oversight

Audit of the Federal Employees Dental and Vision Insurance Program as Administered by the Government Employees Health Association, Inc. For Contract Years 2010 through 2013

Published by the Office of Personnel Management, Office of Inspector General on 2015-11-16.

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

        U.S. OFFICE OF PERSONNEL MANAGEMENT
           OFFICE OF THE INSPECTOR GENERAL
                    OFFICE OF AUDITS




Audit of the Federal Employees Dental and Vision Insurance
              Program as Administered by the
     Government Employees Health Association, Inc.
           For Contract Years 2010 through 2013

                                          Report Number 1J-0E-00-15-016
                                               November 16, 2015




                                                              -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
             EXECUTIVE SUMMARY
                Audit of the Federal Employees Dental and Vision Insurance Program
               As Administered by the Government Employees Health Association, Inc.
Report No. 1J-0E-00-15-016                                                                     November 16, 2015




Why Did We Conduct the Audit?            What Did We Find?

The main objective of the audit was to   The audit identified one procedural finding related to claim benefit
determine if the cost charged and        payment recoveries.
services provided to the Federal
Employees Dental and Vision              Specifically, our review determined that the Plan had overstated its
Insurance Program members were in        overpayment recoveries by $2,678.
accordance with the terms of Contract
Number OPM-06-00060-4 and Federal
regulations.

What Did We Audit?

The Office of the Inspector General
has completed a performance audit
that included a review of the
Government Employees Health
Association, Inc.’s (Plan)
administrative expenses, cash
management, claim benefit payments,
performance guarantees, and rate
proposals. Our audit was conducted
from January 12 through 23, 2015, at
the Plan’s offices in Lee’s Summit,
Missouri.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                      i
                   ABBREVIATIONS

5 CFR 894   Title 5, Code of Federal Regulations, Part 894
Act         The Federal Employee Dental and Vision Benefits Enhancement Act
            of 2004
AAS         Annual Accounting Statement
CC          Cost Center
Contract    Contract Number OPM-06-00060-4
CY          Contract Year
FAR         Federal Acquisition Regulation
FEDVIP      Federal Employees Dental and Vision Insurance Program
GL          General Ledger
HIO         Healthcare and Insurance Office
IBNR        Incurred But Not Reported
NA          Natural Account
OIG         Office of the Inspector General
OPM         U.S. Office of Personnel Management
Plan        Government Employees Health Association, Inc.




                                 ii
IV. MAJOR CONTRIBUTORS  TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                      Page 

       EXECUTIVE SUMMARY ......................................................................................... i 


       ABBREVIATIONS ..................................................................................................... ii 


I.     BACKGROUND ..........................................................................................................1 


II.    OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................2 


III.   AUDIT FINDINGS AND RECOMMENDATIONS.................................................7


       A. ADMINISTRATIVE EXPENSE REVIEW ............................................................7 


       B. CASH MANAGEMENT REVIEW ........................................................................7 


       C. CLAIM BENEFIT PAYMENTS REVIEW ............................................................7 

          1. Misreported Claim Recovery .............................................................................7 


       D. PERFORMANCE GUARANTEES REVIEW ........................................................8 


       E. RATE PROPOSAL REVIEW .................................................................................8 


IV.    MAJOR CONTRIBUTORS TO THIS REPORT ....................................................9 


       APPENDIX (Government Employees Health Association, Inc.’s Draft Report
       Response, dated June 4, 2015.)

       REPORT FRAUD, WASTE, AND MISMANAGEMENT
 IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                        TO THIS REPORT

This report details the results of our audit of the Federal Employees Dental and Vision Insurance
Program (FEDVIP) as administered by the Government Employees Health Association, Inc.
(Plan) for contract years (CYs) 2010 through 2013. The audit was performed by the U.S. Office
of Personnel Management’s (OPM) Office of the Inspector General (OIG), as authorized by the
Inspector General Act of 1978, as amended.

The FEDVIP was created on December 23, 2004 by the Federal Employees Dental and Vision
Benefits Enhancement Act of 2004 (Act). The Act provided for the establishment of programs
under which supplemental dental and vision benefits are made available to Federal employees,
retirees, and their dependents.

