 annual inventory. Further, neither of these locations had
completed their 2001 physical inventories as of May 2002, indicating a
lack of management emphasis on the importance of personal property
accountability. These delays make it more difficult to research and
investigate the cause of the loss of the personal property items, and
lessen the effectiveness of the physical inventory process as a key
internal control activity.
Weaknesses in Government Purchase Card Program Resulted in Misuse:
Purchase card program internal control weaknesses make medical
facilities vulnerable to fraudulent and abusive purchases and place the
government at financial risk for the purchases. As a result, the
ability to buy items or services that may be (1) potentially
fraudulent, (2) improper, and (3) abusive or questionable increases.
These purchase card weaknesses are similar to those identified in our
previous work at two Navy sites in San Diego, California,[Footnote 10]
and at five Army sites (one being Eisenhower),[Footnote 11] both of
which found a weak control environment and ineffective internal
controls, which allowed potentially fraudulent, improper, and abusive
purchases. The work at Eisenhower is the result of statistical sampling
and data mining,[Footnote 12] while only data mining was used to review
purchase card transactions at Portsmouth and Wilford Hall. Because we
did
not select statistical samples at these two locations, we cannot
conclude
as to the effectiveness of key internal controls. However, our tests
indicated the same type of control breakdowns as seen in other work,
indicating that these facilities could have similar problems.
A potentially fraudulent purchase by a cardholder is defined as one
made that is unauthorized and intended for personal use. Potentially
fraudulent purchases can also result from compromised accounts in which
a purchase card or account number is stolen and used by someone other
than the cardholder to make a potentially fraudulent purchase. At
Eisenhower, an Army investigation found that a military cardholder
defrauded the government of $30,000 with purchases of a computer,
purses, rings, and clothing for personal use and as a result had been
sentenced to 18 months in prison. The cardholder took advantage of a
situation wherein the cardholder‘s approving official was on temporary
duty for several months. The cardholder believed that the alternate
approving official would certify the statement for payment without
reviewing the transactions or their documentation. These fraudulent
transactions were not discovered until the resource manager who
monitored the unit‘s budget noticed a large increase in spending by the
cardholder. The cardholder had destroyed all documentation for the 3-
month period during which these transactions took place. These
fraudulent transactions might not have occurred if the cardholder had
known that the approving official would review the transactions. At a
minimum, prompt approving official review would have detected the
fraudulent transactions.
Although our data mining tests do not allow us to determine the extent
of improper purchases at the three locations, we did find instances of
two types of improper purchases--split purchases and purchases from
nonmandatory sources. Split purchases occur when a cardholder divides a
single purchase into more than one transaction to avoid the requirement
to obtain competitive bids for purchases over the $2,500 micropurchase
threshold or to avoid other established credit limits as prohibited by
the Federal Acquisition Regulation.[Footnote 13] Of the 17 sets of
transactions reviewed at Wilford Hall that appeared to be split
purchases, officials could not provide invoices or other third party
documentation for 15 of these sets of transactions to determine whether
they were actual split purchases. However, a cardholder and another
official acknowledged that two of the selected transactions were split
purchases. For example, one transaction set contained 19 orders that
were placed to the same vendor on the same day. These 19 orders totaled
over $7,200. Officials agreed that this set of transactions was a split
purchase because the buyer knew all the requirements and probably knew
the total was above the threshold and still placed the orders at one
time.
Another type of improper purchase occurs when cardholders do not buy
from mandatory sources of supply. Various laws and regulations require
the purchase of certain products from designated sources such as the
Javits-Wagner-O‘Day Act (JWOD) vendors. The program created by this act
is a mandatory source of supply for all federal entities.[Footnote 14]
The JWOD program generates jobs and training for Americans who are
blind or have severe disabilities by requiring federal agencies to
purchase supplies and services furnished by nonprofit agencies, such as
the National Industries for the Blind and the National Institute for
the Severely Handicapped. At Portsmouth and Wilford Hall, items such as
day planner refills, other miscellaneous office supplies, and plastic
utensils were bought from a commercial source when they, or
substantially similar products, could have been bought from JWOD
vendors. Further, Portsmouth and Wilford Hall did not have
documentation to show that the cardholders had checked item
availability from these vendors before purchasing them elsewhere.
Each location had examples of either abusive or questionable purchase
card transactions. Abusive transactions are those that were authorized,
but the items purchased were at an excessive cost or for a questionable
government need or both. Abuse can also be viewed as when the conduct
of a government organization, program, activity, or function falls
short of societal expectations of prudent behavior. One example of an
abusive transaction was the purchase of a $650 Sony digital camera at
Wilford Hall that was justified as needed to ’take photos for Christmas
party and other events put on for squadron morale boosters,“ while the
digital camera bought by the pass office to update its badge security
system only cost $350. The purchase of the more expensive model for the
reasons given was excessive, and a more modest camera could have been
bought.
