oversight

Audit of the Federal Employees' Group Life Insurance Program as Administered by the Metropolitan Life Insurance Company for Contract Years 2009 through 2012

Published by the Office of Personnel Management, Office of Inspector General on 2014-07-09.

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 EMPLOYEES’ GROUP
      LIFE INSURANCE PROGRAM AS
ADMINISTERED BY THE METROPOLITAN LIFE
          INSURANCE COMPANY
 FOR CONTRACT YEARS 2009 THROUGH 2012




                                            Report No. 2A-II-00-13-065


                                            Date:            July 9, 2014




                                                            --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.
                                                     AUDIT REPORT




                AUDIT OF THE FEDERAL EMPLOYEES’ GROUP LIFE
                INSURANCE PROGRAM AS ADMINISTERED BY THE
                  METROPOLITAN LIFE INSURANCE COMPANY
                   FOR CONTRACT YEARS 2009 THROUGH 2012


                                       CONTRACT NUMBER: 17000-G



                                                                                               July 9, 2014
                 Report No. 2A-II-00-13-065                                       Date: ________________




                                                                                     ____________________________
                                                                                     Michael R. Esser
                                                                                     Assistant Inspector General
                                                                                       for Audits



                                                            --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.
                               EXECUTIVE SUMMARY




           AUDIT OF THE FEDERAL EMPLOYEES’ GROUP LIFE
           INSURANCE PROGRAM AS ADMINISTERED BY THE
             METROPOLITAN LIFE INSURANCE COMPANY
              FOR CONTRACT YEARS 2009 THROUGH 2012


                           CONTRACT NUMBER: 17000-G



           Report No. 2A-II-00-13-065
                                                                   July 9, 2014
                                                         Date: ________________

The enclosed audit report details the results of our audit of the Federal Employees’ Group Life
Insurance (FEGLI) Program as administered by the Metropolitan Life Insurance Company
(MetLife) for contract years 2009 through 2012. The primary objective of our audit was to
determine whether MetLife’s costs charged to the FEGLI Program and services provided to
FEGLI subscribers were in accordance with the terms of Contract No. 17000-G, between
MetLife and the U.S. Office of Personnel Management (OPM), and applicable federal
regulations. The audit identified four findings and questions $1,210,293 in unallowable charges,
including $43,723 for lost investment income calculated through November 22, 2013, which was
the date MetLife returned all questioned costs to the FEGLI Program. The audit also identified
one area for program improvement.

We conducted a preliminary survey at MetLife’s location in Oriskany, New York, from
September 16 to September 20, 2013. Our audit fieldwork was conducted at MetLife’s location
in Bridgewater, New Jersey, from October 21 to October 25, 2013, and additional audit work
was performed at our offices in Washington, D.C. and Cranberry Township, Pennsylvania.

The results of our audit have been summarized below.




                                               i
                                       CLAIMS REVIEW

The results of our review showed that MetLife had the appropriate policies and procedures in
place to process death claims, living benefits, accidental death and dismemberment claims, and
overpayment recoveries.

                          ADMINISTRATIVE EXPENSE REVIEW

•   Excess Funds Not Returned to the FEGLI Program                                         $931,903

    MetLife did not return $931,903 in excess funds to the FEGLI Program from contract year
    2011.

•   Incorrect Expense Allocation Rate                                                      $144,667

    MetLife used an incorrect allocation rate to charge indirect administrative expenses to the
    FEGLI Program in contract year 2009, resulting in a $144,667 overcharge.

•   Indirect Costs Exceeded 20 Percent Limit                                                $90,000

    MetLife exceeded the limit for indirect costs by $90,000 in contract year 2012.

                               CASH MANAGEMENT REVIEW

The results of our review showed that MetLife had sufficient policies and procedures in place to
ensure that that FEGLI funds were accurately withdrawn from the Letter of Credit Account, kept
separate from MetLife’s other lines of business, and properly accounted for under MetLife’s
capital reserve requirements.

                                   COMPLIANCE REVIEW

The results of our review showed that MetLife has complied with its contract provisions and
applicable federal regulations related to fraud and abuse, internal controls, quality assurance,
subcontracts, and travel expenses, except as noted in the program improvement area below.

                       LOST INVESTMENT INCOME ON FINDINGS

•   Lost Investment Income                                                                  $43,723

The FEGLI Program is due $43,723 for lost investment income related to $1,166,570 in
questioned administrative expenses.

