oversight

FEDERAL EMPLOYEES' COMPENSATION ACT: Preliminary Observations on Fraud-Prevention Controls

Published by the Government Accountability Office on 2012-01-25.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States Government Accountability Office

GAO            Report to Congressional Committees




               FEDERAL
January 2012



               EMPLOYEES’
               COMPENSATION ACT

               Preliminary
               Observations on
               Fraud-Prevention
               Controls




GAO-12-402
Contents


Letter                                                                                                1
           Results in Brief                                                                          3
           Background                                                                                4
           Observations from Preliminary Work Identify Promising Practices
             and Potential Vulnerabilities                                                           7
           GAO’s Plans to Further Assess Controls and Perform Data Analysis
             as Part of Ongoing Work                                                                 16
           Agency Comments and Our Evaluation                                                        17


Figure
           Figure 1: FECA Claims Process                                                             5




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           Page i                                   GAO-12-402 Federal Employees' Compensation Act
United States Government Accountability Office
Washington, DC 20548



                                   January 25, 2012

                                   Congressional Committees

                                   According to the Department of Labor (Labor), in fiscal year 2010 about
                                   251,000 federal and postal employees and their survivors received wage-
                                   loss compensation, medical and vocational rehabilitation services, and
                                   death benefits through the Federal Employees’ Compensation Act
                                   (FECA) program. Administered by Labor, the FECA program provides
                                   benefits to federal employees who sustained injuries or illnesses while
                                   performing their federal duties. Employees must submit claims to their
                                   employing agency, which are then reviewed by Labor. For those claims
                                   that are approved, employing agencies reimburse Labor for payments
                                   made to their employees, while Labor bears most of the program’s
                                   administrative costs. Wage-loss benefits for eligible workers—including
                                   those who are at, or older than, retirement age—with total disabilities are
                                   generally 66.67 percent of the worker’s salary (with no spouse or
                                   dependent) or 75 percent for a worker with a spouse or dependent. FECA
                                   wage-loss compensation benefits are tax free and not subject to time or
                                   age limits.

                                   Labor’s Office of Workers’ Compensation Programs (OWCP) estimated
                                   that future actuarial liabilities for governmentwide FECA compensation
                                   payments to those receiving benefits as of fiscal year 2011 would total
                                   nearly $30 billion (this amount does not include any costs for workers
                                   added to the FECA rolls in future years). In 2010, the United States
                                   Postal Service (USPS) Inspector General (IG) reported that USPS alone
                                   had more than $12 billion of the $30 billion in estimated actuarial FECA
                                   liabilities. In April 2011, the USPS IG testified that USPS had removed
                                   476 claimants from the program based on disability fraud since October
                                   2008 and recovered more than $83 million in judgments. Given the
                                   significant projected outlays of the governmentwide FECA program and
                                   prior USPS IG findings of fraud, you asked us to provide preliminary
                                   observations on our ongoing work examining FECA fraud-prevention
                                   controls and discuss related prior work conducted by us and other federal
                                   agencies. We will continue to review the identified issues and report more
                                   fully on our findings at a later date.




                                   Page 1                           GAO-12-402 Federal Employees' Compensation Act
To provide these preliminary observations on governmentwide FECA
fraud-prevention controls, we reviewed Labor’s annual performance and
accountability reports, the FECA procedures manual and internal
controls, OWCP’s accountability reviews, relevant agencies’ Office of
Inspector General reports, and applicable laws and regulations. We
interviewed officials at OWCP headquarters and officials responsible for
managing the FECA program at six federal agencies that employ FECA
claimants: USPS, United States Navy (Navy), Department of Veterans
Affairs (VA), United States Army (Army), Department of Homeland
Security (DHS), and United States Air Force (Air Force). We selected
these employing agencies because they had the highest total amount of
FECA expenditures in fiscal year 2010 among federal agencies.
Combined, these employing agencies represent 73 percent of total FECA
program future liabilities as of September 30, 2011. Because these
employing agencies are not representative of the entire FECA program,
our findings cannot be generalized beyond these six agencies. This
report’s findings are primarily based on document reviews and
discussions with agency officials. As such, we have not validated whether
controls discussed in this report are actually being consistently followed
or are effective. On November 9, 2011, we issued a statement for the
record to the Senate Committee on Homeland Security and
Governmental Affairs detailing our preliminary observations on FECA
fraud prevention controls. 1 We also discussed our key findings with
agency officials and incorporated their comments into the statement
where appropriate. Those findings and comments are included in this
report.

