oversight

Audit of the Federal Employees' Group Life Insurance Program as Administered by the Metropolitan Life Insurance Company for Fiscal Years 2013 and 2014

Published by the Office of Personnel Management, Office of Inspector General on 2016-08-10.

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’ Group Life Insurance Program
 as Administered by the Metropolitan Life Insurance Company
                for Fiscal Years 2013 and 2014
                                           Report Number 2A-II-00-16-016
                                                  August 10, 2016




                                                              -- 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’ Group Life Insurance Program as Administered
                           by the Metropolitan Life Insurance Company
Report No. 2A-II-00-16-016                                                                       August 10, 2016




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

The objective of the audit was to        The audit identified one finding where funds in excess of the
determine whether costs charged to the   indirect administrative expense cap were inadvertently retained by
Federal Employees’ Group Life            MetLife.
Insurance Program (FEGLI) and
services provided to FEGLI               Specifically, our review determined that MetLife did not return
subscribers were in accordance with      $72,000 to FEGLI in FY 2013, as a result of a manual
the terms of Contract Number 17000-      mathematical error it made in the calculation.
G and Federal regulations.

What Did We Audit?

The Office of the Inspector General
has completed a performance audit of
FEGLI as administered by the
Metropolitan Life Insurance Company
(MetLife) for fiscal years (FY) 2013
and 2014. The audit included reviews
of MetLife’s administrative expenses,
cash management, claim benefit
payments, and statutory compliance.
Our audit was conducted from
January 19 through January 21, 2016,
at MetLife’s offices in Bridgewater,
New Jersey and Oriskany, New York.
Additional audit work was completed
at our Washington, D.C. and
Cranberry Township, Pennsylvania
offices.




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

CFR        Code of Federal Regulations
Contract   Contract Number 17000-G
FAR        Federal Acquisition Regulation
FEGLI      Federal Employees’ Group Life Insurance Program
FY         Fiscal Year
LIFAR      Life Insurance Federal Acquisition Regulation
LOCA       Letter of Credit Account
METLIFE    Metropolitan Life Insurance Company
OFEGLI     MetLife’s Office of Federal Employees’ Group Life Insurance
OPM        U.S. Office of Personnel Management




                                ii
IV. MAJOR CONTRIBUTORS TO THIS REPORT
          TABLE OF CONTENTS


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

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


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


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

  III.   AUDIT FINDINGS AND RECOMMENDATIONS.................................................8

         A. ADMINISTRATIVE EXPENSE REVIEW ............................................................8
            1. Funds in Excess of Administrative Expense Cap Retained ..............................8

         B. CASH MANAGEMENT REVIEW ........................................................................9

         C. CLAIMS REVIEW..................................................................................................9

         D. STATUTORY COMPLIANCE REVIEW ..............................................................9

  IV.    MAJOR CONTRIBUTORS TO THIS REPORT ..................................................10

         APPENDIX (Metropolitan Life Insurance Company’s Draft Report Response, dated
         April 20, 2016)

         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’ Group Life Insurance
Program (FEGLI) as administered by the Metropolitan Life Insurance Company (MetLife) for
fiscal years (FY) 2013 and 2014. The audit was performed by the U.S. Office of Personnel
Management’s (OPM) Office of the Inspector General, as authorized by the Inspector General
Act of 1978, as amended.

FEGLI is authorized by Chapter 87 of Title 5, United States Code and was established on
August 29, 1954 through Contract Number 17000-G (Contract) between OPM and MetLife.

OPM has overall responsibility for administering the Contract. OPM’s responsibilities include:
   Receiving all payments from agencies to the Employees’ Life Insurance Fund;
   Depositing these payments in the Treasury of the United States;
   Authorizing payment of life insurance premiums from the Fund to MetLife’s Office of
     the Federal Employees’ Group Life Insurance (OFEGLI);
  	 Determining whether retiring employees and employees receiving workers’
     compensation benefits are eligible to continue life insurance coverage (For retirement
     systems other than the Civil Service Retirement System and the Federal Employees
     Retirement System, OPM bases its determination on certifications by the administrative
     office of the system involved);
   Publishing regulations, forms, and documents; 

   Providing guidance to employing offices; and 

   Administering the life insurance contract.


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.

OPM contracts with MetLife to provide life insurance coverage to Federal employees,
annuitants, and their family members. MetLife established the OFEGLI administrative unit to
carry out its responsibilities under the Contract. 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. 




