oversight

Audit of FEGLI - Metropolitan Life Insurance Company Oriskany, New York and Bridgewater, New Jersey

Published by the Office of Personnel Management, Office of Inspector General on 2010-07-20.

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




Final Audit Report
Subject:

Audit of the Federal Employee Group Life Insurance Program's

     Operations at Metropolitan Life Insurance Company

      Oriskany, New York and Bridgewater, New Jersey

                   Fiscal Years 2007 - 2008





                                            Report No. 2A-II-OO-09-065


                                                   Date:         July 20, 2010




                                                          --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, 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.
                     UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                       Washington, DC 20415


  Officeof the
Inspector General




                                     AUDIT REPORT





                        Federal Employee Group Life Insurance Program

                                     Contract No. 17000-G

                             Metropolitan Life Insurance Company

                        Oriskany, New York and Bridgewater, New Jersey



       REPORT NO. 2A-II-OO-09-065                              DATE: July 20, 2010




                                                        Michael R. Esser
                                                        Assistant Inspector General
                                                         for Audits




       www.opm.gov                                                                    www.usajobs.gov
                       UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                             Washington. DC 20415


   om ce of the
Inspector General




                                     EXECUTIVE SUMMARY





                           Federal Employee Group Life Insurance Program

                                        Contract No. 17000-G

                                Metropolitan Life Insurance Company

                           Oriskany, New York and Bridgewater, New Jersey



       REPORT NO. 2A-II-OO-09-065                                    DATE: July 20, 2010

      This report details the results of our audit of the Federal Employee Group Life Insurance
      Program (FEGLI) operations at Metropolitan Life Insurance Company (MetLife) in its Oriskany,
      New York, and Bridgewater, New Jersey offices. The audit covered claim benefit payments,
      administrative expenses, and cash management activities for fiscal years 2007 and 2008. We
      also reviewed MetLife's Fraud and Abuse program policies and procedures. The audit identified
      $708,518 in undercharges to the FEGLI program. The audit also showed that FEGLI cash and
      investment funds were commingled with MetLife's corporate cash and investment funds. Except
      for these findings, we determined that the Program was administered in accordance with
      Contract 17000-G (between OPM and MetLife) and the Federal regulations. Our audit issues are
      summarized below.

                                          CLAIM PAYMENTS

      Our review of the benefit payments paid by MetLife on behalf of FEG LI participants showed
      that the benefits were paid in accordance with Contract 17000-G as well as the applicable
      Federal regulations.

                       FRAUD AND ABUSE PREVENTION AND DETECTION

      Our review showed that MetLife had adequate policies and procedures in place to deter or detect
      incidence of insurance fraud and abuse in the FEGLI Program.



       www.opm.gov                                                                        www.usajobs.gov
                             ADMINISTRATIVE EXPENSES

Pension Expense
   •	 Our audit showed that the FEGLI was undercharged a total of $98,646 for pension
      expense in fiscal years 2007 and 2008.

Information Technolo2Y Expense
    •	 Our audit showed that the FEGLI was undercharged a total of $609,872 for information
       technology costs in fiscal year 2008.

                          CASH MANAGEMENT ACTIVITIES

Commingling of Funds
  •	 We determined that MetLife commingled FEGLI cash and investment funds with its
     corporate cash and investment funds in fiscal years 2007 and 2008. However, this audit
     issue was resolved with MetLife's transfer of all FEGLI investment funds from its
     corporate investment pool to a separate investment portfolio exclusively for the
     investment ofFEGLI funds in fiscal year 2009.