                             PROGRAM IMPROVEMENT AREA

The area included in this section of the report, while not a violation of the FEGLI contract
and applicable federal regulations, was, in our opinion, a reportable program weakness

                                                 ii
that is in need of corrective action. Consequently, we are including it in this final report in
order to assist MetLife in improving is administration of the FEGLI Program.

•   Accounting for Travel Expenses                                         Improvement Area

    MetLife does not have accounting procedures in place to ensure that travel expenses for
    lodging, meals, and incidentals charged to the FEGLI Program are reasonable and allowable.




                                              iii
                                                    CONTENTS
                                                                                                                           PAGE

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

  I.   INTRODUCTION AND BACKGROUND ....................................................................... 1

 II.   OBJECTIVES, SCOPE, AND METHODOLOGY ............................................................ 3

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

       A.     CLAIMS REVIEW .................................................................................................... 7

       B.     ADMINISTRATIVE EXPENSE REVIEW ...............................................................7

              1.    Excess Funds Not Returned to the FEGLI Program .......................................... 7
              2.    Incorrect Expense Allocation Rate ..................................................................... 8
              3.    Indirect Costs Exceeded 20 Percent Limit ......................................................... 9

       C.     CASH MANAGEMENT REVIEW .........................................................................10

       D.     COMPLIANCE REVIEW ........................................................................................10

       E.     LOST INVESTMENT INCOME ON FINDINGS ...................................................10

              1.    Lost Investment Income ....................................................................................10

       F.     PROGRAM IMPROVEMENT AREA ...................................................................11

              1.    Accounting for Travel Expenses .......................................................................11

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ..............................................................13

       SCHEDULE A – CONTRACT CHARGES
       SCHEDULE B – QUESTIONED COSTS
       SCHEDULE C – LOST INVESTMENT INCOME CALCULATION

       APPENDIX (MetLife’s response to the draft report, dated March 3, 2014)
                     I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This report details the results of our audit of the Federal Employees’ Group Life Insurance
(FEGLI) Program as administered by the Metropolitan Life Insurance Company (MetLife) for
contract years 2009 through 2012. The audit was conducted pursuant to the provisions of
Contract Number 17000-G; the Life Insurance Federal Acquisition Regulations (LIFAR); the
Federal Acquisition Regulations (FAR); and Title 5, Code of Federal Regulations, Chapter 1,
Part 870 (5 CFR 870).

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. We
conducted a preliminary survey at MetLife’s location in Oriskany, New York, from
September 16 to September 20, 2013. Our audit fieldwork was conducted at MetLife’s location
in Bridgewater, New Jersey, from October 21 to October 25, 2013, and additional audit work
was performed at our offices in Washington, D.C. and Cranberry Township, Pennsylvania.

BACKGROUND

The FEGLI Program was created in 1954 by the Federal Employees’ Group Life Insurance Act
(Public Law 83-598). OPM’s Healthcare and Insurance Office (HIO) 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 HIO contracts with MetLife to provide life insurance coverage to federal employees,
annuitants, and their family members (Contract 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), an administrative unit of MetLife established to administer the
FEGLI Program. OFEGLI is located in Oriskany, New York, and MetLife provides support
activities to OFEGLI through its offices located in Bridgewater, New Jersey and Long Island
City, New York. OFEGLI’s responsibilities include:

    •   Processing and paying claims;
    •   Determining whether an insured individual is eligible for a living benefit;
    •   Determining whether accidental death and dismemberment benefits are payable;
    •   Determining an employee’s eligibility to cancel a waiver of insurance based on
        satisfactory medical information; and
    •   Processing requests for conversions.

The FEGLI Program had 4,061,000 members enrolled in 2009, 4,179,000 members enrolled in
2010, 4,212,000 members enrolled in 2011, and 4,138,000 members enrolled in 2012. MetLife
is required by 48 CFR 2109.7001(i) to permit representatives of OPM to audit and examine

                                                1
records and accounts pertaining to the FEGLI Program at such reasonable times and places as
may be designated by OPM.

Our last audit was conducted in 2009 and included a review of the FEGLI Program’s Operations
at MetLife for contract years 2007 and 2008 (Report # 2A-II-00-09-065, dated July 20, 2010).
All findings from that audit have been satisfactorily resolved.