We conducted this portion of our ongoing performance audit from June
2011 through January 2012, in accordance with generally accepted
government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.




1
 GAO, Federal Employees’ Compensation Act: Preliminary Observations on Fraud-
Prevention Controls, GAO-12-212T (Washington, D.C.: Nov. 9, 2011).




Page 2                               GAO-12-402 Federal Employees' Compensation Act
                   Our work to this point has identified several promising practices that could
Results in Brief   help to reduce the risk of fraud within the FECA program. The promising
                   practices link back to fraud-prevention concepts contained in GAO’s
                   Fraud Prevention Framework and Standards for Internal Control in the
                   Federal Government, 2 and include agencies’ use of full-time staff
                   dedicated to the FECA program, periodic reviews of claimants’ continued
                   eligibility, data analysis for potential fraud indicators, and effective use of
                   investigative resources. These promising practices have already resulted
                   in successful investigations and prosecutions of FECA-related fraud at
                   some agencies, and could help to further enhance the program’s fraud-
                   prevention controls. However, our preliminary work has also identified
                   several potential vulnerabilities in the program’s design and controls that
                   could increase the risk for fraud. Specifically, we found that limited access
                   to necessary data is potentially reducing agencies’ ability to effectively
                   monitor claims and wage-loss information. In addition, agencies’ reliance
                   on self-reported data related to wages and dependent status, lack of a
                   physician selected by the government throughout the process, and
                   difficulties associated with successful investigations and prosecutions all
                   potentially reduce the program’s ability to prevent and detect fraudulent
                   activity. Labor and employing agencies generally agreed with the
                   preliminary findings presented in this report and provided technical
                   comments, which were incorporated into this report. We plan to follow up
                   on the promising practices and potential vulnerabilities as part of our
                   ongoing work, although our progress has been slowed by difficulties in
                   accessing certain databases.




                   2
                    GAO, Hurricanes Katrina and Rita Disaster Relief: Prevention Is Key to Minimizing Fraud,
                   Waste, and Abuse in Recovery Efforts, GAO-07-418T (Washington, D.C.: Jan. 29, 2007);
                   and Internal Control: Standards for Internal Control in the Federal Government,
                   GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).




                   Page 3                                  GAO-12-402 Federal Employees' Compensation Act
             The FECA program covers over 2.7 million civilian federal and postal
Background   employees in more than 70 agencies, providing wage-loss compensation
             and payments for medical treatment to employees injured while
             performing their federal duties. 3 FECA claims are initially received at the
             employing agency, then forwarded to Labor’s OWCP where eligibility and
             payment decisions are made. Every year, employing agencies reimburse
             OWCP for the amounts paid to their employees in FECA compensation
             during the previous year. Certain government corporations and USPS
             also make payments to Labor for program administrative fees. 4 Figure 1
             displays the standard process for FECA claims reviews and payments by
             OWCP.




             5 U.S.C. §8101, et seq.
             3


             4
              Mixed-ownership government corporations such as the Federal Deposit Insurance
             Corporation are required to provide additional funds to cover their share of the costs of
             administering the program for their employees. See 5 U.S.C. §8147(c).




             Page 4                                   GAO-12-402 Federal Employees' Compensation Act
Figure 1: FECA Claims Process




                                Page 5   GAO-12-402 Federal Employees' Compensation Act
OWCP is the central point where FECA claims are processed and
eligibility and benefit decisions are made. Claims examiners at OWCP’s
12 FECA district offices determine applicants’ eligibility for FECA benefits
and process claims for wage-loss payments. FECA laws and regulations
specify complex criteria for computing compensation payments. Using
information provided by the employing agency and the claimant on a
claims form, OWCP calculates compensation based on a number of
factors, including the claimant’s rate of pay, the claimant’s marital status,
and whether or not the claimant has dependents. In addition, claimants
cannot receive FECA benefits at the same time they receive certain other
federal disability or retirement benefits, or must have benefits reduced to
eliminate duplicate payments. For example, Social Security
Administration (SSA) disability benefits are reduced if an individual is also
receiving FECA payments.