                                             ii
                                          CONTENTS


                                                                                      PAGE

        EXECUTIVE SUMMARY	                                                                   i


 I.     INTRODUCTION AND BACKGROUND	                                                         1


II.     OBJECTIVES, SCOPE, AND METHODOLOGY	                                                  2


III.	   AUDIT FINDINGS AND RECOMMENDATIONS                                                   6


        A.    CLAIM PAYMENTS	                                                                6


        B.    FRAUD AND ABUSE PREVENTION AND DETECTION	                                      6


        C.    ADMINISTRATIVE EXPENSES	                                                       6


              1. Pension Expense	                                                            6


              2. Information Technology Expense	                                             7


        D.	      CASH MANAGEMENT ACTIVITIES                                                  8


               1. Commingling of Funds	                                                      8


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT                                                    10


        SCHEDULE A - Schedule of Contract Charges and Questioned Costs


        APPENDIX - Metl.ife's response, dated February 12,2010, to the draft audit report

                    I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This report details the results of our audit of the Federal Employee Group Life Insurance
Program's (FEGLI or Program) operations at the Metropolitan Life Insurance Company
(MetLife) in Oriskany, New York and Bridgewater, New Jersey. The audit was performed by
the Office of Personnel Management's (OPM) Office of the Inspector General (OIG), as
established by the Inspector General Act of 1978, as amended.

BACKGROUND

The FEGLI Program was created in 1954 by the Federal Employees' Group Life Insurance Act
(Public Law 83-598). OPM's Retirement and Benefits Office (RBO) has overall responsibility
for administering the Program, including the publication of program regulations and agency
guidelines; and the receipt, payment, and investment of agency withholdings and contributions.
The RBO contracts with MetLife to provide life insurance coverage to employees, annuitants,
and their family members (Contract No. 17000-G). Employer agencies are responsible for
enrolling, informing, and advising employees of program changes, determining eligibility,
maintaining insurance records, withholding premiums from pay, remitting and reporting
withholdings to OPM, and certifying salary and insurance coverage upon separation or death.

MetLife's responsibilities under the contract are carried out by its Office of Federal Employees'
Group Life Insurance (OFEGLI), a separate unit of MetLife, which is located in Oriskany, New
York. OFEGLI had been part of the National Accounts unit within MetLife's Institutional
Business segment. On July 14,2009, MetLife announced the combination of its Institutional and
Individual Businesses and its Auto & Home unit into a single U.S. Business organization.
OFEGLI is supervised by MetLife's Group Insurance Department with technical and
administrative assistance provided by OPM and various other MetLife departments.

In September 2009, MetLife transferred its claims processing function for the FEGLI Program to
its Oriskany, New York office. MetLife's accounting and financial operations are handled in
their Bridgewater, New Jersey office.

Compliance with laws and regulations applicable to the FEGLI Program is the responsibility of
MetLife's management. Also, management of MetLife is responsible for establishing and
maintaining a system of internal controls.

Our previous audit of MetLife (Report Number 2A-II-00-07-017, dated December 15,2008),
covered claim payments for fiscal year 2006, claim overpayments, administrative expenses and
cash management activities for fiscal years 2005 and 2006. All findings questioned in that
report, with the exception of the commingling issue, were satisfactorily resolved prior to the
beginning of the current audit. The commingling issue, which is again identified as an audit
issue in this report, was resolved in fiscal year 2009, with the movement ofFEGLI funds into a
separate investment portfolio established exclusively for the FEGLI program.




                                                1

               II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES


The objectives of our audit were to determine whether costs charged to the FEGLI Program and
services provided to FEGLI Program subscribers were in accordance with the terms of Contract
17000-G and the Federal regulations. Specifically, our objectives were as follows:

   Benefit Charges

       •	 To determine whether MetLife complied with the contract provisions relative to
          benefit payments.
       •	 To determine whether overpayment recoveries were returned promptly to the FEGLI
          Program. Also, to determine whether MetLife made diligent efforts to recover
          overpayments.

   Administrative Expenses

       •	 To determine if the administrative expenses charged to the FEGLI Program were
          actual, necessary, and reasonable expenses incurred in accordance with the terms of
          the contract and applicable regulations.

   Cash Management

       •	 To determine whether MetLife handled FEGLI Program funds in accordance with
          applicable laws and regulations concerning cash management in the FEGLI Program.