OPM has overall responsibility to maintain the FEDVIP website, act as a liaison and facilitate
the promotion of the FEDVIP through Federal agencies, be responsive on a timely basis to the
carriers’ requests for information and assistance, and perform functions typically associated with
insurance commissions such as the review and approval of rates, forms, and education materials.

OPM’s Contracting Office contracts with the Plan to administer the FEDVIP, which provides
dental coverage to Federal beneficiaries. The Plan’s responsibilities under Contract Number
OPM-06-00060-4 (Contract) are carried out at its offices located in Lee’s Summit, Missouri.
Section I.11 of the Contract includes a provision, Inspection of Services – Fixed Price, which
allows for audits of the program’s operations. Compliance with the laws and regulations
applicable to the FEDVIP, including establishing and maintaining a system of internal controls,
is the responsibility of the Plan’s management.

Our previous audit of the Plan’s administration of the FEDVIP (Report No. 1B-31-00-10-006
dated September 27, 2010), covered claim benefit payments, administrative expenses, premiums,
cash management activities, Health Insurance Portability and Accountability Act compliance,
fraud and abuse policies and procedures, and subcontracts for contract years 2007 and 2008. The
audit found that the Plan properly administered the program in accordance with the Contract and
Title 5, Code of Federal Regulations, Part 894 (5 CFR Part 894).

The initial results of our current audit were discussed with the Plan during an exit conference on
January 22, 2015. A draft report was provided to the Plan for review and comment on
May 5, 2015. The Plan’s response to the draft report was considered in preparation of this final
report and is included as an Appendix.




                                                 1                           Report No. 1J-0E-00-15-016
 IV. MAJOR CONTRIBUTORS
 II. OBJECTIVES, SCOPE, AND TO THIS REPORT
                            METHODOLOGY

Objective
The main objective of the audit was to determine if the costs charged and services provided to
the FEDVIP members were in accordance with the terms of the Contract and Federal regulations.

Specifically, our audit objectives were:

   Administrative Expense Review
    To determine if expenses exceeded the contractual administrative expense loading.
    To determine if the Plan’s Cost Centers (CC), Natural Accounts (NA), and direct expense
      out-of-system adjustments were allowable, allocable and reasonable.
   	 To determine if the Plan’s administrative expenses were actual, allocable, reasonable, and
      allowable in compliance with the Contract and Subpart 31.2 of the Federal Acquisition
      Regulations (FAR).
   	 To determine if the amount paid to any subcontractors was greater than the reporting
      threshold identified in Section I.28 of the Contract.

   Cash Management Review
    To determine if the cash reported as received by the Plan reconciled to the amount
      transferred to it by BENEFEDS.
    To determine if the premium rates listed in the Plan’s benefit brochures were the rates
      approved by OPM.
    To determine if premiums earned, as reported in the Plan’s Annual Accounting
      Statements (AAS), reconciled to monthly premium invoices generated by the Plan.
    To determine if premiums received, as documented by the Plan, reconciled to its bank
      statements and reports prepared by BENEFEDS.
    To determine if claim disbursements, reported in the Plan’s AAS, reconciled to the Plan’s
      bank statements and operational claims reports.
    To determine if the Incurred but Not Reported (IBNR) claims from the Plan’s financial
      statements reconciled to the amounts reported in its general ledger (GL).

   Claim Benefit Payments Review
   	 To determine if the claims/benefits paid reported in the Plan’s AAS reconciled to the
      amount reported on its claims system.
    To determine if the Plan paid claims in accordance with the terms of the Contract.
    To determine if claim overpayment recoveries and fraud recoveries were processed
      correctly in the Plan’s claims system and reported to OPM in its AAS.



                                               2	                         Report No. 1J-0E-00-15-016
   Performance Guarantees Review
   	 To determine if the Plan’s performance results reported to OPM reconciled, were 

      accurate, and supported using the appropriate measuring methods and source 

      documentation. 


   Rate Proposal Review
   	 To determine if information reported to OPM as part of the annual rate renewal process
      was accurate and supported.

Scope and Methodology
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient and appropriate evidence to provide a reasonable basis for our findings and
conclusions based on the audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on the audit objectives.