                                              2
               II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The primary objective of our audit was to determine whether MetLife’s costs charged to the
FEGLI Program and services provided to FEGLI subscribers were in accordance with the terms
of Contract No. 17000-G and federal regulations.

Our specific objectives were as follows:

Claims Review
   • To determine if claim payments were made to beneficiaries in compliance with
       contractual and regulatory requirements.
   • To determine if claims information in MetLife’s FEGLI Claim Payment System can be
       traced to supporting documentation.
   • To determine if MetLife credited overpayment recoveries to the program.
   • To determine if paid claim amounts in MetLife’s FEGLI Claim Payment System
       reconcile to paid benefits reported in the FEGLI Program’s annual financial statements.

Administrative Expense Review
  • To determine if MetLife’s administrative expenses were actual, allocable, reasonable, and
      allowable in compliance with Subpart 31.2 of the FAR (48 CFR 31) and Part 2132 of the
      LIFAR (48 CFR 2131).
  • To determine if administrative expenses recorded in MetLife’s general ledger and the
      agreed-upon annual service charge amount reconcile to MetLife’s Letter of Credit
      Account (LOCA) drawdowns, annual financial statements, and any annual administrative
      cost true-up that was credited to OPM through the LOCA.
  • To determine if MetLife charged executive compensation to the FEGLI Program in
      compliance with 48 CFR 31.206-6(p).

Cash Management Review
   • To determine if MetLife held program funds on hand independent of its other
      investments and lines of business.
   • To determine if MetLife’s daily LOCA drawdowns can be traced to supporting
      documentation.
   • To determine if MetLife is estimating, accounting, and reporting on the FEGLI
      Program’s cash reserves in compliance with federal and state regulations.

Compliance Review
  • To determine if MetLife has policies and procedures in place to prevent, detect, and
      disclose fraud and abuse of FEGLI Program funds.
  • To determine if MetLife implemented a system of internal controls in compliance with 48
      CFR 2109.7001(h).
  • To determine if MetLife implemented a quality assurance program in compliance with 48
      CFR 2146.270.


                                               3
   •   To determine if MetLife entered into subcontracts for work performed on the FEGLI
       Program in compliance with 48 CFR 2152.244-70.
   •   To determine if MetLife’s corporate travel policies and procedures are in compliance
       with 48 CFR 31.205-46.

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.

This performance audit covered MetLife’s adherence to its contractual and regulatory
requirements for contract years 2009 through 2012. The audit scope included a review of
MetLife’s claims, administrative expenses, cash management, and compliance with contract
provisions and applicable regulations.

For contract years 2009 through 2012, MetLife charged the FEGLI Program $10.4 billion, which
includes $10.3 billion in life insurance claims, $46.9 million in expenses, and $3.8 million in
profit (See Schedule A).

In planning and conducting the audit, 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 and the
laws and regulations governing the FEGLI Program. 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 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 the
various information systems involved. 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.




                                                 4
METHODOLOGY

To determine whether MetLife’s administration of the FEGLI Program was in compliance with
the terms of the contract and applicable regulations, the following audit steps were performed:

Claims Review

   •   We reviewed a sample of 37 accidental dismemberment claims, totaling $2,080,500, out
       of a universe of 94 accidental dismemberment claims, totaling $3,617,500, to determine
       if the claims were accurately processed. We judgmentally selected all accidental
       dismemberment claims greater than $35,000 during contract years 2009 through 2012 for
       review.

   •   We reviewed a sample of 43 living benefit claims, totaling $4,798,067, out of a universe
       of 319 living benefit claims, totaling $17,713,346, to determine if the claims were
       accurately processed. We judgmentally selected all living benefit claims greater than
       $90,000 during contract years 2009 through 2012 for review.

   •   We reviewed a sample of 88 death claims, totaling $5,511,680, out of a universe of
       300,025 death claims, totaling $10,315,561,266, to determine if the claims were
       accurately processed. We selected a random sample of 22 death claims for each contract
       year, 2009 through 2012, for review.

   •   We reviewed a sample of 20 claim overpayment recoveries, totaling $2,183,303, out of a
       universe of 479 claim overpayment recoveries, totaling $4,495,053, to verify that the
       amounts were properly credited back to the program. We judgmentally selected the five
       highest repayment amounts for each contract year, 2009 through 2012, for review.