   Fraud and Abuse Prevention and Detection

       •	 To determine what policies and procedures MetLife has in place to prevent and detect
          fraud, waste and abuse related to the FEGLI Program (specifically life insurance
          claims).
       •	 To review any instances of fraud, waste and abuse identified by MetLife and the
          corrective actions that were implemented.

SCOPE

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, appropriate evidence to provide a reasonable basis for our audit 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.

We reviewed the FEGLI Program financial statements for fiscal years 2007 and 2008. During
this period, benefit charges totaled approximately $4.9 billion and administrative expenses
totaled $14.5 million. Specifically, we reviewed claim payments in fiscal year 2008. We also


                                               2

reviewed claim overpayments, administrative expenses, and cash management activities for
fiscal years 2007 and 2008. In addition, we reviewed Metl.ife's policies and procedures to deter
or detect instances of fraud and abuse in the FEGLI Program.

In conducting the audit, we reviewed approximately $21,825,300 in claim payments made from
October 1, 2007 through September 30, 2008, for proper adjudication. We also reviewed
$4,346,315 in claim overpayments, $2,817,105 in administrative expenses, and $907,610,379 in
cash management letter of credit (LOC) drawdowns for compliance with cash management
policies and procedures.

We obtained an understanding of MetLife'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. Based on our testing, we did not
identify any significant matters involving MetLife's internal control structure and its operation.
However, since our audit would not necessarily disclose all significant matters in the internal
control structure, we do not express an opinion on MetLife's system of internal controls taken as
a whole.

We also conducted tests to determine whether MetLife had complied with the contract, the
applicable procurement regulations (i.e., Federal Acquisition Regulations and Federal Employees
Group Life Insurance Federal Acquisition Regulations, as appropriate), and the laws and
regulations governing the FEGLI Program. Exceptions noted in the areas reviewed are set forth
in detail in the "Audit Findings and Recommendations" section of this audit report With respect
to the items not tested, nothing came to our attention that caused us to believe that MetLife had
not complied, in all material respects, with those provisions.

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

The audit was performed at MetLife's offices in Oriskany, New York from September 14,2009
through September 25,2009, and Bridgewater, New Jersey from October 19,2009 through
October 30, 2009.

METHODOLOGY

To test MetLife's compliance with the Contract provisions relative to claims payments, we
judgmentally selected:

       •	   100 claim payments from the four highest dollar claim months in fiscal year 2008.
            Specifically, we reviewed the 25 highest claims from the months of December 2007,
            and March, June and September of 2008. Our judgmental sample of 100 claims
            represented $21,825,300 in claim payments out of a universe of 98,225 claims
            totaling $2,462,559,367. We traced the claims through the claims processing system,

                                                  3

           reviewed MetLife's case files to determine if the necessary documents were provided,
           and verified whether the claim payments were correctly calculated and paid to the
           beneficiary.

To review Metl.ife's adjudication of its claim overpayment process to determine if overpayments
were properly returned to the FEGLI Program, we judgmentally selected:

       •	 All fiscal year 2007 and 2008 recoveries that were equal to or greater than $24,000,
          which totaled a sample of 50 overpayment recoveries (30 recoveries from fiscal year
          2008 and 20 recoveries from fiscal year 2007). The 50 overpayment recoveries
          represented $4,346,315 out of a total of universe 763 recoveries totaling $5,206,607
          returned in fiscal years 2007 and 2008.

To determine if administrative expenses were actual, necessary, and reasonable, we selected the
following samples:

       •	 From the three cost centers representing direct administrative expenses, we selected
          16 out of 119 natural accounts for potential review. Natural accounts are expense
          accounts (i.e., salaries, rent, utilities, postage, etc.) that support the FEGLI cost
          centers. The 16 accounts were selected based on the highest activity per quarter in
          fiscal year 2008. The total amount sampled represented $1,436,999 out of a universe
          totaling $5,365,135. We also reviewed each account description to ensure only
          allowable costs were charged to the account.