This performance audit included reviews of administrative expenses, cash management, claim
benefit payments, performance guarantees, and rate proposals for CY’s 2010 through 2013. The
audit fieldwork was conducted at the Plan’s office in Lee’s Summit, Missouri, from January 12
through 23, 2015. Additional audit work was completed at our Cranberry Township,
Pennsylvania, and Washington, D.C. offices.

The Plan reported the following premium income earned, claims incurred, expenses paid, and
profit received for CY’s 2010 through 2013:

                         Earned             Claims
                                                              Expenses            Profit
                        Premiums           Incurred
        2010
        2011
        2012
        2013
        Total

In planning and conducting the audit, we obtained an understanding of the Plan’s internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
determined to be the most effective approach to select areas of audit. For those areas selected,
we primarily relied on substantive tests of transactions and not tests of controls. Additionally,
since our audit would not necessarily disclose all significant matters in the internal control
structure, we do not express an opinion on the Plan’s system of internal controls taken as a
whole.


                                                3	                          Report No. 1J-0E-00-15-016
We also conducted tests of accounting records and such other auditing procedures as we
considered necessary to determine compliance with the contract and 5 CFR 894. Exceptions
noted in the areas reviewed are set forth in the “Audit Findings and Recommendations” section
of this report. With respect to the items not tested, nothing came to our attention that caused us
to believe that the Plan had not complied, in all material respects, with those provisions.

In conducting the audit, we relied to varying degrees on computer-generated data provided by
the Plan. Due to the time constraints, we did not verify the reliability of the data generated by
the various information systems involved. However, while utilizing the computer-generated data
during our audit, nothing came to our attention to cause us to doubt its reliability. We believe
that the data was sufficient to achieve our audit objectives.

To determine whether the costs charged and services provided to the FEDVIP members were in
accordance with the terms of the Contract and Federal regulations, we performed the following
steps for CY’s 2010 through 2013 (unless otherwise stated):

   Administrative Expense Review
   	 We reconciled the total expenses reported in the Plan’s AAS to the GL for each CY to
      determine if the reported expenses exceeded the contractual administrative expense
      loading.

   	 We reviewed all of the Plan’s cost centers, cost pool descriptions, and natural accounts to
      determine if the description, function, and activity of each cost center, cost pool, and
      natural account indicated whether its charges were allowable, allocable, and reasonable in
      accordance with Subpart 31.2 of the FAR and the Contract.

   	 From CY 2013 unallocated expense natural accounts with an increase of $50,000 or more
      from the prior CY (7 natural accounts totaling $3,879,265, from a universe of 21 natural
      accounts totaling $5,119,546) we judgmentally selected a sample of 46 transactions
      totaling $1,304,837, from a universe of 840 transactions totaling $3,879,265, from the
      Plan’s GL and reconciled the transactions to supporting documentation to determine if
      they were in compliance with FAR 31.2. Specifically, we selected:
           42 transactions, totaling $1,298,523, greater than $1,500 from the month with the
              most expenses from 6 natural accounts; and
           4 transactions, totaling $6,314, greater than $1,000 from the month with the most
              expenses from 1 natural account.

   	 We reviewed a list of all subcontracts and amounts paid to determine if the amounts paid
      exceeded the threshold set forth in the Contract for notification to and approval from
      OPM.


                                                 4	                           Report No. 1J-0E-00-15-016
Cash Management Review
	 We reconciled the Plan’s schedule of FEDVIP cash activities to BENEFEDS schedule of
   cash transferred to it to determine if there were any variances.

	 We reconciled the premium rates listed in the Plan’s benefit brochures to the rates
   approved by OPM’s Office of Actuaries to determine if there were any variances.

	 We judgmentally selected two CYs (2012 and 2013) totaling $                , from a
   universe of 4 CYs totaling $             , with the highest premiums earned, to determine
   if premiums earned in the Plan’s enrollment system reconciled to the premiums earned as
   reported on its AAS. We further reviewed the month with the highest premiums earned
   from each of those years, 2 months totaling $44,317,298, from a universe of 24 months
   totaling $            , to verify enrollment and premiums earned calculations.