   •   We performed a reconciliation of paid claim amounts in MetLife’s claims system to paid
       benefits reported in the FEGLI Program’s annual financial statements.

Administrative Expense Review

   •   We reviewed a sample of 40 general ledger transactions, totaling $520,532, out of a
       universe of 2,297 general ledger transactions, totaling $2,146,979 (direct operational
       expenses only), to determine if the amounts were actual, allocable, reasonable, and
       allowable. We judgmentally selected the five highest general ledger transactions for each
       contract year, 2009 through 2012, for cost centers ML51411 (U.S. Government Customer
       Service Unit – FEGLI Operations) and ML54907 (OFEGLI Operations).

   •   We compared MetLife’s general ledger expenses and service charges to its LOCA
       drawdowns, annual financial statements, and annual administrative cost true-ups to
       determine if the amounts reconcile.

   •   We reviewed the universe of executive compensation expenses, totaling $58,116, that
       were charged to the FEGLI Program during contract years 2009 through 2012 to verify

                                               5
       that the amounts did not exceed the compensation expense limit for government
       contractors.

Cash Management Review

   •   We held a meeting with MetLife to verify that MetLife held FEGLI Program funds on
       hand in investment accounts, separately identifiable from its other lines of business.

   •   We reviewed a sample of 40 LOCA drawdowns, totaling $460,277,870, out of a universe
       of 1,028 LOCA drawdowns, totaling $10,334,542,353, to verify that the amounts were
       accurate and properly supported. We judgmentally selected the highest drawdown and
       the next nine consecutive drawdowns from the highest dollar month for each contract
       year.

   •   We reviewed documentation to verify that MetLife was estimating, accounting, and
       reporting on the FEGLI Program’s cash reserves in compliance with federal and state
       regulations.

Compliance Review

   •   We reviewed MetLife’s policies and procedures in place to prevent, detect, and disclose
       fraud and abuse of FEGLI Program funds.

   •   We reviewed MetLife’s system of internal controls to verify compliance with 48 CFR
       2109.7001(h).

   •   We reviewed MetLife’s quality assurance program to verify compliance with 48 CFR
       2146.270.

   •   We reviewed MetLife’s subcontracts during contract years 2009 through 2012 to
       determine if subcontractor expenses exceeded the reporting threshold of 48 CFR
       2152.244-70(a).

   •   We reviewed MetLife’s corporate travel policies and procedures to verify compliance
       with 48 CFR 31.205-46.

The samples selected during our review were not statistically based. Consequently, the results
could not be projected to the universe since it is unlikely that the results were representative of
the universe as a whole. We used the FEGLI Program contract, the FAR, and the LIFAR to
determine the allowability, allocability, and reasonableness of the administrative expenses
charged against the contract.

The results of our audit were discussed with MetLife officials throughout the audit. In addition,
a draft report, dated February 6, 2014, was provided to MetLife for review and comment.
MetLife’s response and comments on our draft report were considered in preparing the final
report and are included as an Appendix.

                                                  6
              III. AUDIT FINDINGS AND RECOMMENDATIONS
A.   CLAIMS REVIEW

     The results of our review showed that MetLife had the appropriate policies and procedures
     in place to process death claims, living benefits, accidental death and dismemberment
     claims, and overpayment recoveries.

B.   ADMINISTRATIVE EXPENSE REVIEW

     1. Excess Funds Not Returned to the FEGLI Program                                 $931,903

        MetLife did not return $931,903 in excess funds to the FEGLI Program from contract
        year 2011.

        48 CFR 2152.232-70(a) under the LIFAR states that a fixed premium will be made
        available to MetLife each month based on estimated costs (claims and administrative
        expenses) for the contract year. At the end of the year, a reconciliation of actual and
        estimated costs will be required to determine if any amount is still owed to MetLife by
        OPM, or if MetLife needs to reimburse the FEGLI Program for any excess funds
        received.

        We reviewed MetLife’s drawdowns from its LOCA and actual administrative costs
        charged to the FEGLI Program to determine if any amount was due to either party at
        the end of each contract year. During our review, we found that MetLife reconciled the
        actual and estimated costs for contract year 2011 on January 12, 2012, but it did not
        return $931,903 in excess funds to the FEGLI Program.

        MetLife stated that the funds weren’t credited back to the LOCA due to an oversight.
        Additionally, during our review we found that MetLife did not have written policies
        and procedures in place to provide guidance and assurance that year-end reconciliations
        would be completed and that excess funds would be credited to the LOCA.