                                               1	                  Report No. 2A-II-00-16-016
OFEGLI’s offices are located in Oriskany, New York. MetLife provides additional support
activities to OFEGLI through its offices located in Bridgewater, New Jersey.

Clause 2109.7001(i) of the Life Insurance Federal Acquisition Regulation (LIFAR) states that
MetLife must permit representatives of OPM to audit and examine records and accounts
pertaining to FEGLI at such reasonable times and places as may be designated by OPM.
Compliance with the laws and regulations applicable to FEGLI, including establishing and
maintaining a system of internal controls, is the responsibility of MetLife’s management.

Our previous audit of FEGLI’s operations as administered by MetLife (Report Number 2A-II-
00-13-065), dated July 9, 2014, covered FYs 2009 through 2012. The audit included reviews of
claims payments, fraud and abuse prevention and detection, administrative expenses, and cash
management activities. All findings and recommendations from that audit have been
satisfactorily resolved.

The initial results of our current audit were discussed with MetLife and OPM during an exit
conference on April 6, 2016. A draft report was provided to MetLife for review and comment on
the same date. MetLife’s response to the draft report was considered in preparation of this final
report and is included as an Appendix.




                                               2                    Report No. 2A-II-00-16-016
IV. OBJECTIVES,
II.  MAJOR CONTRIBUTORS
                SCOPE, ANDTO THIS REPORT
                          METHODOLOGY
 Objectives

 The main objective of the audit was to determine if the costs charged and services provided to
 FEGLI and its subscribers were in accordance with the terms of the Contract and applicable
 Federal regulations.

 Specifically, our audit objectives were:

    Administrative Expense Review
    	 To determine if the administrative expenses charged to FEGLI were actual, allocable,
       reasonable, and allowable in compliance with Subpart 31.2 of the Federal Acquisition
       Regulation (FAR), Part 2131 of the LIFAR, and clause 2152.231-70 of the LIFAR.
     To determine if the indirect cost centers charged to FEGLI were allocable and allowable
       in accordance with the terms of the Contract and applicable regulations.
     To determine if the administrative expenses recorded in MetLife’s general ledger and
       agreed-upon annual service charge amount with OPM reconcile to:
       o	 MetLife’s monthly Letter of Credit Account (LOCA);
       o	 Administrative cost (administrative expenses and service charge) drawdowns;
       o	 Administrative costs reported in FEGLI’s annual financial statements; and
       o	 MetLife’s annual administrative cost true-up credited to OPM through the LOCA.
    	 To determine if the executive compensation charged to FEGLI was in compliance with
       48 CFR 31.206-6(p).

    Cash Management Review
    	 To determine if MetLife held FEGLI funds on hand independent of its other investments
       and lines of business in compliance with applicable laws and regulations regarding non-
       commingling of funds.
    	 To reconcile the LOCA drawdowns and interest reported by MetLife to those recorded by
       OPM and note any material variances.
     To reconcile the LOCA drawdown against supporting documentation.
     To determine if MetLife is estimating, accounting, and reporting on FEGLI’s cash
       reserves in compliance with Federal and state regulations.




                                                 3	                  Report No. 2A-II-00-16-016
   Claims Review
   	 To determine if the amounts paid to beneficiaries were in compliance with the contractual
      provisions and regulatory requirements for accidental dismemberment benefits, including
      the insured’s Basic Insurance and Option A coverage levels.
   	 To determine if the amounts paid to beneficiaries were in compliance with the contractual
      provisions and regulatory requirements for living benefits, including the insured’s Basic
      Insurance coverage level.
   	 To determine if the amounts paid to beneficiaries were in compliance with the contractual
      provisions and regulatory requirements for death benefits, including the insured’s Basic
      Insurance, Option A, B, C, Accidental Death and Extra Benefit coverage levels.
   	 To determine if overpayment recoveries were credited to FEGLI in compliance with
      MetLife’s overpayment recovery policies and procedures, and if the overpayment process
      for each sample was initiated within the time frames set forth in the Contract.

   Statutory Compliance Review
    To determine if MetLife has policies and procedures in place to prevent, detect, and
      disclose fraud and abuse of FEGLI funds.
    To determine if MetLife implemented a system of internal controls in compliance with
      clause 48 CFR 2109.7001(h).
    To determine if MetLife implemented a quality assurance program in compliance with
      clause 48 CFR 2146.270.
    To determine if subcontracts entered into by MetLife on behalf of FEGLI were in
      compliance with 48 CFR 2152.244-70(a).
    To determine if MetLife’s corporate travel policies and procedures were in compliance
      with 48 CFR 31.205-46.