According to OWCP officials, initial claims received from employing
agencies are reviewed to assess the existence of key elements. The
elements include evidence that the claim was filed within FECA’s
statutory time requirements, that the employee was, at the time of injury,
disease, or death, an employee of the United States, and that the
employee was injured while on duty, and that the condition resulted from
the work-related injury. If the key elements are in place, OWCP will
approve a claim and begin processing reimbursements for medical costs.
After initial claim approval, additional reviews are done while a claim
remains active if the claim exceeds certain dollar thresholds. Once a
claim is approved, payments are sent directly to the claimant or provider.
An employee can continue to receive compensation for as long as
medical evidence shows that the employee is totally or partially disabled
and that the disability is related to the accepted injury or condition. OWCP
considers claimants who are not expected to return to work within 3
months to be on its periodic rolls for payment purposes. 5 OWCP officials
review medical evidence annually for claimants on total disability
receiving long-term compensation who are on the program’s periodic
rolls, and every 3 years for claimants on the periodic rolls who have been
determined to not have any wage-earning capacity. Claimants are also
required to submit an annual form (CA-1032) stating whether their income
or dependent status has changed. The form must be signed to



5
 Employees on the periodic rolls have total disabilities or injuries that have lasted or are
expected to last for prolonged periods.




Page 6                                    GAO-12-402 Federal Employees' Compensation Act
                            acknowledge evidence of benefit eligibility and to acknowledge that
                            criminal prosecution may result if deliberate falsehood is provided. If
                            questions arise about medical evidence submitted by the claimant,
                            OWCP can request a second medical examination be performed by a
                            physician of its choosing.


                            Our preliminary observations indicate that employing agencies and Labor
Observations from           have instituted some promising practices that may help reduce fraudulent
Preliminary Work            FECA claims, yet potential vulnerabilities continue to exist. We plan to
                            determine the effect of these practices in our future work. GAO’s
Identify Promising          Framework for Fraud Prevention, Detection, and Prosecution, developed
Practices and               during previous program audits, emphasizes that comprehensive controls
                            are necessary to minimize fraud, waste, and abuse within any federal
Potential                   program, including FECA. 6 GAO’s Standards for Internal Control in the
Vulnerabilities             Federal Government 7 also outlines key control practices that are integral
                            parts of an effective control environment. The promising practices and
                            potential vulnerabilities below relate to issues raised in these guidelines.


Promising Practices         We have identified several promising practices that employing agencies
                            and Labor have implemented that may help to reduce fraudulent FECA
                            claims. We are planning to look further into these practices as part of our
                            ongoing work.

Dedicated Full-Time Staff   Three employing agencies informed us that they employed dedicated,
                            full-time FECA program staff including injury compensation specialists
                            and other staff, which, according to officials, helps staff gain program
                            knowledge and expertise. It also allows program staff to specialize in
                            FECA claims and reviews without having to perform additional duties.
                            Agencies with full time staff may be able to dedicate resources to training
                            them in fraud prevention, which is a positive practice noted in GAO’s
                            fraud-prevention framework. GAO’s Standards for Internal Control in the
                            Federal Government 8 also specifically mentions that appropriate,
                            competent personnel are a key element to an effective control



                            6
                            GAO-07-418T.
                            7
                            GAO/AIMD-00-21.3.1.
                            8
                            GAO/AIMD-00-21.3.1.




                            Page 7                            GAO-12-402 Federal Employees' Compensation Act
                   environment. Officials from one employing agency with this structure
                   stated that having dedicated and experienced FECA staff allows them to
                   conduct more aggressive monitoring of long-term workers’ compensation
                   cases. Labor officials agreed that agencies that can devote dedicated full
                   time resources are positioned better to manage the program. Examples
                   include the following:

                   •   FECA staff in one Navy region reported having an average of 15
                       years of program experience, which they said helps them to identify
                       specific indicators of potential fraud.
                   •   According to the Air Force, it has specific teams that specialize in
                       reviewing FECA claims at different phases of the claims process.
                   •   USPS officials also stated they assign staff full time to manage FECA
                       cases.
                   In addition, in 2008, we recommended that the Secretary of Labor direct
                   OWCP to take steps to focus attention on the recovery of FECA
                   overpayments, such as determining whether having fiscal staff dedicated
                   to recovering overpayments would increase its recovery. 9 Labor stated
                   that it carefully evaluated having fiscal staff dedicated to recovering
                   overpayments. However, given the integral involvement of claims
                   examiners in overpayment processing, the unavailability of fiscal staff to
                   undertake this specialized activity, and expected continued budget
                   constraints, Labor believes that keeping this function with claims
                   examiners is the most cost-effective debt-collection strategy.

