u.s. OFFICE OF PERSONNEL MANAGEMENT
OFFICE OF THE INSPECTOR GENERA L
OFFICE OF AUDITS
Final Audit Report
Subject :
AUDIT OF
THE U.S. OFFICE OF PERSONNEL MANAGEMENT'S
FISCAL YEAR 2012 IMPROPER PAYMENT S
REPORTING FOR COMPLIANCE WITH THE
IMPROPER PAYMENT S ELIMINATION AND
RECOVERY ACT OF 2010
Report No. 4A-CF-OO-13-0I6
Date: March 11, 2013 _
--CAUTION--
Thi. ~udit r..port h ,... bfoen di ,tribul..d to F ..d enl offici~I. w ho are nspo n sih l.. for Ihe administration oftb.. audited program. Thi. audit
re port IDa} " co n la in proprieta !1""d a ta wh ic h i . p r ot ect..d b~· F..d..ra llaw (18 I:.S.C. 190 5). Tbu ..fore, w hi!.. lhi. a udit report i . a, "ailab l..
un d e r th e Fr....d om of Information Act and mad .. ",":lila b l.. to th.. pub lic on th e O IG w..b pa g.., n o ti on oeHl., to b e nerci'ed bfofo r..
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AUDIT REPORT
AUDIT OF THE U.S. OFFICE OF PERSONNEL MANAGEMENT’S
FISCAL YEAR 2012 IMPROPER PAYMENTS REPORTING FOR
COMPLIANCE WITH THE IMPROPER PAYMENTS ELIMINATION
AND RECOVERY ACT OF 2010
Report No. 4A-CF-00-13-016 March 11, 2013
Date: ____________________
________________________
Michael R. Esser
Assistant Inspector General
for Audits
EXECUTIVE SUMMARY
AUDIT OF THE U.S. OFFICE OF PERSONNEL MANAGEMENT’S
FISCAL YEAR 2012 IMPROPER PAYMENTS REPORTING FOR
COMPLIANCE WITH THE IMPROPER PAYMENTS ELIMINATION
AND RECOVERY ACT OF 2010
Report No. 4A-CF-00-13-016 March 11, 2013
Date: ___________________
The Office of the Inspector General has completed a performance audit of the Office of
Personnel Management’s (OPM) Fiscal Year (FY) 2012 Improper Payments Reporting for
Compliance with the Improper Payments Elimination and Recovery Act of 2010 (IPERA). Our
primary objective was to determine if OPM’s improper payment reporting in the Agency
Financial Report (AFR) was compliant with the requirements of IPERA. In order to make this
determination, our audit included the following specific objectives:
1. Determine if OPM conducted specific risk assessments of all programs and activities to
identify those that are susceptible to significant improper payments;
2. Determine if OPM reported improper payment estimates of risk susceptible programs in
the AFR and verified accuracy and completeness of the reported amounts;
3. Determine if OPM included a discussion of improper payment estimates and
methodologies in the AFR;
4. Determine if the AFR discussed corrective action plans for reducing improper payments
where estimates exceed $10 million;
5. Determine if OPM documented improper payment reduction targets and timeframes for
reaching them;
6. Determine if OPM reported on its efforts to recapture improper payments; and,
7. Evaluate OPM’s controls over improper payments reporting in the AFR.
Our audit revealed that OPM’s reporting of improper payments is in compliance with IPERA;
however, it can improve the discussion of its efforts to recapture improper payments by
including an in-depth description of all the methods used to recapture overpayments.
i
A draft report was issued on February 4, 2013 to the OCFO for review and comment. The
comments in response to the draft were considered in preparing this final report and are included
as an Appendix. OPM concurred with our recommendation and will implement corrective
action.
The recommendations from our previous audit of the U.S. OPM FY 2011 Improper Payments
Reporting for Compliance with the IPERA (Report 4A-RI-00-12-009, dated March 14, 2012)
have been satisfactorily resolved, except for the development of documented internal controls
over the reporting of improper payments.
ii
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY ………………......................................... i
I. INTRODUCTION AND BACKGROUND ....................................... 1
II. OBJECTIVE, SCOPE, AND METHODOLOGY .......................... 3
III. AUDIT FINDINGS AND RECOMMENDATIONS ......................... 5
IV. MAJOR CONTRIBUTORS TO THIS REPORT…………………… 7
APPENDIX
OPM’s Consolidated Response, dated February 13, 2013
I. INTRODUCTION AND BACKGROUND
Introduction
This final audit report details the findings, conclusions, and recommendations resulting from our
performance audit of the U.S. Office of Personnel Management’s (OPM) Fiscal Year (FY) 2012
Improper Payments Reporting for compliance with the Improper Payments Elimination and
Recovery Act of 2010 (IPERA). The audit was performed by OPM’s Office of the Inspector
General (OIG), as authorized by the Inspector General act of 1978, as amended.