       •	 From the one cost center representing indirect administrative expenses, we selected 9
          out of 10 natural accounts for potential review. The nine accounts selected
          represented the highest dollar amounts charged to the FEGLI program in fiscal year
          2008. We sampled expenses of$I,380,106 out ofa universe totaling $1,463,673.
          We also reviewed each account description to ensure only allowable costs were
          charged to the account.

       •	 From the three cost centers representing direct administrative expenses, we also
          judgmentally selected an additional six natural accounts based on the highest expense
          accounts per quarter in fiscal year 2008. From the six natural accounts, we
          judgmentally selected 18 out of 115 transactions for a detailed review of the
          supporting invoices, based on the highest transaction amounts. The total amount
          sampled represented $63,979 out of a universe totaling $192,255.

       •	 From a total of 27 administrative expense adjustments in fiscal year 2008, we selected
          11 adjustment transactions based on high dollar transactions or transactions of
          unusual activity. The total amount sampled represented an absolute value of$48,017
          out of a universe representing an absolute value of$227,193.

To determine whether MetLife handled FEGLI Program funds in accordance with the contract
and applicable laws and regulations concerning recurring premium payments to carriers we:




                                               4

       •	 Judgmentally selected four months (two months from each fiscal year) based on the
          highest LOC monthly drawdowns. As a result, our sample included the daily
          drawdowns for the months of March and August (fiscal year 2007), and October 2007
          and July 2008 (fiscal year 2008). The four month drawdown sample represented
          $907,610,379 of the total of $4,854,366,286 in LOC drawdown transactions
          occurring during fiscal years 2007 and 2008.

       •	 Reviewed MetLife's policies and procedures for investing FEGLI Program funds to
          determine if MetLife was in compliance with the Contract and applicable Federal
          regulations regarding the commingling of federal funds.

To determine what fraud and abuse policies and procedures MetLife had in place to deter or
detect instances of fraud and abuse in the FEGLI Program, and what corrective action was taken
by MetLife for any instances that were identified, we:

     •	 Reviewed MetLife's policies and procedures and interviewed a senior investigator from
        MetLife's Special Investigations Unit involved in investigating allegations of fraud and
        abuse in the FEGLI Program.
     •	 Reviewed all open cases covering fiscal years 2007 through 2009 to determine if all
        amounts recovered were properly returned to the FEGLI Program.

The samples above that were selected and reviewed 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 as a whole. We used the FEGLI Program contract; the Federal
Acquisition Regulations; and the Federal Employees Group Life Insurance Federal Acquisition
Regulations to determine the allowability, allocability, and reasonableness of the administrative
expenses charged against the contract.

A draft report, dated January 14,2009, was provided to MetLife for review and comment.
MetLife's comments on the draft report were considered in preparing the final report and are
included as an Appendix to this report.




                                                5

              III. AUDIT FINDINGS AND RECOMMENDATIONS

A. CLAIM PAYMENTS


Our review of the benefit payments paid by MetLife on behalf of FEGLI participants showed
that the benefits were paid in accordance with Contract 17000-G as well as the applicable
Federal regulations.

B.	 FRAUD AND ABUSE PREVENTION AND DETECTION

Our review of the fraud and abuse program implemented by MetLife showed that MetLife had
adequate policies and procedures in place to deter or detect incidences of insurance fraud and
abuse in the FEGLI Program.

C.	 ADMINISTRATIVE EXPENSES

   1.	 Pension Expense                                                                  ($98,646)

       MetLife did not calculate pension costs in accordance with the Federal regulations for
       fiscal years 2007 and 2008. As a result, the FEGLI Program was undercharged $98,646
       for pension costs.