Questionable transactions are those that appear to be improper or
abusive but for which there is insufficient documentation to conclude
either. Many of the transactions we selected in the data mining were
without supporting documentation, which makes a firm determination of
their legitimacy impossible without a thorough investigation. Also, we
have found that the lack of documentation can be an indicator of fraud,
as in the $30,000 Eisenhower fraud case. Questionable purchases often
do not easily fit within generic governmentwide guidelines on purchases
that are acceptable for the purchase card program. Because they tend to
raise questions about their reasonableness and subject the activity to
criticism, they require a higher level of prepurchase review and
documentation than other purchases. An example of a questionable
transaction involved the purchase of food by a psychiatric clinic at
Portsmouth. Hospital officials stated that the planning of meals,
purchasing of food at local groceries, and its subsequent preparation
is a commonly prescribed therapy for certain patients, and the hospital
pays for the food. While this may be true, there was no advance
approval of this transaction and military facility officials provided
no other documentation authorizing this activity as legitimate. Because
there are limitations on the purchase of food with a government
purchase card, it seems reasonable to expect that each of these
particular transactions be closely reviewed and approved and be well
documented and justified before the purchase, not after.
In addition to fraudulent, improper, and abusive or questionable
purchases, the medical facilities lacked documentation of (1) advance
approval, (2) independent receiving, and (3) invoices or other means to
independently verify both the quantity and price of purchases for the
items we reviewed.
Many of the government purchase card transactions we reviewed at these
facilities did not have documentation of advance approval. At
Eisenhower, we estimated that 60 percent of the items purchased with
the government purchase card lacked advance approval.[Footnote 15]
Portsmouth lacked advance approval documentation for 40 of the 50
nonrepresentatively selected transactions we reviewed, but officials
claim that all items purchased and recorded in their Defense Medical
Logistics Standard Support (DMLSS) system have been through the
approval process. However, once an item is approved and recorded in
this system, subsequent reorders of the same item do not need any other
approval. In other words, after the initial order, there is no
separation of duties between the approving and ordering official. At
Wilford Hall, which lacked advance approval documentation for 14 of the
50 nonrepresentatively selected transactions reviewed, several of the
transactions were purchases of briefcases for war reserves appearing on
project allowance lists. Officials said that as long as the items were
on an allowance list, then they were authorized to buy them without any
other necessary paperwork. Our selected items were on these approved
project allowance lists, and no other advance approval documents with
supervisor review and signature were available. Both the automated
DMLSS system and war reserve approval processes do not prevent
cardholders from buying items, such as these briefcases, for possible
personal use.
Leaving a cardholder solely responsible for a procurement action
without some type of documented approval puts the cardholder at risk
and makes the government inappropriately vulnerable. A segregation of
duties so that someone other than the cardholder is involved in the
purchase improves the likelihood that both the cardholder and the
government are protected from fraud, waste, and abuse. Advance approval
is an appropriate internal control activity and can be achieved without
requiring the formal contracting procedures that could impede timely
purchases and increase costs. For example, blanket approval for routine
purchases within set dollar limits involves minimal cost, but provides
reasonable control. For nonroutine purchases involving significant
expenditures, advance approval, even through informal processes,
appears to be an important internal control activity.
The wide range of items lacking documentation of independent receiving
could be the result of the type of documentation maintained at the
facilities. Independent receiving by someone other than the cardholder
is a basic internal control activity that provides additional assurance
that purchased items are not acquired for personal use and that the
purchased items come into the possession of the government. We
estimated that 71 percent of the transactions at Eisenhower lacked
documentation of independent receiving.[Footnote 16] Of the 50
nonrepresentatively selected transactions reviewed at each of the other
two locations, 12 from Wilford Hall and 2 from Portsmouth lacked
documentation of independent receipt.
Portsmouth‘s medical logistics system, which was different from those
in place at Eisenhower and Wilford Hall, allows the person receiving
the item to document the receipt directly into the system. This process
makes the receipt documentation more readily available than paper files
since it tracks the name and date of receipt. For 48 of the 50 items we
reviewed, system records showed a different person ordering and
receiving the goods. However, we did not test the system‘s access
controls over the segregation of the ordering and receiving functions.
Having receipt documentation recorded directly in the system is
efficient and acceptable, but only if the system controls are adequate.
A large number of the transactions reviewed did not have independent
documentation such as an invoice available to verify both quantity and
price information. We estimated that 26 percent of the transactions at
Eisenhower lacked an invoice or other independent
documentation.[Footnote 17] Of the 50 nonrepresentatively selected
items reviewed at the other two locations, 20 and 18 lacked invoices or
other independent documentation at Wilford Hall and Portsmouth,
respectively. Internal control standards require that transactions be
clearly documented and that support be readily available for
examination. A valid invoice to show what was purchased and the price
paid is a basic transaction document, and a missing invoice is an
indicator of potential fraud, as was demonstrated in the $30,000 fraud
case at Eisenhower. Without this independent documentation, supervisors
and management cannot be certain that the items purchased are
appropriate and that government funds were properly used. For example,
some transactions had no documentation supporting the description,
quantity, or price for items or services bought from vendors such as a
jewelry store, an automobile audio accessory store, a dry cleaner, a
camera store, and a carpet retailer. While officials told us that these
transactions were for valid government reasons, they could not provide
any documentation supporting the purchases. Without a vendor invoice, a
thorough review is necessary to determine whether the transaction was
proper or potentially fraudulent, improper, or abusive. Also,
independent receiving cannot confirm that all purchased items were
received if no invoice or other documentation supporting the quantity
is available.