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, and statutory policies and procedures to ensure compliance with the Contract
and Federal regulations for FYs 2013 and 2014. The audit fieldwork was conducted at MetLife’s
offices in Oriskany, New York and Bridgewater, New Jersey, from January 19 through 21, 2016.
Additional audit work was completed at our Cranberry Township, Pennsylvania, and
Washington, D.C. offices.


                                               4	                   Report No. 2A-II-00-16-016
MetLife reported the following premium revenue, claims incurred, administrative expenses paid,
and profit received for FYs 2013 and 2014:


                         Revenues            Claims           Expenses             Profit

         2013         $2,827,794,450     $2,765,172,549      $11,667,584        $1,000,000

         2014         $2,892,116,431     $2,968,417,462      $11,009,188        $1,025,000

        Total         $5,719,910,881     $5,733,590,011      $22,676,772        $2,025,000


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. Additionally,
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 of accounting records and such other auditing procedures as we
considered necessary to determine compliance with the Contract and Federal regulations.
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 the audit, we relied to varying degrees on computer-generated data provided by
MetLife. 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 MetLife’s administration of FEGLI was in compliance with the terms of
the Contract and applicable regulations, we performed the following steps for FYs 2013 and
2014:

   Administrative Expense Review
   	 We reviewed a sample of 83 administrative expense transactions, totaling $137,555, out
      of a universe of  transactions (direct operational expenses only), totaling $         ,


                                                5	                   Report No. 2A-II-00-16-016
   to determine if the amounts were actual, allocable, reasonable, and allowable.
   Specifically, we randomly selected 34 expense transactions from each FY, totaling
   $92,840. Additionally, we judgmentally selected another 15 administrative expense
   transactions based on a nomenclature review, totaling $44,715.

	 We reviewed MetLife’s indirect cost centers to determine if the cost centers were
   allocable and allowable under Subpart 31.2 of the FAR, Part 2131 of the LIFAR, and
   clause 2152.231-70 of the LIFAR.

	 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 executive compensation expenses that were charged to FEGLI to verify 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 it held FEGLI funds on hand in investment
   accounts which are separately identifiable from its other lines of business.

	 We reconciled LOCA drawdowns and interest reported by MetLife to those recorded by
   OPM to determine if there were any variances.

	 We reviewed a judgmental sample of 39 LOCA drawdowns, totaling $517,633,690, from
   a universe of      drawdowns totaling $             , to verify that the amounts were
   accurate and properly supported. For each FY, we selected the two months with the
   largest individual amounts drawn down by MetLife. From those months, we selected all
   LOCA drawdowns from those weeks with the two largest individual drawdowns.

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

Claims Review
	 We randomly selected a sample of 10 accidental dismemberment claims (5 claims from
   each FY), totaling $354,500, out of a universe of     accidental dismemberment claims,
   totaling $          , to determine if the claims were accurately processed.

	 We reviewed a random sample of 60 living benefit claim lines (representing 30 distinct
   claims), totaling $1,920,117, out of a universe of     living benefit claim lines, totaling
   $            , to determine if the claims were accurately processed. Specifically, we



                                             6	                    Report No. 2A-II-00-16-016
       randomly selected 15 claim lines from each FY for review. We then pulled all other
       claim lines associated with the 30 claims selected for review, which resulted in 60 total
       claim lines being selected.

   	 We selected a sample of 82 death claim lines (representing 55 distinct claims), totaling
      $3,848,711, out of a universe of           death claim lines, totaling $               , to
      determine if the claims were accurately processed. Specifically, we randomly selected 25
      claims from each FY for review. Additionally, we judgmentally selected another five
      claims based on concerns identified during the offset removal process. We then pulled
      all other claim lines associated with the 55 claims selected for review, resulting in 82
      total claim lines being selected.

   	 We reviewed a sample of 20 claim overpayment recoveries, totaling $1,750,091, out of a
      universe of    claim overpayment recoveries, totaling $            , to verify that the
      amounts were properly credited back to FEGLI. Specifically, for each FY we
      judgmentally selected 10 claims with the largest total recoveries.

   Statutory Compliance Review
   	 We reviewed MetLife’s fraud and abuse policies and procedures to determine if they are
      sufficient to prevent, detect, and disclose fraud and abuse of FEGLI funds to OPM.