Background
On July 22, 2010, the President signed into law IPERA, which amends the Improper Payments
Information Act of 2002, to prevent the loss of billions of taxpayer dollars. Implementing
guidance for IPERA was issued by the Office of Management and Budget (OMB) via
Memorandum M-11-16 on April 14, 2011. Under the guidance, a program is deemed
susceptible to significant improper payments if the total amount of overpayments plus
underpayments in the program exceeds both 2.5 percent of program outlays and $10,000,000
of all program or activity payments made during the fiscal year reported, or $100,000,000
regardless of improper payment percentage of total program outlays.
Each agency Inspector General is required to review improper payments reporting in the Agency
Financial Report (AFR) to determine compliance with IPERA. The Inspector General should
submit a report of its findings within 120 days of the agency publication of the AFR.
Under IPERA, agencies must do the following with respect to improper payments reporting:
• publish an AFR for the most recent fiscal year and post it on the agency website;
• conduct a program-specific risk assessment for each program or activity that conforms
with Section 3321 of Title 31 U.S.C.;
• publish improper payment estimates for all programs and activities identified as
susceptible to significant improper payments under its risk assessment;
• publish programmatic corrective action plans in the AFR;
• publish and meet annual reduction targets for each program assessed to be at risk and
measured for improper payments;
• report a gross improper payment rate of less than 10 percent for each program and
activity for which an improper payment estimate was obtained and published in the AFR;
and,
• report information on its efforts to recapture improper payments.
If an agency does not meet one or more of these requirements, it is not compliant with IPERA.
Two of OPM’s earned benefit programs, the Retirement Program and the Federal Employees
Health Benefits Program, are by definition susceptible to significant improper payments. OPM
1
has also designated payments to contractors under the Background Investigations Program
administered by the Federal Investigative Services as well as benefits paid under its Federal
Employees’ Group Life Insurance Program as susceptible to improper payments. OPM’s
reported improper payments for FY 2012 are summarized in the following table.
FY 2012 Improper Payments Summary 1
Gross Improper
Total Outlays Overpayments Underpayments 2012 Improper
Payments
($ millions) ($ millions) ($ millions) Payment %
($ millions)
Retirement 73,519.4 265.8 208.7 57.1 0.36%
Health Benefits 42,558.5 213.0 212.8 0.2 0.50%
Life Insurance 2,670.6 2.3 1.3 0.9 0.08%
Background
635.4 3.1 3.0 0.1 0.50%
Investigations
The recommendations from our previous audit of the U.S. OPM FY 2011 Improper Payments
Reporting for Compliance with the IPERA (Report 4A-RI-00-12-009, dated March 14, 2012)
have been satisfactorily resolved, except for the development of documented internal controls
over the reporting of improper payments.
The preliminary results of our audit were discussed with the Office of the Chief Financial Officer
(OCFO), Retirement Services, Healthcare and Insurance, and Federal Investigative Services
officials at an exit conference. A draft report was issued on February 4, 2013 to the OCFO for
review and comment. The comments in response to the draft were considered in preparing the
final report and are included as an Appendix. OPM concurred with our recommendation and
will implement corrective action.
1
Data collected from Table 12 “Improper Payment Reduction Outlook” on page 130 of OPM’s FY 2012 AFR.
2
II. OBJECTIVE, SCOPE, AND METHODOLOGY
Objective
The objective of our audit was to determine if OPM’s improper payments reporting in the AFR
was compliant with IPERA requirements. Specifically, we:
1. Determined if OPM conducted specific risk assessments of all programs and activities to
identify those that are susceptible to significant improper payments;
2. Determined if OPM reported improper payment estimates of risk susceptible programs in
the AFR and verified accuracy and completeness of the reported amounts;
3. Determined if OPM included a discussion of improper payment estimates and
methodologies in the AFR;
4. Determined if the AFR discussed corrective action plans for reducing improper payments
where estimates exceed $10 million;
5. Determined if OPM documented improper payment reduction targets and timeframes for
reaching them;
6. Determined if OPM reported on its efforts to recapture improper payments; and
7. Evaluated OPM’s controls over improper payments reporting in the AFR.
The recommendation included in this final report addresses these objectives.
Scope and Methodology
We conducted this performance audit in accordance with generally accepted government
auditing standards as established by the Comptroller General of the United States. Those
standards required that we plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on our audit objectives. We
believe that the evidence obtained provides a reasonable basis for our finding and conclusions
based on our audit objectives.