Conclusions:
Collectively, the weaknesses found and their effects as demonstrated by
our work indicate the existence of financial management problems at the
three MTFs. Because selected internal controls at the facilities have
not been effectively implemented, management at these facilities does
not have reasonable assurance that only eligible patients are receiving
care, the government has been properly reimbursed for care from third
party insurers, personal property and expired drugs can be accounted
for, and purchase cards are used properly. The same issues and
recommendations identified in our other work related to purchase card
usage are also applicable to the MTFs. As a result of these control
weaknesses, millions of dollars that could be used for patient care may
be unnecessarily spent for ineligible patients, unused pharmaceuticals,
or unneeded purchases.
Recommendations for Executive Action:
Because having sound financial and management practices affects the
ability of program directors and managers to make better decisions and
achieve results, we recommend that the Under Secretary of Defense for
Personnel and Readiness and the military services‘ Surgeons General, in
conjunction with the senior management at the three MTFs, as
appropriate,
* develop a strategy to make short-term and long-term improvements in
data quality in the automated eligibility, cost, and clinical health
care systems;
* develop and utilize analytical tools for facilitating the
identification of erroneous records in the eligibility, cost, and
clinical health care systems such as comparisons between SSA records
and facility automated medical management records;
* reiterate through correspondence with MTF personnel the importance
of:
* completing or updating the DOD Form 2569, as required, to document
whether each health care beneficiary has third party insurance;
* entering patient insurance coverage information into the automated
medical information system so that more complete and accurate reports
can be generated to better identify reimbursable care for billing;
* billing third party insurance carriers promptly for admissions,
outpatient visits, and pharmacy care, including items identified in our
testing as well as other care not billed; and:
* collecting third party reimbursements due to the government to the
fullest extent allowed as required by DOD policy;
* require MTFs to maintain an itemized list of the names and quantities
of drugs to be returned to the pharmaceutical return goods contractor
for credit or disposal, and require MTFs to routinely monitor and
evaluate, based on the management reports provided by the contractor
and the pharmaceutical prime vendor, the credits received from the
returns of drugs and net losses of those drugs to use as an indicator
in determining whether on hand inventory levels are appropriate;
* require property office management to maintain, and have readily
available, independent documentation supporting the cost and date of
acquisition for all accountable personal property;
* require property office management to promptly report the loss of any
personal property items detected during their periodic physical
inventories, and to adjust the property records accordingly; and:
* review and modify the existing processes and requirements to improve
documentation of purchase card transaction approvals, independent
receipt of the items, and invoices to better verify costs and
quantities.
Agency Comments and Our Evaluation:
DOD provided written comments on a draft of this report. DOD concurred
with our recommendations and identified corrective actions planned and
underway related to eligibility for health care and collections from
third party insurers. In addition, both the Deputy Secretary of Defense
and the Executive Director of the TRICARE Management Activity have
recently issued guidance on the use of government purchase cards. DOD‘s
comments are reprinted in appendix IV. DOD also provided additional
comments, which we have incorporated as appropriate or responded to at
the end of appendix IV.
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 15 days from the date of this letter.
At that time, we will send copies of this report to the Chairmen of the
Subcommittee on National Security, Veterans Affairs and International
Relations and the Subcommittee on Government Efficiency, Financial
Management and Intergovernmental Relations; House Committee on
Government Reform and other congressional committees. We are also
sending copies to the Secretary of Defense; the Under Secretary of
Defense for Personnel and Readiness; the Surgeon General of the Air
Force; the Surgeon General of the Army; the Surgeon General of the
Navy; the Secretary of the Air Force; the Secretary of the Army; the
Secretary of the Navy; and the Commanders of Eisenhower, Portsmouth,
and Wilford Hall. Copies will be made available to others upon request.
In addition, the report will be available at no charge on the GAO Web
site at http://www.gao.gov.
Please contact Linda Garrison at (404) 679-1902 or by e-mail at
garrisonl@gao.gov if you or your staffs have any questions about this
report. An additional contact and staff acknowledgments are listed in
appendix V.
Gregory D. Kutz
Director
Financial Management and Assurance:
Signed by Gregory D. Kutz
William M. Solis
Director
Defense Capabilities and Management:
Signed by William M. Solis
[End of section]
Appendix I: Scope and Methodology:
We used a case study approach to review key internal control activities
in five areas--eligibility, third party billings and collections,
pharmacy expired drugs, personal property management, and government
purchase card usage at three MTFs. Our work was performed at three
large, diverse medical facilities--Eisenhower Army Medical Center,
Augusta, Georgia (Eisenhower); Naval Medical Center Portsmouth,
Portsmouth, Virginia (Portsmouth); and Wilford Hall Air Force Medical
Center, San Antonio, Texas (Wilford Hall). We also performed work at
the TRICARE Management Activity in Falls Church, Virginia.
This was not a financial audit; as a result, we do not render an
opinion on the internal controls or any financial data or financial
statements. Also, the results of our review cannot be projected beyond
the three case study MTFs. Since we were not testing the internal
controls as a part of a financial audit, we did not perform tests of
the general or application electronic data processing controls. We also
did not assess the overall control environment or perform a
comprehensive risk assessment nor did we independently verify DOD‘s
financial information used in this report.
To determine whether the key internal control activities were
effectively implemented, we reviewed applicable laws and regulations;
our Standards for Internal Control in the Federal Government (GAO/AIMD-
00-21.3.1, November 1999); and our Internal Control Standards: Internal
Control Management and Evaluation Tool (GAO-01-1008G, August 2001). We
obtained an overview of the process and gained an understanding of the
policies, procedures, techniques, and mechanisms used to help ensure
that management‘s directives were carried out. We interviewed and
observed management and personnel at the three MTFs and the TRICARE
Management Activity. We also reviewed relevant audit reports from
defense audit agencies and the DOD IG. Further, we performed targeted
analyses of fiscal year 2001 transactions and control activities in the
five areas.
