oversight

Audit of the U.S. Office of Personnel Management's Fiscal Year 2013 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 2014-04-10.

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




Final Audit Report
Subject:


                      AUDIT OF 

   THE U.S. OFFICE OF PERSONNEL MANAGEMENT'S 

       FISCAL YEAR 2013 IMPROPER PAYMENTS 

      REPORTING FOR COMPLIANCE WITH THE 

      IMPROPER PAYMENTS ELIMINATION AND 

               RECOVERY ACT OF 2010 




                                             Report No. 4A-CF-00-14-009


                                             Date:          April 10, 2014




                                                              --CAUTION-­
T his audit r eport has been distr ibuted to Feder al officials who are r esponsible fot· t he administration of t he audited pt·ogr am . This audit
t·eport m ay contain pt·op.-ietat-y data which is protected b y Feder al law (18 U.S.C. 1905) . T het·efore, while this audit report is available
under the Fr eedom of l nf01·m ation Act and made available to the public on the OI G webpage, caution needs to be exercised before
t·eleasing the r ep 01·t to the general public as it m ay contain pt·oprietary information that was r edacted fr om the publicly distr ibuted copy.
                      AUDIT REPORT




 AUDIT OF THE U.S. OFFICE OF PERSONNEL MANAGEMENT’S
  FISCAL YEAR 2013 IMPROPER PAYMENTS REPORTING FOR
COMPLIANCE WITH THE IMPROPER PAYMENTS ELIMINATION
               AND RECOVERY ACT OF 2010




    Report No. 4A-CF-00-14-009          4/10/14
                                 Date: ____________________




                                       ________________________
                                       Michael R. Esser
                                       Assistant Inspector General
                                         for Audits
                                 EXECUTIVE SUMMARY



     AUDIT OF THE U.S. OFFICE OF PERSONNEL MANAGEMENT’S
      FISCAL YEAR 2013 IMPROPER PAYMENTS REPORTING FOR
    COMPLIANCE WITH THE IMPROPER PAYMENTS ELIMINATION
                   AND RECOVERY ACT OF 2010



              Report No. 4A-CF-00-14-009                 4/10/14
                                                  Date: ___________________


The Office of the Inspector General has completed a performance audit of the Office of
Personnel Management’s (OPM) Fiscal Year (FY) 2013 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 the 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 time frames 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, OPM can improve on its oversight controls over improper payments data reporting.




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A draft report was issued on March12, 2014 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 recommendation from our previous audit of the U.S. OPM FY 2012 Improper Payments
Reporting for Compliance with the IPERA (Report 4A-CF-00-13-016, dated March 11, 2013)
has been satisfactorily resolved.




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                                 TABLE OF CONTENTS

                                                                                       Page

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

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

 II.   OBJECTIVE, SCOPE, AND METHODOLOGY .......................................        3

III.   AUDIT FINDING AND RECOMMENDATION.. .....................................         5

       1. Weak Oversight Control Over Improper Payments Data Reporting

IV.    MAJOR CONTRIBUTORS TO THIS REPORT.........................................       6

       APPENDIX: OPM’s consolidated response, dated March 26, 2014
                    I. INTRODUCTION AND BACKGROUND

Introduction

This final 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) 2013
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 Civil Service Retirement and Disability Fund and
the Federal Employees Health Benefits Program, are by definition susceptible to significant
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improper payments. OPM’s reported improper payments for FY 2013 are summarized in the
following tables.

                                 FY 2013 Improper Payments Summary1

                                          Gross Improper
                        Total Outlays                         Overpayments    Underpayments     2011 Improper
                                             Payments
                         ($ millions)                          ($ millions)     ($ millions)     Payment %
                                            ($ millions)


      Retirement              76,485.9              278.3             217.5              60.8            0.36%


    Health Benefits           43,583.7              74.19             73.06              1.13            0.17%



                             FY 2013 Overpayments Recaptured Summary2
                       (As Reported)          (Correct)
                        IP Amount            IP Amount            (As Reported)              (Correct)
                       Identified for       Identified for      Amounts Recovered       Amounts Recovered in
                        Recovery in       Recovery in Prior       in Prior Years            Prior Years
                        Prior Years             Years               ($ millions)            ($ millions)
                        ($ millions)         ($ millions)

     Retirement                 1,471.1              1,471.7                  1,231.4                   1,213.4



The recommendation from our previous audit of OPM’s FY 2012 Improper Payments Reporting
for Compliance with the IPERA (Report 4A-CF-00-13-016, dated March 11, 2013) has been
satisfactorily resolved.

The preliminary results of our audit were discussed with the Office of the Chief Financial Officer
(OCFO), Retirement Services, and Healthcare and Insurance officials at an exit conference. A
draft report was issued on March 12, 2014 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 122 of OPM’s FY 2013 AFR.
2
    Data collected from Table 13 “Overpayments Recaptured Outside of Payment Recapture Audits” on page 122 of
    OPM’s FY 2013 AFR and correct amounts as discussed in the finding section of this report.

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                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:

      Determined if OPM conducted specific risk assessments of all programs and activities to
       identify those that are susceptible to significant improper payments;
      Determined if OPM reported improper payment estimates of risk susceptible programs in
       the AFR and verified accuracy and completeness of the reported amounts;
      Determined if OPM included a discussion of improper payment estimates and
       methodologies in the AFR;
      Determined if the AFR discussed corrective action plans for reducing improper payments
       where estimates exceed $10 million;
      Determined if OPM documented improper payment reduction targets and timeframes for
       reaching them;
      Determined if OPM reported on its efforts to recapture improper payments; and,
      Evaluated OPM’s controls over improper payments reporting in the AFR.