The scope of our audit covered OPM’s FY 2012 improper payments reported in the AFR.
We performed our audit fieldwork from November 6, 2012 through January 24, 2013 at OPM
headquarters, located in Washington, D.C.
To accomplish the audit objectives noted above, we:
• Reviewed the improper payments section of OPM’s FY 2012 AFR to assess compliance
with IPERA;
• Reviewed prior year audit findings and obtained the status of corrective actions;
• Reviewed applicable Federal laws;
• Reviewed applicable OMB guidance;
3
• Verified source documentation for all numerical data on improper payments as
documented in the AFR tables;
• Verified source documentation for numerical amounts stated in the narrative discussion
on improper payments made in the AFR; and,
• Interviewed program representatives from the Chief Financial Officer, Healthcare and
Insurance, Retirement Services, and Federal Investigative Services offices.
In planning our work and gaining an understanding of the internal controls over OPM’s improper
payments reporting process, we considered, but did not rely on, OPM’s internal control structure
to the extent necessary to develop our audit procedures. These procedures were mainly
substantive in nature, although we did gain an understanding of management procedures and
controls to the extent necessary to achieve our audit objectives. The purpose of our audit was not
to provide an opinion on internal controls but merely to evaluate controls over improper
payments reporting. We determined that OPM is in compliance with IPERA improper payments
reporting. We identified one area of improvement related to OPM’s discussion of recaptured
improper payments as detailed in the “Audit Findings and Recommendations” section of this
report.
We did not sample improper payments for testing and did not evaluate the effectiveness of the
general and application controls over computer processed data.
4
III. AUDIT FINDINGS AND RECOMMENDATIONS
1. Improvements Needed in OPM’s Reporting of Efforts to Recapture Improper
Payments
OPM’s discussion of its efforts to recapture improper payments lacks an in depth
description of all the methods used to recapture overpayments. Specifically,
• The AFR’s discussion of the methods used by Retirement Services and the Chief
Financial Officer did not include the efforts made to recapture overpayments
made to deceased annuitants through the reclamation process with the Department
of the Treasury.
• The AFR’s discussion for Health Insurance, Life Insurance, and Background
Investigations did not include the methods used by these programs to recapture
the reported overpayments.
OMB Circular A-136 states that agencies must report annually on their payment
recapture audit program in their AFRs. OMB Memorandum M-11-16 states that the
report shall include a “general description and evaluation of the steps taken to carry out a
payment recapture audit program, including a discussion of the methods used by the
agency to identify and recapture overpayments.”
Without a complete description of the efforts to recapture overpayments, OPM’s
reporting on improper payments does not fully meet the reporting requirements.
Recommendation 1
We recommend that OPM’s reporting in the AFR on its efforts to recapture improper
payments include a description of all the methods used to recapture overpayments.
OPM’s Response:
Management concurs with the recommendation.
“…OPM notes that its payment recapture reporting for FY 2012 provided more detail
than in prior years in accordance with the OMB guidance and was in compliance with
IPERA as reported by OIG. Additionally, methods to identify improper payments for
each program (including overpayments) were contained in the Statistical Sampling and
Other Methodology Section of our FY 2012 AFR reporting. Nevertheless, as
recommended by OIG, OPM will provide additional details for payment recapture
methods to deceased annuitants in its FY 2013 reporting for the Retirement and [Federal
Employees Health Benefits] FEHB programs. OPM notes that it is seeking authority
from OMB to no longer report annually for the [Federal Employees Group Life
Insurance] FEGLI and [Background Investigations] BI programs as estimated improper
5
payments for those programs are under the OMB reporting thresholds. Therefore, OPM
expects not to be required to include details on improper payments for those two
programs in the FY 2013 AFR.
OPM expects to complete the corrective actions for this recommendation by
November 15, 2013 which is the required date for OPM to complete its FY 2013 AFR.”
OIG Comment:
We have reviewed OPM’s request to seek authority from OMB to no longer report
annually for the FEGLI and BI programs and agree that these programs are under the
reporting thresholds. If OMB approves OPM’s request, we will consider this
recommendation closed, only as it relates to the FEGLI and BI programs.
6
APPENDIX
•
UNITED STATESOFFICE OF PERSONNELMANAGEMENT
m'j'3Zo'13
""d.........
0 ....
MEMORANDUMFOR.: MICHAELESSER
Assistant Inspector Gentnl for Audits
KENNEl1IZAWOON,J~~).d/
1
Associate Dircc:tor
Rotb.. _ fEB I 2 11113
MERTON~::J><~~-&~t..