To determine whether control activities used to identify those eligible
for care were effective, we observed whether staff members in various
clinics and sites throughout the MTFs were asking patients for military
identification cards and querying the clinical system for eligibility
status, and compared a file of all patients receiving prescriptions in
fiscal year 2001 at one facility to an SSA file of all persons who had
died in order to identify patients who either had erroneous social
security numbers in the clinical system or who might be ineligible for
care. The other two facilities were unable to readily provide
comparable information.
To determine the effectiveness of the third party billing and
collection internal control activities, we (1) tested a
nonrepresentative selection of patients from 1 day each quarter during
fiscal year 2001 to determine whether the facilities were
systematically obtaining and updating patient insurance information,
(2) tested a nonrepresentative selection of incidents of patient care
that should have been billed, (3) reviewed the timeliness of a
selection of third party insurance bills, and (4) analyzed the third
party insurance collections.
To determine whether control activities over expired and obsolete drugs
were effective, we (1) observed the pharmaceutical returned goods
contractor pickup of expired drugs, (2) discussed with pharmacy and
contractor personnel procedures and requirements for inventorying the
expired drugs collected, and (3) obtained contractor-provided inventory
lists of expired drugs turned in.
To determine the effectiveness of the control activities over personal
property management, we performed tests of the existence, completeness,
and accuracy of the cost and acquisition date recorded in the personal
property records. To test existence, within each medical center we
stratified the population of personal property items by the dollar
value recorded as the purchase price for the item. We selected a
stratified random probability sample of 100 personal property items
recorded on the property records at each of the three facilities. With
these statistically valid random probability samples, each transaction
in the property records had a nonzero probability of being included,
and that probability could be computed for any transaction. Each sample
item was subsequently weighted in the analysis to account statistically
for all the property records in the population at that location,
including those that were not selected.
For each property item in the sample, we tested the physical existence
of the item and compared the facility-assigned bar code and serial
number in the property record to that attached to the property item. An
error was recorded if MTF personnel (1) could not locate the item or
(2) located the item, but the serial number on the item did not match
that in the property record. We also examined the documentation
supporting the date and cost of acquisition for each property item in
the sample.
Because we followed a probability procedure based on random selections
of property items, our sample for each facility is only one of a large
number of samples that we might have drawn. Since each sample could
have produced different estimates, we express our confidence in the
precision of our particular samples‘ results (that is, the sampling
error) as 95 percent two-sided confidence intervals. These are
intervals that would contain the actual population value for 95 percent
of the samples we could have drawn. As a result, we are 95 percent
confident that each of the confidence intervals in this report will
include the true (unknown) values in the study population.
We also generated one-sided 95 percent confidence intervals around the
overall results at each MTF and used them to assess whether the
controls at each MTF over personal property were effective,
ineffective, or partially effective. If the upper limit of a one-sided
95 percent confidence interval was 5 percent or less, we considered the
controls effective. If the lower limit of a one-sided 95 percent
confidence interval was 10 percent or more, we considered the controls
ineffective. Otherwise, we considered the controls partially effective.
Although we projected the results of our samples to the population of
items recorded in the property records at each of the medical centers,
the results cannot be projected to the population of all property
records at all of the MTFs.
In addition to our review of the existence of items recorded in the
property records and the accuracy of the facility-assigned bar codes
and serial numbers of the items, we also tested the completeness of the
property records by selecting an item located next to all items in our
sample that they were able to find. We then traced the bar code and
serial number of the item back to the property records.
In order to test the accuracy of the cost and acquisition date recorded
in the personal property records for the sample items, we obtained and
reviewed any supporting documentation available from property
management personnel.
To test internal control activities in the use of the government
purchase card, we utilized two different approaches. To test the
implementation of specific control activities at Eisenhower, 150
transactions were selected in a stratified random probability sample
drawn from the population of transactions paid from October 1, 2000,
through July 31, 2001. The methodology for the statistical sample is
presented in the June 2002 GAO report, Purchase Cards: Control
Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse (GAO-02-
732). The statistical sample allowed for projection of an estimate of
the percentage of transactions for which each control activity tested
was not performed. We also evaluated the control environment and did
data mining at Eisenhower.
For Portsmouth and Wilford Hall, we obtained files of all purchase card
transactions made during fiscal year 2001. From these files, we tested
a nonrepresentative selection of 50 transactions for each medical
facility to test the implementation of specific control activities and
to determine if indications exist of potentially fraudulent, improper,
and abusive or questionable transactions. Our data mining included
identifying transactions with certain vendors that had a more likely
chance of selling items that would be unauthorized or that would be
personal items. Because of the large number of transactions that met
these criteria, we did not look at all potential abuses of the purchase
card. We requested that each facility provide all documentation
supporting the purchases and each of the control activities. If no
documentation was provided, or if the documentation provided indicated
there were further issues, we obtained additional information through
interviews with cardholders and other hospital or purchase card
officials. While we identified some potentially fraudulent, improper,
and abusive or questionable transactions, our work was not designed to
identify, and we cannot determine, the extent of potentially
fraudulent, improper, or abusive transactions. The data mining
techniques used at Wilford Hall and Portsmouth did not allow for a
projection of an estimate of the effectiveness of key internal control
activities.