       48 CFR 31.205-6(j)(2) states that the cost of all defined-benefit pension plans shall be
       measured, allocated and accounted for in compliance with the provisions of 48 CFR
       9904.412 and 48 CFR 9904.413. Pension costs are allowable subject to the referenced
       standards and the cost limitations and exclusions. The regulations limit the amount of
       pension costs that may be charged to a government contract to the lower of:

           •	 the amount of any cash contribution to the pension fund trustee, or
           •	 the amount of expense calculated in accordance with CAS 412 and 413,
              whichever is lower.

       We found that MetLife did not calculate the pension costs based on the lesser of cash
       contributions (funded amount) or the CAS amount in fiscal years 2007 and 2008. We
       recalculated these costs by multiplying the lesser ofthe funded or CAS amount by the
       FEGLI's corporate allocation percentage. As a result, MetLife's pension costs were
       understated by $97,846 in 2007 and $800 in 2008. MetLife's total undercharge to the
       FEGLI Program was $98,646.

       MetLife Comments:

       MetLife agrees with this finding and stated that it has documented its procedures for
       calculating the pension cost and included review and approval requirements to ensure that
       the pension expenses charged to the program are in compliance with the Federal
       Regulations.




                                                6
   Recommendation 1

   We recommend that the contracting officer allow MetLife to collect $98,646 through the
   LOC drawdown account for pension expense undercharged in fiscal years 2007 and
   2008.

   Recommendation 2

   We recommend that the contracting officer ensure that MetLife implements its
   procedures to ensure that the FEGLI pension expense is calculated in accordance with the
   Federal Regulations.

2. Information Technology Expense                                                ($609,872)

   MetLife undercharged the FEGLI program for its information technology (IT) services in
   fiscal year 2008. MetLife changed its internal processes which resulted in the Program's
   IT costs being allocated to MetLife's other lines of business. As a result, the FEGLI
   Program was undercharged a total of $609,872 for the IT services provided by MetLife in
   fiscal year 2008.

   During our audit, we requested support for a judgmental sample of fiscal year 2008
   administrative expenses, of which we included selected information technology expenses.
   While MetLife was researching the documentation to support these IT expenses they
   discovered that they had undercharged FEGLI for their information technology cost.
   This issue was not addressed in our draft report, as it was brought to our attention by
   MetLife subsequent to the issuance of the draft report.

   MetLife Comments:

   MetLife stated that it has a dedicated IT Application Development team that works on
   maintaining and updating the FEGLI claims system. Metl.ife captures these
   programming costs in dedicated client codes which are attributable to the FEGLI
   Program.

   However, during fiscal year 2008, MetLife made changes to the internal process it uses to
   charge IT costs to its business areas. The changes inadvertently caused some of the
   FEGLI IT costs to be erroneously charged to other MetLife business areas. Because of
   this programming error, FEGLI was undercharged $560,048 for IT Application
   Development costs, and undercharged $49,825 for FEGLI System Infrastructure cost.
   MetLife requested to be reimbursed for total IT cost undercharges of $609,872. MetLife
   provided supporting documentation to the OIG for review.

   OIG Comment:

   We reviewed the documentation provided by MetLife and agree that the FEGLI Program
   was undercharged $609,872 for its IT costs in fiscal year 2008.



                                           7
     Recommendation 3

    We recommend that the contracting officer allow Metl.ife to collect $609,872 through
    the local drawdown account for IT expense undercharged in fiscal year 2008.

    Recommendation 4

    We recommend that the contracting officer require MetLife to implement procedures to
    evaluate the impact of Metl.ife corporate policy and procedural changes on the FEGLI
    Program to ensure the administrative cost associated with the Program are accurately
    captured and charged to the FEGLI Program.

D. CASH MANAGEMENT ACTIVITIES

  1. Commingling of Funds                                                           Procedural

    MetLife commingled FEGLI cash and investment funds with Metl.ife corporate cash and
    investment funds during fiscal years 2007 and 2008. As a result, these FEGLI assets
    were not separately identifiable from other assets controlled by Metl.ife.