        MetLife agreed with this finding and credited $931,903 to the LOCA on October 4,
        2013. Additionally, MetLife updated its LOCA policies and procedures on October 2,
        2013 to include a fiscal year-end reconciliation process for administrative expenses that
        credits the FEGLI Program for any excess funds remaining at the end of each contract
        year. We reviewed the updated policies and procedures and consider them sufficient to
        help MetLife meet its responsibility to return excess funds at the end of the year.

        As a result of MetLife not returning the excess funds it identified after completing a
        year-end reconciliation, the FEGLI Program was overcharged $931,903 in contract year
        2011.




                                               7
   Recommendation 1

   We recommend that the contracting officer verify that the $931,903 credit to the LOCA
   was returned to the FEGLI Program.

   Recommendation 2

   We recommend that the contracting officer ensure that MetLife follows its newly
   implemented LOCA policies and procedures for year-end reconciliations and return any
   excess funds to the LOCA in a timely manner.

   MetLife’s Comments:

   “MetLife agrees with these recommendations… and will work with the Contracting
   Officer as appropriate to ensure the recommendations are implemented.”

2. Incorrect Expense Allocation Rate                                              $144,667

   MetLife used an incorrect allocation rate to charge indirect administrative expenses to
   the FEGLI Program in contract year 2009, resulting in a $144,667 overcharge.

   MetLife’s internal policies and procedures for coding invoices in its cost accounting
   system that are chargeable to the FEGLI Program states that indirect expenses for
   corporate overhead will be based on a 1.01 percent allocation rate.

   To help gain an understanding of how MetLife charged indirect administrative
   expenses to the FEGLI Program, we issued a questionnaire requesting its policies and
   procedures for coding invoices. After issuing the questionnaire, MetLife notified us
   that it identified an error with the 2009 expense allocation rate and issued a memo to
   OPM on June 25, 2013, seven days after our audit notification letter.

   Specifically, MetLife used an allocation rate of 1.1 percent to charge its corporate
   overhead to the FEGLI Program, instead of the 1.01 percent required by its internal
   policies and procedures. We reviewed the memo and verified the calculations for the
   overcharge. MetLife agreed with the finding and credited the amount to the LOCA on
   July 1, 2013.

   As a result of the incorrect expense allocation rate, the FEGLI Program was
   overcharged $144,667 in 2009.

   Recommendation 3

   We recommend that the contracting officer verify that the $144,667 credit to the LOCA
   was returned to the FEGLI Program.




                                          8
   Recommendation 4

   We recommend that the contracting officer require MetLife to perform an annual
   review of its expense allocation rate to ensure that it charges the FEGLI Program no
   more than the allocation rate allowed by its internal policies and procedures.

   MetLife’s Comments:

   “MetLife agrees with these recommendations… and will work with the Contracting
   Officer as appropriate to ensure the recommendations are implemented.”

3. Indirect Costs Exceeded 20 Percent Limit                                          $90,000

   MetLife exceeded the limit for indirect costs by $90,000 in contract year 2012.

   48 CFR 2152.231-70(b)(2)(ii)(B) under the LIFAR states that each year an
   administrative expense ceiling is calculated and actual expenses are reimbursed up to
   that amount. It also states, “Within the administrative expense ceiling is a separately
   negotiated limit for indirect costs that may be charged against the ceiling for the
   contract year.”

   MetLife’s 2012 audited financial statements for FEGLI operations list a negotiated
   limit of 20 percent for indirect costs.

   We reviewed the 2012 financial statements and recalculated the administrative expense
   ceiling and limit for indirect costs to determine if MetLife charged the appropriate
   amounts to the FEGLI Program. Our review showed an allowable administrative
   expense ceiling of $10,098,418, of which $2,019,684 may be indirect costs (20 percent
   of the base). We found that MetLife charged the FEGLI Program $2,109,684 for
   indirect administrative expenses in 2012, which is $90,000 over the $2,019,684 limit
   negotiated between MetLife and OPM.

   MetLife stated that this error was due to not adding $90,000 to its unreimbursable
   indirect administrative expense account. MetLife agreed with this finding and credited
   $90,000 to the LOCA on November 22, 2013.