Although we projected the results of the purchase card sample to the
populations of transactions at Eisenhower, the results cannot be
projected to the population of all purchase card transactions at all of
the MTFs.
We briefed DOD officials at the three MTFs and at the TRICARE
Management Activity on the details of our review, including our
findings and conclusions. We requested comments through the DOD Office
of the Inspector General, which distributed the report to the
appropriate officials. We received written comments from the Office of
the Assistant Secretary of Defense for Health Affairs, which also
included copies of comments from the Surgeons General of the Air Force,
Army, and Navy. DOD‘s response, including additional comments and a
technical comment are reprinted in appendix IV. However, we did not
reprint the comments from the three Surgeons General that formed the
basis of the DOD response. We performed our work from August 2001
through June 2002 in accordance with U.S. generally accepted government
auditing standards.
[End of section]
Appendix II: Financial and Operational Information at Selected MTFs
(Unaudited):
Table 3: Fiscal Year 2001 Financial and Operational Information at
Selected MTFs (Unaudited):
Budget allocation - original at 10/1/00; Eisenhower Army Medical Center
Augusta, Ga.: $92,565,000; Naval Medical Center-Portsmouth
Portsmouth, Va.: $210,578,000; Wilford Hall Air Force Medical Center
San Antonio, Tex.: $133,136,000.
Budget allocation - supplemental; Eisenhower Army Medical Center
Augusta, Ga.: 5,100,000; Naval Medical Center-Portsmouth
Portsmouth, Va.: 39,496,000; Wilford Hall Air Force Medical Center
San Antonio, Tex.: 30,217,000.
Reimbursements earned; Eisenhower Army Medical Center
Augusta, Ga.: 7,202,000; Naval Medical Center-Portsmouth
Portsmouth, Va.: 14,130,000; Wilford Hall Air Force Medical Center
San Antonio, Tex.: 11,411,000.
Budget - overall budget authority at 9/30/01; Eisenhower Army Medical
Center, Augusta, Ga.: 104,867,000; Naval Medical Center-Portsmouth
Portsmouth, Va.: 264,204,000; Wilford Hall Air Force Medical Center
San Antonio, Tex.: 174,764,000.
Obligations at 9/30/01.
Civilian pay; Eisenhower Army Medical Center, Augusta, Ga.: 42,723,000;
Naval Medical Center-Portsmouth,Portsmouth, Va.: 63,643,000;
Wilford Hall Air Force Medical Center, San Antonio, Tex.: 38,014,000.
Contracts; Eisenhower Army Medical Center, Augusta, Ga.: 17,010,000;
Naval Medical Center-Portsmouth, Portsmouth, Va.: 92,507,000;
Wilford Hall Air Force Medical Center, San Antonio, Tex.: 20,105,000.
Supplies; Eisenhower Army Medical Center, Augusta, Ga.: 40,721,000;
Naval Medical Center-Portsmouth, Portsmouth, Va.: 89,903,000;
Wilford Hall Air Force Medical Center, San Antonio, Tex.: 78,374,000.
Equipment; Eisenhower Army Medical Center, Augusta, Ga.: 1,957,000;
Naval Medical Center-Portsmouth, Portsmouth, Va.: 1,772,000;
Wilford Hall Air Force Medical Center, San Antonio, Tex.: 7,719,000.
Other; Eisenhower Army Medical Center, Augusta, Ga.: 2,456,000;
Naval Medical Center-Portsmouth, Portsmouth, Va.: 16,379,000;
Wilford Hall Air Force Medical Center, San Antonio, Tex.: 30,552,000.
Full-time equivalent employees.
Civilian; Eisenhower Army Medical Center, Augusta, Ga.: 954; Naval
Medical Center-Portsmouth, Portsmouth, Va.: 1,194; Wilford Hall Air
Force Medical Center, San Antonio, Tex.: 879.
Military; Eisenhower Army Medical Center, Augusta, Ga.: 1,178; Naval
Medical Center-Portsmouth, Portsmouth, Va.: 2,361; Wilford Hall Air
Force Medical Center, San Antonio, Tex.: 3,658.
Contract; Eisenhower Army Medical Center, Augusta, Ga.: 286; Naval
Medical Center-Portsmouth, Portsmouth, Va.: 643; Wilford Hall Air Force
Medical Center, San Antonio, Tex.: 424.
Inpatient admissions; Eisenhower Army Medical Center, Augusta, Ga.:
5,361;
Naval Medical Center-Portsmouth, Portsmouth, Va.: 17,612; Wilford Hall
Air
Force Medical Center, San Antonio, Tex.: 15,423.
Outpatient visits; Eisenhower Army Medical Center, Augusta, Ga.:
596,247;
Naval Medical Center-Portsmouth, Portsmouth, Va.: 1,450,504; Wilford
Hall
Air Force Medical Center, San Antonio, Tex.: 854,292.
Pharmacy prescriptions filled; Eisenhower Army Medical Center
Augusta, Ga.: 2,808,923; Naval Medical Center-Portsmouth
Portsmouth, Va.: 2,464,304; Wilford Hall Air Force Medical Center
San Antonio, Tex.: 2,602,827.