    According to 48 CFR 2152.232-71, a contractor must maintain FEGLI Program funds in
    such a manner as to be separately identifiable from other assets of the contractor.
    However, if accounting techniques have been established to clearly measure FEGLI cash
    and investments, the regulations provide that a contractor can request the contracting
    officer to approve a modification of this provision.

    Metl.ife's investment objective is to provide liquidity and generate income while
    minimizing the erosion of the principal. MetLife's FEGLI investments generally mature
    within a year and are maintained in a money market pool that is not specific to FEGLI.
    In fiscal years 2007 and 2008, income from the investments represents allocations from
    Metl.ife's general account based on FEGLI's proportionate investment contribution
    balance for each investment year. The allocated amounts did not represent separately
    identifiable assets as called for in the FEGLI regulations. In addition, FEGLI cash was in
    a commingled Metl.ife investment pool.

    As stated in our prior audit, OPM informed Metl.ife (in a letter dated April 12, 1996) that
    it concurred with its practice of investing FEGLI monies in an investment pool with other
    Metl.ife funds. OPM stated that it did not intend to preclude the procedures Metl.ife
    used to invest FEGLI funds and that the allocation of investment income appeared
    reasonable and equitable.

    However, although the OIG agrees that pooling ofFEGLI funds with other lines of
    business may garner greater investment gains it also carries a greater risk for potential
    loss ofFEGLI funds and accountability issues because of the commingling ofFEGLI
    funds with other lines of business.




                                              8
We reported on this issue in our prior audit report of the FEGLI operations at MetLife for
fiscal years 2005 and 2006, dated December 15, 2008, and recommended that MetLife
take steps to change its procedures to ensure FEGLI funds were not commingled with the
MetLife investment pooL In response to our recommendation MetLife agreed to review
its management of FEGLI assets.

As a result of our prior audit recommendations and changes in the economic environment
in 2008, MetLife closed out all FEGLI's investments in MetLife's pooled investment
portfolio (i.e., Woodstock) on December 16,2008 (fiscal year 2009), and transferred
these funds to a separate investment portfolio established exclusively for the investment
ofFEGLI funds.

Since this finding was resolved in fiscal year 2009 with the establishment of a separate
FEGLI investment portfolio, the OIG is not offering a recommendation for this finding.




                                        9

             IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

                  Auditor-In-Charge

                   Auditor




                                      10

                                                                                SCHEDULE A
                         METROPOLITAN LIFE INSURANCE COMPANY

                    ORISKANY, NEW YORK AND BRIDGEWATER, NEW JERSEY

                                     REPORT # 2A-II-00-09-065

                         Schedule of Contract Charges and Questioned Costs





1. BENEFITS CHARGES                        $2,419,207,670     $2,490,818,444    $4,910,026,114

2. ADMINISTRATIVE EXPENSES                     $7,694,293        $6,828,808       $14,523,101

                                           $2,426,901,963     $2,497,647,252    $4,924,549,215

QUESTIONED CHARGES                                                              TOTAL


A. CLAIM PAYMENTS                                     $0                 $0                $0

B ADMINISTRATIVE EXPENSES
   1) Pension Expense                            ($97,846)            ($800)         ($98,646)
   2) Information Technology Services                             ($609,8 72)       ($609,872)
C. CASH MANAGEMENT ACTIVITIES                   Procedual         Procedual         Procedual

      TOTAL QUESTIONED CHARGES                   ($97,846)        ($610,6 72)       ($708,51 8)
                                                                                         APPENDIX




                                                              MetLife

                                                               ZUlU FEB 23 AM II: t.l
February 12,2010



Office of Personnel Management
Office of the Inspector General
1900 E Street NW, Room 6400
Washington, DC 20415

Re: FEGLI Draft Audit Report

Dear_

The following is our response to the draft FEGLI audit report dated January 14,2010.

Administrative Expenses - Pension Expenses

Recommendation Number 1

We agree with this recommendation and look forward to the Contracting Officer's
determination.