Periodic Reviews   Officials at five employing agencies and Labor have instituted periodic
                   reviews of active FECA claims, which may improve overall program
                   controls. Specifically, several agencies reported that annual reviews of
                   FECA case files were used to help increase program officials’ awareness
                   of potential fraudulent activities. These controls fall within the detection
                   and monitoring component of GAO’s fraud-prevention framework and
                   could help to validate claimants’ stated medical conditions, income
                   information, and dependent information. GAO’s Standards for Internal
                   Control in the Federal Government also states that monitoring activities,
                   such as comparisons of different data sets to one another, can help to
                   encourage continued compliance with applicable laws and regulations.



                   9
                    GAO, Federal Workers’ Compensation: Better Data and Management Strategies Would
                   Strengthen Efforts to Prevent and Address Improper Payments, GAO-08-284
                   (Washington, D.C.: Feb. 26, 2008).




                   Page 8                              GAO-12-402 Federal Employees' Compensation Act
                Agency officials stated that these types of reviews assist with identifying
                claimants who are not eligible to continue to receive FECA benefits.
                According to agency staff:

                •    Labor requires long-term claimants to submit updated claim
                     documentation about wages earned and dependent status for annual
                     reviews. While much of the information provided on the CA-1032 is
                     self-reported, the requirement for annual submissions can help
                     identify necessary changes to benefits. In addition, Labor officials
                     stated they also perform regular medical-claim reviews depending on
                     the status of a case.
                •    Staff at one Navy regional office send annual questionnaires to
                     claimants to determine if information, including income and dependent
                     status, is consistent with annual documentation submitted to Labor.
                •    A DHS component agency sends periodic letters to claimants asking
                     about their current status. If DHS determines that action should be
                     taken, DHS then sends a letter to Labor requesting the claim be
                     closed.
                •    Under DOD policies, Air Force, Army, and Navy staff are required to
                     conduct an annual review of selected long-term claim files and
                     medical documentation to determine whether claimants are receiving
                     compensation benefits they are entitled to and identify claimants who
                     are fit to return to work.
                •    The Air Force has developed quarterly working groups to review all
                     paid compensation benefits.
                •    USPS performs periodic reviews of claimant data. USPS IG officials
                     identified a claimant who fraudulently claimed $190,000 in mileage
                     reimbursements for travel to therapy almost every day for 5 years,
                     including weekends and holidays. 10


Data Analysis   Officials from employing agencies and Labor stated that their program
                staff conducted data analysis, such as comparisons of mileage claims to
                medical bills, to verify information submitted by claimants. Agencies also
                reported using available data sources to verify whether claimants should
                continue to receive FECA benefits. Similar to the periodic reviews
                previously discussed, these controls fall within the monitoring component
                of GAO’s fraud-prevention framework and could help to validate
                claimants’ self-reported income and medical-condition information. Data


                10
                 United States Postal Service, Office of the Inspector General, Postal Service Workers’
                Compensation Program Audit Report, HR-AR-11-007 (Washington, D.C.: Sept 30, 2011).




                Page 9                                 GAO-12-402 Federal Employees' Compensation Act
                              sources reviewed ranged from federal agency data to other publicly
                              available information. Agencies also conduct reviews of claimant
                              physician and prescription drug payments to identify fraud. Specifically,
                              according to agency officials:

                              •   Labor gives each employing agency access to its Agency Query
                                  System (AQS), which allows agencies to electronically review
                                  information on FECA claims, including current claims status, wage-
                                  compensation payment details, and medical-reimbursement details.
                              •   Labor officials also stated they provide at least quarterly, and for some
                                  employing agencies weekly, extracts from their data system that give
                                  employing agencies information on wage-compensation payments,
                                  medical-billing payments, and case-management data.
                              •   The Navy reviews pharmacy bills, medical-diagnosis codes, and
                                  mileage-reimbursement details from the AQS system on a case-by-
                                  case basis to determine whether physician claims are related to the
                                  injury sustained by the claimant and to identify whether mileage for
                                  physician visits was reimbursed on days when the claimant did not
                                  visit a physician.
                              •   Navy officials use publicly available state government information to
                                  identify claimants who owned and received income from their own
                                  businesses. For example, one public records search found that a
                                  FECA claimant was an active owner of a gentleman’s club while he
                                  was fraudulently receiving FECA wage-loss benefits.
                              •   Officials from employing agencies and Labor stated that they
                                  reviewed SSA’s Death Master File periodically to identify benefits
                                  erroneously dispersed to deceased individuals’ survivors. Specifically,
                                  Labor said it conducts monthly data matches with SSA’s Death
                                  Master File records and plans to revise the forms used in survivors’
                                  claims to gather Social Security numbers for survivors and
                                  beneficiaries, enabling Labor to match all FECA payees with SSA
                                  death records.
                              •   VA has developed a process that allows the agency to track
                                  prescription drug usage claims and identify anomalies.


Agency Utilization of         Four employing agencies reported that using investigative resources by
Investigative Resources and   investigating potential fraud cases helped to increase program controls.
Prosecutions                  The Navy FECA component has assigned responsibilities to staff that
                              investigate and help prosecute fraudulent FECA claims, while the Air
                              Force has designated staff that refers allegations to its Office of Special
                              Investigations. USPS program officials reported that they refer potential
                              fraud cases internally to USPS IG officials for investigation and
                              prosecution. The investigation and effective prosecution of claimants



                              Page 10                           GAO-12-402 Federal Employees' Compensation Act
                            fraudulently receiving benefits is a key element in GAO’s fraud-prevention
                            framework. While these activities are often the most costly and least
                            effective means of reducing fraud in a program, the deterrent value of
                            prosecuting those who commit fraud sends the message that fraudulent
                            claims will not be tolerated. Examples of the effective integration of
                            investigative resources provided by these employing agencies include the
                            following:

                            •   The Air Force discussed its plan to hire staff in early fiscal year 2012
                                to conduct background investigations and surveillance of claimants to
                                determine whether they are entitled to receive FECA benefits.
                            •   The USPS IG reported that since October 2008 it identified and
                                facilitated terminating benefits for 476 claimants who were committing
                                workers’ compensation fraud, and recovered over $83 million in
                                medical and disability judgments.
                            •   Navy officials stated that their internal investigators’ work at one
                                region led to 10 convictions from 2007 to 2011 and an $8.6 million
                                cost-avoidance to the agency.
                                •   One individual received monthly workers’ compensation payments
                                    after falsely denying that he had outside employment and outside
                                    income while claiming total disability that prevented him from
                                    working. Interviews with former employers uncovered that this
                                    claimant had been employed and been paid over $100,000 per
                                    year while he was receiving benefits. This individual was
                                    sentenced to 18 months in prison, 3 years supervised probation,
                                    and $302,380 in restitution for making a false statement to obtain
                                    FECA benefits.
                                •   Another individual collected FECA benefits made out to his father
                                    for 4 years after his father was deceased. This individual was
                                    sentenced to 5 years of probation and full restitution in the amount
                                    of $53,410.
                            •   DHS officials within the Transportation Security Administration stated
                                they have successfully used an internal affairs unit consisting of seven
                                staff members to examine and respond to fraud, waste, and abuse
                                cases and make referrals to investigators. The investigators then
                                conduct video surveillance and examine data to find potential fraud.
                            •   A recent Labor IG testimony cited numerous Labor IG investigations
                                that have been conducted over the years focusing on FECA claimants
                                who work while continuing to receive benefits, and on medical or other
                                service providers who bill the program for services not rendered.

Potential Vulnerabilities   Our preliminary observations also identified potential vulnerabilities in the
                            FECA program fraud-prevention controls that could increase the risk of



                            Page 11                            GAO-12-402 Federal Employees' Compensation Act
                         claimants receiving benefits they are not entitled to. Again, we plan to
                         examine these potential vulnerabilities as part of our ongoing work.