   As a result of exceeding the limit for indirect costs, the FEGLI Program was
   overcharged $90,000 for indirect administrative expenses in contract year 2012.

   Recommendation 5

   We recommend that the contracting officer verify that the $90,000 credit to the LOCA
   was returned to the FEGLI Program.




                                          9
        Recommendation 6

        We recommend that the contracting officer require MetLife to perform an annual
        review of its indirect administrative expenses charged to the FEGLI Program to ensure
        that the total amount does not exceed the limit for indirect costs.

        MetLife’s Comments:

        “MetLife agrees with these recommendations… and will work with the Contracting
        Officer as appropriate to ensure these recommendations are implemented.”

C.   CASH MANAGEMENT REVIEW

     The results of our review showed that MetLife had sufficient policies and procedures in
     place to ensure that FEGLI funds were accurately withdrawn from the LOCA, kept
     separate from MetLife’s other lines of business, and properly accounted for under
     MetLife’s capital reserve requirements.

D.   COMPLIANCE REVIEW

     The results of our review showed that MetLife has complied with its contract provisions
     and applicable federal regulations related to fraud and abuse, internal controls, quality
     assurance, subcontracts, and travel expenses, except as noted in the program improvement
     area at the end of this report.

E.   LOST INVESTMENT INCOME ON FINDINGS

     1. Lost Investment Income                                                           $43,723

        The FEGLI Program is due $43,723 for Lost Investment Income (LII) related to the
        $1,166,570 in questioned costs as a result of the audit findings.

        48 CFR 2152.210-70(d)(1) states, “Investment income lost as a result of unallowable,
        unallocable, or unreasonable charges against the contract shall be paid from the 1st day
        of the contract term following the contract term in which the unallowable charge was
        made and shall end on the…date the amounts are returned to OPM.”

        Additionally, 48 CFR 2151.210-70(d)(2) states, “Investment income lost by the
        Contractor as a result of failure to credit income due under the contract…must be paid
        from the date…appropriate income was not credited and will end on the…date the
        amounts are returned to OPM.”

        Finally, 48 CFR 2151.210-70(d)(3) states, “The Contractor shall credit to the FEGLI
        Program income that is due in accordance with this clause. All amounts payable shall
        bear lost investment income compounded semiannually at the rate established by the



                                              10
        Secretary of the Treasury as provided in section 12 of the Contract Disputes Act of
        1978 (Pub. L. 95-563), during the periods specified in paragraphs (d)(1) and (d)(2).”

        We computed the LII using the rates specified by the Secretary of Treasury and
        determined that the FEGLI Program is due $43,723 for LII related to $1,166,570 in
        questioned costs resulting from our audit findings. MetLife agreed with our calculation
        and credited the amount back to the LOCA on January 7, 2014.

        Recommendation 7

        We recommend that the contracting officer ensure that the $43,723 credit to the LOCA
        by MetLife on January 7, 2014 is returned to the FEGLI Program as credit for LII on
        audit findings.

        MetLife’s Comments:

        The draft report did not include LII on audit findings. Therefore, MetLife did not
        address this finding in their response to the draft report.

F.   PROGRAM IMPROVEMENT AREA

     The area included in this section of the report, while not a violation of the FEGLI
     contract and applicable federal regulations, was, in our opinion, a reportable
     program weakness that is in need of corrective action. Consequently, we are
     including it in this final report in order to assist MetLife in improving is
     administration of the FEGLI Program.

     1. Accounting for Travel Expenses                                              Procedural

        MetLife does not have accounting procedures in place to ensure that travel expenses for
        lodging, meals, and incidentals charged to the FEGLI Program are reasonable and
        allowable.

        48 CFR 31.205-46(a)(2) states that “costs incurred for lodging, meals, and incidental
        expenses…shall be considered to be reasonable and allowable only to the extent that
        they do not exceed on a daily basis the maximum per diem rates in effect at the time of
        travel as set forth in the (i) Federal Travel Regulations, prescribed by the General
        Services Administration, for travel in the contiguous United States ….”

        We reviewed the travel expenses charged to the FEGLI Program to determine if the
        costs were reasonable and allowable. During our review, MetLife stated that it follows
        its corporate travel policies and procedures for expensing the cost of lodging, meals,
        and incidentals to the FEGLI Program. We asked for a copy of MetLife’s corporate
        travel policy and found that lodging is booked through a travel agency at a discounted
        corporate rate, and meals and incidentals are reimbursed to employees up to three
        different amounts ($60/$80/$118) depending on the travel location.