Source: GAO presentation of DOD data.
[End of table]
[End of section]
Appendix III: Results of Personal Property Existence Testing:
Table 4 displays overall estimated existence error rates and associated
two-sided 95 percent confidence intervals for personal property at each
of the three facilities, as well as error rates for personal property
with a recorded purchase price of $1,000,000 or more.
Table 4: Error Rates for Personal Property:
Installation: Total items sampled; Portsmouth: 100; Eisenhower: 100;
Wilford Hall: 100.
Installation: Estimated overall percentage of errors[A]; Portsmouth:
31%; Eisenhower: 4%; Wilford Hall: 17%.
Installation: 95 percent confidence interval; Portsmouth: 21-41%;
Eisenhower: 1-10%; Wilford Hall: 10-27%.
Installation: Actual percentage and number of errors in $1,000,000+
stratum[B]; (100% testing performed); Portsmouth: 11%; (1 of 9);
Eisenhower: 0%; (0 of 4); Wilford Hall: 88%; (7 of 8).
[A] An error is defined as DOD officials not locating an item or
locating an item with a serial number different from that which was
recorded in the property record.
[B] All but one error that occurred in this $1,000,000+ stratum was due
to manufacturers‘ serial numbers that did not match the facility-
assigned bar codes shown in the records as opposed to missing property.
Source: GAO analysis of DOD data.
[End of table]
[End of section]
Appendix IV: Comments from the Department of Defense:
THE ASSISTANT SECRETARY OF DEFENSE:
HEALTH AFFAIRS:
WASHINGTON, D.C. 20301-1200:
SEP 27 2002:
Mr. Gregory D. Kutz:
Director, Financial Management and Assurance, U.S. General Accounting
Office:
Washington, DC 20548:
Dear Mr. Kutz:
This is the Department of Defense (DoD) response to the GAO draft
report, GAO-02-860, ’MILITARY TREATMENT FACILITIES: Internal Control
Activities Need Improvement,“ dated August 8, 2002 (GAO Code 192037).
In general, the DoD concurs with the overall GAO draft report. Specific
comments and recommendations on the draft report are incorporated into
our response.
The Department is appreciative of the GAO‘s surfacing of the five
specific areas of MTF operations at the selected MTFs that require
increased management involvement and oversight. Our comments address
the GAO‘s recommendations and the five areas reviewed (enclosed).
Please feel free to direct any questions regarding this reply to my
project officers, Major Henri Hammond (functional) at (703) 681-1724 or
Mr. Gunther Zimmerman (GAO/IG Liaison) at (703) 681-7889 extension
1229.
Sincerely,
William Winkenwerder, Jr., MD
Signed by E. P. Wyatt for William Winkenwerder
Enclosures:
1. Response to GAO Recommendations:
2. Additional Comments:
3. Technical Comments:
4. Air Force Surgeon General Comments:
GAO DRAFT REPORT - DATED AUGUST 8,2002 (GAO CODE 192037):
’MILITARY TREATMENT FACILIITES: INTERNAL CONTROL ACTIVITIES NEED
IMPROVEMENT“:
DEPARTMENT OF DEFENSE COMMENTS:
To improve financial and management practices to afford program
directors and managers better decision making tools to make better
decisions and achieve results, the GAO recommended the Under Secretary
of Defense for Personnel and Readiness and the Surgeons General, in
conjunction with the senior management of the three military treatment
facilities, as appropriate:
RECOMMENDATION 1: Develop a strategy to make short term improvements in
data quality in the automated eligibility, cost, and clinical health
care systems.
DOD RESPONSE: Concur.
RECOMMENDATION 2: Develop and utilize analytical tools for facilitating
the identification of erroneous records in the eligible, cost and
clinical health care systems such as comparisons. between Social
Security Administration records and facility automated medical
management records.
DOD RESPONSE: Concur.
RECOMMENDATION 3: Reiterate through correspondence with military
treatment facility personnel the importance of a) completing or
updating the DoD Form 2569, as required, to document whether or not
each health care beneficiary has third party insurance; b) entering
patient insurance coverage information into the automated medical
information system so that more complete and accurate reports could be
generated to better identify reimbursement care for billing; c) billing
third party insurance carriers promptly for admissions, outpatient
visits, and pharmacy care, including items identified in our testing as
well as other care not billed; and d) collecting third party
reimbursement due to the government to the fullest extent allowed as
required by DoD policy.
DOD RESPONSE: Concur. These are appropriate recommendations. All
possible efforts must be made to ensure this important program is
properly managed and maintained. DoD also recommends that MTF
leadership be held accountable for this program. It is evident that
MTFs with involved and committed leadership, programs are more
successful.
RECOMMENDATION 4: Require military treatment facility pharmacies to
maintain a listing of all drugs returned to the contractor for credit
or disposal and to routinely measure and analyze the type and net loss
relating to the drugs being returned to determine if adjustments need
to be made in the volume or type of items being ordered.
DOD RESPONSE: Concur.
RECOMMENDATION 5: Require property office management to maintain, and
have readily available, independent documentation supporting the cost
and date of acquisition for all accountable personal property.
DOD RESPONSE: Concur.
RECOMMENDATION 6: Require property office management to promptly report
the loss of any personal property items directed during their periodic
physical inventors; and to adjust the property records accordingly.
DOD RESPONSE: Concur.