Limited Access to Data   We found that management of the FECA program could be affected by
                         limited access to necessary data. Specifically, agency officials stated the
                         program lacked proper coordination among federal agencies and that
                         there was limited or no access to data sources that could help reduce
                         duplicate payments. For example, Labor does not have authority to
                         compare private or public wage data with FECA wage-loss compensation
                         information to identify potential fraud. This prevents agencies from
                         verifying key eligibility criteria submitted by claimants, such as income.
                         GAO’s fraud-prevention framework emphasizes effective monitoring of
                         continued compliance with program guidelines, and outlines how
                         validating information with external data can assist with this process.
                         Specific potential vulnerabilities identified in the area included the
                         following:

                         •     Program officials at Labor and the employing agencies do not have
                               access to payroll information included in the National Directory of New
                               Hires (NDNH) and federal employee payroll data, which could help
                               reduce duplicate payments by identifying unreported income. 11 In a
                               previous report, we recommended that Labor develop a proposal
                               seeking legislative authority to enter into a data-matching agreement
                               with the Department of Health and Human Services (HHS) to identify
                               FECA claimants who have earnings reported in the NDNH. 12
                               However, Labor officials stated that they investigated using NDNH
                               and communicated with HHS, but determined that this would not be
                               an effective solution due to cost issues, limited participation by
                               employers in the NDNH, and the likelihood that illegitimate earnings
                               would not be listed. As an alternative, Labor recently provided
                               testimony proposing legislative reforms to FECA that would enhance
                               its ability to assist FECA beneficiaries. As part of this reform, OWCP
                               sought authority to match Social Security wage data with FECA files.
                               OWCP currently is required to ask each individual recipient to sign a
                               voluntary release to obtain such wage information. According to
                               Labor, direct authority would allow automated screening to assess


                         11
                           NDNH is a national directory of employment information that contains, among other
                         data, quarterly wage data on individual employees and is maintained by the Department of
                         Health and Human Services (HHS).
                         12
                             GAO-08-284.




                         Page 12                                GAO-12-402 Federal Employees' Compensation Act
                                     whether claimants are receiving salary, pay, or remuneration
                                     prohibited by the statute or receiving an inappropriately high level of
                                     benefits. It would be important to assess whether access to Social
                                     Security wage data is an effective alternative to access to NDNH data,
                                     and we plan to assess this as part of our ongoing work.
                                 •   Navy and Air Force officials cited difficulty coordinating with VA to
                                     determine whether individuals are receiving disability benefits for the
                                     same conditions related to FECA claims. This information is key for
                                     employing agencies to assess whether claimants received duplicate
                                     benefits for the same injuries under both VA disability benefits and
                                     FECA benefits. VA commented that privacy concerns related to
                                     providing beneficiary data to external agencies has affected
                                     coordination.
                                 •   An employing agency official stated that Labor does not provide them
                                     with remote access to the claimant’s annual certification form CA-
                                     1032, which would be useful for their periodic review efforts. However,
                                     Labor does allow employing agency officials to view the CA-1032
                                     forms if the officials come to a Labor district office. The CA-1032 form
                                     contains information on a claimant’s income and dependent status,
                                     which is useful when employing agencies review claims files for
                                     continued eligibility. We raise this issue because, as stated above, the
                                     Navy utilizes information submitted to Labor as part of its periodic
                                     review efforts.
                                 •   A 2010 SSA IG audit found individuals receiving duplicate benefits for
                                     SSA and FECA. According to the SSA IG, development of a
                                     computer-matching agreement with Labor and its FECA payments
                                     database would allow SSA to reduce the number of duplicate SSA
                                     payments by verifying the accuracy of payment eligibility. According to
                                     the SSA IG report, the agreement has not been finalized with Labor
                                     due to changes in personnel at SSA.
Reliance on Self-Reported Data   Our preliminary observations identified program processes that relied
                                 heavily on data self-reported by claimants that is not always verified by
                                 agency officials. Not verifying information concerning wages earned and
                                 dependent status reported by claimants creates potential vulnerabilities
                                 within the program. For example, individuals who are working can self-
                                 certify that they have no other income, and continue to remain on the
                                 program while their statements are not verified. Prior reports by us and
                                 Labor’s IG have shown that relying on claimant-reported data could lead
                                 to overpayments. For example:




                                 Page 13                           GAO-12-402 Federal Employees' Compensation Act
                                •     A 2008 GAO report found that Labor relied on unverified, self-reported
                                      information from claimants that was not always timely or correct. 13
                                      Specifically, the annual CA-1032 forms submitted to Labor to
                                      determine whether a beneficiary is entitled to continue receiving
                                      benefits relies on statements made by the claimant that are not
                                      verified.
                                •     A 2007 Labor IG report also found that an OWCP district office did not
                                      consistently ensure that claimants returned their annual form CA-1032
                                      or adjust benefits when the information reported by claimants
                                      indicated a change in their eligibility. 14 Labor agreed with the findings
                                      of this report.
                                •     During fiscal year 2004, claimants and beneficiaries continued to
                                      receive compensation payments even though they had not provided
                                      required timely evidence of continuing eligibility.
                                •     In one case, the claimant’s augmented payment rate was not reduced
                                      even though the claimant reported that his spouse was no longer a
                                      dependent.
                                According to Labor officials, a new case-management system was
                                deployed after the Labor IG audit field work was conducted, which
                                addresses some of the issues raised in the Labor IG report.

Physicians Selected by the      Our preliminary observations found that FECA program regulations allow
Government Not Present at Key   claimants to select their own physician, and also requires examination by
Control Points                  a physician employed or selected by the government only when a second
                                opinion is deemed necessary by the government. We found this could
                                result in essential processes within the FECA program operating without
                                reviews by physicians selected by the government. This potential
                                vulnerability affects key control processes outlined in GAO’s fraud-
                                prevention framework in two areas: first, the lack of reviews when
                                assessing validity of initial claims and second, the lack of the same when
                                monitoring the duration of the injury. However, the addition of a
                                government physician into the process does not necessarily mitigate all
                                risks, and costs associated with additional medical reviews would need to
                                be considered. For example, there may be difficulties in successfully
                                obtaining information from physicians representing the government’s



                                13
                                    GAO-08-284.
                                14
                                  U.S. Department of Labor, Office of Inspector General -Office of Audit, Mechanisms
                                Used to Identify Changes in Eligibility Are Inadequate at the FECA District Office in
                                Jacksonville, Florida, 04-07-004-04-431 (Washington, D.C.: Sept. 28, 2007).




                                Page 14                                 GAO-12-402 Federal Employees' Compensation Act
                               interest. Specifically, a prior GAO report found challenges in obtaining
                               sound or thorough evidence from physicians approved by Labor in Black
                               Lung Benefits Program claims for miners. 15 Our report also noted that
                               physicians stated that guidance provided by Labor for effectively and
                               completely documenting their medical opinions was not clear, which
                               resulted in the challenges in providing useful information to Labor
                               concerning Black Lung claims. Details of this potential vulnerability
                               include the following:

                               •    Labor, not the claimant’s employing agency, determines if a second
                                    opinion is necessary. Employing-agency officials, including officials
                                    from DHS and USPS stated that there have been instances where
                                    Labor failed to respond to their requests to have a second-opinion
                                    examination performed at the employing agencies’ request even
                                    though the costs would be borne by their agencies. We did not verify
                                    these claims. Labor officials stated that its claims examiners are
                                    trained to review files and make the appropriate case-management
                                    decision on the need for a second opinion. In addition, they stated that
                                    resources associated with second opinions include significant time
                                    and effort for a claims examiner to review a file, document the need
                                    for a second opinion, and determine the specific issues to be
                                    reviewed by the physician. Finally, Labor officials noted that numerous
                                    requests by employing agencies for second opinions can put a strain
                                    on the limited number of physician staff it uses for these
                                    examinations.


Difficulties Associated with   Officials at multiple employing agencies covered in our work to date
Investigations and             stated that they faced difficulties successfully investigating and
Prosecutions                   prosecuting fraud. GAO’s fraud-prevention framework states that targeted
                               investigations and prosecutions, though costly and resource intensive,
                               can help deter future fraud and ultimately save money. We plan to follow
                               up with agency IG and United States Attorney officials to gain their
                               perspective on FECA fraud cases as part of our ongoing work. Details
                               offered by employing-agency program officials included the following:

                               •    Officials at DOD stated that their investigative units do not normally
                                    invest resources in FECA fraud cases because national defense,
                                    antiterrorism, and violent crimes cases are higher priorities.


                               15
                                 GAO, Black Lung Benefits Program: Administrative and Structural Changes Could
                               Improve Miners’ Ability to Pursue Claims, GAO-10-7 (Washington, D.C.: Oct. 30, 2009).