   	 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 for FYs 2013 and 2014 to determine if
      subcontractor expenses exceeded the reporting threshold of 48 CFR 2152.44-70(a).

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

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.




                                                7	                   Report No. 2A-II-00-16-016
  IV. AUDIT
III.   MAJORFINDINGS
             CONTRIBUTORS  TO THIS REPORT
                     AND RECOMMENDATIONS
A. ADMINISTRATIVE EXPENSE REVIEW

   1. Funds in Excess of Administrative Expense Cap Retained                                 $72,000

       MetLife did not return $72,000 to FEGLI that exceeded the indirect administrative expense
       cap in FY 2013.

                                  Section 3.15(b)(2)(ii)(B) of the Contract states that an
 $72,000 of funds in excess of
                                  administrative expense ceiling will be set each year for the
  the indirect administrative
                                  following contract year and that within the ceiling there will be a
     expense cap were not
                                  separate negotiated limit for indirect administrative expenses.
      returned to FEGLI.
                                   To determine if the expenses charged to FEGLI were within the
       administrative expense caps established by OPM, we reviewed the accuracy of MetLife’s
       FY-end reconciliations. Specifically, we verified the amounts drawn down for administrative
       expenses and the service charge to the actual expense incurred by MetLife. We then
       determined if the actual administrative expenses exceeded either the total administrative
       expense cap or the indirect administrative expense cap established by OPM.

       Our review found that in its reconciliation of FY 2013 administrative expenses, MetLife
       incorrectly calculated the amount it had to return to FEGLI, because of a manual
       mathematical error. In its calculation, MetLife correctly determined that it exceeded the
       indirect administrative expense cap by $80,050. However, in a handwritten calculation, it
       inadvertently returned $8,050 to FEGLI, and not $80,050. As a result of this manual error,
       FEGLI was overcharged $72,000.

       When we disclosed this finding to MetLife, it reviewed the data and agreed that the error was
       due to a manual mathematical error. MetLife then issued a $72,000 credit to FEGLI via a
       LOCA adjustment on January 19, 2016.




                                               8                        Report No. 2A-II-00-16-016
     Recommendation 1

     We recommend that the contracting officer confirm that MetLife credited FEGLI $72,000 for
     the error in its indirect administrative expense cap calculation for FY 2013.

     Recommendation 2

     We recommend that the contracting officer review and determine if MetLife’s revised fiscal
     year-end reconciliation process is adequate to ensure that potential human error is minimized
     when calculating the amounts due to or from FEGLI.

     MetLife Response:

     MetLife agrees with the recommendation and has updated its procedures for the fiscal
     year-end administrative expense reconciliation to include the use of a spreadsheet.
     MetLife has also added a second level of review to verify the accuracy of the calculations.

B. 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, were kept separate from
  MetLife’s other lines of business, and were accounted for properly.

C. 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.

D. STATUTORY COMPLIANCE REVIEW

  The results of our review showed that MetLife had sufficient policies and procedures in place for
  its fraud and abuse program, system of internal controls, quality assurance program, and the
  reporting of subcontracts in accordance with Federal regulations and the Contract.




                                                  9                   Report No. 2A-II-00-16-016
IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

                , Auditor-In-Charge

              , Auditor

              , Auditor




            , Group Chief,

                 , Senior Team Leader




                                        10   Report No. 2A-II-00-16-016
                                        APPENDIX

National Accounts
501 US Highway 22, PO Box 6891
Bridgewater, NJ 08807-0891



                                                                     Vice President
                                                                     Registered Representative


                                                                                 Fax
                                                                                @metlife.com


   April 20, 2016




                     

   Group Chief 

   Special Audits Group 

   U.S Office of Personnel Management
   1900 E Street, NW 

   Washington, DC 20415 



   Re: FEGLI Program Audit Report Number 2A-II-00-16-016

   Dear             :

   The following is MetLife’s response to the recommendation contained in the draft audit report
   dated April 6, 2016.

   MetLife is in agreement with the recommendation. MetLife has updated its procedures to use a
   spreadsheet to calculate the amount of the year end administrative expense reconciliation. In
   addition, a second associate will review and sign off on the accuracy of the calculation.

   If you have any questions, please let me know.

   Sincerely,




   cc:  




                                                                       Report No. 2A-II-00-16-016
                                                                                                                         



                                       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. 2A-II-00-16-016