RECOMMENDATION 7: Review and modify the existing processes and
requirements to improve documentation of purchase card transaction
approvals, independent receipt of the items, and invoices to better
verify costs and quantities.
DOD RESPONSE: Concur.
GAO DRAFT REPORT - DATED AUGUST 8,2002 (GAO CODE 192037):
’MILITARY TREATMENT FACILIITES: INTERNAL CONTROL ACTIVITIES NEED
IMPROVEMENT“:
ADDITIONAL COMMENTS:
General Comments:
Page 5. Inadequate Eligibility Controls Allow for Unauthorized Access
to Care. The GAO identified that erroneous eligibility information
contained in DoD information systems precluded the military treatment
facilities (MTFs) from providing reasonable assurance that medical care
was only provided to eligible beneficiaries. The essence of GAO‘s
comments concentrated on system problems. It is important to re-
emphasize that MTF personnel only confirm and verify data in DEERS to
check eligibility, not establish nor disestablish entitlement. Specific
improvements are being fostered internally within the MTFs to check
eligibility for care and recoup ID cards that are found to be
fraudulent. These steps will help improve the access to care for only
those who are eligible.
Page 7. Weaknesses in Billings and Collections Prevent Full Recovery of
Millions from Third Party Insurers. GAO identified that millions of
dollars are not being collected each year because patient medical
records are incomplete, and that patients are not asked to provide
current information thereby hindering the ability to identify all
billable care. The Services are addressing this problem by seeking new
automation products to allow verification of Other Health Insurance
(OHI), examining business case models to allow medical record
dictation, regionalization of billings offices, revenue cycle procedure
manuals, modification to current billing office guidance, and patient
coding solutions to improve accuracy. These efforts are aimed at
improving the billing and collection capabilities to foster maximum
recoupment.
Page 12. Weaknesses Precluded Adequate Management of Pharmaceutical
Returned Goods Program. GAO identified that Wilford Hall Medical Center
(WHMC) did not inventory the non-narcotic drugs turned in for pickup by
a return goods contractor. The GAO further indicated that Wilford Hall
could not verify the accuracy of credits for returned drugs and credits
received. Lastly, the GAO indicated that pharmacy officials at Wilford
Hall told them that it was not cost effective to track non-narcotics
expired drugs. Comment:Specific findings may have been misstated due to
lack of complete understanding of local procedures and the fact that
Wilford Hall Medical Center was transitioning from one material
information management system to another at the time of the audit.
Page 13. The GAO indicated that they were unable to find the property
records at Wilford Hall for a $1 million Magnetic Resonance Imaging
(MRI) scanner. GAO asserts that the MRI was removed from service in
September 2001 with no documentation available to show what had
happened to it, or whether or not it had any residual value. Comment:
Wilford Hall did have documentation available to show that the MRI was
returned for credit and an inventory loss transaction was processed.
Copies of the supporting documentation were provided to the auditor,
yet it was still identified as an audit finding.
Page 16. Weaknesses in Government Purchase Card Program Resulted in
Misuse. The Government Credit Card Programs need improvement. The
TRICARE Management Activity will direct the Military Department
Surgeons General to identify Government Purchase Card Programs as
annual assessable units and to include them in their annual statements
of assurance.
Eligibility Controls for Access to Care:
Based upon a DoD IG audit, Evaluation of the Investigative Environment
in Which the Defense Enrollment Eligibility Reporting System (DEERS)
Operates (Project # 7017-9029), the IG recommended in Recommendation
B,1. ’The ASD(HA) direct military treatment facility Commanders to
comply with existing policy that requires a) 100 percent eligibility
checks using DEERS prior to treating military personnel or their
dependents; b) confiscating identification cards from ineligibility
individuals who seek military medial care and forwarding those cards to
local authorities; and c) initiate administrative recoupment action for
costs incurred when suspected ineligible individuals obtain
unauthorized military medical benefits.“:
To conform to the requirements, the Office of the Assistant Secretary
of Defense (Health Affairs) has created a new Department of Defense
Instruction (DoDI) which implements policy for eliminating the
fraudulent use of Identification Cards (ID) issued to Members of the
Uniformed Services, their dependents, and other eligible individuals
for health care provided in the Military Health System (MHS) Medical
Treatment Facilities (MTFs). The new DoDI also implements policy,
assigns responsibilities and prescribes procedures for MTFs regarding
the verification and confiscation of ID Cards.
When issued, the DoDI will outline prescribed procedures to the
Services and their MTFs for reviewing ID cards to determine eligibility
for care, procedures for confiscation of fraudulent ID cards, and the
recoupment of DHP funding spent for the delivery of medical care.
The draft DoDI is currently undergoing Departmental coordination. The
ASD(HA) has sent the SD Form 106 to the Military Departments for
review.
Management Control Program:
The TRICARE Management Activity (TMA), the operational component of the
Assistant Secretary of Defense (Health Affairs), instituted a
Management Control Program (MCP) in April 2001 to assist in the
oversight of the MHS and the Defense Health Program (DHP). The TMA MCP
consists of two distinct oversight initiatives, the TMA Management
Control Program and the Defense Health Program (DHP) Enterprise
Management Control Program. The DHP Enterprise program is designed to
provide the Military Departments with subject areas in which MHS policy
is issued to the Military Departments for inclusion in the Services
list of assessable units (AUs) issued to their MTFs. Representatives
from the three Military Departments meet quarterly as the DHP
Management Control Program Work Group to review and address management
control issues relevant to the Services and MTFs. The result is the
development of DHP AUs forwarded to the Military Departments for
implementation. AU reviews are consolidated into the Military
Department‘s Annual Statements of Assurance as required by the Federal
Managers‘ Financial Integrity Act (FMFLA).