                                              11
We found that MetLife’s corporate rates for lodging, and its meal and incidental limits,
exceed the allowable rates set by the General Services Administration (GSA).
Additionally, MetLife’s corporate travel policy does not specify any limitations for
travel related to government contracts, and it does not compare or adjust its travel
expenses that are charged to the FEGLI Program to ensure that the amounts don’t
exceed the allowable GSA per diem rates.

While our review of the travel costs charged to the FEGLI Program during the scope of
our audit did not disclose any instances where the GSA per diem rates were exceeded,
MetLife’s corporate travel policy allows charges that exceed the maximum per diem
rates set by GSA and creates the risk of unreasonable or unallowable travel expenses
being charged to the FEGLI Program.

Recommendation 8

We recommend that the contracting officer direct MetLife to implement accounting
procedures to ensure that all expenses charged to the FEGLI Program are reasonable
and allowable in accordance with 48 CFR 31.2 and the Federal Travel Regulations.

MetLife’s Comments:

“MetLife agrees with this recommendation…and will work with the Contracting
Officer as appropriate and ensure that the recommendation is implemented.”




                                      12
             IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

                   , Auditor-In-Charge

                  , Auditor

                , Auditor



                 , Group Chief

               Senior Team Leader




                                         13
                                                                                                     SCHEDULE A
                    AUDIT OF THE FEDERAL EMPLOYEES' GROUP LIFE INSURANCE PROGRAM
                     AS ADMINISTERED BY THE METROPOLITAN LIFE INSURANCE COMPANY
                                 FOR CONTRACT YEARS 2009 THROUGH 2012

                                     REPORT NUMBER 2A-II-00-13-065
                                   SCHEDULE OF CONTRACT CHARGES

     CONTRACT CHARGES               2009             2010             2011             2012           TOTAL

1. CLAIMS CHARGES              $2,456,568,425   $2,595,623,048   $2,610,731,261   $2,683,757,103   $10,346,679,837

2. EXPENSES                     $11,756,582      $12,540,141      $10,525,252      $12,069,896      $46,891,871

3. PROFIT                        $949,998         $950,000         $965,000         $985,000         $3,849,998

TOTAL CONTRACT CHARGES         $2,469,275,005   $2,609,113,189   $2,622,221,513   $2,696,811,999   $10,397,421,706
                                                                                                       SCHEDULE B
                                 AUDIT OF THE FEDERAL EMPLOYEES' GROUP LIFE INSURANCE PROGRAM
                                  AS ADMINISTERED BY THE METROPOLITAN LIFE INSURANCE COMPANY
                                              FOR CONTRACT YEARS 2009 THROUGH 2012

                                                      REPORT NUMBER 2A-II-00-13-065
                                                     SCHEDULE OF QUESTIONED COSTS

             QUESTIONED COSTS                           2009          2010            2011    2012      TOTAL

A) ADMINISTRATIVE EXPENSES
 1) Excess Funds Not Returned to the FEGLI Program                                $931,903             $931,903
 2) Incorrect Expense Allocation Rate                 $144,667                                         $144,667
 3) Indirect Costs Exceeded 20 Percent Limit                                                 $90,000   $90,000

TOTAL QUESTIONED COSTS                                $144,667         $0         $931,903   $90,000   $1,166,570
                                                                                                                                             SCHEDULE C
                                                 AUDIT OF THE FEDERAL EMPLOYEES' GROUP LIFE INSURANCE PROGRAM
                                                  AS ADMINISTERED BY THE METROPOLITAN LIFE INSURANCE COMPANY
                                                              FOR CONTRACT YEARS 2009 THROUGH 2012

                                                                   REPORT NUMBER 2A-II-00-13-065
                                                              LOST INVESTMENT INCOME CALCULATION

                      FINDING                         QUESTIONED COST
2011 Excess Funds Not Returned to the FEGLI Program        $931,903
                                                              LOST INVESTMENT INCOME CALCULATION
                                                       Beginning Principal                               Calendar Days                     Ending Principal
        Start Date                   End Date               Balance        Treasury Rate Calendar Days     per Year      Interest Amount       Balance
        1/15/2012                    6/30/2012             931,903.00         2.000%          168             366            8,555.18        940,458.18
         7/1/2012                   12/31/2012             940,458.18         1.750%          184             366            8,273.98        948,732.15
         1/1/2013                   6/30/2013              948,732.15         1.375%          181             365            6,468.92        955,201.08
         7/1/2013                   10/4/2013              955,201.08         1.750%           96             365            4,396.54        959,597.62