Recommendation Number 2

We agree with Recommendation Number 2 and Metl.ife has documented its procedures
to calculate pension costs according to 48 CFR 31.205 6 G) (2). Included in the
documentation is a requirement for review and signoffby MetLife management of the
calculation of pension expenses charged to the program.

We can supply you with a copy of the procedures upon request.


Cash Management - Commingling of Funds


As stated in the draft report, this finding was resolved in fiscal year 2009.



MetLife identified the following item after the completion of the OIG's field work and
therefore it is not included in the referenced draft audit report:

Metl.ife has recently determined that the FEGLI Program was undercharged $609,872 in
Information Technology (IT) costs during fiscal year 2008.
The following will briefly describe how this undercharge occurred.

MetLife has a dedicated IT Application Development team that works on maintaining
and updating the FEGLI claim system. We capture these programming costs in dedicated
client codes which are attributable to the FEGLI Program.

During fiscal year 2008, MetLife made changes to the internal process it uses to charge
IT costs to its business areas. These changes inadvertently resulted in $560,048 of FEGLI
IT costs accumulated to the FEGLI client code being allocated to other MetLife business
areas.

In addition, this change also resulted in $49,825 of FEGLI System Infrastructure costs to
be allocated to other business areas.

Attached for your review is a more detailed explanation of this undercharge as well as
documentation for FEGLI's IT expenses for the full fiscal year 2008.

We are requesting that MetLife be reimbursed $609,872 for these expenses.

If you have any question, please let me know.




Director

Cc:
                                    FEGLI
                      Information Technology Expense Undercharge

MetLife has recently determined that the FEGLI Program was undercharged $609,872 in
Information Technology (IT) costs during fiscal year 2008.

The following will describe how this undercharge occurred.

FEGLI's IT costs generally consists of Application Development (AD) costs and
Infrastructure costs.

Direct Application Development (AD) Costs
AD costs represent IT project work done by a staff of IT programmers on FEGLI system
enhancements, time spent to meet regulatory and SOX requirements, maintenance, and
support for the FEGLI Claim system. The IT programmers log in their time spent on the
FEGLI Program using FEGLI specific IT project codes. Costs charged to these project
codes are aggregated to client codes and then charged to the FEGLI Program.

During fiscal year 2008, MetLife made a change to its internal process that inadvertently
caused costs for FEGLI system work captured in the FEGLI to be mapped to other
business areas.

As a result of this change, the FEGLI Program was charged $130,451 for AD work while
it incurred $690,499 in costs, an undercharge of $560,048.

Infrastructure Costs
Infrastructure costs represent charges for the FEGLI claim system's dedicated servers,
employee support, hardware, software and electricity. The costs are allocated based on
the number ofCPUs (central processing unit) of process bandwidth the FEGLI Claims
system application uses.

During fiscal year 2008, MetLife changed the methodology to charge infrastructure
related costs to their business areas. This change caused FEGLI's infrastructure costs to
be inadvertently mapped to other business areas. Therefore, the FEGLI Program was
charged $190,027 for infrastructure costs in fiscal year 2008 while it incurred $239,852,
undercharge of$49,825.
The following is a summary of costs charged to the program compared to costs incurred.

Federal Employees' Group Life Insurance
ITS

                                                 FY 2008
53540   ICS ELECTRONICS (Infrastructure)           61,713
53762   IS8-IT AMORTIZATION                           246
53868   CS IT FEGLI                               130,451
53883   CS IT Infrastructure 128,314
         IT Charged to the PROGRAM                320,724

        Application Development                   690,499
        Infrastructure                            239,852
        Amortization                                  246
         l1"i,Jj'cJJ~r.t\1;6Y~;Pf(qQJm}lll· .

        Application Development                  (560,048)
        Infrastructure                            (49,825)
        (Unaereharg~)t~e:;~"~~K>gt~m            1~('99;8t2)