                               Page 15                                GAO-12-402 Federal Employees' Compensation Act
                        •     USPS officials also stated that, in their experience, limited resources
                              at United States Attorneys offices means that those attorneys will
                              often not prosecute cases with an alleged fraud of less than $100,000.
                              According to these officials, many of their strong allegations of fraud
                              and abuse fall below this amount when estimating the cost of fraud
                              that has already occurred.
                        •     In addition to the challenges noted above related to fraud
                              investigations, in 2008, we recommended that OWCP take steps to
                              focus attention on recovering FECA overpayments. Specifically, we
                              recommended considering reducing the dollar threshold for waiving
                              overpayments as OWCP’s overpayment processing data system
                              develops additional capabilities. With respect to reducing the waiver
                              threshold, Labor declined to consider reducing the dollar threshold
                              while their current processing data system was developing additional
                              capabilities to recover overpayments.

                        We plan to follow up on these promising practices and potential
GAO’s Plans to          weaknesses as part of our ongoing review of FECA fraud-prevention
Further Assess          controls. We will also determine whether duplication of benefits and other
                        problems within the FECA program may have contributed to specific
Controls and Perform    cases of fraud and abuse or other program vulnerabilities and develop
Data Analysis as Part   illustrative case studies as appropriate. To complete this work, we have
of Ongoing Work         attempted to obtain access to NDNH data. However, HHS has denied
                        access to the NDNH database because they assert that we do not have
                        authority to obtain NDNH data, despite the fact that we have a broad right
                        of access to all federal agency records. 16 HHS’ denial of access has
                        slowed the progress of this engagement reviewing federal beneficiary
                        fraud and abuse and has limited our ability to assess the potential
                        vulnerability of the FECA program to fraud and abuse at a national level.
                        Although we have been able to obtain some of the data from a number of
                        states, we have not received complete data from all states contacted.
                        Legislation that is currently pending in the House and Senate (H.R. 2146,
                        S. 237) would refute HHS’ erroneous interpretation of our statutory
                        access rights and would ensure that we have access to the NDNH and
                        can complete our congressionally requested work in a timely manner.

                        In addition to our fraud-prevention work in the FECA program, we are
                        conducting two other program-related engagements. Those engagements



                        16
                             31 U.S.C. § 716(a).




                        Page 16                            GAO-12-402 Federal Employees' Compensation Act
                     focus largely on issues related to retirement-age FECA beneficiaries. The
                     results of that work will also be reported separately.


                     On November 9, 2011, we issued a statement for the record to the
Agency Comments      Senate Committee on Homeland Security and Governmental Affairs
and Our Evaluation   detailing our preliminary observations on FECA fraud prevention
                     controls. 17 At that time, we discussed our key findings with Labor and
                     officials at the six employing agencies. Labor and the employing agencies
                     generally agreed with the preliminary findings and provided technical
                     comments, which were incorporated into the statement. Those findings
                     and associated technical comments are included in this report.


                     We are sending copies of this report to the Secretaries of Labor, Defense,
                     Homeland Security, Veterans Affairs, the Postmaster General, and
                     interested congressional committees. In addition, this report is also
                     available at no charge on the GAO website at http://www.gao.gov. If you
                     have any questions concerning this report, please contact Gregory D.
                     Kutz at (202) 512-6722 or kutzg@gao.gov. Contact points for our Offices
                     of Congressional Relations and Public Affairs may be found on the last
                     page of this report.




                     Gregory D. Kutz
                     Director
                     Forensic Audits and Investigative Service




                     17
                      GAO-12-212T.




                     Page 17                          GAO-12-402 Federal Employees' Compensation Act
           List of Congressional Committees

           The Honorable Susan M. Collins
           Ranking Member
           Committee on Homeland Security and Governmental Affairs
           United States Senate

           The Honorable Thomas R. Carper
           Chair
           Subcommittee on Federal Financial Management, Government
           Information, Federal Services, and International Security
           Committee on Homeland Security and Governmental Affairs
           United States Senate

           The Honorable Claire McCaskill
           Chair
           Subcommittee on Contracting Oversight
           Committee on Homeland Security and Governmental Affairs
           United States Senate

           The Honorable Tom Coburn
           Ranking Member
           Permanent Subcommittee on Investigations
           Committee on Homeland Security and Governmental Affairs
           United States Senate

           The Honorable Darrell Issa
           Chairman
           Committee on Oversight and Government Reform
           House of Representatives




(192407)
           Page 18                        GAO-12-402 Federal Employees' Compensation Act
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