We determined whether DoD methodologies
for determining improper payment rates in
the DoD Agency Financial Report capture
improper payments because of error, fraud,
waste, and abuse. Specifically, we reviewed
the Defense Finance and Accounting
Service (DFAS) Commercial Pay program
and the Military Health Benefits program.
Defense Health Agency (DHA) and DFAS
developed methodologies that did not fully
capture improper payment estimates and did
not fully disclose recovered overpayments in
the FY 2013 DoD Agency Financial Report.
DHA risk assessments did not properly
identify and evaluate risks of improper
payments because DHA did not consider all
types of payments, based its risk assessment
on statistically invalid estimates, did not
consider the risk of medical payment fraud,
and used a nonsystematic method to evaluate
risk for some payments.
DHA and DFAS did not design improper
payment testing to detect fraud because
Office of Management and Budget (OMB)
guidance did not specify whether agencies
should test for fraud.
DHA did not properly calculate estimated
improper payment rates because the rates
were based on billed amounts instead of paid
amounts and on statistically invalid results.
Furthermore, DFAS rates could be improved
by using a stratified sampling plan.
DHA and DFAS methodologies did not include steps to fully
disclose identified and recaptured overpayments because
OMB guidance was unclear.
The inadequate methodologies resulted in unreliable improper
payment estimates, and limit DoD’s ability to identify and report
improper payments, determine underlying weaknesses that cause
the improper payments, and initiate corrective actions to reduce
the improper payments.
We recommend that the Director, DHA:
- Include all DHA health care payments when assessing risk and document the justification for excluding any program payments in the risk assessment and the Agency Financial Report.
- Develop a systematic risk-assessment methodology for all contracts that is not limited to prior-year sampling results and considers other risk factors, such as the risk of fraud.
- Develop procedures to calculate the improper payment error rate based on amounts paid. In addition, properly apply the stratified sample design and project the results to the sample universe.
We recommend that the Under Secretary of Defense
(Comptroller)/Chief Financial Officer, DoD, review improper
payment risk assessments, sampling plans, and input to the
DoD Agency Financial Report for conditions cited in this report.
In addition, we recommend he coordinate with OMB to obtain
guidance on the testing and reporting requirements of fraudulent
payments or indicators of potentially fraudulent payments.
Management Comments and Our Response
Comments from the Deputy Chief Financial Officer, DoD, and
the Director, Business Support Directorate, DHA, addressed all
specifics of the recommendations except for Recommendation 1.b.
We request the Director, DHA, reconsider Recommendation 1.b
and provide additional comments to this report.
This report is a result of Project No. D2014-D000CJ-0105.000.