Report | Jan. 14, 2015

DoD Methodologies to Identify Improper Payments in the Military Health Benefits and Commercial Pay Programs Need Improvement

DODIG-2015-068

Objective

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.

Finding

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.

Recommendations

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.