As3odato Di.roctor
Feden1lnvestiptiw Services
SlJRJRC'T 010 DRAFT AUDIT REPORT
Audh ofthe U.s. Office ofPcnonnclManagement's FY2012Improper
Payments Repor1ing for Comp1.iaDcc with the Improper Payments ElimineOOn and
R=vety Actof2010 (IPERA) Audit Report Number· 4A-CP-oo-IH1I6, dated
P_4.20IJ
Thank you for tbcopportunity to respond to yourrcviewofOPM's reporting on tmpoper
plymentS UDder IPERA. Redudng imJrOPCl payments Is aD tmpcmnt priority b!be
Adm1nlstralicn and OPMis fiImJycommlttcd10thli priority. We are pleased that 010 bas
found OPM u oompli.u with IPBRA ~ ODour Py 2012 AScncy FiDanclal Report (AFR).
OPM hu an effective Improperpaymenu program and hal Itrived to makeimprovements in
reducing its reported improper payments. Over the put year. we have formed au Impmper
Payments Worldna Group (IPWG)1hat includesall rujar OPM ozpnizatiODS involved in our
improper payment efforts. The lPWa is Ihe focal point for coordinating improvcmc:uta In our
........ and for ensuring thot ow- _rtlngl......... and In c:ompllan"" with IPERA ond
"'OCi_ Ofli"" ofMonogemeot and Budget 10MB)guidance, Porewnplc,1nreopo... to
yo.. prior·yeu""""""endari.., thelPWO ensured 1Iud OPM developed. oomJftb=lve
improper p.)'IDCI1tS plan thatsets goals to reduce impope:r pI)'!Denls and increue recoveries for
overpI.ymen1J. 010·, fnitial report on IPERA comp1iaDce wu. major fador in our
improvcmcnl efforts. rmd we look forward to worldng elosdy witb the 010 in Ihe com1ng yean
to t\l:rth=' Improve Cutimproper paymentlI program. We CODCUf with the one recommeDdal::lcm in
Iho draft: rcpm BDd will tBbapproprlatc corredive actioo as di!lCUSSCd bdow.
- ....
Recommendation I
We recommend that OPM's reporting in the APRon itsefforts 10 recapture improper payments
include a description of all themethods used to recapture overpayments.
The 010 draft report DOtes that OPM"s d..bcussioo aD recapture effort! docsnotinclude all the
infonnatioo required by the Office of Maaagc:mc:nt and Budget UDder ils Circular No. A-136.
FilWlCiai ReportiIlg RcquUemeulJ. SpcclJicallr. % notedtbot we did DOt incl ude _ to
rccapturo ov=peyments ofretimnenl beIlefits to deceased annuitants through thereclamation
pnx.as with Treasury and alsodid not lDcludc methods to Identify end rcc:ow:rOVC1p8ymeots for
the FcdetaI Employees Heoltb BCDCfits (FEIIB) _ the FcdetaI Employees' GroupUfe
[llSIU1U1CC (FEGU) programlID<! the Bactgroun<I_gatiocs (BI) progmm.
OPM DOles tbot lis peyme.. recaplme roporUna fOr FY2012 provlcIeeI mon: deIaiI I!mn in prior
years in aocordanoe with the OMB guidanoe Bnd was in compliance with IPERA as reported by
010. Addidonelly,methooIs to Ideutuyimp",per poymCl1lS ror eachprogmm (mduding
owzp&)'D1CDl8) were conbdned In the Statistical SampUng and Other Methodology Section of our
FY2012AFRrepordng. NevertheI.... as ~ by010, OPMwill provkle IliditIonaI
detalls for payment recapture metJxxb 10 deceased aonuitanls in ItsFY2013 reporting forthe
Retirement aDd FEHB prog:mmI . OPM DOles that It I. seeking authority from OMSto no longer
report onnuaIly furthe FBOU lID<! BI progmns as _eel improper p o _ fOr tbose
prognms "'" under the OMB "l""'inI thresholds. n.,.r.... OPM_ IlOt to be required
to include debIi1s on improper payments for those two prosrams Inthe py 2013 APR.
OPM expects to compktethe corrective actions fur thisrecommen<latIo. by November IS, 2013
wbicb is tbe"'IuUdcla!c fOrOPM to complete lisFY 2013 APR.
2
Audit of the U.S. Office of Personnel Management's Fiscal Year 2012 Improper Payments Reporting for Compliance with the Improper Payments Elimination and Recovery Act of 2010
Published by the Office of Personnel Management, Office of Inspector General on 2013-03-11.
Below is a raw (and likely hideous) rendition of the original report. (PDF)