                      FINDING                         QUESTIONED COST
2009 Incorrect Expense Allocation Rate                     $144,667
                                                              LOST INVESTMENT INCOME CALCULATION
                                                       Beginning Principal                               Calendar Days                     Ending Principal
        Start Date                   End Date               Balance        Treasury Rate Calendar Days     per Year      Interest Amount       Balance
        10/1/2009                   12/31/2009             144,667.00         4.875%           92             365            1,777.62        146,444.62
         1/1/2010                    6/30/2010             146,444.62         3.250%          181             365            2,360.17        148,804.79
         7/1/2010                   12/31/2010             148,804.79         3.125%          184             365            2,344.18        151,148.97
         1/1/2011                    6/30/2011             151,148.97         2.625%          181             365            1,967.52        153,116.50
         7/1/2011                   12/31/2011             153,116.50         2.500%          184             365            1,929.69        155,046.18
         1/1/2012                    6/30/2012             155,046.18         2.000%          182             366            1,541.99        156,588.17
         7/1/2012                   12/31/2012             156,588.17         1.750%          184             366            1,377.63        157,965.81
         1/1/2013                   6/30/2013              157,965.81         1.375%          181             365            1,077.09        159,042.90
         7/1/2013                    7/1/2013              159,042.90         1.750%           1              365              7.63          159,050.52

                      FINDING                         QUESTIONED COST
2012 Indirect Costs Exceeded 20 Percent Limit               $90,000
                                                               LOST INVESTMENT INCOME CALCULATION
                                                       Beginning Principal                               Calendar Days                     Ending Principal
        Start Date                   End Date                Balance       Treasury Rate Calendar Days     per Year      Interest Amount       Balance
        10/1/2012                   12/31/2012              90,000.00         1.750%          92              366             395.90          90,395.90
         1/1/2013                    6/30/2013              90,395.90         1.375%          181             365             616.36          91,012.27
         7/1/2013                   11/22/2013              91,012.27         1.750%          145             365             632.72          91,644.99

                                                      LOST INVESTMENT
                      FINDING                             INCOME
2011 Excess Funds Not Returned to the FEGLI Program        $27,694.62
2009 Incorrect Expense Allocation Rate                     $14,383.52
2012 Indirect Costs Exceeded 20 Percent Limit               $1,644.99
TOTAL (ROUNDED)                                              $43,723
                                                                             Appendix
Metropolitan Life Insurance Company
U.S. Government Customer Unit
National Accounts
501 US Highway 22, PO Box 6891
                                                                               tLife
Bridgewater, NJ 08807-0891

                                                                 --------------------
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March 3, 2014


--------------------------------------
Group Chief
Special Audits Group
US Office of Personnel Management
Office of the Inspector General
1900 E. Street NW, Room 6400
Washington, DC 20415


Re: FEGLI Draft audit Report No. 2A-II-13-065


Dear -----------------:

As you requested, below please find MetLife's comments and action plan in
response to the recommendations contained in the FEGLI draft audit report dated
February 6, 2014.

          2011 Excess Funds Not Returned to the FEGLI Program

     MetLife agrees with these recommendations (i.e., recommendation #1 and
     recommendation #2) and will work with the Contracting Officer as appropriate to
     ensure the recommendations are implemented.

          Incorrect Expense Allocation Rate in 2009

     MetLife agrees with these recommendations (i.e., recommendation #3 and
     recommendation #4) and will work with the Contracting Officer as appropriate to
     ensure the recommendations are implemented.
       2012 Indirect Costs Exceeded 20 percent Limit

   MetLife agrees with these recommendations (i.e., recommendation #5 and
   recommendation #6) and will work with the Contracting Officer as appropriate to
   ensure these recommendations are implemented.
          Accounting for Travel Expenses

   MetLife agrees with this recommendation (i.e., recommendation #7) and will
   work with the Contracting Officer as appropriate and ensure that the
   recommendation is implemented.


We appreciate the work of you and your team on the audit. Please do not hesitate
to contact me if you have any questions.


Very truly yours,




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