The recommendations included in this final report address 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 require 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 2013 improper payments reporting in the AFR.
We performed our audit fieldwork from December 30, 2013 through February 26, 2014 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 2013 AFR to assess compliance
       with IPERA;
      Reviewed prior year audit findings and obtained the status of corrective actions;



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      Reviewed applicable Federal laws;
      Reviewed applicable OMB guidance;
      Verified source documentation for all numerical data on improper payments as
       documented in the AFR tables;
      Verified source documentation for narrative discussion on improper payments made in
       the AFR; and,
      Interviewed program representatives from the Chief Financial Officer, Healthcare and
       Insurance, and Retirement Services.

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 the improper payments
reporting requirements. We identified one area of improvement related to OPM’s controls over
improper payments data reported in its FY 2013 AFR as detailed in the “Audit Finding 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 FINDING AND RECOMMENDATION
1. Weak Oversight Controls Over Improper Payments Data Reporting

   During our review of OPM’s Improper Payment Reporting, we identified several
   inaccuracies between what was reported in the AFR and the supporting documentation that
   we obtained from the program offices. Specifically, we found that:

      The FY 2012 IP amount was inaccurately reported as $212.8 million, when it should have
       been $213 million. Discussions with OPM determined that $0.2 million in
       underpayments to Experience Rated Carriers for FY 2012 was not reported.
      The amount identified by Retirement Services for recovery in prior years was understated
       by $0.6 million in the AFR Table 13, Overpayments Recaptured Outside of Payment
       Recapture Audits.
      The amounts recovered by Retirement Services in prior years was overstated by $18
       million in the AFR Table 13, Overpayments Recaptured Outside of Payment Recapture
       Audits.
      Retirement Services overstated the 2016 projected improper payments by $0.5 million in
       AFR Table 12, Improper Payment Reduction Outlook.

   The Government Accountability Office (GAO) Standard for Internal Control in the Federal
   Government, dated November 1999, states that “[c]ontrol activities are the policies,
   procedures, techniques, and mechanisms that enforce management’s directives… Control
   activities are an integral part of an entity’s planning, implementing, reviewing, and
   accountability for stewardship of government resources and achieving effective results.”

   Without proper controls over its improper payments reporting process, OPM may continue to
   report incomplete and inaccurate improper payments data in its AFR.

   Recommendation 1:

   We recommend that OPM strengthen its oversight controls over the improper payments data
   reported in the Agency Financial Report to ensure that it accurately reflects supporting data.

   Management’s Response:

   “OPM concurs with the recommendation and therefore will explore ways to improve its
   quality controls over the AFR reporting.

   OPM will update its work instruction, entitled Reporting Improper Payments for the Agency
   Financial Report, accordingly. OPM expects to complete the corrective action for this
   recommendation by June 30, 2014.”


                                                5
             IV. MAJOR CONTRIBUTORS TO THIS REPORT

Internal Audits Group




                               6

                                                                                                         APPENDIX 





                          UNITED STAT ES OFFICE OF PER SON N EL MANAG EMENT 

                                              Washington , DC 20415 


Chief f inancial 	                               MAR 2 6 2014
    Officer
   MEMORANDUM FOR: 	 MICHAEL ESSER
                     Assistant Inspector General for Audits




   FROM:

   DENNIS D. CO~~~,--/                                   KENNETII J. ZAWODNY JR. .               .rf)-/
   Chief Financial Officer                                                 /i(w-\~{;JJJJY·rJ
                                                         Ass_ociate Direct.or
                                                         Rettrement SeMces
                                                                                  MAR 2 6 2014
   JOHN O'BRIEN
   Associate Director
   Healthcare and lnsw.w11~


   SUBJECT 	         010 DRAFT AUDIT REPORT
                     Audit ofthe U.S. Office of Personnel Management's FY 2013 Improper Payments
                     Reporting for Compliance with the Improper Payments Elimination and Recovery Act of
                     2010 (IPERA) Audit Report Number- 4A-CF-00-14-009, dated March 12, 2014


  Thank you for the opportunity to respond to your review of OPM' s reporting on improper payments
  under IPERA. Reducing improper payments is an important priority for the Administration and OPM is
  finnly committed to this priority. We are pleased 010 has found OPM is compliant with IPERA based
  on our FY 2013 Agency Financial Report (AFR).

  OPM has an effective program in place to address improper payments and has strived to make further
  improvements to reduce our reported improper payments and to increase recoveries. The Improper
  Payments Working Group (IPWO) is the focal point for coorduiating improvements in our programs and
  for ensuring that our reporting is accurate and in compliance with IPERA and associated Office of
  Management and Budget (OMB) guidance. For example, in response to your prior-year
  recommendation, the IPWO ensured that OPM included an in-depth description of all methods used to
  rc<:apture overpayments in the annual AFR. We plan to take appropriate corrective actions for this year's
  recommendations as discussed below.

  Recommendation 1

  We recommend that OPM strengthen its oversight controls over the improper payments data reported in
  the AFR to ensure that it accurately reflects supporting data.



                 -
       www.opm.fPI                                                                         WWW.UJijobs.gov
Management Response to Recommendation 1

The OIG draft report identified several inaccuracies between what was reported in the FY 2013 APR
(Tables 12 and 13) and the supporting documentation received from the program offices. OPM notes
that it is imperative that the information reported in the APR is reflective of the information from the
supporting documentation. OPM concurs with this recommendation and therefore will explore ways to
improve its quality controls over the APR reporting.

OPM will update its work instruction, entitled Reporting Improper Payments for the Agency Financial
Report, accordingly. OPM expects to complete the corrective action for this recommendation by June
30,2014.




                                          Deleted By OIG 

                                     Not Relevant to Final Report 





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