Third Party Collection Proeram (TPC):
The Department fully supports the findings identified by the GAO
regarding the loss of funds not being collected under TPC due to
incomplete patient medical records, inadequate insurance
identification procedures and weak billing and collecting procedures.
The corrective actions identified by the GAO should help the Department
in its continuing education with the Services and MTFs of how the TPC
can improve.
Government Purchase Card Proeram:
On June 21, 2002, the Deputy Secretary of Defense directed management
at all levels to ensure the necessary oversight of government charge
cards and education to eliminate fraud, misuse, and abuse of these
charge cards. The Executive Director, TMA issued guidance on July
8, 2002 to the TMA Directors providing policy and information on
responsibilities for the use of Government Charge Cards.
GAO DRAFT REPORT - DATED AUGUST 8, 2002:
(GAO CODE 192037):
’MILITARY TREATMENT FACILHTES: INTERNAL CONTROL ACTIVITIES NEED
IMPROVEMENT“:
TECHNICAL COMMENTS:
Page 23. Fourth Recommendation. Recommend rewriting the recommendation
to read ’Require military treatment facility pharmacies and/or medical
logistics offices to maintain an itemized list of all drugs and
quantities to be returned to the pharmaceutical return goods contractor
for credit or disposal. Further, require MTF‘s to routinely monitor and
evaluate, from the management reports provided by the contractor and
pharmaceutical prime vendor, the credits received from the returns and
the drugs and net losses of those drugs to determine if on hand
inventory adjustment are appropriate.“ Revised recommendation more
accurately reflects the current process for controlling returned
pharmaceuticals and the process to determine the impact on the
inventory resulting from returns.
The following are GAO‘s comments on the Department of Defense‘s letter
dated September 27, 2002.
GAO Comments:
1. Report number was changed to reflect issuance in fiscal year 2003.
2. The MTF did not maintain a list of non-narcotic drugs awaiting pick
up by the contractor in either its former system or the one to which it
was transitioning.
3. We have not been provided documentation indicating that the MRI was
returned for credit. The point of the finding is that the property
records were inaccurate at the time of our review.
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Rebecca Beale, (757) 552-8228 or bealer@gao.gov:
Acknowledgments:
Staff members making key contributions to this report were Shawkat
Ahmed, Mario Artesiano, Rathi Bose, Francine DelVecchio, Alfonso
Garcia, Janine Prybyla, and Sidney Schwartz.
FOOTNOTES
[1] We chose Eisenhower Army Medical Center, Augusta, Georgia; Naval
Medical Center-Portsmouth, Portsmouth, Virginia; and Wilford Hall Air
Force Medical Center, San Antonio, Texas, as our case study MTFs.
Unaudited financial and operational information provided by each of the
three MTFs is shown in app. II.
[2] Department of Defense, Office of the Inspector General, Beneficiary
Data Supporting the DOD Military Retirement Health Benefits Liability
Estimate, Report No. D-2001-154 (Washington, D.C.: July 5, 2001).
[3] A sponsor is the active duty service member or retiree. A sponsor
may have many other eligible beneficiaries, such as dependent children;
current and, in certain instances, a former spouse; and others who by
virtue of their relationship to the sponsor are eligible for care at
the MTF.
[4] Air Force Audit Agency, Follow-up, Third Party Collection Program,
Audit Report 00051011 (Washington, D.C.: Apr. 26, 2001).
[5] Air Force Audit Agency, Third Party Collection Program -
Pharmaceuticals, Audit Report 01051015 (Washington, D.C.: Aug. 8,
2001).
[6] Army Audit Agency, Pharmaceutical Management, U.S. Army Medical
Command, Report No. 02-129 (Washington, D.C.: Jan. 25, 2002).
[7] The 95 percent confidence interval extends from 21 percent to 41
percent for Portsmouth, from 1 percent to 10 percent for Eisenhower,
and from 10 percent to 27 percent for Wilford Hall.
[8] The 95 percent confidence interval extends from 86 percent to 98
percent.
[9] U.S. General Accounting Office, Internal Controls: DOD Records
Retention Practices Hamper Accountability, GAO/AIMD/OSI-00-48R
(Washington, D.C.: Feb. 4, 2000).
[10] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-32
(Washington, D.C.: Nov. 30, 2001).
[11] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-732
(Washington, D.C.: June 27, 2002), and Purchase Cards: Control
Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-
844T (Washington, D.C.: July 17, 2002).
[12] In our work, data mining involved the manual or electronic sorting
of purchase card data to identify and select for further follow-up and
analysis transactions with unusual or questionable characteristics.
[13] The Federal Acquisition Regulation is the primary source of the
uniform policies and procedures for acquisition by all executive
agencies.
[14] Federal Acquisition Regulation, Part 8.7.
[15] The 95 percent confidence interval extends from 48 percent to 71
percent.
[16] The 95 percent confidence interval extends from 60 percent to 81
percent.
[17] The 95 percent confidence interval extends from 17 percent to 38
percent.
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