	 We judgmentally selected a sample of 20 premium received transactions totaling
   $88,083,329, from a universe of 215 transactions totaling $851,913,600 (all transactions
   from the month with the highest dollar amount of premiums received), reported in the
   Plan’s schedule of cash activity to determine if the premiums received reconciled to the
   bank statements and Aggregate Funds Transfer Summary reports.

	 We judgmentally selected a sample of 24 paid claim disbursement transactions totaling
   $10,976,208, from a universe of 2,229 transactions totaling $686,099,165 (based on the
   top three high dollar paid claim disbursements for the FEDVIP high and standard option
   from the month with the highest total paid claim disbursements in each CY), to determine
   if they reconcile to the claims batch reports from the Plan’s accounting system.

	 We reviewed a summary of how the Plan accounts for IBNR claims and reconciled the
   IBNR amounts reported in its financial statements with the GL to determine if there were
   any variances.

Claim Benefit Payments Review
	 For each CY, we reconciled the claim benefits paid, as reported in the Plan’s AAS, to the
   schedule of paid claims in its financial system.

	 From CY 2013, we judgmentally selected a sample of 120 claims totaling $135,651, from
   a universe of 3,645,685 claims totaling $197,311,572, and reconciled the claims data to
   appropriate support documentation to determine if the claims were paid in accordance
   with the terms of the Contract. Specifically, we selected the 15 highest dollar claims
   from each quarter from both the high and standard options.




                                            5	                          Report No. 1J-0E-00-15-016
   	 We judgmentally selected a sample of 40 claim overpayment recoveries totaling
      $102,510, from a universe of 19,030 claim recoveries totaling $3,578,873, and reviewed
      supporting documentation to determine if the claim overpayment recoveries were
      processed correctly and reported to OPM in the Plan’s AAS. Specifically, we selected
      the 40 highest dollar overpayment claims in which the amount had been fully recovered.
      (Note: The Plan did not report any fraud related recoveries.)

   Performance Guarantees Review
   	 From CY 2013, we judgmentally selected the 2 performance standards with the highest
      percentage performance ratings and the 2 performance standards with the lowest
      percentage (4 performance standards in total were selected from a universe of 12) to trace
      back to supporting documentation and determine if the Plan accurately reported the
      performance measures.

   Rate Proposal Review
   	 We reviewed the Plan’s 2012 and 2013 rate proposals by tracing the enrollment and
      claims information back to supporting documentation for both the high and standard
      options.

The samples mentioned above, that were selected and reviewed in performing the audit, were not
statistically based. Consequently, the results could not be projected to the universe since it is
unlikely that the results are representative of the universe taken as a whole.




                                                6	                          Report No. 1J-0E-00-15-016
     IV. AUDIT
   III.   MAJOR  CONTRIBUTORS
               FINDINGS       TO THIS REPORT
                        AND RECOMMENDATIONS

A. ADMINISTRATIVE EXPENSE REVIEW

    The results of our review showed that the Plan had sufficient policies and procedures in place to
    ensure that the expenses charged to the FEDVIP were in accordance with the Contract and
    Subpart 31.2 of the FAR.

B. CASH MANAGMENT REVIEW

    The results of our review showed that the Plan had sufficient policies and procedures in place to
    ensure that premiums earned and received, and claim payments, were properly accounted for and
    reported to OPM.

C. CLAIM BENEFIT PAYMENTS REVIEW

    1. Misreported Claim Recovery                                                         Procedural

       The Plan misreported a $2,678 claim overpayment as being recovered for CY 2010.

       Section K.9(a)(1) of the Contract, requires the Plan to submit an AAS that summarizes the
       financial results of the contract for the previous fiscal year.

The Plan incorrectly    Additionally, Section K.9(c) of the Contract requires the Chief Executive
    presumed a          Officer and Chief Financial Officer to certify that “Income, overpayments,
    terminated          refunds and other credits made or owed in accordance with the terms of the
member’s FEDVIP         contract and applicable cost principles have been included in the statement.”
   coverage was 

    reinstated.
       We performed a review of the claim overpayment recoveries to determine if
       they were processed correctly in the Plan’s claims system. Our review identified one claim
       overpayment that was entered in the system as being collected when it was not.

       The Plan stated that the overpayment was incorrectly reported as collected because it
       received notification that the member’s coverage was reinstated. After an additional review
       of the member’s benefits, it was determined that only the medical portion of coverage was
       reinstated and not the FEDVIP coverage. Once we notified the Plan of this issue, it
       reinitiated the overpayment recovery process and sent a recovery letter to the provider in
       January 2015.




                                                7                               Report No. 1J-0E-00-15-016
     As a result of the Plan not verifying the reinstatement of this member’s coverage before
     considering the claim overpayment as being recovered, the recovery process was delayed and
     the financial information provided by the Plan to OPM was inaccurate.

     Recommendation 1

     We recommend that the contracting office ensure that the Plan has updated its policies and
     procedures for overpayment recoveries to include a review of changes in coverage before
     initiating or ending recovery efforts.

     Plan’s Response:

     The Plan agrees with our finding and stated that it has updated its procedures to include a
     review of changes in coverage prior to initiating or ending recoveries.

D. PERFORMANCE GUARANTEES REVIEW

  The results of our review showed that the Plan had sufficient policies and procedures in place to
  ensure that performance guarantees reported to OPM were accurate.

E. RATE PROPOSAL REVIEW

  The results of our review showed that the Plan had sufficient policies and procedures in place to
  ensure that claims and enrollment data reported to OPM as part of the annual rate proposal
  process was accurate.




                                                  8                           Report No. 1J-0E-00-15-016
 IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

              , Auditor-In-Charge

              , Auditor

                , Auditor




                  , Group Chief,              


            , Group Chief,                


                 , Senior Team Leader 





                                          9       Report No. 1J-0E-00-15-016
                                                                                      APPENDIX




June 4, 2015




Group Chief
Special Audits Group

             :

Attached please find GEHA’s response to draft Report No. 1J-0E-00-15-016 issued on
May 5, 2015.

We believe all findings are resolved with this additional information. If further information is
required please let us know and we will respond as promptly as possible.


If you have any questions, please contact me at                  ,            @geha.com. 


Regards, 





                   – Internal Audit
Government Employees Health Association, Inc.


Cc:
Julie Browne, President & CEO
                   , Senior Team Leader Office of the Inspector General - Special Audits Group
                     , Health Benefits and Contract Specialist Office of Personnel Management




Government Employees Health Association, Inc.
310 NE Mulberry Street • Lee’s Summit, MO 64086
Telephone (800) 821-4742
www.geha.com                                                                  Report No. 1J-0E-00-15-016
                                       Deleted by OIG 

                                 Not Relevant to Final Report 


Recommendation
We recommend that the contracting officer direct GEHA to updates its policies and procedures
for overpayment recoveries to include a review of changes in coverage before initiating or
ending recoveries.

GEHA Response
We agree with this recommendation. Employees are trained to review changes in coverage
before initiating or ending recoveries; however, our procedure manual did not include this detail.
We have reviewed this requirement with staff and the desk level procedures (DLP) have been
updated to include reviewing coverage prior to initiating or ending recoveries.

                                       Deleted by OIG 

                                 Not Relevant to Final Report 





                                                                           Report No. 3A-CF-00-14-048
                                                                                                                         



                                       Report Fraud, Waste, and 

                                           Mismanagement 

                                                  Fraud, waste, and mismanagement in
                                               Government concerns everyone: Office of
                                                   the Inspector General staff, agency
                                                employees, and the general public. We
                                              actively solicit allegations of any inefficient
                                                    and wasteful practices, fraud, and
                                               mismanagement related to OPM programs
                                              and operations. You can report allegations
                                                          to us in several ways:


                        By Internet:               http://www.opm.gov/our-inspector-general/hotline-to-
                                                   report-fraud-waste-or-abuse


                         By Phone:                 Toll Free Number:                              (877) 499-7295
                                                   Washington Metro Area:                         (202) 606-2423


                           By Mail:                Office of the Inspector General
                                                   U.S. Office of Personnel Management
                                                   1900 E Street, NW
                                                   Room 6400
                                                   Washington, DC 20415-1100
                     
                                                                                                                         
                                                                                                                         




                                                             -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.

                                                                                                                   Report No. 1J-0E-00-15-016